1. what factors should be considered when developing inventory systems for the 1
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1. what factors should be considered when developing inventory systems for the 10,000 items carried by Danos? What are the key differences between items that would affect how their inventory is managed? For example, how should prescrioption drugs be handled differently from over the counter items? or how do seasonal products differ from more stable products
develop an inventory system for Tyleno caplets and for Milky way candy bars. hint: you will need to choose an appropriate cycle-service level and an appropriate holding cost for each item
discuus the characteristics of Raid rat spray that might sugeest that it should have a different type of inventory syste. What factors should be considered in developing a system for Raid?
Compare the annual costs for your plan for Tylenol and Milky Way relative to the costs under the current plan. You may want to consider ordering, holding, and stockout costs.
230 PART II·Tools and Tactical Issues CASE STUDY Dano's Drugstore The warehouse/service center that Dano's Drugstore opened her drugstore in 1951 on a argaret Dano lbusy street corner in a small suburb of Chicago. orders from has close to a 100 percent fill rate; there. marily to residents of the town. Over Originally, the store provided drugs and v arious other fore, it is safe to assume that any orders placed on Tuesday morning will be delivered on Wednesday afternoon. Your initial assignment is to develop an the course of decades, the store expanded as the sub- urbs of Chicago expanded. By 1996, the store had inventory system for three items:(1) Tylenol aspirin tripled from its original size, occupying 5,000 square caplets, (2) Milky Way can dy bars, and (3) Raid rat ison. Demand data for the previous year for each of po these three products is given in Exhibits 1 through 3, feet of space. In the course of this expansion, the store increased its product range, so that in addition to the pharmacy, it offered other items such as snack food, dental care items, suntan lotion, and bug spray. The three products sell for $5.99 (Tylenol), S0.7 (Milky Way), and $9.99 (Raid). The profit margins on The total breadth of the product line encompassed more than 10,000 items. the three products are 30 percent, 40 percent, and 20 percent, respectively. The cost of placing any order including stocking the order in the storeroom and on the store's display shelves, is estimated to be $3. As the drugstore grew, managing inventory repre- numerous systems over the past few years, but most item has 75 days' worth of inventory, yet the fill rate sented a significant challenge. Margaret has tried Dano's Drugstore has averaged a 15 percent an- of these have not been very successful. The average nual return on assets over the past four years. Marga- ret has a revolving line of credit at the local bank that all customer orders is approximately 90 percent. allows Dano's to borrow money at 10 percent. Cur- Any item that is out of stock will be backordered rently, the drugstore has a loan in the amount of with a rain check provided) upon customer request. $145,000 outstanding. Annual rent for the store is In approximately 50 percent of the cases where an $84,000, insurance is $24,000 per year, and mainte item is out of stock, the customer simply buys the nance expenses are approxi item from a competing drugstore. Margaret realizes The current order policies for each , 1 the three that the current inventory methods are not working "test" units are as foll ows: well. In addition, she realizes that her background as armacist may not have properly prepared her for Tylenol Caplets Milky Way managing the inventory for thousands of items. Fur thermore, Margaret would like to take a less active Raid Rat Q=600 Q 200 role in her business and spend her winters in Florida. Therefore, she has hired you as a consultant to evalu- Order 100 f inventory 50, order forecast number for next week must finalize its order by 9:00 a.m. Tuesday morningExplanation / Answer
Inventory system is the method of running inventory in order to get together consumer stipulate at the lowest promising rate and with a least amount of outlay.
The factors considered for developing the inventory system for the 10,000 items which carried by Dano’s are sound purchasing of inventory with the right quality and quantity, carrying costs, shortage of costs and cot of replenishment. A first round step in the course of inventory control is to settle on the estimated expenses of moving inventory. These expenses comprise on such operating cost as cargo space expenses, catalog risks, and the loss of opening expenses linked with tying up assets.
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