1- What is the annual inventory and distribution cost of the current distributio
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1- What is the annual inventory and distribution cost of the current distribution system?
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I'm trying to make this case but I don't really know the formulas to use. Can you help me to develop this case with each step and formula? The case ask the following questions:
CASE STUDY Managing Inventories at ALKO Inc. ALKO began in 1943 in a garage w John Williams at his Cleveland home. John had always top. Gary Fisher was hired to reorganize and restric. ture the company orkshop set up by When Gary arrived in 2009, he found a company enjoyed tinkering, and in February 1948 he obtained a patent for one of his designs for lighting fixtures. He decided to produce it in his workshop and tried market- ing it in the Cleveland area. The product sold well, and by 1957 ALKO had grown to a $3 million company. Its lighting fixtures were well known for their outstanding quality. By then, it sold five products. teetering on the edge. He spent his first few months trying to understand the company business and the way it was structured. Gary realized that the key was in the operating performance. Although the company had always been outstanding at developing and pro- ducing new products, it had historically ignored is distribution system. The belief within the company In 1963, John took the company public. Since then, ALKO had been very successful, and the com- was that once one makes a good product, the rest takes pany had started distributing its products nationwide. care of itself. Gary set up a task force to review te As competition intensified in the 1980s, ALKO i duced many new ny's profitability, however, began to worsen despite the fact that ALKO had taken great care to ensure that product quality did not suffer. The problem was that Current Distribution System margins ha ntro- company's current distribution system and come up lighting fixture designs. The compa- with recommendations. d begun to shrink as competition in the mar- The task force noted that ALKO had 100 p products in it ket et intensified. At this point, the board decided that a 2009 line. All production occurred a complete reorganization was needed, starting at the lo cated in the Cleveland area. For sales purpoExplanation / Answer
Holding cost= 0.15 $ per unit
TL cost from plant to DC 0.09 $ per unit
LtL cost from DC to Customer 0.10 $ per unit
LTL cost from plants to centralwise 0.5 $ per unit
LTL cost from central wise to customer= 0.24 $
Reorder interval = 6
Lead time= 5
Target cycle service level = 0.95
Coefficient of Variations by part and region
Total of All region
Part 1 Mean,R 90.92
Part 1 SD NA
Part 3 Mean 26.43
Part 3 SD NA
Part 7 Mean 6.49
Part 7 SD NA
Demand during reorder interval replenshiment lead time
All region Region 1 2 3 4 5
Part 1 Mean,R 1000.1 390.28 248.71 194.26 129.91 36.96
Part 1 SD NA 23.15 21.49 17.45 11.45 14.89
Part 3 Mean 290.73 27.28 45.65 67.65 67.76 82.39
Part 3 SD NA 10.48 20.56 21.19 22.42 11.81
Part 7 Mean 71.39 5.28 8.03 8.80 21.34 27.94
Part 7 SD NA 6.57 4.71 7.93 12.47 13.20
Total Inventory & Distribution Cost
All region Region 1 2 3 4 5
Part 1 292,107$ $103,729 $72,171 $56,964 $37,982 $ 21,260
Part 3 279,213$ $30,363 $56425 $ 66,904 $69,161 $ 56259
Part 7 389,005$ $49,246 $41,626 $63,051 $110,336 $124,747
Overall $960,326 183,439$ $170,223 $186,920 $217,479 $202,266
Central Savings
$282,208 $9,899
$215,356 $63,857
$257,600 $131,405
$755,164
Savings = $960,326-755,164
= $205,162
We can calculate annual inventory and distribution cost of current system is $960.326
$765.064+$195.262=$960.362
2. Purpose of holding inventory is to supply it to the market as there is a demand for it so that they can achieve economies of scale,protect supplies from stockout when in demand.
Main reason to keep inventory low is cost replenishing inventory. Money invested for inventory cannt be used in any other invetment. Manufacturer has to look into the advantage and disadvantage of low inventory.
To manage inventory cost they have Economic order quantity,reorder system,Inventory replenishment.
Reason to keep safety stock is to protect the stock when in demand so that it doesn’t have stock cuts.ALKO Should review its current distribution system to reduce cost but still maintain the CSL OF 95%.
3.After annalysing alko should build a national distribution centre,to compare the cost distribution system through NHDC,so that it can help to reduce distribution system of ALKO.
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