Carl's Computer 1: EOQ Calculation, Inventory Problems and Solutions

This assignment analyzes the Economic Order Quantity (EOQ) for two parts (A233 and P656) at Carl's Computer, including lead times, demand, costs, and optimal order sizes. It explores the use of purchase orders, price breaks, and the importance of accurate demand forecasting. The assignment identifies inventory management problems such as inaccurate demand forecasting, lack of automation, and infrequent inventory checks, proposing solutions like inventory tracking software and online inventory management systems. Finally, it recommends strategies for inventory control, including reducing lead times, using ABC analysis, reviewing obsolete stock, establishing inventory levels, and preparing inventory budgets. The document emphasizes efficient inventory management to increase profits and reduce costs.

Carl’s Computer

Carl’s Computer 1
1. Evaluation EOQ for two parts A233 (circuit board) and P656 (power supply): A233 Circuit
Board- Lead time is 7days, 32 units are weekly demand, annual demand comes to 1664 units
(32*52weeks). Per unit cost for the part is $18 and order cost is $16 per order, and lot size is 64
units per order. Holding cost per unit comes to $4.14/unit is $4.14 (18*23%). Total material cost
is $29952 (1664*18). Total holding cost is $132.48. Total ordering cost is $416. Total amount
spent = $30500. P656 Power Supply- Lead time is 14 days, weekly demand is 120 units per
week, annual demand for this part is 6240 units (120*52weeks). Unit cost is $35 per unit. Order
cost is $2 per order. Lost size is 350 per order. Holding cost per unit $8.05 ($35*23%). Total
material cost is $218400 (6240*$35). Total holding cost is $1408, and total ordering cost is
$35.65.
Ordering policies that can be used in the company- Usage of purchase orders help businesses in
keeping the track record of their activities related to purchasing. The firm can make use of these
orders to see whether or not supplier has sent correct goods. Keep track of records which
accompany with the orders which have been received and confirm all the goods matches packing
list. Purchasing management is significant and time-consuming. The firm should consider unit
cost, extended cost, lead time and shipment rejection for efficient management of inventory
(Thomas E.. Vollmann, et. al. 1997).
2. Sellers save by minimizing carrying costs, and they also save by giving price breaks to the
purchaser. Usually, price breaks are given in bulk quantities. Greater the size of the order lesser
will be the average price incurred. Price breaks come in use when inventory prices vary to the
size of order. EOQ is calculated foe every price that is possible, and then need to be compared to
the level of inventory which will be readily available at that price. If the volume of inventory
required in readily available in the price break of $2 then this option should be considered by the

Carl’s Computer 2
firm. Moreover, firm wants to control the cost and want to increase the availability of inventory,
therefore price break can be considered (Plossl, G. W. 1985).
3. Inefficient management of inventory can make the business run in the loss. Every firm small
or big faces problems in inventory management. Various possible problems that can be identified
are- Failing to forecast accurate demand. Forecasting demand is very critical for the production
of a right number of items. If there is any mistake, then the firm is in trouble as it is the case with
Carl's computer. It can be tackled by investing in inventory tracking software which will provide
correct data. Not using automation is another problem that can be seen in the firm. Where they
are tracking inventory in the house and losing time, money and customers. Resources are being
wasted, and energy is focused on unnecessary activities, instead of areas which can help the firm
grow. Inventory checks are not done frequently in Carl's. When they need some part only then,
they come to realize that they are short on inventory. They can implement online inventory
management system, which will help the firm to reduce inventory checks and will help to know
the status of inventory in real time. Efficient inventory management will help to increase the
profits and reduce costs (Peterson, R., & Silver, E. A. 1979).
4. Plan for controlling Inventory: The Company should reduce lead time of parts, it can also use
ABC analysis for determining which inventory is often used and asked for. Inventory manager
should review and identify obsolete stock which is lying in the warehouse and share this
information monthly with all concerned for their utilization plan. In order to avoid overstocking
of warehouse management should decide minimum level, maximum level, danger level, reorder
level and the average level of various inventory which need to be stored. Carl's material
requirement is increasing, and they should prepare inventory budgets in advance. They should
separate the budget of consumable materials form a material that is required for their services. At

Carl’s Computer 3
short time interval, actual inventory should be compared with the budget assigned, and it should
be reported to inventory manager, this will help in the control and efficient management of
inventory (Arnold, J. T., et, al. 2001).

Carl’s Computer 4
References
Arnold, J. T., et, al. (2001). Introduction to materials management.
Peterson, R., & Silver, E. A. (1979). Decision systems for inventory management and production
planning (pp. 799-799). New York: Wiley.
Plossl, G. W. (1985). Production and inventory control: principles and techniques.
Thomas E.. Vollmann, William L.. Berry, & Whybark, D. C. (1997). Manufacturing planning
and control systems. Irwin/McGraw-Hill.