Scenario

You have been tasked to manage the inventory at your company. Your boss thinks that inventory management is out of control, but is not sure and wants you to perform some analysis of the inventory and provide him with some data. This chart lists your current stock, annual volumes, and unit cost.

Item Stock Number	Annual Volume	Unit Cost
13595	9500	$5
32514	9000	$15
22010	3800	$650
14851	2400	$330
15242	1800	$500
10252	100	$3,500
16325	950	$900
12564	500	$190
13584	450	$200
12547	190	$220

Complete the steps in each section and then submit your assignment for grading.

Step 1: Conduct an ABC Analysis

Use Excel OM and the chart to conduct an ABC analysis to determine which category each of the parts falls into. Provide analysis and interpretation of the results.

In the Excel OM software, the default Percent of dollar volume for A items is 75%, however, it has been determined by your boss that he would like to see the data for the A items set at 80%.

Click on Step 2 to continue . . .

Step 2: Calculate EOQ and Reorder Point

Use Excel OM to calculate the EOQ and the reorder point for part number 32514 (check reorder point and graph when setting up the software).

The lead time to reorder parts is 30 days. The set up/ordering cost is $1,000 per order, and the holding cost is fixed at $125 per month (hint: be careful here). The factory runs 365 days per year, and the company wants to maintain a safety stock of 50.

Provide analysis and interpretation of the results.

Click on Step 3 to continue . . .

Step 3: Calculate Safety Stock

In Step 2, you were given the safety stock of 50; however, this can be calculated for a more accurate number. Assume that the average daily demand for part number 32514 is 30 with a standard deviation of 2 parts per day. If the company wants to make sure that they do not stockout more than 5% of the time, then what level of safety stock should they hold?

As part of your analysis of these results, how does the safety stock calculated here compare to the safety stock requirement in step 2?

To calculate the safety stock, use Excel OM and the Safety Stock (Normal Distribution) spreadsheet. Input your data into column H of the model titled Model: Daily Demand and its standard deviation given.

Click on Step 4 to continue . . .