CASE STUDY

Randy Smith, inventory Control Manager

Randy Smith was very proud of his new position as inventory control manager for the

Johnson Trinket Company. His primary responsibility had been fairly clearly defined:

Maintain an inventory level in the warehouse that ensures that production will not run

out of stock, yet also maintain an inventory level that will minimize inventory holding

and control costs. Since Randy had recently had a course in materials management, he

knew an approach that should help him. He decided to make a list of inventory items in

one small section of the warehouse to see if he could develop a good plan for inventory

control. If it worked in the one small section, he could expand it to the rest of the more

than 30,000 part numbers in the warehouse.

The following is the data Randy compiled:

Part unit value in $: $2.50 $0.20 $15.00 $0.75 $7.60 $4.40 $1.80 $0.05 $17.20 $9.00 $3.20 $0.30 $1.10 $8.10 $5.00 $0.90 $6.00 $2.20 $1.20 $5.90

Part number: 1234 1235 1236 1237 1238 1239 1240 1241 1242 1243 1244 1245 1246 1247 1248 1249 1250 1251 1252 1253

Quantity currently in inventory: 300 550 400 50 180 20 200 10 950 160 430 500 25 60 390 830 700 80 480 230

Average annual usage: 3000 900 1000 7900 2800 5000 1800 1200 2000 2500 7000 10000 7500 2100 4000 6500 3100 6000 4500 900

When Randy scanned the list, he noticed several things that disturbed him, and he asked

one of the experienced inventory clerks. The following list summarizes the part number

issues that concerned Randy, and the explanation from the clerk:

Part number 1236, a very expensive part with almost half-a-year's worth of inventory.

This part is used for a product that has very cyclical demand, and the busy time of

the year is about to start.

Part number 1241 is very inexpensive, yet the inventory is very small. This part has

a supplier with an erratic delivery history, and the part also has a very long lead time.

A lot of 150 has been on order for some time, and is now several days past due.

Part number 1242, like 1236, is expensive with almost half a year worth of

inventorythis part is shipped to a location on the other side of the country and

is being accumulated into a large lot to save shipping costs.

Part number 1246 is not too expensive, with a low inventory. This part is produced inhouse,

and has a quality tolerance that the older equipment, which was used to produce

it, had a difficult time meeting. The last batch was rejected by the quality department.

Part number 1253 is moderately expensive with a large inventory compared to usage.

This part was subject to a recent quality audit, and almost 150 of the items were

rejected as a result of that audit.

Once Randy understood some of the issues, suddenly he did not feel quite as confident

that he had the best approach in mind to control the inventory to meet the expectations

of his boss.

Assignment

1. Use the information above to evaluate the current situation.

2. Given your evaluation, try to develop an integrated inventory control policy that

Randy should consider.

3. Is there other information that you would like to see that might help you to make a

more effective policy? If so, what would that information be and how would you use

it to help you?