Just-in-Time Inventory Management

i. Major problems that Parts Emporium is facing.

Parts Emporium has inadequate inventory records

The company has poor customer service that threatens its sales.

Parts Emporium is having excess inventory in the warehouse and is experiencing reduced sales

ii. Better strategy

The random experimentation is a good strategy for assessing the creditability of the inventory system in a short duration. However, since it’s based on a sample of data, it may not be representative. A physical check into all the categories would reveal much information on the problem facing the company management system. An inquiry on the customer handling by communicating directly to the customers would require provider much detail on the issues that need adjustment that experimentation. Examination of the existing records would reveal the weakness and error in the system.

iii. Limiting the study to two items

McCaskey has a limited influence to use all products in the study. Therefore, she limited the study to two products so that she can produce positive result faster and use these results to convince Block and Spriggs to back her initiative of changing the entire inventory management system. The gain in these two products would improve McCaskey influence on needed changes to better Parts Emporium inventory management systems.

iv. McCaskey increase the ordering costs for Parts Emporium to include delivery charges

McCaskey should not add the delivery charges in ordering cost in the new inventory system. The JIT system would ensure that inventory is ordered and received when needed for sales. Thus, less cash will be tied up in the inventory. The possibility of stockout will be significantly reduced in the new system and sales would be substantially increased

v. Current inventory system

The current inventory management system is ABC because inventory is divided into categories (Shabanova et al 691). Parts Emporium has divided its stock into categories for instance extensive product line (DB032 drive belt and EG151 exhaust gasket).

vi. The current level of service

The service level is 40 days in inventory or days in inventory outstanding. Parts Emporium requires 40 days to turn its inventory into cash. In other words, the company current stock would last 40 days.

vii. Proposed inventory system

The proposed inventory system is Just-in-Time (JIT) inventory management because the new plan intends to reduce bloated inventory in the warehouse and ensure that stock at hand will be the amount needed to satisfy demand during the lead time (Kros 228). The excessive inventory in the store increases the holding cost. The JIT ensures that stock is ordered or received only when it is needed for customer sales. The JIT help to lessen the inventory on hand and reduce the carrying costs. McCaskey aims to use JIT to reduce the non-essential cost in order, thereby increasing return on investment.

viii. Convince the Executives of the company to adopt your recommendations

I would inform the executive that the poor customer service has resulted in orders being placed in backorder despite the company having 40 days in inventory outstanding. The backorders are causing the company 10% loss in sales in revenues annually. I would indicate that with proper inventory management in place the company would prevent the loss experienced. The loss would even be high because the current company margin is 40%.

ix. Similarity and differences in the calculations for the two products

The calculations would be similar in that both would involve the determination of holding and ordering costs to determine the total costs. However, they would be different because they would use different annual demand with the EG151 using 21 weeks while DB032 using 11 weeks. The calculation would also be different because the proposal will have a 99% service cycle level.

x. Next step for McCaskey if Block and Spriggs back her

McCaskey will need to initiate inventory management changes in all system of the company to ensure that there just in time inventory control and increased sales. The approach would reduce the cost of holding inventory and increase Parts Emporium return on investment.

2. EG151 Exhaust Gasket

Current

Proposed

% Change

How much to order?

500

410

-18.00%

When to order?

505.76

175.76

-65.25%

Ordering plus holding cost per year:

$466

$394

-15.41%

Estimated lost sales (in %):

4.80%

1.50%

-68.75%

Estimated cost of lost sales per year:

$1,163

$308

-73.56%

Total Cost per year:

$1,629

$702

-56.93%

Most urgent action:

Reject

Accept

3. Role of IT in Parts Emporium

Information technology can be used in the receipts of auto parts at the warehouse. The company barcode at the point of receipt of the auto parts. The barcode scanner helps in canning individual items or shipment pallets allowing Parts Emporium to itemize all the shipment from the vendors. The company can then compare these shipments against the purchase orders for errors or loss in transit (Jaana, et al 9). A second scan of the auto parts to the point of sales help to automatically count the remaining stock in the warehouse and notify the purchasing managers that it is time to make reorders.

The scanning technology such as barcode readers and FFID can automatically enter correct prices at the register at the point of checkout. The automatic entry of price prevents errors in keying data. The information technology also helps to create a useful real-time record of the amount of stock that remains in the warehouse and whether there is a need for a new shipment (Himanshu et al 748).

The warehousing of the auto parts before sale creates a possibility of stock of damages, theft, and changes in customer tastes. Besides, the movement of the auto parts from the warehouse to the point of sales involve some cost of shipment particularly when there is incorrect shipment (Himanshu et al 750) These challenges require that the company computerizes its process to provide real-time information on the whole workflow process. The information would assist the managers to reduce the cost of purchasing by increasing efficiency, reducing stock and minimizing the possibility of damages or theft by tracking each auto part to responsible individual staff.

4. Role of internet sources

The internet has provided vital information on the calculation of the lot sizes or economic order quantity. The internet sources provided the formulas for economic order quantity, holding cost, ordering cost, and reorder point among others. The internet has provided vital information on the role of Information technology and how it can be applied in resolving current problems facing Parts Emporium.

Work cited

Auramo, Jaana, et al. “The roles of information technology in supply chain management.” 17th Annual NOFOMA Conference. (2005). 9-10

Kros, John F., Mauro Falasca, and S. Scott Nadler. ”Impact of just-in-time inventory systems on OEM suppliers.” Industrial Management & Data Systems 106.2 (2006): 224-241.

Moharana, Himanshu S., et al. ”Importance of information technology for effective supply chain management.” International Journal of Modern Engineering Research (IJMER) 1.2 (2011): 747-751.

Shabanova, L. B., et al. ”ABC-analysis, as an important tool for generating an optimal assortment plan commercial enterprises.” Mediterranean Journal of Social Sciences 6.3 (2015): 691.