Please read this assessment brief in its entirety before starting work on the Assessment Task.
Assessment Context
Founded at the turn of the 20th Century as a maker of fine surgical instruments, Waterside Medical (WM) has evolved into one of the leading vendors of medical supplies in Europe.
When the pandemic hit in early 2020, WM stepped up to deliver medical hardware and consumables to hospitals, surgeries and clinics, nursing homes and other primary care organizations.
Sales reached new heights, but stock shortages were common. Suppliers not only raised prices but also increased minimum order sizes, compounding the availability problems and creating severe cash flow issues for WM.
“We had enough to worry about just getting critical supplies to our customers”, explained the Head of Operations. “We had known for some time that we needed to review our inventory strategy. When I took this job, we used to try to aim for about ten weeks of stock cover, but we have just had to work with what we can get, as and when it arrives. Some items sell out really fast, but it can be really difficult to find room for some of the large deliveries as we seem to have lots of other items that are in the way.”
“Most of our Reorder Levels (ROL) and Reorder Quantities (ROQ) were set some time ago, long before these unprecedented times, but there was no point in looking at them before things settled down. We think we have a better forecast of what the “New Normal” is going to look like, so I’d like you to work through some sample data for me.”
“Finance reckon that is costs us €50 every time we place an order. Inventory holding is running at about 15% per annum, taking account of the cost of borrowing, insurance and all of the warehouse overheads.”
The Assessment Task
Please read the narrative of the case study above, noting the context of all the statements made.
You have been provided with a randomized sample of data covering 20 items from the company’s catalogue.
1.Prepare a spreadsheet-based ABC analysis of usage value. Classify as follows:
A items: top 20 per cent of items, as measured by usage value
B items: next 30 per cent of items, as measured by usage value
C items: remaining 50 per cent of items, as measured by 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 operational manager’s estimate of inventory weeks is correct?
3.If so, what is your estimate of the overall inventory at the end of the base year, and how much might that have increased during the year?
4.Based on the sample, analyze the underlying causes of the availability problem described in the text.
5.Calculate the Economic Order Quantities (EOQs) for the A items.
6.What recommendations would you give to the company?
The word count limit for this assessment is 1800 words (+/- 10%). In line with normal practice, tables, figures, references and appendices are excluded from this word count. Exceptionally, the checklist itself will not be considered as forming part of the word count.
