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Consolidated Electric Case Study

1. Design an inventory control system for Consolidated Electric based on the case.
Consolidated has a few problems with their inventory control. They have a purchasing
agent doing periodic checks of their inventory without reviewing their history and the
demand. The lack of a computer inventory system is another problem that
Consolidated must address. To design a system for consolidated the company needs to
make some changes to its structure and organization.
Consolidated needs to have a central warehouse location with small regional supply
centers because it would be easier to supply one warehouse than four. Des oines
needs to be the central location because it is in the middle of !owa and within an hour
of all three supply centers. Consolidated should move away from earn and turn concept
when dealing with inventory management. !nventory stock needs to be evaluated on a
daily basis with a periodic review system to e"amine the movement of goods from the
warehouse. They should also have a min ma" inventory level ad#usted with lead times
so replenishment can be swift and stock outs can be avoided. The more e"pensive the
item a surcharge should be added for maintaining a stock of the item.
The $%C inventory management method should be used for inventory control on the
slow selling items. &hen one of the items in the bottom '( percent of the product lines
is up for replenishment it should be evaluated for pro)tability. $fter evaluating the
product make a decision to continue or discontinue warehousing the item.
Consolidated Electric *CE+ is a mid,&estern wholesale distributor of electronic goods for
the construction industry. These include wire- electric bo"es- connectors- lighting
)"tures and electrical controllers among others. The company carries .(-((( separate
line items in inventory that are produced by over .(( manufacturers. !tems are priced
from under one cent to several hundred dollars. The top .-((( items produce '(/ of
sales- the ne"t 0-((( items account for 1(/ of sales while the )nal 1(-((( create only
.(/ of sales. Consolidated Electric continuously purges products so that they carry
only items that are ordered at least once a year so that the company can maintain a
policy of 23ood customer service at a reasonable cost.4
The problem that 3E faces is creating an emotional impact and connection with
potential customers in order to stimulate an interest to purchase its brands. 5umerous
products are bought- not because of intellectual reasons like price or 6uality- but
because of emotional needs and wants. Consumers7 decisions are made with emotions
and they #ustify with logic to support that way of thinking. 3E needs to convince
potential buyers that these appliances are a necessity for safety- security- and
convenience. Certain feelings and emotional drivers need to be triggered so that
people will feel happy- comfortable and complete if they buy. The products they are
e"posed to in stores and on di8erent forms of advertisement need to make them feel
safe with knowledge they are getting good value. 3E needs to produce this value in its
appliances- but receive a higher price with this emotional connection.
Consolidated Electric Case Study1.Design an inventory control system
for Consolidated Electric based on the case.
Consolidated Electric is a wholesale distributor of electrical e6uipment and supplies.
Since this is a wholesale distributor- the inventory management is an !ndependent
demand which is in9uenced by the market conditions outside the company. Currently
they are using a. Carde" system which is outdated and is not an acceptable or cost
e8ective way to manage inventory in today is business. !n order to improve their
customer relations and cost ob#ectives- ! would suggest that they update to a computer
system that uses an order:point method for replenishing inventory which is the
philosophy used when inventory demand is independent he model that they should
follow is the continuous review model which is based on a )"ed order 6uantity and
should follow the Classi)cation system .to determine the re:order point of an item-
they should utilize the E;* formula which will help minimize the sum of carrying or
holding costs as wells as setup or ordering cost.
2.Write a one-to two-page paper describing how the system you
have designed will help the company meet customer-service and cost
obectives.
Consolidated Electric +CE< is a wholesale distributor of electrical e6uipment and
supplies. Currently the company has warehouses in !owa and is the largest electrical
wholesaler in the country
Consolidated Electric is a wholesale distributor of electrical products primarily to
electrical contractors. The company wants to design a system for inventory
management of the .(-((( line,items carried in stock. $ description is given in the
case of the business environment and the current inventory control system in use.
The purpose of this case is to e"pose students to many of the issues encountered in
inventory system design. These issues include= forecasting- replenishment decision
rules- error control- multiple item interactions- $%C analysis- and top management
control. The case also asks the student to describe how the system they design will
help improve inventory management in the company.
$nalysis
>ne issue that needs to be considered during inventory system design is whether the
system will utilize periodic or continuous review. ?eriodic review should be used in
order to take advantage of purchase discounts and shipping economies. &ith periodic
review- di8erent items from the same supplier can be consolidated into a single
order@single shipment. Since most product lines are reviewed on a weekly basis- this
practice should be continued for control and shipping purposes- unless a bi,weekly
cycle becomes an obvious choice.
!tems should be consolidated by line for ordering purposes. Thus- an entire line must
be reviewed before ordering decisions are made. The case indicates there are about
.(( di8erent lines to consider on a weekly basis.
$n inventory control system is shown in E"hibit 1. The forecasting model receives
actual demand and produces a forecast for each item on a weekly basis. The forecast
should e"tend through the ordering lead time for each item.
The order module accepts the forecast along with management inputs for service level
and costs. $s a result- orders are calculated for each line and aggregate control
information is fed back to management prior to order placement. >rders are then
placed- shipments occur from the vendor- and disbursements are made to customers.
%efore designing the forecasting module we should e"amine the data in $ppendi" 1 of
the case. $ fre6uency distribution of the individual customer demands for seven
months is shown in E"hibit .. The distribution indicates there are two types of
customers- those who order a small number of units and those who place very large
orders. !t would be very e"pensive to carry safety stock for