Operation Managment

Let us prepare an inventory system for EG151 exhaust gasket: First we sum up the gasket sales/demand for the 21 weeks that is given to us. This gives us a total of 2142 gaskets for 21 week period if we divide it by 21 we get average weekly sales of 102 gaskets. As the lead time for gaskets is two weeks we multiply this quantity by 2 and we get a figure of 204. We take a safety stock level of one week as this is the half of the lead time and we add this to the figure of 204 and we get a reorder quantity of 306. This should be the reorder quantity for EG151. This also means that the average stock will be 204/2 that is 102 plus safety stock 102 that is 204 units.

the investment in the inventory will be 68% of $12.99 that is $8.83. The cost of carrying this will be 21 percent that is $1,85. If we multiply this by 204 units found above we get a yearly cost of $337.4. Now if the ordering is done once every two weeks then the ordering cost will be 26 X $20 = $520. if this is added to the above cost we get a total of $857.4.

Put yourself in Sue McCaskey’s position and prepare a detailed report to Dan Block and Ed Spriggs on managing the inventory of the EG151 exhaust gasket and the
DB032 drive belt. Be sure to present a proper inventory system and recognize all relevant costs.

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