Supply Chain Management: Economic Order Quantity and Safety Stock
A. Based on the Microwave Inventory Case, using the spreadsheet perform a sensitivity analysis and evaluate potential additional benefits focusing in Economic Order Quantity and Safety Stock. See the attached spreadsheet to be fill out. On the spreadsheet perform the following:
1.Calculate the current cost of IMI’s inventory practices using the CURRENT tab of the template provided.
2. What would be the potential benefits of selecting both the production batch sizes and the reorder points more scientifically? Do this by completing columns B through H of the ANALYSIS tab of the template provided. Using the concepts of Economic Order Quantity and Reorder Point, explain the difference between this model and IMI’s current practice.
3. What if IMI was able to fully standardize the heavy-duty model to the point where the language and power supply customizing features could be added in a modular fashion immediately before shipping to the warehouse that needs them? You consulted with the production superintendent, who indicated that this could be done, but that it would add one day to the ship time to add these customizing features to the standard microwave just prior to shipping.
Consider it this way. IMI maintains a warehouse right next to their factory and they store inventory for models A, B, C, D, E, and F. Therefore they have to maintain separate inventory for each of the models. If they standardize to a single model, it may take them a day to ship, but they only need to keep one type of microwave in their warehouse.
For this part use the SINGLE MODEL column of the ANALYSIS tab and consider the impact RISK POOLING has should IMI combine all models. Using the inventory concepts we discussed in class, explain to IMI why they might achieve some cost benefit by embracing the idea of replacing all of their models with a single model.
4. Assuming that you have now convinced IMI to standardize on a single model of microwave, investigate other opportunities that IMI may have to reduce costs or improve customer service. Look at the components of total cost (not limited to transportation time, order cost, supply or demand variability) and make a recommendation to IMI on where else they may want to focus their efforts. Justify your recommendations.
5. Perform a sensitivity analysis and evaluate potential additional benefits focusing in Economic Order Quantity and Safety Stock.
6. On the spreadsheet add a column and consider:
- Reducing set-up times
- Reducing production or lead times?
- What about variances
B. Using the information of the spread sheet analyzed the inventory situation.
Based on the spreadsheet summarized results and deliver in form or report.
- what you have discovered
- Draw conclusions and summarize findings
- In what other areas might you invest?
Report shall be professionally structured, well-organized, insightful, start with an executive overview, and conclude by emphasizing the most important parts of the analysis