INVENTORY CASE STUDY
The joint venturebetween Designs and Galaxy experienced problems due to the irregulardemand for their products. The proposed solution by the analyst wassupposed to solve the issue. However, it was of no value since itfailed to address the problem. This failure was caused by variousfactors. The simulation method was based on the previous requirementdata and master production schedule. The venture was unable to makeappropriate forecasts which the simulation also failed to do. Thechanges proposed by the analyst should be accompanied by revision ofthe master plan. Revision is recommended to suit the proposed change.The simulation could have been suitable when if it was based onforecasts of demand for the products. Furthermore, revising themaster production plan to accommodate the proposed change andenabling lot splitting could make the solution work better for thebusiness organization.
The demand for acompany’s products influences the lot-sizing policy it adopts.Since the market is dynamic, demand is subject to fluctuations.Period order quantity, also known as dynamic lot-sizing policy, isthe suitable system to use in such situations. Malakooti, B. (2013)argues that in period order quantity model, the production capacityof the company will vary from time to time based on the ever changingdemand for their products. This lot-sizing policy employs the pushsystem. In push systems, short-term and long-term forecasts are made.The short-basis is applied in this policy to allow an organizationadapt to the swings in demand.
Simulation isappropriate for this situation. It is used in determining the futuredemand that is subject to swings. Simulation considers the factorsthat are likely to influence the demand. Therefore, the organizationwill be able to produce goods that match their consumption rate.Simulations that determine the fixed quantity of goods to be producedwithin a given period can also be used. In this case, maximum andminimum quantities are simulated. When the reorder limit is reached,inventory is replenished.
WES is a businessthat deals in the repair of home entertainment equipment and smallappliances. The entrepreneurship purchases spare parts from SomyCorporation. WES has problems with its inventory system. The systemis poorly organized and managed. There is no criterion fordetermining when to reorder since technicians usually buy spares fromlocal distributor when their stock is low or out. The orderingprocess lacks consistency since extra items are added to each orderwithout any specified criterion. The business does not consider thereimbursement or replacement of parts from Somy. Furthermore, theordering practices and customer delivery is negatively affected bythe fact that some technicians repair equipment using any partsirrespective of their brand provided they work.
Since determining the demand for repair services for the equipment isdifficult and not necessary, fixed order quantity inventory system issuitable for WES. The inventory system is an independent demand modelwhere an order for a fixed quantity is made when the sum of stock onhand and items on order equals to a predetermined reorder level(Benton, 2013). The amount to order is calculated using the economicorder quantity model. Through this model, the company will be able toavoid inefficiencies associated with buying parts when the stock isdepleted. The inventory system should have a physical tracking systemthat records every change in the stock. Monitoring enablesdetermining the reorder point. For efficient tracking of inventory,the technician should be recommended to use specific spare partscorresponding to the brand of the equipment being serviced.Furthermore, the items in transition between WES and Somy should beconsidered when ordering.
The dollar valueinfluences the system needed by an organization. Dollar value affectsthe inventory costs. The system that reduces the cost incurred whenordering and receiving items is usually preferred (Spiceland, Sepe &Nelson, 2011).
Benton W. C. (2013), Supply Chain Focused Manufacturing Planningand Control, Cengage Learning
Malakooti B. (2013). Operations and Production Systems withMultiple Objectives. Wiley-Interscience
Schönsleben P. (2016), Integral Logistics Management: Operationsand Supply Chain Management Within and Across Companies, FourthEdition, CRC Press, p.597
Spiceland J., Sepe F. & Nelson W. (2011), IntermediateAccounting, McGraw-Hill Irwin