As you have asked for the whole case stidy: Founded at the turn of the 20th Century as a maker of fine surgical instruments, Aston Medical Equipment (AME) has recently grown into one of the leading vendors of medical supplies across Europe. When the pandemic hit in early 2020, AME stepped up to deliver medical hardware and consumables to hospitals, surgeries and clinics, nursing homes and other primary care organisations. Sales reached new heights, but stock shortages became common. Suppliers not only raised prices but also increased their minimum order sizes, compounding the availability problems and creating severe cash flow issues for AME (“thank goodness for bounce-back loans”). “We had enough to worry about just getting critical supplies to our customers”, explained Jim Stone (Head of Operations). “We had known for some time that we needed to review our inventory control. From when I took this job we always tried to have about ten weeks of stock cover, but over the pandemic we just had to work with what we can get, as and when it arrives. Some items sell out really fast, but it can also be really difficult to find room for some of the large deliveries, we seem to have lots of other items in-the-way.” “Most of our Reorder Levels (ROL) and Reorder Quantities (ROQ) were set some time ago, long before Covid19. Recently we have a better forecast of what the “New Normal” is going to look like, so I’d like you (‘Placement Student’) to work through some sample data for me.” “Finance reckon that is costs us €50 every time we place an order. Inventory carrying costs are running at about 15% per annum, taking account of the cost of borrowing, insurance and all of the warehouse overheads.” You have been provided with a randomised sample (1% of the Total list) of data covering 20 items from the company’s catalogue. Required: 1. Prepare a spreadsheet-based ABC analysis of ‘usage value’. Classify as follows: A items: top 20 per cent of usage value B items: next 30 per cent of usage value C items: remaining 50 per cent of usage value
As you have asked for the whole case stidy:
Founded at the turn of the 20th Century as a maker of fine surgical instruments, Aston
Medical Equipment (AME) has recently grown into one of the leading vendors of
medical supplies across Europe.
When the pandemic hit in early 2020, AME stepped up to deliver medical hardware
and consumables to hospitals, surgeries and clinics, nursing homes and other
primary care organisations.
Sales reached new heights, but stock shortages became common. Suppliers not only
raised prices but also increased their minimum order sizes, compounding the
availability problems and creating severe cash flow issues for AME (“thank goodness for
bounce-back loans”).
“We had enough to worry about just getting critical supplies to our customers”, explained Jim
Stone (Head of Operations). “We had known for some time that we needed to review our inventory
control. From when I took this job we always tried to have about ten weeks of stock cover, but over
the pandemic we just had to work with what we can get, as and when it arrives.
Some items sell out really fast, but it can also be really difficult to find room for some of the large
deliveries, we seem to have lots of other items in-the-way.”
“Most of our Reorder Levels (ROL) and Reorder Quantities (ROQ) were set some time ago, long
before Covid19.
Recently we have a better
(‘Placement Student’) to work through some sample data for me.”
“Finance reckon that is costs us €50 every time we place an order. Inventory carrying costs are
running at about 15% per annum, taking account of the cost of borrowing, insurance and all of the
warehouse overheads.”
You have been provided with a randomised sample (1% of the Total list) of data covering 20 items
from the company’s catalogue.
Required:
1. Prepare a spreadsheet-based ABC analysis of ‘usage value’. Classify as
follows:
A items: top 20 per cent of usage value
B items: next 30 per cent of usage value
C items: remaining 50 per cent of usage value
2. Calculate the inventory weeks for each item, for each classification, and for
all the items in total. Does this suggest that the Operations manager’s
estimate of inventory weeks is correct?
3.. Calculate the Economic Order Quantities (EOQs) for the A items.
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