Your team is appointed as Inventory management Consultant to the Good grocery Supplies company which is one of the major distributors of grocery in Indiana. They supply produce as well as dry goods to retail stores like Kroger. The get their produce directly from formers and their dry goods like Cereals directly from the manufacturers.

During recent auditing of their warehouse they found out lot of produce were leftover every week and they must spend money to dispose the produce if they are not able to sell them before the shelf life of the produce. They also found out in some cases they are not able to meet the demand of their retail customers.

They decided to hire a consultant and ask the consultant to do one sample product which was the celery hearts. The following are the data the consultant got from the Good grocery Supplies inventory manager.

They have demand for Celery hearts fairly throughout the year. Even though they buy celery from different formers and different places (all over the world to keep up with the demand) the price they pay per Celery heart is average out to $ 1.0 and they sell that to retail stores at an average price of $ 2.25. The annual demand is 260,000 celery hearts and the cost of placing an order is $ 250 (This fixed cost is inclusive of labor time, transportation and related expenses). Based on their standard holding cost calculation the Good grocery Supplies allocate 1% of the buying price of the celery as holding cost per celery heart per week.

The consultant used the numbers provided and calculated the Economic Order Quantity (EOQ) and gave it to the company as a report but did not provide any cost benefit. The CEO of the company was not impressed as he always looks for the bottom-line improvement. So they fired the consultant and hired the second consultant to do the analysis. The second consultant did little more digging than the previous one and found out the shelf life of celery heart is approximately one week. He also looked in to the orders from the retailers to the distributer and found even though the annual demand is 260000 the average weekly demand is 5500 celery hearts and the standard deviation is 1000 celery hearts. The consultant worked diligently and informed the management the best inventory procedure for celery heart is treat it as Single period inventory and he gave the purchase quantity numbers. But he could not give the cost benefit as well as any comparison between EOQ and Single period inventory. He got fired also and now CEO of the Good grocery Supplies is looking for a new consultant. I informed them I have many consultants under me, and they are willing to take the challenge. I went through the collected data and felt some information are missing and we must make few assumptions also, they are as follows

1. We can safely assume half the year the demand for Celery heart is very close to 5000

2. The demand for celery hearts for half of the year will exceed 5500.

3. In any week the demand exceeds the available stock there will be a customer dissatisfaction and Good grocery Supplies calculate it as loss and put flat value of $ 1000 (Money value for customer dissatisfaction due to non-availability of the material customer asks for)

4. The Celery buying price average and selling price average is constant as they buy from different sources. (They do not get any volume discount due to small quantity purchase from formers and Good grocery Supplies doesn't give price discount to the retail stores)

Consider your team as a new Inventory Management consultant for Good grocery Supplies and provide the following analysis

Question: What is the best-suited inventory management for Good grocery Supplies? (Single period Inventory or EOQ). Give reasons using cost-benefit analysis (calculate the Profit/ loss for both type of inventory management and analyze the result. finally give pros and cons for each inventory management system with respect to Good grocery Supplies inventory of Celery hearts