Parts Emporium Case Study

Parts Emporium Case Study

A. Synopsis

        This case describes a wholesale automobile parts supplier owned by Dan Block and Ed Spriggs.  The company is called Parts Emporium and is about 22 years old allowing it to become the largest independent distributor of auto parts in the South central region of Chicago’s South side.  The company has recently relocated off of Interstate 55 in suburban Chicago with a 100,000 square foot warehouse.  It’s utilization of the warehouse has increased from 65 to 90 percent of capacity.  Sales growth has stagnated however.  As a result, Block and Spriggs hired their first outside manager, Sue McCaskey.  

        Sue quickly realizes why she is there and that the inventory is in wrong places, customer service is inadequate, and backorder items are not immediately filled form stock.  As a result some 10 percent of demand is being lost to competitors.  She focuses on two products to make inventory changes rather than a whole bunch of changes: EG151 exhaust gasket and the DB032 Drive belt.  The goal is to show gains from proper inventory management for just those two products, she believes that then Block and Spriggs will allow her to make more significant changes to the total inventory system.

B. Purpose

        The purpose of this case study is to examine the current inventory practices for two SKUs.  Identify all costs associated with inventory, holding, ordering, and backorders.  I will choose to use a Q system to find the EOQ information which will be used to further identify the cost savings between the current and newly recommended schedule to save the company money, to make the company money, and to reduce backorder issues resulting in a loss of profit for the company.

C. Analysis

1. Put yourself in Sue McCaskey’s position and prepare a detailed report to Dan Block and Ed Spriggs on managing the inventory of the EG151 exhaust gasket and the DB032 drive belt.  Be sure to present a proper inventor system and recognize all relevant costs.

        I will first highlight the important factors by which all information is based: Currently, demand is 21 weeks, lot size is 150, lead time is 2 weeks, after week 21 they have 0 inventory, 11 on backorder, and waiting on another 150 units.  

1. EG151 exhaust gasket:  This sells for $12.99, gross margin is 32% of wholesale=$8.83, this represents 21% of inventory investment.  Out of pocket costs to place an order is $20 or ship to customers for $21.40 that they then charge the customer.

To find our EOQ:  Our weekly demand average is 102 gaskets/week taking 21 weeks added together and divided out.  Our annual demand (D) = 102 * 52/wks = 5,304 gaskets per year.  We need to find our holding costs associated with the inventory: H = (100-32%) * 21% inventory = $1.85/unit.  Our ordering cost (S) =$20.