Pontificia Universidad Javeriana Cali

Posgrados de Ingeniería y Ciencias

Gerencia de Operaciones
Profesor Álvaro Figueroa Cabrera
2023

Fecha de entrega: martes 22 de agosto 2023 hasta 8:00 am

United Enterprises Limited Case

Today is August 12, your first workday as Material Manager Chief recently created by
United Enterprises Limited. You recently have been studied inventory models, and
anxious wait when you will have to fight with a real problem. The problem appears near
of 8:30 AM, described in one report about stock status and the inventory pipeline
orders. At top of the long computer bill, appear a hand note wrote by Purchase Manager
José Torres: “Together you will find the inventory referred data and the customer
performance level. You can be sure that the single inventory levels are precise, because
we made a physical account of them last weekend. Unfortunately, we don’t have the
compiled registers in some areas that you required us. However, you have all freedom to
obtain by yourself. Welcome on board”

A few disappointments because doesn’t have the completely information, you randomly
decide to choose a little sample among almost 150 items and compiled by yourself the
inventory data and the customer service characteristics, in order to take a panorama
general idea. The results of these experiments revealed you why United Enterprise,
decided to create the job that you have now. Can be that the company has a stock
allocated in not convenient places. In spite of that company has almost 60 average
inventory days, the customer service is unsatisfactory. United Enterprise Limited has
opted to catalogue like backorders all customers’ orders that can’t be attend quickly
with items of his inventory, but the result is almost 10% of demand is lost with others
competitors. You observe that the backorder is very expensive and consider that is
necessary to reach at least 95% level service.

United Enterprise Limited, was founded in 1986 by twice no conform automobile

mechanics José Manrique and Edgar Moreno, like a big distributor enterprise of
automobile spare parts. In the beginning installed in the Manrique’ s garage house, the
company grew until 1995 slowly and step by step. In those times was re in old warehouse
of packaging meat enterprise, at south side of Cali. With more area to keep inventory,
the company could offer a wide line of spare parts. A high miscellaneous offer, mixed
with the people tendency to conserve their vehicles more time, gave the explosive grow
between middle and end of 90 decades. In 2004, United Enterprise Limited had reached
the fame of biggest independent hardware store of southwest country spare parts.

Since 2009, United Enterprise was reinstalled again at new and modern offices mall and
warehouses in 1ª Street with 20 streets, in the business spare parts zone of Cali. Only
the stock area occupied is more or less 1.000 square meters. In spite of that were adding
a few new products since the warehouse was built, the use of his capacity increased
between 65% and 90%. However, the sales grew stopped in the same period. This
situation made that Moreno and Manrique agreement with someone professional not
belong their selves’ lines first time in company history. You know, although your

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Pontificia Universidad Javeriana Cali
Posgrados de Ingeniería y Ciencias
Gerencia de Operaciones
Profesor Álvaro Figueroa Cabrera
2023

influence to introduce changes will be limited, the owners are waiting positive results as
soon as possible.
For these reason you have decided concentrate only in two items of the long bill of
United Enterprises product’s line: the gasket EG151 and the distribution belt DB032. If
you can demonstrate a big improvement toward good inventory management for these
two products, may be that Moreno and Manrique give you support that you need to
modify all inventory management system. The gasket EG151 is bought from abroad, at
Taipei Inc. supplier. The real demand for this product during the first weeks (until July
2023) is shown at following table:

Week Real Demand Week Real Demand

1 104 12 97
2 103 13 99
3 107 14 102
4 105 15 99
5 102 16 103
6 102 17 101
7 101 18 101
8 104 19 104
9 100 20 108
10 100 21 97
11 103

A quick revision of past orders registered in other document, revel you size batch used
is 150 units and the lead-time from Taipei has been two weeks almost constant. Actually
at the end of week 21, don’t have on hand inventory; 11 units remain like backorders
and the company wait a programmed reception of 150 units.

The distribution belt DB032 is bought at Bandbox Corporation from Michigan USA.
Registered real demand until July, in 2023, is show in following table.

Week Real Demand Week Real Demand

11 18 17 50
12 33 18 53
13 53 19 7
14 54 20 49
15 51 21 52
16 53

Because this product is new, only there are data since 11eth week when the item was
created. Today the warehouse count with 324 units on hand; no backorders and nothing

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Pontificia Universidad Javeriana Cali
Posgrados de Ingeniería y Ciencias
Gerencia de Operaciones
Profesor Álvaro Figueroa Cabrera
2023

programming receipt orders. The order size quantity is 1000 units and the lead time has
been maintained almost constant already three weeks

The big quantities prices for United Enterprise’s customers are US$12.99 for EG151 and
US$8.89 for DB032. There aren’t discount prices for twice items and the gross profits
based in actually purchase policy are 32% for gasket, and 48% for distribution belt.

United Enterprises Limited estimates that inventory handling has a rate of four percent
plus currently inflation data in 2022, charged over investment average inventory. This
rate involves opportunity money cost, variables taxes costs, insurance and damages. In
annual report, appear another warehouse costs by public services, maintenance and
debt service; belonged to the 1.000 square meters’ installations witch was quilted with
an investment near $ 1050 million COP. However, you estimate that this warehouse
costs can be ignored because no change the inventory policies range in all like she is
considering.

The United Enterprises Limited implicate costs to make orders from suppliers are
estimated in $44.000 COP per order of EG151 and $22.000 COP per order of DB032.
When the product is delivery can be charged another distribution costs. Although the
most customers pick up their orders, some of these orders are send by Delivery
Company at fixed rate of $47.000 COP per order, and add to customer bill. You are not
sure and consider not necessary to raise the United Enterprises Limited order cost with
additional distribution merchandising cost.

You as a new Material Manager Chief, please prepare a detail Word report with Excel
support to Edgar Moreno and Jose Manrique about how to management the inventory
policy for EG151 and DB032. You should be sure to do an appropriate inventory system
taking all pertinent cost. Derived of your recommendations for this two items, how
much can be reduced the total annual inventory cost?

Note:
– The Word or PDF report Is to owners
– The Excel support is to Professor Alvaro Figueroa Cabrera