Randy Smith, Inventory Control Manager

Randy Smith was very proud of his new position as inventory control manager for the

Johnson Trinket Company. His primary responsibility had been fairly clearly defined:

Maintain an inventory level in the warehouse that ensures that production will not run

out of stock, yet also maintain an inventory level that will minimize inventory holding and

control costs. Since Randy had recently had a course in materials management, he knew an approach that should help him. He decided to make a list of inventory items in one small section of the warehouse to see if he could develop a good plan for inventory control. If it worked in the one small section, he could expand it to the rest of the more than 30,000 part numbers in the warehouse. The following is the data Randy compiled:

Inventory Fundamentals 217 When Randy scanned the list, he noticed several things that disturbed him, and he asked one of the experienced inventory clerks. The following list summarizes the part number issues that concerned Randy, and the explanation from the clerk:

Part number 1236, a very expensive part with almost half-a-years. worth of inventory.

This part is used for a product that has very cyclical demand, and the busy time of the

year is about to start. Part number 1241 is very inexpensive, yet the inventory is very small. This part has a supplier with an erratic delivery history, and the part also has a very long lead time. A lot of 150 has been on order for some time, and is now several days past due. Part number 1242, like 1236, is expensive with almost half a year worth of inventorythis part is shipped to a location on the other side of the country and is being accumulated into a large lot to save shipping costs.

Part number 1246 is not too expensive, with a low inventory. This part is produced in house, and has a quality tolerance that the older equipment, which was used to produce

it, had a difficult time meeting. The last batch was rejected by the quality

department. Part number 1253 is moderately expensive with a large inventory compared to usage. This part was subject to a recent quality audit, and almost 150 of the items were

rejected as a result of that audit. Once Randy understood some of the issues, suddenly he did not feel quite as confident that he had the best approach in mind to control the inventory to meet the expectations of his boss.

Assignment

a) Use the information above to evaluate the current situation.

b) Given your evaluation, try to develop an integrated inventory control policy that

Randy should consider.

c) Is there other information that you would like to see that might help you to make a

more effective policy? If so, what would that information be and how would you use it to help you?

Average annual Usage Part Number Part unit value Quantity currently in inventory in $ 1234 $2.50 300 3000 $0.20 1235 550 900 $15.00 1236 400 1000 1237 $0.75 50 7900 1238 $7.60 180 2800 1239 $4.40 20 5000 1240 $1.80 200 1800 1200 124 $0.05 10 1242 $17.20 950 2000 $9.00 1243 160 2500 1244 $3.20 430 7000 1245 $0.30 500 10000 1246 $1.10 25 7500 1247 $8.10 60 2100 $5.00 1248 390 4000 830 1249 $0.90 6500 $6.00 $2.20 700 1250 3100 125 80 6000 1252 $1.20 480 4500 1253 $5.90 230 900 Average annual Usage Part Number Part unit value Quantity currently in inventory in $ 1234 $2.50 300 3000 $0.20 1235 550 900 $15.00 1236 400 1000 1237 $0.75 50 7900 1238 $7.60 180 2800 1239 $4.40 20 5000 1240 $1.80 200 1800 1200 124 $0.05 10 1242 $17.20 950 2000 $9.00 1243 160 2500 1244 $3.20 430 7000 1245 $0.30 500 10000 1246 $1.10 25 7500 1247 $8.10 60 2100 $5.00 1248 390 4000 830 1249 $0.90 6500 $6.00 $2.20 700 1250 3100 125 80 6000 1252 $1.20 480 4500 1253 $5.90 230 900