Have the Min/Max values been set correctly?

Conor Shirley is a materials management (MM) intern in the supply chain management department of Cameco, one of the largest uranium producers in the world. Cameco has three mines (Rabbit Lake, MacArthur River, and Cigar Lake) and a mill (Key Lake), all in northern Saskatchewan. Each site has a warehouse containing supplies and spare parts. The data is maintained by the SAP software, which runs on a computer located in Cameco's head office in Saskatoon. There are approximately 30,000 SKU s. Over 80 percent are bought from contracted suppliers. The inventory control module uses the Min/Max model. SAP checks the inventory position against the Min level every three days, and, if it is below, will automatically order enough stocks from contracted suppliers to bring inventory position up to the Max. A major initiative by the MM group is to reduce inventories by $10 million. This includes readjusting the Min and Max levels to their optimal levels. Conor has picked four SKUs from two plants to study. The item code, description, price, and lead time from the supplier are as follows:

Ordering cost per order is $10, holding cost rate per year is 20 percent, and lead time service level is 97.5 percent. The monthly total usage for each item during 2013 was as follows:

Conor has noticed that the demands for the cable hanger and coveralls are lumpy (there are many zero usage months) and that Normal distribution may be inappropriate for determining the Min or ROP. Therefore, he has also collected dates and quantities of transactions for these two items:

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Code Description Price Lead Time Current Min Current Max 20050008 Cable Hanger CAB826 $2.99 5 days 151 250 20073791 Grinding Wheel 5" 4" 5/8" All Metal $4.57 6. 31 50 20126073 Pyrolon Coveralls XL Blue w/ HD Elastic $8.05 8. 4 75 20013742 Oil Pressure Gauge 2-1/2" 0-200 PSI $44.75 14 1 3.