Parts Emporium Case Study
Parts Emporium Case Study OPS/350: Operations ManagementAssignmentTutorOnlineWk. 2 – Parts Emporium Case Study [due Mon]Top of FormBottom of FormAssignment ContentTop of FormRead CASE: Parts Emporium at the end of Ch. 9 (p. 793).Put yourself in Sue McCaskey’s position and prepare a detailed report to Dan Block and Ed Spriggs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt.Write a 1,050- to 1,400-word report.Discuss Parts Emporium supply chain and possible remedies for its supply chain problems.Present a proper inventory system and recognize all relevant costs.Discuss how your recommendations for these two items will reduce the annual cycle inventory, stock-out, and order costs.Include strategic and tactical changes that might improve the company’s inventory performance, reduce variability, and improve customer service.Format your paper consistent with APA guidelines.Submit your assignment.ResourcesOperations Management: Processes and Supply Chains, Ch. 9 Center for Writing Excellence Reference and Citation Generator Grammar Assistance Copyright 2019 by University of Phoenix. All rights reserved.Bottom of FormCase Parts EmporiumParts Emporium, Inc., is a wholesale distributor of automobile parts formed by two disenchanted auto mechanics, Dan Block and Ed Spriggs. Originally located in Block’s garage, the firm showed slow but steady growth for 7 years before it relocated to an old, abandoned meat-packing warehouse on Chicago’s South Side. With increased space for inventory storage, the company was able to begin offering an expanded line of auto parts. This increased selection, combined with the trend toward longer car ownership, led to an explosive growth of the business. Fifteen years later, Parts Emporium was the largest independent distributor of auto parts in the north central region.Recently, Parts Emporium relocated to a sparkling new office and warehouse complex off Interstate 55 in suburban Chicago. The warehouse space alone occupied more than 100,000 square feet. Although only a handful of new products have been added since the warehouse was constructed, its utilization increased from 65 percent to more than 90 percent of capacity. During this same period, however, sales growth stagnated. These conditions motivated Block and Spriggs to hire the first manager from outside the company in the firm’s history.It is June 6, Sue McCaskey’s first day in the newly created position of materials manager for Parts Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her first real-world problem. At approximately 8:30 a.m., it arrives in the form of status reports on inventory and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe Donnell, the purchasing manager: “Attached you will find the inventory and customer service performance data. Rest assured that the individual inventory levels are accurate because we took a complete physical inventory count at the end of last week. Unfortunately, we do not keep compiled records in some of the areas as you requested. However, you are welcome to do so yourself. Welcome aboard!“A little upset that aggregate information is not available, McCaskey decides to randomly select a small sample of approximately 100 items and compile inventory and customer service characteristics to get a feel for the “total picture.” The results of this experiment reveal to her why Parts Emporium decided to create the position she now fills. It seems that the inventory is in all the wrong places. Although an average of approximately 60 days of inventory is on hand, the firm’s customer service is inadequate. Parts Emporium tries to backorder the customer orders not immediately filled from stock, but some 10 percent of demand is being lost to competing distributorships. Because stockouts are costly, relative to inventory holding costs, McCaskey believes that a cycle-service level of at least 95 percent should be achieved.McCaskey knows that although her influence to initiate changes will be limited, she must produce positive results immediately. Thus, she decides to concentrate on two products from the extensive product line: the EG151 exhaust gasket and the DB032 drive belt. If she can demonstrate significant gains from proper inventory management for just two products, perhaps Block and Spriggs will give her the backing needed to change the total inventory management system.The EG151 exhaust gasket is purchased from an overseas supplier, Haipei, Inc. Actual demand for the first 21 weeks of this year is shown in the following table:WEEK ACTUAL DEMAND WEEK ACTUAL DEMAND 1 104 12 97 2 103 13 99 3 107 14 102 4 105 15 99 5 102 16 103 6 102 17 101 7 101 18 101 8 104 19 104 9 100 20 108 10 100 21 97 11 103 11 18 17 50 12 33 18 53 13 53 19 54 14 54 20 49 15 51 21 52 16 53 A quick review of past orders, shown in another document, indicates that a lot size of 150 units is being used and that the lead time from Haipei is fairly constant at 2 weeks. Currently, at the end of week 21, no inventory is on hand, 11 units are backordered, and the company