Transportation / Optimizing Inventory Case Study

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Optimizing Inventory / Transportation

Optimizing Inventory/Transportation

Danny Wilco

Re: Quarterly Ordering Decisions

Problem Situation

Optimal order-quantity technique is one of the sophisticated inventory management systems that our organization can employ to manage our inventories. The traditional inventory management technique we are using is making our company to incur additional costs of operation. The annual inventory holding costs is 4% thereby increasing our costs operation, and reducing our profitability. In the course of this problem, we are required to implement the optimal order-quantity technique to assist our company to lower the costs of managing our inventory thereby increasing our profitability.

Assumptions

Our pricing estimate is based on the markup factor of 140% or 1.4.

There is an estimation of 4% of the annual inventory holding costs.

The quarterly sales forecast of the Kegs of the Imported Beer line is estimated based on the inflation of 100% for the last quarter, which forms the basis of the next four quarters.

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Moreover, we expect a seasonal cost reduction for the next three quarters.

The ending inventory is 175 for our total number of our imported beer and our capacity for the Kegs is approximately 190 for Imported Beers.

Solution for Order Quantities

We use the costs and forecast demand in the Appendix 1 to estimate the total sales forecast. The data in the Table 1 reveals our sales forecast for each of the four quarters of our imported Beer line for our kegs. However, the inflation for the last quarter is 100% and the inventory constraint is the quarterly holding cost, which is approximately 4% annually. As being revealed in the Table 1, there is an increase in sales within the next four quarters, and we arrive at the sales forecast for each product by multiplying the price per unit with forecast demand.

Table 1

Forecast Demand

Next 4 Quarters.....

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