Case 8-3: Sondra Fox – Analysis of Inventory Problem at Covington Meters – Solution

Case 8-3: Sondra Fox – Analysis of Inventory Problem at Covington Meters

The case studies are designed to provide the opportunity for you to interpret situations involving supply chain logistics, distribution, and warehousing, and apply the material you have read and discussed. In a Word document, answer the following questions. Remember all of your assignments should be in APA format. Your case study analysis is due at the end of the week.

Question:

• As Sondra Fox, what is your analysis of the inventory problem at Covington Meters? What action would you take and why?
• What forecasting technique would you suggest for Covington Meters?
• What model would you suggest to determine order quantities and inventory levels?
• What would you suggest to assist Covington Meters with resource planning?

Case Study is in the pictures. These are the questions that need to be answered above. Thanks.

Solution

Case 8-3: Sondra Fox

Analysis of Inventory Problem at Covington Meters

The inventory problem at Covington Meters is balancing lead times and inventory levels. The company reports high inventory levels that take a long time to sell. The current methods used to forecast inventory levels include betting on product mix and volume, but this is insufficient as the company cannot predict what the customers will order and when. The company also has a problem with supplier minimum order quantities, slow-moving raw materials, and work-in-progress inventory. The company currently uses supplier lead times and pre-established safety stock levels to set re-order points for raw material components. The company needs a plan to manage raw materials and work-in-progress inventory, which they predict will worsen with sales increasing.

So far, the company has not indicated the use of mathematics or expert models to forecast inventory levels or set re-order points. Most of the current models are based on assumptions or looking into supplier lead times or pre-established safety stock levels to avoid running out of stock, especially during rush times. The company needs more accurate techniques to balance lead times and inventory levels. I would suggest mathematical or expert forecasting techniques and models to determine order quantities and inventory levels and more precise resource planning methods.

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Forecasting Techniques

Prediction of demand levels, re-order points, raw material, and work-in-progress inventory is necessary at the Covington Meters. The company needs to adopt more accurate techniques to forecast inventory and balance lead time and inventory levels.

1. The Delphi Method

The Delphi method involves a panel of experts who are interrogated using a sequence of questionnaires in which responses to a question are used to create the next question. The experts share any information they would have on the question, and all the information is ultimately available to all experts for forecasting (Hirschhorn, 2019). This technique is effective as it uses expert information to predict.

2. Exponential Smoothing

This technique uses more recent data and involves a time series for univariate data extended to support data with a systematic trend or seasonal component (Soni & Srikanth, 2017). It is an effective method in finance and economics, especially for a time series with a clear pattern. The method utilizes constants that assign weights to current demand and previous forecasts to arrive at new forecasts.

3. X-11

This method also involves a time series, but it breaks the time series into seasonal, trend cycles, and irregular elements Bee (Dagum & Bianconcini, 2016). It has an analytical method that is used with exceptional knowledge to predict turning points and time special events.

Models to Determine Order Quantities and Inventory Levels

The company requires models to determine order quantity and reduce inventory costs resulting from long lead times and high inventory levels.

1. The Economic Order Quantity Model (EOQ)

The EOQ is an effective and optimizing method used to determine order quantity and re-order points, which has been a problem at the Covington Meters. The model helps keep track of the inventory on hand each time new inventory is added or withdrawn (Pang et al., 2019). The method requires inventory management to make a replenishment order if the withdrawal reduces the inventory level to the re-order point. It also allows the management to determine the order quantity that reduces annual inventory costs.

2. Inventory Production Quantity

The inventory production quantity or the economic production quantity is an inventory control model that tells the amount of inventory the company can order in a single batch, aiming to reduce holding costs and setup costs (Taleizadeh et al., 2018). The method assumes that each order is supplied in parts rather than one complete package.

3. ABC Analysis

ABC analysis is also an effective method of determining order quantities and inventory levels. It is a more money-specific tool that categorizes inventory based on levels of importance. By determining the essential inventory, the company knows where to focus attention (Abdolazimi et al., 2021). Inventory category A brings the most money and represents a small amount of the total inventory. Category B is not vital for the business to survive and accounts for 30 percent of the inventory with 25 percent of revenue. Category C represents the majority of the stock with 5 percent revenue.

Resource Planning

The company needs a comprehensive resource planning strategy to balance lead time and inventory levels and track equipment, labor, materials, and vendor information. Resource planning at the Covington Meters requires accurate forecasting of inventory levels and determination of order quantities and inventory levels. The company needs to be data-driven in its resource planning by constantly reviewing and analyzing resource needs. The three steps that can help the company plan resources effectively include:

1. Surveying, mapping, and measuring resources’ characteristics and properties
2. Evaluating resources from technology, economy, and need viewpoints
3. Using and reusing sources

References

Abdolazimi, O., Shishebori, D., Goodarzian, F., Ghasemi, P., & Appolloni, A. (2021). Designing a new mathematical model based on ABC analysis for inventory control problem: A real case study. RAIRO-Operations Research, 55(4), 2309-2335.

Bee Dagum, E., & Bianconcini, S. (2016). Seasonal Adjustment: Meaning, Purpose, and Methods. In Seasonal Adjustment Methods and Real-Time Trend-Cycle Estimation (pp. 61-78). Springer, Cham.

Hirschhorn, F. (2019). Reflections on the application of the Delphi method: lessons from a case in public transport research. International Journal of Social Research Methodology, 22(3), 309-322.

Pang, H. E., Chandrashekar, R., & Muda, W. H. N. W. (2019, December). Forecasting and economic order quantity model for inventory control: A case study at XYZ company. In AIP Conference Proceedings (Vol. 2184, No. 1, p. 040007). AIP Publishing LLC.

Soni, R. S., & Srikanth, D. (2017, May). Inventory forecasting model using genetic programming and Holt-Winter’s exponential smoothing method. In 2017 2nd IEEE International Conference on Recent Trends in Electronics, Information & Communication Technology (RTEICT) (pp. 2086-2091). IEEE.

Taleizadeh, A. A., Soleymanfar, V. R., & Govindan, K. (2018). Sustainable economic production quantity models for inventory systems with the shortage. Journal of cleaner production, 174, 1011-1020.