Mark Mastrangeli John Knezevic

 Problem Overview  Data Description & Data Sample  Assumptions(carrying, holding costs)  Pareto Analysis (ABC Classification)  EOQ Models  Sample Savings  Other Recommendations

 Objectives Of Inventory Management  Minimize Inventory Costs  Maximize Customer Service  In order to Minimize Inventory Cost ▪ Find Economic Order Quantity that minimizes: ▪ Annual Ordering Cost + Annual Carrying Cost ▪ Annual Purchasing Cost is not included because there is nothing you can do about it.

 Given 2.9 million line historical data file  Focusing on a single store’s A class inventory Items we calculated: ▪ Current Method Annual Inventory Cost ▪ EOQ Annual Inventory Cost  ~3000 Item Master Inventory spreadsheet  Eliminated Many Items to narrow inventory

LocationOrder NoItem NoCenter NoCenter NameOrder DateQuantity Atlanta GA South CPC10/31/ Atlanta GA South CPC10/31/ Atlanta GA South CPC10/31/ Atlanta GA South CPC10/31/ Memphis TN Poplar Ave10/31/ Memphis TN Poplar Ave10/31/ Denver CO Tech Center10/31/ Denver CO Tech Center10/31/ Denver CO Tech Center10/31/ New York NY 90 Park Ave10/31/ New York NY 90 Park Ave10/31/ St Petersburg FL 4th at 53rd10/31/ St Petersburg FL 4th at 53rd10/31/ Riverside CA10/31/ Riverside CA10/31/ Chicago IL Illinois Center10/31/ Chicago IL Illinois Center10/31/20085

 Item No  Location  Item Description  Item Price  Average Cost  Max Order  Lead Time

 350 Day Working Year  $10.00 Cost per Order  7% IRR Carrying Cost  Max Order Quantity could be changed

Pareto Principle 80% of a nation’s wealth, owned by 20% of population Apply concept to inventory A - account for 10-20% of items, 60-80% value B - account for 20-40% of items, 15-30% value C - account for 50-60% of items, 5-10% value Focused exclusively on A items

Can be used in planning the purchases of inventory items for retailers General Assumptions: Uses Constant Annual Demand vs. Fluctuating Periodic Item’s purchase cost is independent of the quantity ordered and irrelevant in calculating annual inventory cost Lead time is a certainty

 Assuming,  Max Order Quantity has been changed.  $10.00 Cost per Order  7% IRR  350 Working Days per year  Calculated Cost of Actual known orders  Averaging Total Units Ordered over Duration and known number of orders  Calculated EOQ Model for all 27 Class ‘A’ Items

Available Data Center Number:0126 Center Name:Dallas TX Greenville Item Number: Item Description: CD-RECORDABLE ON SPINDLE (100) Item Price:$36.93 Item Cost:$35.00 Max Units per Order:10 Lead Time:7 Total Number of Orders:36.00 Total Units Ordered:87.00 Duration of Historical Data:975 Assumptions Working Days per year:350 Cost per Order:$10.00 Carrying Cost per year:7%

Calculated Data based on Assumptions and Historical Data Average Orders per Day:0.04 Average Unit Demand per Day:0.09 Average Annual Orders:13 Average Annual Demand:31 Average Units per Order:2 Average Units On-Hand:1 Annual Purchasing Cost:$1, Annual Ordering Cost:$ Carrying Cost per unit per year:$2.45 Annual Carrying Cost:$2.96 Total Cost:$1, Current Method Annual Inventory Cost$132.19

EOQ Model D :31 Q* :16 Orders Per Year :2 Average Units On-Hand :7.98 Cycle Time :179 Reorder Point :1 Annual Ordering Cost :$19.56 Annual Carrying Cost :$23.63 EOQ Method Annual Inventory Cost :$43.19 Savings over current method :$89.00

 For All 27 Class ‘A’ Items  Current Total Cost of Inventory under given assumptions: $3,  EOQ Total Cost of Inventory: $  Savings over current method: $  Average Savings per Item: $72.88  ~Annual Savings for All 1124 stores:  1124 x $ = $2,211,  If Pareto Principle Holds $2,211, = 60% Value  Then 100% = $ 3,686,461.69

 For 3227 Orders, 516 Items in the history for Greenville, Dallas Center Avg Units per order = 2.7  Under EOQ for 27 A Items 67 Orders per year  Under Current Method 307 Orders per year  80% Reduction  80% Reduction of 3227 = 645 Orders

Maintaining Inventory Accuracy Avoid stock outs at all cost DC does not have item to send Recommended levels of accuracy A items ± 0.2% B items ± 1% C items ± 5% Cycle Counting Each month 1/12 th of company items are counted Consider Changing Max Order Quantity and Using EOQ