Part 1
Silicon Chips, Inc.
Silicon Chips makes specialty computer chips. There are 10 items in the inventory used to produce the chips. The following summarizes the basic information on these items.
|
Stock # |
Annual volume |
$ Unit cost |
|
#01036 |
100 |
8.50 |
|
#01307 |
1,200 |
.42 |
|
#10286 |
1,000 |
90.00 |
|
#10500 |
1,000 |
12.50 |
|
#10752 |
250 |
.60 |
|
#10867 |
350 |
42.86 |
|
#11526 |
500 |
154.00 |
|
#12572 |
600 |
14.17 |
|
#12760 |
1,550 |
17.00 |
|
#14075 |
2,000 |
.60 |
You are asked to develop an ABC analysis of this inventory. (Hint: keep in mind that we have covered two “ABC’s”. This one deals with stratifying an inventory. The other ABC dealt with cost, right?)
You ask the manager if there are any company rules for determining the categories (A, B, or C). The answer is “Huh?”. So you get a queasy stomach and realize that you are largely on your own.
For each question, show your work and explain the computation.
Each question/answer is worth 10 points with 2 points for the work.
Q1. Using the annual cost as the basic analysis, prepare an ABC analysis.
Q2. How many items are in each category (A, B, and C)?
Q3. What proportion of the annual cost is in each category (A, B, and C)?
Q4. What proportion of the annual volume is in each category (A, B, and C)?
Q5. Briefly explain your rationale for deciding on the cutoff point for each category.
Q6. The price for #10286 increases to $120.00.
Q6a. What happens to the total inventory value?
Q6b. How does this change your analysis, if any?
Q7. What are two other ways that we might have used to stratify the inventory into ABC?
Part 2.
Today is October 1, 2015. It is 10 AM.
Tom was working on a project to brief the CEO this afternoon at 3 PM when he suddenly became sick. Your boss recognizes the great job that you did on the ABC analysis, and volunteers your services to help prepare the briefing.
Alas, your great PowerPoint skills are not what are in demand. What is needed is your analytical skill.
Luckily, Tom has been keeping some fairly good records that you find this table in a binder on his desk.
|
2015 Actual Sales in units |
|
|
Jan |
650 |
|
Feb |
595 |
|
March |
634 |
|
April |
701 |
|
May |
665 |
|
June |
652 |
|
July |
600 |
|
Aug |
703 |
|
Sep |
705 |
|
Oct |
|
|
Nov |
|
|
Dec |
Each question is worth 10 points (8 for the answer and 2 for the explanation/showing the work).
Q1. (10 points) Using a simple moving average of the last three months, what is the forecast for October sales in units? Show your work & briefly explain.
Q2. (5 points) The sales price per unit is $125. What is the forecast for October sales in $ terms? Show your work & briefly explain.
During the briefing you earn accolades for your quality work on short notice (an ‘attaboy’ or ‘attagirl’ as appropriate). However, the CEO says that he doesn’t feel that all three months should count equally. He thinks that the most recent month should be 60 percent; the previous month would be about 30 percent; and the other month the balance. “Get back to me with a brief memo with the revised sales forecast in units and dollar terms, ok?” Of course, the “ok” is rhetorical.
Answer Q3 and Q4 in a brief memo to the CEO.
Q3. (10 points w 2 for explanation) What is the revised sales forecast in unit terms? Briefly explain.
Q4. (5 points) What is the revised forecast in dollar terms?
-=-=-=-
-=-=-=-
Time marches on.
Fast-forward to November 1, 2015. The October sales were actually 695.
Q5. (5 points) What was the difference between the October sales forecast and the October actual sales?
Q6. (5 points) Why might there have been a difference? (Hint: stick to what we know, especially about forecasting. Don’t assume too many unusual scenarios. For example, it is highly unlikely that the Pop People invaded the earth in this time period and so changed the demand.)
Q7. (10 points) What is the November sales forecast in units using a four month simple moving average?
Q8. (5 points) What is the November sales forecast in dollar terms using the simple moving average? What major assumption do you need to make this forecast?
Q9. (10 points) Why would we be interested in forecasting sales? Why might this be useful? .
Part 3
(10 points)
In managing inventory we are interested in two basic questions.
When to order?
How much to order?
How might lean manufact
