OSCM $3130$ Case Study $3$

Team $2$

Summit Outdoor Gear

Inventory Management Analysis

November $2024$

Team Members: Brycen McCrillis; Faith Mincey; Madison Hancock; Paul Warren

Background

Summit Outdoor Gear, a family$-$run business founded in $1990,$ has grown into a trusted supplier of high$-$quality outdoor equipment for hiking, camping, and climbing enthusiasts. Based in the Rocky Mountain region, the company has earned a reputation for offering durable, premium products and exceptional customer service. Among its most popular items are its lightweight hiking backpacks, favored by customers for their ergonomic design and reliable performance in challenging conditions.

As Summit's customer base has expanded, so too have the challenges of managing inventory, particularly for high$-$demand specialty products. The company's operational strategy focuses on maintaining a balance between ensuring product availability and controlling inventory$-$related costs. However, fluctuations in demand for these specialty items have made inventory management increasingly challenging, and rising storage costs have heightened the need for optimization. Mr$.$ Taylor, the company's head of operations, has been tasked with re$-$evaluating Summit's inventory management practices to ensure that the business continues to meet customer demands while operating efficiently.

Inventory Issues

Summit Outdoor Gear is currently facing significant challenges in managing its inventory of lightweight hiking backpacks, a key product for many outdoor enthusiasts. The backpacks are a niche but essential item, with an average weekly demand of $20$ units. However, the high demand variability, evidenced by a standard deviation of $10$ units, makes forecasting future needs difficult. This fluctuating demand creates uncertainty in determining how much stock to hold at any given time, increasing the risk of both overstocking and stockouts.

Managing these inventory levels is further complicated by the costs associated with ordering and holding the backpacks. Each time an order is placed, Summit incurs a fixed cost of $$30.$ This cost covers administrative work, transportation, and handling fees, meaning that ordering too frequently increases overall expenses. On the other hand, holding costs amount to $$0\mathrm{.}45$ per unit per year, which adds up quickly if too much inventory is kept on hand. The balance between ordering frequently to avoid stockouts and minimizing inventory holding costs is a fine line that Mr$.$ Taylor, Summit's head of operations, must navigate.