Case Study

MGTS$-352($CC$01)$

Instructions

$1.$ Answer questions $1,2,3,4,$ and $5.$

$2.$ Present your answers as a $3-$page $($maximum$)$ report explaining

what you did and why.

$3.$ Include relevant calculations, graphs, and charts to support

your analysis and recommendations. If you use an Excel file, you

must include that Excel file as a separate attachment. Thus, your

submission should have two files $$ a Word file with the report and

the Excel file or appendix $($for the relevant calculations$)$ that you

worked on$.$

$4.$ The case study will be graded out of $100.$ I will use the

following criteria for marking.

a$.$ Clarity and correctness of approach.

b$.$ Clarity of writing and your explanation.

c$.$ Correctness of the answers.

d$.$ Do not forget to attach a cover page with your name. This page

is outside the $3-$page limit$.$

e$.$ You may attach an appendix if you want. This is not counted

in the $3-$page limit$.$

f$.$ Do not hesitate to ask me for any clarifications.

Case Study: Inventory Management

You are a supply chain manager at XYZ Company, tasked with optimizing the inventory

management system. The company has $12$ items in its inventory. The following table gives the

item number, cost, and annual demand for each item. The holding cost for each item is $20\%$ of its

cost and the ordering cost of each item is $$25$ per order.

Help the company by doing the following:

$1.$ Perform an ABC analysis and categorize the items into A$,$ B$,$ and C categories.

$2.$ Find the economic order quantity of each item. Do these ordering quantities vary a lot

from item to item? What would you say about the variation if any?

$3.$ Find the total annual cost of holding and ordering $($holding cost $+$ ordering cost$)$ for

each item. Is there a relationship between the category of an item and the total cost?

$4.$ The company wants to achieve a $99\%$ service level. The lead times $($in weeks$)$ for each

item and the weekly standard deviations of demand are given in the following table. The

company operates $50$ weeks a year. $4.$ Find the reorder point and safety stock for each item.

$5.$ What is the cost of carrying the safety stock for each item? Which category of items

has the highest safety stock? Based on your observation can you conclude that the category

here will always have the highest safety stock irrespective of this case?

Note: You can round your results up to two decimal places.

Solution:

Item Cost $($$$)$ Annual Demand Weekly Std dev of

demand

Lead time $($in

weeks$)$

$110600001205$

$220360001155$

$3421800005043$

$43018000543$

$5511920006526$

$61248000864$

$71824000677$

$8431440004603$

$93530000967$

$102842000674$

$1114540001405$

$1217660001454$