Steel Works, Inc.

1429 Words Dec 17th, 2006 6 Pages
Questions to consider:

1. How would you characterize Steel Works' products? What about Steel Works' customers?

2. What does the coefficient of variation tell us? Can you determine the coefficient of variation for the product lines?

3. How much inventory has Steel Works been holding? How much should they have been holding?


Customer Characteristics

Steel Works has a large number of customers for its specialty products - 130 customers for some 120 products. However, majority of these customers (82.3%) are small-sized customers with less than $1million in sales. For example, using data from Spreadsheet S0121958, we see that there is only one major customer, C194, demanding considerable volume of DuraBendTM
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Base-stock Model

Since Steel Works currently do not have a centralized system and its products are not properly tracked, we will use the base-stock policy to calculate the recommended inventory levels even though QR model would probably give us a lower inventory level. Other factors which we took into consideration include:

Each product is produced once a month. Given that the average lot size is almost the same as the average monthly demand, not much value will be obtained from updating the orders continuously. In addition, keeping track of the inventory continuously will require a lot of time, especially since Steel Works does not have a centralized database.

There is a change-over cost between different products. The QR model replenishes the inventory whenever the inventory is below the reordering point. As a result, the manufacturing side cannot plan the production schedule for each produce before hand, and therefore may result in unnecessary change-over costs.

Since each product is manufactured once a month in a rotating sequence, we set to be 1 month, and that the inventory of each product is reviewed on the first day of the period when the product is scheduled to be produced. Since we know from the case that DuraFlexTM R23 is produced monthly and during the 1st week of the month, the lead time L is assumed to be one week, that is, 0.25 months. In addition, given that the company only shipped