Parts Emporium Synopsis

1339 Words Jan 15th, 2012 6 Pages
Chapter 13: Parts Emporium*
A. Synopsis
This case describes the problems facing Sue McCaskey, the new materials manager of a wholesale distributor of auto parts. She seeks ways to cut the bloated inventories while improving customer service. Backorders with excessive lost sales are all too frequent. Inventories were much higher than expected when the new facility was built, even though sales have not increased. Summary data on inventory statistics, such as inventory turns, are not available. McCaskey decides to begin with a sample of two products to uncover the nature of the problems—the EG151 exhaust gasket and the DB032 drive belt.

B. Purpose
The purpose of this case is to allow the student to put together a plan, using either a
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2. DB032 Drive Belt a. New plan The following demand estimates are based on weeks 13 through 21. Weeks 11 and 12 are excluded from the analysis because the new product 's startup makes them unrepresentative. We find the EOQ as follows: Weekly demand average = 52 belts/week Annual demand (D) = 52(52) = 2704 belts Holding cost = $0.97 per belt per year (or 0.21. • 0.52. • $8.89) Ordering cost = $10 per order EOQ =
2(2, 704)($10) / $0.97 = 236 gaskets

Turning now to R, where z remains at 1.645, we find: Standard deviation in weekly demand (σt) = 1.76 belts, where t = 1 Standard deviation in demand during lead time (σL) = 1.76 3 = 3 belts R = Average demand during the lead time + Safety stock = 3(52) + 1.645(3) = 160.9, or 161 belts b. Cost comparison After developing their plan, students again can compare the cost for the belts with what would be experienced with current policies. Cost Category Current Plan Proposed Plan Ordering cost $27 $115 485 114 Holding cost (cycle inventory) TOTAL $512 $229 With the belt, the total of these two costs is reduced by 55 percent. The safety stock with the proposed plan may be higher with the proposed system, as with the gaskets, but added cost for safety stock is only $0.97(3) = $2.91.
Chapter 13: Parts Emporium CN-109

The big cost once again is the lost sales due to backorders with the current plan. A lost sale costs a minimum of $4.27 per belt (0.48 • $8.89). If 10 percent of annual sales were lost, the cost

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