3.

Problem
They want to provide and produce their product immediately to customer without special
requirement to minimize their forecast about how many product that they have to produce
for inventory and waste money for overtime pay.
In addition, Inventory turnover is so low => the company pay more money to maintain
the inventory. Suppose the cost of the the interest rate is 10% per year.

Year sale
Average
Inventory
turnover
Day of
inventory
case
holding cost
the future
value of cost
1 case

Year 1
Year 2
Year 3
317,75
0
336,600
358,250
41,580
36,300
52,875
7.6418 9.272727 6.775413
95
27
71
47.8
3177.5
1,588.7
5
13,476.
65
100
unit

39.4
3366

53.9
3582.5

1,683.00

1,791.25

14,276.1
3

15,194.3
7

Suggestion
- fixed re-order frequency with near-instant re-supply (http://www.dbrmfg.co.nz/Supply
%20Chain%20Replenishment.htm)
The previous saw-tooth in managing inventory

The suggestion is to we can increase the frequency and obtain the same effect; reduced
inventory of finished goods stock without degrading service levels.

The quantity of goods will go down while the needs of consumption will be met
=> reduce the cost of overtime production and the cost of holding inventory.

 increasing inventory turnover, lead to advantages bellows:

+ Increase sale volume instead of having rabid of item
+ Less risk of obsolescence or need to market down or discount price
+ Decrease expense rate to holding inventory
+ Lower asset investment and increase asset productivity
* Some drawbacks of this suggestion
- Possible low sale volume due to running out of needed items ( see the discussion of
stockouts)
- Increase cost of good sold due ton inability to produce or purchase in quality
- Increase purchase, ordering and receiving times effort and cost.