### Inventory Management Challenge

**Inventory Management Challenge**

*Fruition*, a perfume company, manufactures and sells 30,000 units per month with a sale price of $50 per bottle. Unit cost is $38. The plant operates 24 hours/day on a 50-week cycle. It produces 3,000 units per day with a theoretical capacity of 3,200 units. Inventory in the warehouse averages 8,000 units per week. Holding cost for the inventory is $25,000/month. Lead time between sales is 3 weeks. Assuming average demand flow:Â Â

1.Â Â Â Â Â What is the annual sale for Fruition?

2.Â Â Â Â Â What is the profit margin as % Sale?

3.Â Â Â Â Â What is the effective capacity of the plant?

4.Â Â Â Â Â What is the inventory turnover?

5.Â Â Â Â Â What is the inventory performance as % Sales?

6.Â Â Â Â Â What is the pipeline inventory?

7.Â Â Â Â Â What is the cycle inventory?

8.Â Â Â Â Â How many days will it take to sell the monthly inventory based on the sales performance?

9.Â Â Â Â Â Would you increase the current inventory levels? Why?

Empty bottles are stocked in the warehouse for the filling operation. The on-hand position is 50,000 units with a scheduled receipt of 5,000 and a back order of 1,000. Breakage and defects amount to 0.5% of inventory. Each bottle costs $0.50 and ordering cost is $250. Other costs for returns, insurance, sub-quality, etc. amount to $100. If the holding cost is 1% of the price of the perfume and the average demand is 30,000 bottles per month:

10.Â What is the safety stock required to maintain a service level of 90%? Standard deviation for the bottles is 220.

11.Â Calculate the economic order quantity (EOQ) for the bottles.

12.Â Determine its inventory position.

13.Â What is the total monthly inventory cost?

14.Â What is the most efficient reorder point?

15.Â What is the annual cost of inventory due to breakage and defects?

A periodic inventory count is used before reorder is made for additional bottles. Lead time is one month with the same service level and STD of 220.

16.Â What is the cycle time for this count?

17.Â What new inventory levels are obtained from this method?

18.Â Determine the new safety stock needed.

19.Â How much is the new inventory level?

20.Â How many more bottles are added to the safety stock?

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# Answers

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**Posted 11 Jul 2019 08:07 PM**
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