Question

CASE Parts Emporium Parts Emporium, Inc., is a wholesale distributor of automobile parts formed is on hand, the firm's customer service is inadequate. Parts Emporium tries to by two disenchanted auto mechanics, Dan Block and Ed Spriggs. Originally backorder the customer orders not immediately filled from stock, but some 10 located in Block's garage, the firm showed slow but steady growth for percent of demand is being lost to competing distributorships. Because stock 7 years before it relocated to an old, abandoned meat-packing warehouse outs are costly, relative to inventory holding costs, McCaskey believes that a on Chicago's South Side. With increased space for inventory storage, the cycle-service level of at least 95 percent should be achieved company was able to begin offering an expanded line of auto parts. This in creased selection, combined with the trend toward longer car ownership, led limited, she must produce positive results immediately. Thus, she decides to an explosive growth of the business. Fifteen years later, Parts Emporium to concentrate on two products from the extensive product line: the EG151 was the largest independent distributor of auto parts in the north centra xhaust gasket and the DB032 drive belt. If she can demonstrate signifi region McCaskey knows that although her influence to initiate changes will be cant gains from proper inventory management for just two products, perhaps Block and Spriggs will give her the backing needed to change the total inven Recently, Parts Emporium relocated to a sparkling new office and ware house complex off Interstate 55 in suburban Chicago. The warehouse space tory management system. alone occupied more than 100,000 square feet. Although only a handful of new products have been added since the warehouse was constructed, its Haipei, Inc. Actual demand for the first 21 weeks of this year is shown in the utilization increased from 65 percent to more than 90 percent of capacity. following table: During this same period, however, sales growth stagnated. These conditions motivated Block and Spriggs to hire the first manager from outside the conm pany in the firm's history The EG151 exhaust gasket is purchased from an overseas supplier Week Actual Demand Week 12 13 14 15 16 17 18 19 20 21 Actual Demand 104 97 It is June 6, Sue McCaskey's first day in the newly created position of materials manager for Parts Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her first real-world problem. At approximately 8:30 A.M., it arrives in the form of status reports on inven tory and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe Donnell, the purchasing manager: "Attached you will find the inventory and customer service performance data. Rest assured that the individual inventory levels are accurate because we took a complete physical inventory count at the end of last week. Unfortunately, we do not keep compiled records in some of the areas as you requested. However, you are welcome to do so yourself. Welcome aboard!" 102 102 103 101 101 104 108 97 A little upset that aggregate information is not available, McCaskey de cides to randomly select a small sample of approximately 100 items and com pile inventory and customer service characteristics to get a feel for the "total picture." The results of this experiment reveal to her why Parts Emporium de- cided to create the position she now fills. It seems that the inventory is in all the wrong places. Although an average of approximately 60 days of inventory 104 100 100 103 10

Answer 1

The following steps for the calculation of EG151 are as follows: EG151 exhaust gasket Consider the following data given in the case: let size, Q = 150 units Weekly demand average = 102 gaskets/week Annual demand (D) = (102 times 52) gaskets = 5304 gaskets Holding cost, H = whole sale price times (100 % - gross margin) times 21% = 12.99 times (100 - 32)% times 21% = $18.5 per gasket per year. Ordering cost, S = $20 per order. Calculate Economic order Quantity as follows: E_OQ = squareroot 2 times D times S/H = squareroot 2 times 5304 times 20/1.85 = 338.65 = 339 units. \r\n Calculate the total annual cycle - inventory using EG151 for proposed plan: 95% cycle - service level, z = 1.65 standard deviation in weekly demand, sigma_d = 2.86 gaskets standard deviation during lead time, sigma_dLT = sigma_d times squareroot LT \r\n = 2.86 times squareroot 2 = 4.04 Recorder