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 Sonny's reliability in replacing or salvaging parts for WES. The service records show that WES $180,000 (wholesale) on repair parts last year, not including parts reim spent ts. The annual inventory holding cost at WES is assumed to be 20 alue of the inventory, and the average inventory level is approximately The consumption of parts is directly related to gross revenue, whi ch recasted to increase at a rate of 10% annually during the next three years. WES's present inventory system is organized poorly. WES stocks use parts according to an unsophisticated system where one of the s drives to the local distributor to buy parts whenever parts have run been out of stock." As slower-moving parts are needed (again signaled is for common-use technician low or levels or stockouts), technicians typically include a few "extra" w

Explanation / Answer

1. At WES, there is a problem of gross mismanagement. Inventory management and cost to maintain the inventory, both are quite high. Though WES is authorized service partner of Somy Corporation, but its association with Somy is not so well organized, where there are so much of backlogs and shortfalls of some of the electronic items are always there, which indirectly hinders the servicing capability of WES.

2. WES should adopt to more automated way of inventory system such as adopting the ERP pr SAP based system where availability of all the items or electronic parts should be tracked in real time. Prior intimation to Somy about the need or requirement of critical electronic parts should be well notified in advance so that precious time could be saved in procurement of items from Somy to WES.

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