THE US AIRFILTER COMPANY HAS HIRED YOU AS A SUPPLY CHAIN CONSULTANT. THE COMPAN
ID: 439801 • Letter: T
Question
THE US AIRFILTER COMPANY HAS HIRED YOU AS A SUPPLY CHAIN CONSULTANT. THE COMPAN MAKES AIR FILTERS FOR RESIDENTIAL HEATING AND AIR CONDITIONING SYSTEMS. THESE FILTERS ARE MADE IN A SINGLE PLANT LOCATED IN KENTUCKY, USA. THEY ARE DISTRIBUTED TO RETAILERS THROUGH WHOLESALE CENTERS IN 100 LOCATIONS IN THE USA, CANADA AND EUROPE. YOU HAVE COLLECTED THE FOLLWOING DATA RELATING TO THE VALUE OF INVENTORY IN THE U.S. AIRFILTER SUPPLY CHAIN:
QTR 1(JAN-MARCH) QTR 2 (APRIL- JUNE) QTR 3 (JULY - SEPTEMBER) QTR 4 (OCT.- DEC)
Sales (total)
USA 300 350 405 375
CANADA7560 75 70
EUROPE 30 33 20 15
--------------------------------------------------------------------------------------------------------------------------
COST
OF GOODS 280 295 340 350
--------------------------------------------------------------------------------------------------------------------------
Raw Materials
at the USA Plant
end ofQuarter 5040 55 60
--------------------------------------------------------------------------------------------------------------------------
Work in Process
&finished at the USA 100105 120 150
plant (end of qtr)
--------------------------------------------------------------------------------------------------------------------------
Distribution center
(end of qutr)
USA 25 27 23 30
CANADA1011 15 16
EUROPE 54 5 5
*****ALL AMOUNTS IN MILLIONS OF US DOLLARS*****
A. What is the average inventory turover for the firm?
B. If you were given the assignment to increase inventory turnover, what would you focus on? Why?
C. The company reported that it used $500M worth of raw material during the year. Onaverage, how many weeks of supply of raw material are on hand in the factory?
Explanation / Answer
The U.S airfilter company has hired you as a supply chain consultant the company makes air filters for residential heating and air-conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the Untied States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada and Europe. You have collected the following data relating to the value of inventory in the U.S. Airfilter supply Chain :
<?xml:namespace prefix = o />
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales
U.S
<?xml:namespace prefix = st1 />Canada
Europe
300
75
30
350
60
33
405
75
20
375
70
15
Cost of Goods Sold
280
295
340
350
Raw Materials
50
40
55
60
Work-In-Process and Finished Goods
100
105
120
150
Distribution Center Inventory
U.S.
Canada
Europe
25
10
5
27
11
4
23
15
5
30
16
5
All Amounts in millions of U.S. dollars
a. What is the average inventory turnover for the firm?
Cost of goods sold (Total year)
280+295+140+350 = 1,065
Average aggregate inventory value (total year)
Raw materials: 50+40+55+60 = 205
WIP and finished goods: 100+105+120+150=475
Distribution Inventory: 40+42+43+51=176
105+475+176=756
-> Average inventory turnover = 1,065 / 756 = 1.4087
b. If you were given the assignment to increase inventory turnover, what would you focus on? Why?
-> We should focus on average aggregate inventory value than cost of goods sold. Because we can control average aggregate inventory values easily by decreasing Distribution center or Work-in –Process.
c. The company reported that it used $500million worth of raw material during the year. On average, how many weeks of supply of raw material are on hand at the factory?
-> Weeks of supply of raw material
= (205+500) / 1,065 * 52
= 34.4225
<?xml:namespace prefix = o />
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales
U.S
<?xml:namespace prefix = st1 />Canada
Europe
300
75
30
350
60
33
405
75
20
375
70
15
Cost of Goods Sold
280
295
340
350
Raw Materials
50
40
55
60
Work-In-Process and Finished Goods
100
105
120
150
Distribution Center Inventory
U.S.
Canada
Europe
25
10
5
27
11
4
23
15
5
30
16
5
All Amounts in millions of U.S. dollars
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