A local company located in Nizwa assembles engines for customized trekking sport utility vehicle SUV. During the

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Question:

A local company located in Nizwa assembles engines for customized trekking sport utility vehicle SUV. During the year end 2019 financial review, the company is concerned with its bloated inventory cost for the past five years. The profitability of the company has been declining year on year due to the effect of the increasing inventory costs. The newly hired manager who is a mechanical engineer is tasked to look into this matter and will provide a comprehensive proposal report to the company CEO to reduce the bloating inventory cost. The current consumption or usage of parts of the assembly department is shown in Table Q1. This data shows the typical annual usage or consumption of component parts for its engines. He found out that there is big mismanagement or neglect of the company inventories. Currently, the company is ordering parts from its suppliers locally and abroad once every three months.

(i) Develop an ABC analysis for the company's inventories. Show completely the results in tabular form using excel.

(ii) Create a PARETO analysis for the ABC analysis using excel

(iii) Considering your 'class A' inventories, determine the economic order quantity EOQ using the following assumptions; zero safety stock for each class Ainventories, stocking cost is 10% of the unit price, ordering cost for any class Ainventories is 120 OMR per order. Determine the cost savings if EOQ is followed instead of the current ordering system of the company which is once every three months for 'classA' inventories

Table Q1: Annual Usage of Component Parts


Part Number	Annual quantity (unit)	Unit cost (OMR/unit)
111D	31,101	1.00
128H	48,859	0.50
196G	7,248	22.40
205Y	2,968	270.00
216U	12.80	2,941
217J	122.40	3,307
228G	98.40	837
235D	1.80	60,512
249E	13,070	6.30
258L	2,061	62.40
261K	18,436	1.20
272J	4,433	9.00
324H	21,814	1.50
333C	2,149	15.40
334U	7,645	24.00
352S	12,677	19.20
391J	2,151	51.60
421A	4,374	9.60
432S	4,265	7.60
436S	71,058	0.25
452F	3,157	13.50
462R	3,931	16.80
463H	2,753	132.00
478L	26,650	1.20
521I	2,810	13.80
532Q	1,004	144.00
610B	29,760	5.10