Online Spring 2020 Semester 2

Online Spring 2020 Semester 2

Operations Management MGT 320

Final Assessment (20%) – Chapter 13

AnnouncementDate: July 29^th, 2020 – 8:00 pm

Submission Date: August6^th, 2020 – 11:59 pm

Please note that a delay in assessment submission will result in the following grade deduction:

• 1 Day –  10% Deduction
• 2 Days –  20% Deduction
• 3 Days –  40% Deduction
• 4 Days –  50% Deduction
• 5 Days – 100% Deduction

Also note that in case of plagiarized submission, you will receive a notification email with a penalty (see below) effective from the date of the email:

• Resubmission on the first day (within 24 hours after notification): 20% deduction
• Resubmission on the second day after notification: 30% deduction
• Resubmission on the third day after notification: 50% deduction
• Failing to resubmit within three days after notification, the assessment will be graded with zero.

1. The maintenance department of a large hospital uses about 120 cases of liquid cleaner every month. The annual carrying cost for each case of liquid cleaner is estimated to be $6. In addition, the cost for the department to process each order is estimated to be $18. The lead time for delivery is 3 The staff in this department working 365 days in the year. Based on the details that presented in this case, you need to calculate the following:

1. In what quantities should the department order?(10 Points)

Where; R is the annual demand

O.C is the ordering cost

H.C is the holding cost/ carrying cost

R=

O.C =$18

H.C=$6

EOQ=  $92.95

1. How many times should the department order in a year based on EOQ?(5 Points)

No. of orders=

                  15 times

1. What is the length of the order cycle?(10 Points)

Length of order cycle

24 days

1. What is the Re-Order Point (ROP)?(10 Points)

ROP=

12 units

1. What will be the total inventory cost if the cases of liquid cleaner are ordered based on EOQ?(15 Points)

Total inventory costs=

2. Identify and describe in detail the main requirements for effective inventory management? (25 Points)

Management of stock is one of the major indicators of good business progress. A company’s inventory indicates whether the entity will be a going concern or not. Therefore, companies should have an effective inventory management system. Firstly, the entity should keep a good inventory tracking system. This can be done through inventory quantity checks using several methods. The entity can carry out a period system that involves the physical count of the available inventory items. However, this method is not efficient enough as it is subject to human error. The company can also use the Perpetual Inventory System whereby inventory outflows are tracked, thus keeping a record of the current stock levels. This can be done by the use of spreadsheets, using the two-bin system, which makes it more efficient because it suffers less subjectivity compared to the survey forecast.

There should also be a reliable demand forecast. Forecasting demand enables an entity to make an informed decision on how much to produce. Demand forecasts can be done through a statistics survey. Survey methods are based on studying customer demand behaviors and making future predictions. Statistical methods, on the other hand, use historical and cross-sectional data to predict demand. They use statistical tools e.g., econometric methods and least square methods to analyze data and draw conclusions. These tools are more effective in terms of cost, time, and reliability compared to survey tools.

The company should also have adequate knowledge of lead time. Lead time is a major indicator of customer satisfaction. The lead time should be as short as possible because customers need their products as fast as possible. Short lead times lower the risks associated with holding stock. The entity should also have proper cost estimation approaches. This can be done by use of the high low method, scatter graphs, or Least Square Method. Accurate estimation of costs translates to expenditure preparedness. An inventory classification system should also be available such that items can be classified according to their degree of importance.

3. What are the main approaches used by organizations to keep track of inventory? Clearly explain in detail each of these approaches. Support you answer by identifying some of the technologies that may be used for each approach (20 + 5 Points)

Inventory tracking provides information on the quantity of inventory a company owns, the state of the inventory, and minimizes fraud associated with inventory.  Companies can use manual tracking to monitor their inventory. This can be done by keeping a two-bin system where stock outlets are monitored, and a reorder is made if the first bin runs empty. In itself, this method is traditional and inefficient because it consumes time and resources. However, technology can be applied to increase its effectiveness through the use of spreadsheets. This is done by adding all the SKUs and creating columns for the quantity and other details.

Organizations can also use the ABC Analysis to track their stock. This classifies inventory according to its importance. As comprise of items of high value, and a small amount, Bs consist of items of average value and the average amount and Cs comprise of items with small value but large amounts. The Inventory Droid software for android devices can be used with ABC Analysis, where users itemize their inventory using the ABC analysis and track it. Fishbowl software is also an efficient application that can be used to keep track of the manufacturing stock, warehouse stock, and asset tracking.

Organizations can also use 3PLS to track their inventory. This is where companies use third-party logistics companies to outsource their orders. The company receives inventory on their behalf, provide storage, and make the shipment to customers as soon as orders are made. This method is advantageous mostly for small companies because they get to enjoy economies of scale as well as infrastructure from the logistics company. However, it might lead to a loss of control for your organization’s ownership and customer touch. Also, the whole process of finding a 3PLS is costly, and finding a trustworthy 3PLS might be cumbersome.

The End