Odis Mullenax is the owner and President of Mullenax Automobile Parts Inc. His company makes various parts for major automobile manufacturers worldwide. They manufacture intake manifold systems, air induction systems, coolant pump modules, oil filtration systems, coil springs, stabilizer bars, precision springs, and other key components within their three business units. Mullenax Automobile Parts is one link in a very long supply chain. Odis understands that the supply chain is not a single line of suppliers and buyers. Odis knows that the supply chain is more like a complex web where inputs come from multiple directions, often appearing unrelated to one another.

Odis has been working with Estella Epperson, Vice President of Operations, to ensure their supply chain management techniques are as robust as possible. To date, they have tackled demand forecasting and resource planning systems. They are ready to look at their inventory management capabilities. Inventory is extremely important because it is money sitting on the shelf. Consequently, they want to produce sufficient inventory to meet the customers' demands while ensuring the inventory turns over.

Inventory is managed by Madie Mcconke, Director of Inventory Management. Madie is well known throughout the automotive industry as a top inventory specialist. Madie takes several approaches to ensure they have sufficient inventory while always focusing on generating high inventory turnover. As mentioned previously, inventory is money sitting on the shelf. Madie understands that frequent turnover is a big positive because it enables Mullenax Automobile Parts to increase cash flow and reduce warehousing and carrying costs.

Odis and Estella schedule a meeting with Madie. They request that she present the current status of Mullenax's inventories. For example, they want to know if their inventory turnover ratio is good compared to other companies in the automotive industry. Furthermore, what system is Mullenax using to guarantee the lowest possible annual inventory cost?

As Madie pulls together information for the presentation, she focuses on two main items: Economic Order Quantity $($EOQ$)$ and Inventory Turnover Ratio. Madie uses the following data to build her illustrations to support her explanations concerning how Mullenax inventories are managed: the weekly requirement of one part is $2,100$ units, the order cost is $$60$ per order, the holding cost is $$75$ per unit per year, and the part cost is $$450$ per unit. The firm operates fifty$-$two weeks per year. Madie has her assistant use the data to compute various inventory statistics. Other data Madie had available were the cost of revenue or cost of goods sold $($$$532,000)$ and the average inventory $($$$45,090)$; therefore, she has the data required for the inventory turnover ratio. Madie also had last year's inventory turnover ratio for Ford $(15\mathrm{.}03),$ General Motors $(10\mathrm{.}69),$ and Toyota $(16\mathrm{.}95).$ Since Mullenax Automobile Parts was dependent on the production and sales of the major

Weekly requirement

Setup cost

Holding cost

Unit cost

Number of weeks per year

$2,100$ units

$$60$ per order

$$75$ per unit per year

$$450$ per unit

$52$

Annual requirement in units

EOQ $($units$)$

Annual holding cost

Annual order cost

Annual purchase cost

Total annual inventory cost

Cost of goods sold

$$532,000$

Average inventory

$$45,090$

Inventory turnover ratio