EAGLE MACHINE COMPANY

Q1. What actions should Sally take to reduce inventories by 10 percent?

1. Determine cycle stock: Understand average inventory and reduce safety stock.
Reduce overall lead time and lead time variability.
2. Rationalize SKUs: Eliminate low yielding Stock. Keeping Units to reduce holding
cost. Understand onetime events, seasonality and prior forecasts. Establish a baseline
forecast.
3. Use cross-docking: Consolidate purchase orders from multiple distribution centers
into a single order and cross-dock. This will reduce cycle stock inventory.
4. Use technology: Use technology such as Vendor-managed Inventory (VMI) to
increase visibility.
5. Transfer stock: Transfer stock from one location to another to avoid unnecessary
purchases.
6. Collaborate with partners: Share information with suppliers to increase visibility
and reduce overall supply chain cost.

Q2. What dangers, if any, are there in reducing inventories?

Dangers are:
 Can’t meet the expected demand
 Bargaining power of suppliers
 Payroll problem(labor & staff)

Q3. In what ways could the cost of goods purchased be reduced?

The cost of goods purchased can be reduced by purchasing only those materials that
do not exist in the inventory level, so it can reduce the cost of inventory and thereby
reduces storage costs and risk costs. The cost of goods purchased can be reduced by
following vendor managed inventory systems. VMI provides visibility to actual
customer demand by which the company can purchase the goods as per the order
requirements and this reduces storage and risks costs for the company.

Q4. What position should Sally take on the president’s plan to reduce the purchasing
payroll by 10 percent?
The Sally take a fired position on staff of production and manufacturing dept. Here
the purchasing dept consist of one senior manager, three buyers and four clerks but
the manpower is not utilized to a maximum extent. So it would be advisable to
terminate the man power wherever unutilized. So it would benefit the company in turn
it would reduce the cost level, by using the stored inventory effectively costs can be
reduced.