Managing Inventory in the Supply Chain

1. Explain why inventory costs and inventory levels have declined relative to GDP over the last 20 years. Is this beneficial to the economy? Why or why not? 2. Explain the differences between inventory carrying costs and ordering costs. 3. How does inventory carrying cost for inventory in transit differ from the cost of inventory at rest? 4. What is the difference between independent and dependent demand items? Why is this distinction important to inventory managers? 5. What are the benefits of classifying inventory using ABC analysis? What are the different types of criteria that could be used to classify inventory? 6. CASE STUDY Baseball Card Emporium Baseball Card Emporium (BBE) of Lewistown, Pennsylvania, is a distributor of baseball cards to sports card retailers. Its market area encompasses most of Pennsylvania, eastern Ohio, and New Jersey. The cards are printed in Neenah, Wisconsin, and currently shipped to Lewistown via motor carrier transportation. Kenny Craig, vice president of logistics, has asked his staff to evaluate using air carrier service to ship the cards. Nick Gingher, director of distribution, has collected the following information: • Annual demand: 6,000 cases of cards • Case value (price): $96 each • Inventory carrying cost (annual): 30% • Cost per order to replenish inventory: $75 • In-transit inventory carrying cost: 18% • Transit time using motor carrier (parcel ground: 4 days • Cycle time using motor carrier (parcel ground): 7 days • Transit time using air carrier: 1 day • Cycle time using air carrier:2 days • Motor carrier rate: $1.20 per cwt. (100 lbs.) • Air carrier rate: $2.50 per cwt. • Unit weight: 50 lbs. per case CASE QUESTIONS 1. What is the economic order quantity for BBE in units? In pounds? 2. What is the total cost (not considering transportation-related costs) of the EOQ? 3. What is the total cost for using motor carrier transportation? 4. What is the total cost for using air carrier transportation? 5. Which alternative should BBE use?

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