The warehouses have the capacity to hold more than 100,000 ft2 of materials. The capacity utilization of the warehouses had increased from 65% to almost 95%. Even though average on-hand inventory seemed be 60 days’ worth, they were not able to fulfill all of the customer’s order from on-hand inventory and had to backorder them. This led to a demand loss of 10% due to the customer deciding to go with a competitor to supply their parts on those instances. Experiencing stockouts could be very costly for the company, especially in the long term, so the managers decided that they should target a cycle service level of 95%. They moved on to focus on two products from the larger portfolio of parts, the CSN120 exhaust system and the SWS108 wing tip light.
The CSN120 exhaust system is supplied by a company called AirXhaust located. Below is the data on the observed demand for this part for the first 21 weeks of the year (assume The company operates 52 weeks per year):

Week   Actual Demand
1   104
2   103
3   107
4   105
5   102
6   102
7   101
8   104
9   100
10   100
11   103
12   97
13   99
14   102
15   99
16   103
17   101
18   101
19   104
20   108
21   97

AirXhaust has been shipping orders in lot sizes of 150. The time it took orders to arrive from AirXhaust to The company has been, on average, 2 weeks. Currently, we are at the end of week 21. We have zero on-hand inventory and 11 units backordered. There is a scheduled receipt of 150 units (meaning 150 units have been ordered but were not received yet).
The supplier of SWS108 wingtip light is FlySupport Corp, located in Montana. Below is the data on the observed demand for this part for weeks 11 to 21 (We don’t have observed demand data for this part for weeks 1-10 since this is a new product that is introduced in week 11):

Week   Actual Demand
11   18
12   33
13   53
14   54
15   51
16   53
17   50
18   53
19   54
20   49
21   52

Currently, at the end of week 21, we have 324 on-hand inventory (no backorders or scheduled receipts). The lot size for orders coming from FlySupport is currently 1,000, and the lead time has been 3 weeks on average.
The company has been charging the plane manufacturer $12.99/item as the wholesale price for CSN120 exhaust system and $8.89/item as the wholesale price for SWS108 wingtip light. The profit margin for The company is 32% (of the wholesale price) for the CSN120 exhaust system and 48% (of the wholesale price) for the SWS108 wingtip light.
Based on past data, holding cost per item for any part is at 21% of the item’s value. This holding cost includes both the physical cost of carrying and storing the parts and the opportunity cost of investing funds in inventory. The manager decides that the other expenditures for the warehouse, which was built for $1.5 million, such as utilities and maintenance, can be ignored since they will not have an impact on the inventory policy employed.
The company incurs a fixed out-of-pocket cost of ordering supplies each time they place an order. This cost is estimated to be $20 per order for CSN120 exhaust system and $10 per order for SWS108 wingtip light.
If The company’s customer wants the parts to be delivered to them, The company contracts with a third-party distributor, who charges $21.40 per order. The company adds this charge to their customer’s final bill.

QUESTIONS
Suppose you are The manager and you are developing a recommendation plan
1.   For the CSN 120 Exhaust System:
a.   What would be your plan for inventory ordering strategy (i.e. how much to order)?
b.   What would be the safety inventory and reorder point?
c.   What would be the total annual costs for this proposed inventory plan?
2.   For the SWS 108 Wing Tip Light:
a.   What would be your plan for inventory ordering strategy (i.e. how much to order)?
b.   What would be the safety inventory and reorder point?
c.   What would be the total annual costs for this proposed inventory plan?
3.   How would the current and proposed plans compare in terms of cost (while recognizing all the relevant costs)?
4.   By how much do your recommendations for these two items reduce annual cycle inventory, stockout, and ordering costs?
5.   For this question, assume that The company implements the updated inventory management system you propose for CSN120 exhaust system.

The company has been approached by a small competitor, Triptex with the offer to buy them out. Triptex sells only the CSN120 exhaust system it receives from AirXhaust. The lead time for Triptex to receive CSN120 from the supplier is 2 weeks. AirXhaust has been shipping orders in lot sizes of 150. Triptex’s only customer is a small helicopter manufacturer in PNW. Triptex’s weekly demand for CSN120 for the last 21 weeks is given below (Assume Triptex operates 52 weeks per year):

Week   Actual Demand
1   68
2   42
3   70
4   42
5   41
6   67
7   66
8   68
9   65
10   65
11   42
12   39
13   40
14   41
15   40
16   42
17   66
18   66
19   68
20   71
21   39

Triptex currently has no on-hand inventory, backorders or scheduled receipts. Triptex has been charging the helicopter manufacturer $12.99/item as the wholesale price for CSN120 exhaust system. The profit margin for The company is 15% (of the wholesale price) for the CSN120 exhaust system. The holding cost per item for Triptex is 21% of the item's value for any part. Triptex incurs $20 per order for CSN 120 exhaust system each time they place an order with AirXhaust. Triptex delivers parts to their customers free of charge.
The company is considering this offer and wants to make sure they take into account all the benefits and challenges associated with the deal. The buyout is expected to cost them $1,000,000. The company knows that this is a long-term investment and that they may not recoup this cost for a number of years. The company realizes that, in case they buy Triptex out, they will have to decide whether to keep Triptex’ inventory disaggregated from The company’s at Triptex’s current location or aggregate all the CSN120 exhaust system inventory at The company’s warehouses.
a.   If they do buy Triptex out, what would be your plan for inventory ordering strategy (i.e. how much to order)?
b.   If they do buy Triptex out, what would be the safety inventory and reorder point?
c.   If they do buy Triptex out, what would be the total annual costs for this proposed inventory plan?
d.   If they do buy Triptex out, how would the disaggregated and aggregated costs compare (while recognizing all the relevant costs)?
e.   What are your recommendations on whether The company should buyout Triptex or not? Specifically, what are the pros and cons in terms of their inventory management systems?