leads to a reduction of total inventory cost to AA 4202 2039 970 980 8404 1386

Leads to a reduction of total inventory cost to aa

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leads to a reduction of total inventory cost to AA 420.2 203.9 97.0 98.0 840.4 138.6 492.9 97.0 48.5 638.5 $1, 987, 594.68. The savings in inventory offset AQ 2301.2 1168.5 531.5 561.5 4602.4 794.1 2824.9 531.5 265.7 3,622.1 the additional transportation cost by AY 306.8 103.1 70.9 49.5 613.6 70.1 249.3 70.9 35.4 355.5 $1, 257, 768.83 or a $4.5/unit saving. Total 23,108.6 6244.0 5336.9 3000.7 46217.2 4243.6 22573.1 5336.9 2668.4 30,578.4 Total Inventory Cost: 1987594.682 Inventory Cost/unit shipped: 7.167587 Savings per unit shipped: 11.7 - 7.2 = $4.5/unit shipped As shown, the total inventory cost through the use of air freight is significantly less than for what is generated through the supply of generic printers to the Europe DC. The savings offset the additional transportation cost per unit, thus the viable option would be to reduce lead time through air freight. In addition, the case highlights that this would also result in faster reaction times to unexpected changes in the product mix. Note: Q is assumed to be fixed, whereas T is variable depending on inventory levels and demand at any given time. Thus, the number of orders per year are variable, which means our analysis needs to include the ordering cost (S x # of orders per year). One thing to note is that a per order cost isn't given in the case but it's understood that HP owns it's DCs, which means they would still absorb the costs associated with its pipeline inventory. Another thing to highlight is the in-class analogy of reducing the sea of inventory, i.e. reducing waste. To elaborate, in order to reduce inventory levels, Total Quality Management can be implemented to account for a "lack of quality"; HP can invest money in the technology to acquire better information between mediums in the supply chain to reduce the inventory that will account for bad information. In addition, better cooperation between members of the supply chain can reduce supplier lead times, which there may or may not be costs associated with reducing lead times depending on the magnitude and the extent for which inventory costs increase as a result; motivating employees can effectively reduce inventory through increased sales but the costs associated with this are more of an HR management concern. Advantages of Question 3's current policy: Reduced safety stock levels means that total inventory costs will be less than Question 2's. However, the lower safety stock levels adversely affects customer service as the computed CSL will be less than 98% from question 2 (SS=F^-1(CSL) x STDEV of EP). Advantages of supplying generic printers from Question 4: reduced inventory costs as safety stock levels are lower than previous scenarios. In addition, this reduces the costs of keeping space for the inventory of the different printer models as well as the opportunity costs from keeping said inventory, which could possibly become outdated if it stays too long. However, the proposed idea for implementing the JIT system is susceptible to the adverse effects of uncertainty (delayed orders, natural disasters, sudden rush orders, etc.), which could lead to escalated issues.
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