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A case on Flowtime, Inventory, Thruput and Process costs

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1 A case on Flowtime, Inventory, Thruput and Process costs
CRU Computer Rental A case on Flowtime, Inventory, Thruput and Process costs

2 CRU case What does CRU stand for anyway?
CRU is a computer rental company with a customer base of ? CRU has two warehouses (Mega Centers) at ? and ? It has ? local retail centers.

3 What is Mr. Sarkis’ Problem?

4 To understand the CRU operations Make a flowchart
Customer CRU rental’s facilities at a Mega center

5 Flowchart with operations
Configuration Pre-Config Receiving Order parts Customer Diagnose Perform repairs Wait delivery

6 Flowchart with operations
??? ??????? Perform repairs Configuration ????????? Customer ???? ????? To where? ???????? Receiving

7 Flowchart with operations and inventories
??? ??????? Perform repairs Configuration S.20 S.24 ????????? S.42 S.40 Customer S.41 Ordered ???? ????? To where? S.41 Not ordered Receiving ???????? Receiving

8 Add flow times and costs appropriately
Add flow times and costs appropriately to inventories and delays Flowchart with operations and inventories ??? ?????? ????? ??????? ??? ??????????? ??? ????????? ??? Customer ?? ? ??? ??? ???????? ??????? ??? ???

9 Utilization in 1996 Utilization=Inventory on rent / Inventory owned
Number of computers on rent at any time ???? x ???? = ???? Number of computers owned by CRU? Can use Little’s formula Inventory = Thruput x Flowtime

10 Inventory in 1996: Completed
Customer Receiving S.24 S.40 S.41 Not Ordered S41 S.42 S.20 Thruput Units/wk ???? ??? Inventory Units Flowtime Weeks Thruput from the top of p. 4 and the flowchart Some of the inventory from top of p. 4 Some of the flowtime from the flowchart Remaining computed by Little’s formula. Total inventory owned by CRU: ????? units Utilization=????/?????=??.?% Utilization >= 50%. No problem.

11 Compute the profit per week in 1996
Revenue=Inventory on Rent x Rent per unit per week ????*????=???? Cost=Ship+Receive+Pre-Config+Repair+Depreciate Ship+Receive=???? Pre-Config=???? Repair=???? Depreciation=???? Cost=???? Profit=????

12 Inventory in 1997: Flowtimes and Thruputs
Customer Receiving S.24 S.40 S.41 Not Ordered S41 S.42 S.20 Thruput Units/wk ??? Inventory Units ???? Flowtime Weeks ? Keeping the same flowtimes due to competition Adjust the thruputs Compute inventories from Little’s formula. Total inventory owned by CRU: ???? units Utilization=????/????=??.?%. Utilization > 50%. No problem.

13 Compute the profit per week in 1997
Revenue=Inventory on Rent x Rent per unit per week ????*????=???? Cost=Ship+Receive+Pre-Config+Repair+Depreciate Ship+Receive=???? Pre-Config=???? Repair=???? Depreciation=???? Cost=???? Profit=????

14 Short term sales initiative in 1997
Every week, ??? units rented for ? weeks Each unit rented for ? weeks, Brings in a revenue of $??/week Each unit rented for ? weeks Note the discounting for the longer term rentals What is the average number of weeks a computer stays with a customer? 6 or 8 weeks or something else?

15 Inventory in 1997 with Short term sales initiative: Flowtimes and Thruputs
Customer Receiving S.24 S.40 S.41 Not Ordered S41 S.42 S.20 Thruput Units/wk ???? ?? ????? ??? Inventory Units ? Flowtime Weeks Keeping the same flowtimes except for the customer Adjust the thruputs Compute inventories from Little’s formula. Total inventory owned by CRU: ????? units Utilization=????/?????=??.?%. Utilization < 50% or > 50%?

16 Compute the profit per week in 1997 with the Short term sales initiative
Revenue=Inventory on Rent x Rent per unit per week ????*????=???? Cost=Ship+Receive+Pre-Config+Repair+Depreciate Ship+Receive=???? Pre-Config=???? Repair=???? Depreciation=???? Cost=???? Profit=????

17 Suggestions ???

18 What is the fundamental problem with the computer rental business?

19 Do you see the same fundamental problem in the industries below?
Movie rental Fridge rental Furniture rental Car rental Apartment rental

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