Question $5$

$25$ Marks

Study the scenario and complete the questions that follow:

Vehicle Supplies

Arnold Chris has been a car enthusiast since he was a teenager. This passion led him to open an automotive supply store. His primary customers are small car repair shops. Many of these shops service a variety of makes and models. The other customer base is car buffs such as himself. These customers are car hobbyists, and they own "classic" cars. They often buy an older clunker and rebuild it$.$ They prefer to rebuild it as much as they can to the original specifications. Consequently, finding parts for these older makes$/$models is a challenge and building an inventory is even more difficult.

Because Arnold is such an old car enthusiast, he has often scoured the Internet, junk yards, and other places for usable old car parts. Arnold has a section of his warehouse set aside for "classic" car parts, from starters, to hub caps, to door handles. There is no real competitor in this segment of his business.

While a few places may have the odd part or two for older models, Arnold has a significant inventory for most makes and models going back to the $1940\text{'}$s$.$ Because of the generation of the customers he is serving, the newest make$/$model is from the early $1970\text{'}$s$.$

The remainder of Automotive Supplies' inventory is for more recent makes and models, those built within the last $10$ years. This section of the inventory is much larger than the one for the "classic" cars; however, despite its size, its dollar value isn't much higher. One challenge Arnold has is warehouse space. Inventory capacity is basically directly related to space. Therefore, to serve both customer segments as best as he can, Arnold must maximize his warehouse space.

Although Arnold is aware of what inventory he has on hand, he has never actually used a specific inventory system. Now that his warehouse is reaching capacity, Arnold realizes he must have a better inventory management process. Adding more warehouse space isn't an option. He must use the space he has more efficiently. Arnold begins to ponder how he can do this without creating a potential inventory shortage for either customer segment.

Adjusted Source: Wisner et al$.2022.$ Principles of Supply Chain Management: A Balanced Approach. $6^{th}$ Ed$.$ Cengage.

$5\mathrm{.}1$ Because the parts for the "classic" cars are difficult to obtain, Arnold has decided that he must set aside a certain percentage of the warehouse for these parts. When he locates a specific part for this customer segment, he must buy it and place it in his inventory because once the opportunity passes, it may never return.

a$.$ How does this decision affect the inventory management of the parts for newer cars?

$(5$ Marks$)$

b$.$ What systems or processes do you recommend to Arnold to ensure he does not develop shortages for the parts for the car repair shops?

$(5$ Marks$)$

$5\mathrm{.}2$ Considering Arnold's situation and his two distinct customer bases, do you think the ABC classification system would benefit him? Justify your answer.

$(10$ Marks$)$

$5\mathrm{.}3$ Explain whether the EOQ or statistical reorder point methods can enable Arnold to better manage his "classic" car parts inventory.

$(5$ Marks$)$