What are the time between orders (P) and the target inventory (T) for the two parts, if Sue were to adopt a period-review system (P-system)?

t = (average weekly demand x protection interval) + (z-value x standard deviation x square root of (protection interval)). Use the protection interval (P + L), and not just the time-between-orders (P), in your calculation of target inventory (T).

Parts Emporium, Inc. is a wholesale distributor of automobile parts formed Recenty, Parts Emporium relocated to a sparking new cffice and wareby two disenchanted auto mechanics, Dan Block and Ed Spriggs. Origi- house complex ofl Interstate 55 in suburban Chicago. The warehouse space nally located in Block's garage, the firm showed slow but steady growth for alone occupied more than 100,000 square feet. Athough only a handful of new 7 years before it relocated to an old, abandoned meat-packing warehouse products have been added since the warehouse was constructed, its utilization on Chicago's South Side. With increased space for inventory storage, the increased from 65 percent to more than 90 percent of capacity. During this company was able to begin offering an expanded line of auto parts. This same period, however, sales gomth stagnated. These condisons motivated increased selection, combined with the trend toward longer car ownership. Block and Spriggs to hire the first manager from outside the compary in the led to an explosive growth of the business. Fitteen years later, Parts Empo- firm's history. rium was the largest independent distributor of auto parts in the north central It is June 6, Sue McCaskey's first day in the newly created posiregion. tion of materials manager for Parts Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaitng her first real- faity constant at 2 weeks. Currenty, at the end d week 21, no imentory is world problem. At approximately 8:30 A.M. It arrives in the form of sta- on hend, 11 units are backordered, and the company is awaithg a scheduled tus reports on inventory and orders shipped. At the top of an extensive receipt of 150 units computer printout is a handwritten note from Joe Donnell, the purchas. The DBO32 drive bell is purchased from the Bendour Compontion of Grand ing manager: "Atached you will find the inventory and customer service Rapids. Michigan. Actual demand so far this year is shown in the folowing table. performance data. Rest assured that the individual inventory levels are accurate because we took a complete physical inventory count at the end of last week. Unfortunately, we do not keep compiled records in some of the areas as you requested. However, you are weicome to do so yourselt. Welcome aboard" A little upset that aggregate information is not anilable, McCaskey decides to randomly select a small sample of approximately 100 ltems and comple inventory and customer service chancterissics to get a foel for the "todal picture." The results of this experiment reveal to her why Parts Emporium decibed to create the postion she now fils. It seems that the inventory is in al the wrong places. Although an anerage of approdinately 60 dass of inventory is on hand, the firm's customer service is hadequate. Parts Emporium tries to backorder the customer odders not immediately filled from stock. but some 10 percent of demand is being lost to competing distributorships. Because this roodct is new, data are avalable only since is introducBecause stockouts are cotly, relative to inentory holding costs, McCaskey tion in week 11. Currenly, 324 units are on hand, with no backorders and no believes that a cycie-service level of at least 95 percent should be achieved. scheduled receipts. A lot size of 1,000 units is being used, with the lead time McCakey knows that athough her influence to ifitide changes wil be lim- faity constant at 3 woeks Hod, the must rodjce positive resits inmeditely. Mus, ste deckes to concen. The wholesale prices that Parts Emporium charges its customers are tate on two protucts from the edersive product lie: the EG151 extaist gasket $12.99 for the EG151 ehaust gasket and $8.89 for the DB032 dive belt. and the DB032 dive bett. If ste can demonstate significant gains from proper Because no quantify dicounts are offered on these two highly proftable items. inventory management for just two products, perhaps Block and Spriges wil gross margins based on current purchasing proctices ar 32 percent of the give her the backing needed to change the total inentory management system. Wholesale price for the ahaust gasket and 48 percert of the wholesale price The EG151 exhaust gasket is purchased from an overseas supplef, for the dive belt Haiped, he. Actual demand for the firs 21 weeks of this year is shown in the Parts Emporium estimates its cost to hold inventory at 21 percent of is following table: inventory investment. This percentage recognizes the opportunity cost of tying money up in inentoy and the varibbe costs of taves, insurance, and strick age. The anual report notes other warehousing ependitures for utitites and maintenance and det serice on the 100,000 -square-foot warehouse. which was built for $1.5 milion. However, MoCaskey reasons that these warehousing costs can be ignored because they will not change for the range of imventory policies that she is considering. Out-of-pocket costs for Parts Emporium to place an order with suppliers are estimated to be $20 per order for exhaust gaskets and $10 per order for dive belts. On the outbound side, the company can charge a delivery fee. Athough most customers pick up their parts at Parts Emporium, some orders are delivered to customers. To provide this service, Parts Emporium contracts weth a local company for a flat fee of $21.40 per onder, which is added to the customer's bill. McCaskey is unsure whether to increase the ordering costs for Parts Emporium to include delvery charges. A quick review of past orders, shown in another document, indicates that a lot size of 150 urits is being used and that the lead time from Haipei is