Inventory Management Overview

Cite this

In the present day, Franklin Fan Company may be regarded as the north-central region’s largest manufacturer and distributor of electric fans. It was founded fifteen years ago by Ed Spriggs and Dan Block, mechanical and electrical engineers. The firm was originally located in the garage of Block, however, its gradual, though steady growth for approximately seven years allowed owners to relocate their small enterprise to an abandoned meat-packing warehouse on Chicago’s South Side.

On-Time Delivery!
Get your customized and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

In turn, when space for manufacturing and inventory storage had increased, Franklin Fan Company received an opportunity to extend its product line and introduce new models of fans. The combination of increased selection and the grown population of ceiling fans substantially contributed to the business’s explosive development. Lately, the company opened and relocated to a new office, manufacturing complex, and warehouse with a space of more than 100,000 square feet off Interstate 55 in Chicago. The capacity of warehouse utilization increased from 65% to 90%. However, despite all improvements and benefits, sales growth stagnated. The main purpose of the company is to raise its sales again. This objective is determined by the growth of the fan market and the formation of a highly competitive environment.

According to the analysis of the company’s customer service characteristics and compiling an inventory, it is possible to conclude that the main reasons that hinder its growth are product unavailability and late shipments. Regardless of the accessibility of an average of almost 60 days of inventory, the level of the company’s customer service is inadequate. Although Franklin Fan Company subsequently backorders all customer orders that were not immediately filled from its stock, approximately 10% of demand goes to competing companies.

In turn, the appropriate inventory management and the achievement of 95% of a cycle-service level will have a positive impact on the company’s development. It goes without saying that inventory management is a highly significant aspect of the whole supply chain as “the cost of inventory can represent anywhere between 20% and 40% of the total value of the product” (Pazhani, et al., 2015, p. 613).

For the inventory management of Franklin Fan, the CF151 ceiling fan and the PF032 personal fan was chosen as these products from the extensive line may be regarded as the most popular. Consequently, the inventory management reports for these units on the basis of data available are the following:

CF151 ceiling fan.

Week Actual Demand Week Actual Demand
32 971 43 907
33 962 44 924
34 999 45 952
35 980 46 924
36 952 47 962
37 952 48 943
38 943 49 943
39 971 50 971
40 934 51 1,008
41 934 52 906
42 962
The wholesale price $129.99
Order price for production $30.00
Unit margin 32%
Lot size 2,000
Lead time 2 weeks
Operating time 52 weeks
Delivery charge per order $50.00
Holding cost 21%
Desired customer service level 95%

PF032 personal fan.

Yes, we can!
Our experts can deliver a custom Inventory Management Overview paper for only $13.00 $11/page
Learn More
322 specialists online
Week Actual Demand Week Actual Demand
42 346 48 962
43 635 49 1,019
44 1,019 50 1,038
45 1,038 51 942
46 981 52 1,000
47 1,019
The wholesale price $19.99
Order price for production $30.00
Unit margin 48%
Lot size 15,000
Lead time 3 weeks
Operating time 52 weeks
Delivery charge per order $50.00
Holding cost 21%
Desired customer service level 95%

First of all, for an appropriate inventory system, the planning of production and inventory management, and both the continuous and periodic review systems are essential. The most appropriate time for production, preventive maintenance, and backordered quantities of common cycle length, and each item should be determined to minimize the total cost (Taleizadeh, 2018).

Due to the absence of the company’s compiled reports in all areas, for the manager, it is impossible to analyze the current situation in order to find solutions. That is why data concerning production due dates, capacity, and demand should be constantly updated to enhance the company’s forecasting. Through records, it is possible to understand the tendency of the demand’s growth and recession and use a statistical time-series analysis that relies on previous demand information to predict future demand taking into consideration particular trends and seasonal patterns.

Concerning the CF151 ceiling fan, it is advisable to enlarge its lot size, as its actual demand may exceed 2,000 units and customer orders will be backordered due to stockout. In turn, the lot size of the PF032 personal fan may be reduced in order to avoid overstock and related expenditures as the actual demand for the period of 3 weeks does not exceed 3,500 units. In addition, the ordering cost of PF032 personal fan may be reduced by 30% as the difference between the order price for production and the wholesale price is considerable, however, actual demand does not substantively differ from the actual demand for CF151 ceiling fan.

In addition, considering the forecasted periods of high and low demand and the standardized manufacture of fans, it will be reasonable to fill the stock with units when actual demand would be relatively low in order to provide customers with products without delays when units will be highly required. Moreover, customers’ loyalty may be preserved through the company’s delivery fee or discounts in the case of stockouts. In other words, if a product is not available, a consumer may be offered a reduced delivery fee or a 15% discount. In this case, there are considerable chances that the person will wait until his or her order will be backordered instead of choosing a competing company. In general, the firm’s current delivery fee may be reduced for all customers as it may be regarded as an incurred cost in comparison with the products’ order price for production.

References

Pazhani, S., Ventura, J. A., Mendoza, A. (2015). A serial inventory system with supplier selection and order quantity allocation considering transportation costs. Applied Mathematical Modelling, 40, 612-634.

Taleizadeh, A. A. (2018). A constrained integrated imperfect manufacturing-inventory system with preventive maintenance and partial backordering. Annals of Operations Research, 261, 303–337. Web.

Cite this paper

Select style

Reference

BusinessEssay. (2022, November 27). Inventory Management Overview. Retrieved from https://business-essay.com/inventory-management-overview/

Reference

BusinessEssay. (2022, November 27). Inventory Management Overview. https://business-essay.com/inventory-management-overview/

Work Cited

"Inventory Management Overview." BusinessEssay, 27 Nov. 2022, business-essay.com/inventory-management-overview/.

References

BusinessEssay. (2022) 'Inventory Management Overview'. 27 November.

References

BusinessEssay. 2022. "Inventory Management Overview." November 27, 2022. https://business-essay.com/inventory-management-overview/.

1. BusinessEssay. "Inventory Management Overview." November 27, 2022. https://business-essay.com/inventory-management-overview/.


Bibliography


BusinessEssay. "Inventory Management Overview." November 27, 2022. https://business-essay.com/inventory-management-overview/.