Reference no: EM132906605

Problem - Andria Mullins, financial manager of Webster Electronics, has been asked by the firm's CEO, Fred Weygandt, to evaluate the company's inventory control techniques and to lead a discussion of the subject with the senior executives. Andria plans to use as an example one of Webster's "big ticket" items, a customized computer microchip that the firm uses in its laptop computers. Each chip costs Webster $200, and it must also pay its supplier a $1,000 setup fee on each order; the minimum order size is 250 units. Webster's annual usage forecast is 5,000 units, and the annual carrying cost of this item is estimated to be 20% of the average inventory value.

Andria plans to begin her session with the senior executives by reviewing some basic inventory concepts, after which she will apply the EOQ model to Webster's microchip inventory. As her assistant, you have been asked to help her by answering the following questions: How would these factors affect an EOQ analysis?

(1) The use of just-in-time procedures.

(2) The use of air freight for deliveries.

(3) The use of a computerized inventory control system, in which an electronic system automatically reduced the inventory account as units were removed from stock and, when the order point was hit, automatically sent an electronic message to the supplier placing an order. The electronic system would ensure that inventory records are accurate and that orders are placed promptly.

(4) The manufacturing plant is redesigned and automated. Computerized process equipment and state-of-the-art robotics are installed, making the plant highly flexible in the sense that the company can quickly switch from the production of one item to another at a minimum cost. This makes short production runs more feasible than under the old plant setup.