Management Strategy

1. Swift Electrical
Supply, Inc.

3. Company Overview
 Attributable blast in the media communications industry.
 The data innovation upset
 Giving services companies such as Intel, Cisco, and Texas
Instruments

4. Theme of The Case

5. Decreas e in overall Reven u e
Cu t I nventor y Cost
More flex ib le d eliver y
Small Ord er Q u antity

6. What Can Be Done?

7. Des ign a New I nventor y System
B est EOQ an d T ime for Record e

8. Economic Order Quantity

9. -system
 This system requires
continual monitoring of
inventory levels.
 Less safety stock is
required because
demand during only the
lead time must be
covered.
 Fixed order quantities are
desirable or, in some
cases, mandatory.
 Review and
replenishment intervals
can be set on an item-by-
item basis.

10. 2 3 4 5 6 7 8 9 10
1
-system
Review on-hand quantity of an item
after a stated number of periods
It is easier to combine orders to same supplier,
which may reduce per unit purchase and/or
transportation costs.
Reordering at fixed intervals often is convenient.
Inventory position must be known only at review
time; thus, a perpetual inventory system is not
required.

11. DAY
S t a n d a r d
D i v i a t i o n
To t a l
D e m a n d
D a i l y Av g .
D e m a n d
X - M E A N
( X - M E A N ) ²
VA R I A N C E
6 0
5 5 5 9 7
9 2 6 . 6 1 6 6 6 6
7
- 4 . 5 4 7 4 7 E -
1 3
9 3 0 3 4 8 . 1 8 3
3
1 5 7 6 8 . 6 1
1 2 5 . 5 7
TOTAL

12. CONTINUOUS REVIEW
SYSTEM

13. Daily Average Demand: (55597÷60) = 927
D=927*365=338,355
X-Mean = -4.5474
Standard Deviation = 125.57
(X-Mean) 2 = 930348.18
Variance = 15768.613
Given,
On-hand inventory = 1700
Per unit cost = $10
Ordering cost = $200 per
order
Holding cost = $0.05 per
unit daily, (0.05*365) =18.25
Lead time = 2days
Shortage cost = $2per unit
daily
Cycle service level = 95%

14. Average Demand
𝑑= 927
Economic Order Quantity (EOQ):
2𝐷S
H
=
2∗927∗365∗200
18.25
,
=2723.233 or 2724
Time between Orders (Based on EOQ)
TBO =
𝐸𝑂𝑄
𝐷
*365
=
2724
338355
*365
= 2.938 0r 3 days

15. Standard Deviation of Average Demand
𝜎𝑑 = 126
Standard Deviation Demand during Lead
Time
𝜎𝑑𝐿𝑇 = 𝜎2𝐿= 𝜎d 𝐿
So,
𝜎d 𝐿= 126 2
= 178
Safety Stock
Z*𝜎𝑑𝐿𝑇 = 1.64*178
= 291.92 or 292
Re-order Point
𝑑*L + Safety Stock
= (927*2) +292
= 2146
Total Q System Cost:
C =
𝑄
2
𝐻 +
𝐷
𝑄
𝑆 +
(𝐻)(𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘)
=
2724
2
(18.25) +
338355
2724
(200) + (18.25 ∗
292)
= $55028.011

16. Inventory Position (IP)
IP= on hand inventory + Scheduled receipts –
Back orders-sales
=1700+0-0-0
=1700

17. PERIODIC REVIEW
SYSTEM

18. Let,
Time between order=P
Protection interval = P+L
=3+2
=5days
Average demand during protection
interval
𝑑(𝑃 + 𝐿) = 927(3+2)
= 4635
Standard deviation of demand during
protection interval:
𝜎𝑃+𝐿= 𝜎𝑑
𝑃 + 𝐿
= 126 3 + 2
= 281.74 0r 282
Safety Stock
𝑧𝜎𝑃+𝐿 = 1.64*282
= 462.48 or 463
Target inventory level (T)
Average demand during
protection interval + Safety
Stock
𝑑(𝑃 + 𝐿)+ 𝑧𝜎𝑃+𝐿
= 4635+463
= 5098

19. Order Quantity
Target inventory – Inventory position
=5098-1700=3398
Total P System Cost
C =
𝑑𝑝
2
𝐻 +
𝐷
𝑑𝑝
𝑆 + (𝐻)(𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘)
=
927∗3
2
(18.25) +
338355
927∗3
(200) + (18.25 ∗
463)
=58159.708

20. Determine
 Continuous Inventory(Q) is preferable
 Periodic Inventory > Q-system
 Holding expense will be less alongside the shortage cost
 EOQ level which is 2724 unit of DRAM
 For safety stock, 292 unit should be maintained

21. THANK YOU,
ANY
QUESTIONS?