Inventory and Total Holding Costs

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| | | Mabuhay Products Inc.Submitted by:Michelle MolasAdrian ManlapigAngela NunezKatrina Silvoza | | | Point of View_________________________ This case was analyzed from the point of view of Robert Ocampo, the inventory manager of Mabuhay Products Incorporated. Case of Context_______________________ Mabuhay Company Incorporated owns 50 grocery outlets scattered around the metro but has only one main warehouse where all the goods are stored prior to delivery. The current inventory policy of the company had been practiced for the past 15 years. It mandates the monthly reorder of stocks by the main warehouse, and charging the branches with the delivery cost and a 3% financing charge per month on their inventory…show more content…
Standard deviation based on the available information (January to June) is 41.83 or approximately 42. With these, we compute for the safety stock as: (1.65)= SS42 SS = 68 units Adding the EOQ (183 units) and SS (68 units), we get 251 units. This is the number of units per order. To determine when to order, Reorder Point must be computed. The Reorder Point represents the number of units that must be left in the inventory for another order to be placed. It is computed as follows: ROP=d ×Lead Time+SS Where, d = expected daily demand = 24,000 / 250 = 96 Lead Time = number of days it takes for an order to be delivered = 3 Given a lead time of 3 days, ROP is: ROP=(96 ×3)+68=356 units The company must place an order when their inventory level reaches 356 units. #2 For products with unpredictable demand, it is recommended that the inventory manager evaluate first the nature of the product and classify whether it is perishable or not. If it is perishable, the number of inventory needs to be adjusted such that as minimum spoilage as possible will occur. If it is not perishable, the firm must set inventory levels with adequate safety stock without being compromised with the holding costs. Thus, monthly evaluation of the data is recommended so costs may be controlled. ABC analysis is also recommended so that focus on studying the data is efficiently done. If the costs and margins associated are very low, efforts on controlling