Case Study 3 Inventory Management.docx - Case Study 3...

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Case Study 3- Chapter 12 WAGNER FABRICATING INVENTORY MANAGEMENT ANALYSIS The objective of inventory management is to balance between inventory investment and customer service. Inventory management and control can provide several functions to a firm’s operations, like provide a selection of goods for anticipated customer demand and allows advantage of quantity discounts. Many firms often must decide if purchasing a part or unit from a supplier is a more favorable option than producing the part or unit themselves. Many factors must be considered in each scenario like holding (carrying costs) and ordering (setup) costs. In an analysis of the Wagner fabricating firm, this analysis of the economic feasibility and costs for purchasing the part from a supplier or producing the part themselves. Using the Basic Economic Order Quantity (EOQ) Model we can complete a comparative analysis of each scenario. The annual demand for the part of 3200 units, with an operation of 250 days per year. Starting with this information we can complete the analysis with the end goal to reduce the total costs to the firm. A first analysis of holding costs to calculate the holding cost rate, we have to factor in the 14% capital cost plus the costs of taxes, shrinkage and overhead costs which calculate to 8% making the total holding cost rate 32%.

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