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John Derrick VelasquezOctober 1,2019A04200374Case Study 3Inventory ManagementWagner Fabricating CompanyDr. NanryOperations Management 5315Introduction:
John Derrick VelasquezOctober 1,2019A04200374Wagner Fabricating is currently analyzing the convenience of making their own part compared to buying the same product from a supplier moving forward. Demand for the product is 3,200 units per year, and the financial analysis cost of capital is 14 %. The accounting team has estimated $24,000 spent on insurance and taxes. $9,000 lost in inventory, and $15,000 on warehouse over-head. The purchasing operation requires 2 hours to process and coordinate an order no matter the quantity ordered. Additionally, salaries average $28 per hour for the work, and when reviewing the cost of 125 orders. The average cost was $2,375 was spent on telephone,paper, and postage just to order.Executive summary:Forecasting for equipment capacity will be available for the part being considered for manufacturing. The capacity will be at 1,000 units per month, and five months of production time available. Operations management understands that schedules can be arranged so the part can be produced. Production costs are expected to $17 per unit. Management’s only concern is that setting up for this production will cost a significant amount. Estimated costs of labor, and lost production time are projected to be $50 per hour. Consequently, it will also require 8 hours to setup manufacturing equipment to produce the units. Within this report we will focus on Wagner Fabricating Company need to keep buying the part from the supplier, or if its cost efficient, and time efficient to manufacturing their own.