CASE: The Southeastern Division of La Place Power and Light Company is responsible for providing dependable electric service to customers in and around the areas of Metairie, Kenner, Destrehan, La Place, Lutcher, Hammond, Pontchatoula, Amite, and Bogalusa, Louisiana. One material used extensively to provide this service is the 1/0 AWG aluminum triplex cable, which delivers the electricity from the distribution pole to the meter loop on the house. The Southeastern Division Storeroom purchases the cable that this division will use. For the coming year, this division will need 499,500 feet of this service cable. Since this cable is only used on routine service work, practically all of it is installed during normal workdays. The current cost of this cable is 41.4 cents per foot. Under the present arrangement with the supplier, the Southeastern Storeroom must take one-twelfth of its annual need every month. Assuring La Place a regular spot on the supplier's production schedule reached this agreement in order to reduce lead time. Without this agreement, the lead time would be about twelve weeks. No quantity discounts are offered on this cable, however, the supplier requires that a minimum of 15,000 feet be on an order. the Southeastern Storeroom has the space to store a maximum of 300,000 feet of 1/0 AWG aluminum service cable. Associated with each cable shipment are ordering costs of $ 50, which include all the costs from making the purchase requisitions to issuing a check for payment. In addition, inventory carrying costs (incl. taxes) on all items in stores are considered to be 10 percent of the purchase price per unit per year.
Because the company is a government-regulated, investor-owned utility, both the Louisiana Public Service Commission and its stockholders watch closely how effectively the company, including inventory management, is managed.
QUESTION: Evaluate the effectiveness of the current ordering system.... and can it be improved?
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