CASE 1: POOR RECEPTION Warwick Electronic Services (WES) is a small entrepreneur

Question

CASE 1: POOR RECEPTION Warwick Electronic Services (WES) is a small entrepreneurship that services home entertainment equipment and small appliances. Seventy-five percent of its revenue is derived from television and VCR repairs. WES is an authorized Somy service center and thus is expected to stock a fairly complete line of spare parts for Somy products. Most of these spare parts are purchased from the Somy Corporation, often in a "kit." As parts are used for repairs, WES returns broken or defective parts for new or rebuilt parts. If the returned parts are the result of warranty service, Somy replaces them with new parts at no charge to WES. If the parts are not under warranty, Somy either replaces them at a discounted price to WES or pays a small salvage fee to WES for parts it does not replace (the salvage value is based on the condition and utility of the parts). Consequently, WES always has a credit balance with the Somy Corporation. Repairs on Somy equipment account for approximately 35% of total revenue. Another 40% of revenue is derived from servicing tele- visions and VCRs manufactured by other companies, but WES has no service agreements with those manufacturers. The remaining revenue comes from mis- cellaneous repairs on other entertainment equipment and small appliances as well as from direct sales of parts to customers. Common-use parts (parts not specific to a brand) are stocked by a local distributor (parts house), which is ten miles from the repair shop. Slower- moving items (usually parts specific to a brand) also can be ordered through the local distributor at an average lead time of one week. As mentioned previously, Somy parts are both purchased and received from the manufacturer in exchange for ones WES has returned. Receiving parts from Somy is dependent upon WES's diligence in returning parts to Somy as well as upon Somy's reliability in replacing or salvaging parts for WES. The service records show that WES spent $180,000 (wholesale) on repair parts last year, not including parts reim- bursements. The annual inventory holding cost at WES is assumed to be 20% f the value of the inventory, and the average inventory level is approximately $60,000. The consumption of parts is directly related to gross revenue, which is forecasted to increase at a rate of 10% annually during the next three years. WES's present inventory system is organized poorly. WES stocks common-use parts according to an unsophisticated system where one of the technicians drives to the local distributor to buy parts whenever parts have "run r been out of stock." As slower-moving parts are needed (again signaled levels or stockouts), technicians typically include a few "extra" with each

Explanation / Answer

1. Apparent problems, and, inefficiencies at WES

2. Recommendations

3. The dollar value of the inventory investment - type of system needed

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