Question 1 Steel Works’ products are high quality metal which answer to specific needs. Steel Works’ customers are divided in two categories:
- Customers of the custom division, which develops products for a single customer. This division has a small amount of customers but a lot of products.
- Customers of the specialty division (130 customers who consume 120 different products). The majority of the specialty customers are small (107 of the 130 are small).
The coefficient of variation tells us the variability relative to the average demand. According to the results below, we can see that DURAFLEX R15 has a high coefficient of variance which means that it is very difficult to forecast an inventory level based on an historic demand with high volatility. This is especially true when this product is manufactured by batches of 60 units.
AVERAGE STD COEF VAR PERC SALE
DURABEND R10 15.58 13.19 0.85 0.42
DURABEND R12 1008.00 255.92 0.25 27.30
DURABEND R15 2463.58 494.21 0.20 66.76
DURAFLEX R10 97.25 92.52 0.95 2.64
DURAFLEX R12 18.58 11.43 0.62 0.50
DURAFLEX R15 54.83 80.05 1.46 1.49
DURAFLEX R23 35.58 45.86 1.29 0.97
The amount of inventory they should hold will vary according to the level of service expected. For a level of service at 90%, the level of inventory should be maintained as follows:
AVERAGE STD COEF VAR PERC SALE Historical Av Inv Inv at 90% Serv
DURABEND R10 15.58 13.19 0.85 0.42 73 33
DURABEND R12 1008.00 255.92 0.25 27.30 741 1,338
DURABEND R15 2463.58
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