Narragansett Yacht Company

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Inventory Management 30 NARRAGANSETT YACHT CORPORATION Narragansett Yacht manufactures fiberglass sailboats which range from 18-foot day sailors to 50foot ocean racing yachts. The company was founded in Newport, Rhode Island, a hotbed of sailing activity, but high labor costs forced it to move its manufacturing operations to Corpus Christi, Texas, in 1990. The boat-building industry is very competitive and highly labor intensive, and profitability depends on getting the maximum efficiency out of the labor force. Narragansett has managed to keep its workforce nonunionized; this means that all of its employees can be shifted from task to task, and Narragansett can thus maintain flexibility. However, the price for this freedom has been…show more content…
The ABC inventory classification system works like this: Narragansett maintains data on the average annual usage and cost of each item. Based on these data, plus the multiplier values given in Table 1, Narragansett assigns a numerical inventory importance value to each item using the following formula: Inventory importance value = [ ] [ ] [ Average annual usage = Y Cost per unit Y = Lead time multiplier + Stockout multiplier ] TABLE 1 Inventory Multiplier Values Order Lead Time Multipliers: Lead Time Class Lead Time Multiplier 0–2 days 0 3–7 days 1 8–30 days 2 1–3 months 4 4–6 months 8 7–12 months 12 Stockout Consequence Multiplier: Consequence Class Stockout Multiplier Unimportant 1 Average 3 Critical 5 For example, a customized 5-inch chrome-plated winch costs Narragansett $300, and the firm uses 1,500 units per year. The winches require an order lead time of 10 days, and they are in the average consequence class. Thus, the inventory importance value of the winches is $2,250,000: Inventory importance value = (1,500)($300)(2 + 3) = $2,250,000. No particular significance can be attached to the $2,250,000 it is just a number that is used to compare the importance of this item with other inventory items. Each of Narragansett’s inventory items is analyzed

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