is awaiting a scheduled receipt of 150 units.The DB032 drive belt is purchased from the Bendox Corporation of Grand Rapids, Michigan. Actual demand so far this year is shown in the following table:Week Actual Demand Week Actual Demand 11 18 17 50 12 33 18 53 13 53 19 54 14 54 20 49 15 51 21 52 16 53 Because this product is new, data are available only since its introduction in week 11. Currently, 324 units are on hand, with no backorders and no scheduled receipts. A lot size of 1,000 units is being used, with the lead time fairly constant at 3 weeks.The wholesale prices that Parts Emporium charges its customers are $12.99 for the EG151 exhaust gasket and $8.89 for the DB032 drive belt. Because no quantity discounts are offered on these two highly profitable items, gross margins based on current purchasing practices are 32 percent of the wholesale price for the exhaust gasket and 48 percent of the wholesale price for the drive belt.Parts Emporium estimates its cost to hold inventory at 21 percent of its inventory investment. This percentage recognizes the opportunity cost of tying money up in inventory and the variable costs of taxes, insurance, and shrinkage. The annual report notes other warehousing expenditures for utilities and maintenance and debt service on the 100,000-square-foot warehouse, which was built for $1.5 million. However, McCaskey reasons that these warehousing costs can be ignored because they will not change for the range of inventory policies that she is considering.Out-of-pocket costs for Parts Emporium to place an order with suppliers are estimated to be $20 per order for exhaust gaskets and $10 per order for drive belts. On the outbound side, the company can charge a delivery fee. Although most customers pick up their parts at Parts Emporium, some orders are delivered to customers. To provide this service, Parts Emporium contracts with a local company for a flat fee of $21.40 per order, which is added to the customer’s bill. McCaskey is unsure whether to increase the ordering costs for Parts Emporium to include delivery charges.Questions:Put yourself in Sue McCaskey’s position and prepare a detailed report to Dan Block and Ed Spriggs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt. Be sure to present a proper inventory system and recognize all relevant costs. By how much do your recommendations for these two items reduce annual cycle inventory, stockout, and ordering costs?-Case Study OPS/350: Operations Management at Parts EmporiumAssignmentTutorOnlineWk. 2 - Case Study: Parts Emporium [due Mon]Top of the GameForm's Bottom LineContent of the AssignmentTop of the GameAt the end of Chapter 9, read CASE: Parts Emporium (p. 793).Put yourself in Sue McCaskey's shoes and write a detailed report for Dan Block and Ed Spriggs on how to manage the EG151 exhaust gasket and the DB032 drive belt inventory.Write a report of 1,050- to 1,400 words.Discuss the Parts Emporium supply chain and potential solutions to the company's supply chain issues.Create a proper inventory system and keep track of all costs.Discuss how your recommendations for these two things will help you save money on annual cycle inventory, stock-outs, and orders.Include strategic and tactical adjustments that could help the organization enhance inventory performance, minimize unpredictability, and provide better customer service.Follow the APA requirements when formatting your paper.Please turn in your assignment.ResourcesChapter 9 of Operations Management: Processes and Supply Chains Reference & Citation Generator from the Center for Writing Excellence Help with Grammar The University of Phoenix owns the copyright to this work. All intellectual property rights are reserved.Form's Bottom LineEmporium of Case PartsDan Block and Ed Spriggs, two disgruntled car mechanics, founded Parts Emporium, Inc., a wholesale distributor of automotive parts. The company began in Block's garage and grew slowly but steadily for seven years before moving to an old, abandoned meat-packing facility on Chicago's South Side. The company was able to begin supplying an extended line of vehicle parts as a result of the improved inventory storage capacity. This expanded assortment, combined with the tendency toward longer car ownership, resulted in the company's rapid expansion. Parts Emporium was the largest independent auto parts distributor in the north central region fifteen years later.Parts Emporium recently relocated to a gleaming new office and warehouse complex in suburban Chicago, just off Interstate 55. The warehouse alone took up almost 100,000 square feet of space. Despite the fact that only a few more products have been added since the warehouse was built, utilization has improved from 65 percent to more than 90 percent. Sales, on the other hand, remained flat throughout the same time period. These circumstances prompted Block and Spriggs to appoint the firm's first management from outside the organization.Sue McCaskey's first day as the newly created role of materials manager at Parts Emporium is today, June 