This post is the 1st of 4 posts that provide detailed notes
of an inventory management system design job and the building of a decision
support system that helps managers determine when to reorder materials.
I was recently hired to setup an entirely new inventory
management system at a small mailing room in Los Angeles. Rather than keep what I learned to myself, I thought I’d share it with
all of you. First I’ll give you some
background information on the mailing room.
The mailing room processes leads from a variety of different
sources and sends each lead a mailing kit that has a few pieces of paper, a
business reply envelope and a couple of booklets in it. This fairly small operation handles
approximately 1500 leads a month and is run out of a vacant room in the
office. The booklets, the business reply
envelopes, and the large envelopes are all printed by another firm. The loose sheets of paper are printed in
house and are printed on blank paper shipped from Staples.
When I arrived at the mailing room I talked to the man in
charge. While he had set up a very good
system for keeping track of leads, when and where they came from, whether or
not they were delivered successfully, and while he had setup a fairly automated
mailing kit production process, his inventory tracking system was as archaic as
his lead tracking was detailed. The
ordering of his supplies was very simple. He would order as much as he had room for because the quantity discounts
at the printing house were so great that ordering small amounts was not even an
For him, the real question was when to order. Previously his policy regarding when to
reorder was, “I dunno I reorder, when it looks like I’m running out.” As funny as this may seem, it is not the only
company I have encountered that has this policy, and I can assure you, that is
not a good thing. In this case, when I
say it is not a good thing, I mean that in the sense that they ran out of
supplies and now are facing two weeks of production with a missing part of
their kit. I guess it looked like they
had more inventory than they really did.
Now I’ll discuss step by step exactly how I set up their
The first step I took was to determine all of the individual
components that are associated with the final product. It is a little bit more complex than what I
mentioned earlier, so I’ll break it down in more detail. Each mailing kit involves the following raw
2 blank pieces of paper
1 Booklet A
1 Booklet B
1 Booklet C
And sometimes the kits require an additional 30 pieces of blank paper AND
1 Booklet D
The second step I took was to determine the lead times of each of these raw materials. Right now these are estimates. The manager in charge of ordering the materials has informed me that he does not know how long it takes for him to order and receive shipments on any of his supplies except paper and toner. His best estimate for the other supplies was that the lead time was approximately a week and a half.
That's about all the information they were able to give to me on the first day, so I think that's all I give you. Part II, which will be published on July 28th will discuss the collection and analysis of the demand data.
Did you enjoy this post?
Hi, i read your case study example and i was wondering if you could help me. I am undertaking an assignment and i need a case study for a company with a constant re-order level and a constant re-order quantity. I would be very grateful if you could provide any information.
Posted by: nahimiqbal | Mar 22, 2006 2:41:57 AM
i am doing my assignment on inventory policy of the company. This company have only 12 products and each product have different demand and different lead times. i have calculated the eoq and reorder point with the safety stock . can u tel me is it worthful to do the abc analysis for just 12 products?
Posted by: sheetal | Mar 10, 2007 4:34:12 PM
I am writing a thesis on, The effect of effective Inventory System in Materials Management, Case Study of a Facility Maintenance Company. Any help on the above will be appreciated.
Posted by: Dele Arumemi | Jan 23, 2008 6:01:12 AM
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