An artist\'s supply shop stocks a variety of different items to satisfy the need

Question

An artist's supply shop stocks a variety of different items to satisfy the needs of both amateur and professional artists. In each case described below, what is the appropraite inventory control model that the store should use to manage the replenishment of the item described below? Explain your choice and determine the data needed to solve the model selected.


a) A highly volatile paint thinner is ordered once every three months from the supplier. Cans not sold during the three month period are discarded. The demand for the paint thinner exhibits considerable variation from one three month period to the next.


b) A white oil base paint sells at a fairly regular rate of 600 tubes per month and required a six week order lead time. The paint store buys the paint for $1.20 per tube.


c) Burnt sienna oil paint does not sell as regularly or as heavily as white. Sales of the burnt sienna vary considerably (and randomly) from one month to the next. The useful lifetime of the paint is about two years, but the store sells almost all of the paint prior to the two year limit. Fixed order placement costs for low volume items such as burnt sienna oil paint are significant.

Explanation / Answer

Inventory Management – Artist’s Supply Shop

Case a).

Ordering interval – Once in three month

Life period of item – 3 months

Demand - Unpredictable

Since we have unpredictable demand followed by discarding of material once reaches expiry date, we have to look into certain aspects in inventory model designing.

If these things are possible then we will go with reverse logistics return option so as to save the inventory cost. In case the above option is not economically feasible then we would have to look for demand patterns and usual trend in past years. If they have any certain key aspects of demand.

Case b).

Monthly Demand- 600

Ordering lead time- 1.5 month

Life expectancy of item- Unknown

In this item we can see that there is a total average demand of 600 items per month with a lead time of 6 weeks. In this case since the lead time for transit is higher we would have to keep the backup stock.

Total consumption of white oil paint in 6 weeks = 600*3/2 = 900 (+/- 200)

In this case we will propose safety stock of 200 items over the period of ordering interval.

Safety stock = 200= 23% of total inventory

So we will follow usual order of 900 items per shipment with backup safety stock of 200 items at shop provided that we have enough space for the storage of item. This would result in total of $240 of capital blockage but will result in maximum customer satisfaction and maximum service level

Case c).

Items life duration – 2 years

Demand pattern – Variable

Cost of ordering – Fixed and very high

Items discarded or reordered- None

In this case we see that all the items are sold within a stipulated period of two years within the life time of paint. So we would take bi-yearly demand pattern of the paint and will have to ensure FIFO (First In First Out) model. Since the ordering cost is fixed and very high in this case so we would have no option of reordering.

Ordering in once every 2 years.

Inventory Stock to be maintained with FIFO model

Any possibility of demand fluctuations could be met with inventory stocking.

No option of return due to high cost of ordering

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