6. McCaskey, a new graduate of a prestigious business school, is looking forward to her first real-world problem. It arrives about 8:30 a.m. in the form of inventory and order shipment progress reports. A handwritten note from Joe Donnell, the buying manager, appears at the top of an enormous computer printout: "Attached you will find the inventory and customer service performance data." Because we did a comprehensive physical inventory count at the end of last week, you can rest assured that the individual inventory levels are accurate. Unfortunately, in some of the regions you requested, we do not retain collated records. You are, however, free to do so yourself. Thank you for joining us!"Angry that aggregate data isn't available, McCaskey chooses a small sample of about 100 products at random and compiles inventory and customer service attributes to gain a sense of the "whole picture." The findings of this experiment indicate why Parts Emporium created the job she now holds. The inventory appears to be strewn about in all the wrong locations. Despite having an average of 60 days of merchandise on hand, the company's customer service is lacking. Parts Emporium strives to backorder customer orders that cannot be filled promptly from stock, but it loses about 10% of demand to competing distributorships. Because stockouts are expensive in comparison to inventory holding expenses, McCaskey believes that a cycle-service level of at least 95% should be met.McCaskey understands that, despite her limited ability to affect change, she must produce positive outcomes right away. As a result, she narrows her focus to two items from the large product line: the EG151 exhaust gasket and the DB032 drive belt. If she can show that efficient inventory management may result in considerable savings for only two products, Block and Spriggs may be willing to support her in changing the entire inventory management system.Haipei, Inc., an overseas supplier, provides the EG151 exhaust gasket. The following table shows actual demand during the first 21 weeks of this year:ACTUAL DEMAND FOR THE WEEKACTUAL DEMAND FOR THE WEEK 1 104 12 97 s2 103 13 99 s3 107 14 102 s4 105 15 99 s5 102 16 103 s6 102 17 101 s7 101 18 101 s8 104 19 104 s9 100 20 108 s10 100 21 97 s11 103 s11 18 17 50 s12 33 18 53 s13 53 19 54 s14 54 20 49 s15 51 21 52 s16 53 According to a short check of previous orders (given in another document), a lot size of 150 units is employed, and the lead time from Haipei is reasonably consistent at 2 weeks. At the end of week 21, the company had no inventory on hand, 11 units were backordered, and 150 units were slated to arrive.The Bendox Corporation in Grand Rapids, Michigan sells the DB032 drive belt. The following table depicts actual demand so far this year:Actual Demand for the Week Actual Demand for the Week 11 18 17 50 s12 33 18 53 s13 53 19 54 s14 54 20 49 s15 51 21 52 s16 53 Because this product is very new, data is only accessible from week 11 onwards. There are currently 324 items in hand, with no backorders or scheduled deliveries. A lot size of 1,000 units is employed, with a lead time of 3 weeks being pretty consistent.Parts Emporium's wholesale pricing for the EG151 exhaust gasket and the DB032 drive belt are $12.99 and $8.89, respectively. Because no quantity discounts are granted on these two extremely profitable items, gross margins are 32 percent of the wholesale price for the exhaust gasket and 48 percent of the wholesale price for the drive belt, based on current purchasing patterns.The cost of keeping inventory at Parts Emporium is estimated to be 21% of the inventory investment. The variable expenses of taxes, insurance, and shrinkage are factored into this proportion, as well as the potential cost of holding money up in inventory. Other storage expenses include utilities, maintenance, and debt service on the $100,000-square-foot facility, which cost $1.5 million to build. McCaskey, on the other hand, believes that these storage expenses can be overlooked because they will remain constant regardless of the inventory regulations she considers.Parts Emporium's out-of-pocket costs to make an order with suppliers are projected to be $20 for exhaust gaskets and $10 for drive belts. The company can charge a delivery fee on the outgoing side. Some orders are shipped to customers, even though most customers pick up their parts at Parts Emporium. Parts Emporium collaborates with a local company to perform this service for a flat price of $21.40 each order, which is added to the customer's account. McCaskey is undecided about increasing Parts Emporium's ordering costs to include delivery expenses.Questions:Put yourself in Sue McCaskey's shoes and write a detailed report for Dan Block and Ed Spriggs on how to manage the EG151 exhaust gasket and the DB032 drive belt inventory. Make sure you have a comprehensive inventory system in place and that you are aware of all related charges. How much do your ideas minimize annual cycle inventory, stockout, and ordering expenses for these two items?