Steel_Works___Iventory_Problem

Steel Works: Inventory Problem Alright this cannot get worse! Their inventory levels are high, customer service is the worst in the industry, sales are down, and the company can file for bankruptcy. The company may be a creation of MIT but the logistic manager certainly doesn’t seem to apply any of the supply chain strategies. The custom products have rapid growth and account for 1/3 of the total sales ie (133 million). They have high margin products and they have high service level. They are associated with 3 plants and each of them is produced in each of the plant. Specialty products have two thirds of the total sales and consist of 6 product families. They have few big customers, require high service level and have high volatile demand. They are produced in 3 plants and each producing 2 product families The suggestion by the consultant makes no sense as the centralization of the warehouses may bring down cost only when the lead time is short for the products so as to bring down the holding cost of the products. The ABC analysis would mark that eighty percent of the cost is incurred by twenty percent of the products. What are the opportunities at the custom products and specialty products' Combine production and inventory for common items. Produce monthly and reduce setups by half and pool safety stocks. Produce twice a month by the same number of setups but cut the cycle stock and review period by half. Specialty products can be manufactured the same way except for the pooling of the demand at the various warehouses. The pooling of safety stocks can be based on products. The demand forecast can be made for the products without a volatile tag. Being one fifth of the total revenue it might still contribute level of profit if properly managed. Mean DB R10 DB R12 DB R15 DB R10 DB R12 DB R15 DB R23 15.5 1008 2464 97 18.5 55 35.5 Standard Deviation 13.2 256 494 92.5 11.4 80 45.9 Coeff of variation 0.85 0.25 0.20 0.95 0.62 1.46 1.29 The demand for high volume products is not volatile and the low volume products are volatile. One the above strategy can be used and the best would be to estimate an Economic Order Quantity when it can be done.