Parts Emporium Case

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Parts Emporium Case

Parts Emporium Inc. managed to transform itself from doing business out of a garage to becoming the largest independent distributor of auto parts in the north central region. In the past period, inventory capacity rose from 65% to 90% and sales growth has stagnated causing Parts Emporium to hire an outside manager to figure out where the problem lies. Parts Emporium Inc. is currently facing numerous problems in relation to their inventory system. Each problem could be considered both short-term and long-term because both problems need focus immediately but may take an extended period of time to furnish. The first problem is in relation to their customer service department. The customer service department puts
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By appointing a more appropriate purchasing manager, training our customer service department and implementing an appropriate inventory management system, I feel Parts Emporium Inc. can reduce their excess inventory and begin to have increasing profit margins once again.
Mr. Block and Mr. Spriggs: I have taken it upon myself to test two inventory management systems and have found a system that will yield the least cost to Parts Emporium Inc. The two systems I have tested are the Continuous Inventory System and the Periodic Inventory System. Using data that I have gathered from the products DB032 and the EG151, I have compiled calculations and have concluded a continuous inventory system would be best for our corporation. Attached you will find said calculations; I would like to take this moment and present the continuous inventory system and recognize all of the relevant costs. The following is an explanation of each calculation under the continuous inventory system:
Economic Order Quantity (EOQ): Our warehouse utilization has increased from 65% to 90%, it is apparent a significant quantity of our money is being tied up in inventory. The EOQ calculation shows the lot size that will minimize total annual inventory holding and inventory costs.
DB032: 162 units EG151 279 units.
Safety Stock: I have concluded to keep our customers happy and to end losing 10% of our demand to our competitors we must maintain a 95% cycle-service

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