Quantitative Decision Making-Inventory Control Models - Essay Example

Quantitative Decision Making-Inventory Control Models Managing sufficient inventory levels is a tricky issue, which managers need to handle without putting at risk cash efficiency. It is a question of balancing act as per the company needs by balancing the necessity to minimize inventory cost to the vehicle. It is seen that inventory cost takes a jump upward with the availability of the vehicle. On the contrary no cost reduction occurs if huge inventory is maintained as per the increased transport availability rate (Skipper 1).

Inventory control is just like making a target of the moving thing. Certain indicators tell us how inventory levels have been managed, as stated by Fleet-management consultant Roger Thompson, vice president, management, fleet and facilities with Bucher, Willis & Ratliff Corp (Skipper 1). Roger Thomson has found some common parameters on controlling inventory levels, which can be used to fleets overboard irrespective of the industry sector they serve. Topmost priority is to find the major share of the parts stocked.

What matters is the dollar value of parts released from stock divided by the dollar value of all parts released off late. There should be probability of around 50 or 60 percent of the time the inventory part is available. If it is not so, then certainly things need to change. If the availability of the part is quite high, say near to 98 percent, it is a sign of overstocking of that part (Skipper 1). Another parameter of maintaining the right stock is the stock movement rate. If the number of stock lines without any exit in the previous 12 months is divided by number of stock lines, it should not be more than 5 percent (Skipper 1).

One of the leading parameters of well controlled inventory is the inventory turn rate, according to Thompson, which can be arrived at by deriving the value of all parts released from the stock keeping unit and dividing it by the dollar amount of average annual inventory (Skipper 1). If the inventory turn rate is four to eight times a year, it is fine but a low turn rate such as two turns a year, it shows that stock is obsolete. A common mistake made is to perform annual physical audit rather than finding the difference due to cost of lost sales by finding what should be in stock and what should not be there for correcting the balance in future.

The ideal way is to track the stock line, barcode it and perform annual audits to find what parts are outdated and raising the cost. Data created by the systems needs to be used wisely. Taking the example of Alyeska Pipeline Services, which manages all inventory by just three repair shops along the pipeline corridor with parts personnel and seven far away locations without parts personnel. It saved huge costs in an interval of five years, reducing it from $2 million to $75,000 by estimating the turn rate at the end of the year, accruing a turn ration of 4.

35 percent, which was 2.84 percent in 2004 (Skipper 1). Maintaining the customer when the inventory part is missing could be detrimental, particularly in aircraft spare parts non-availability. A company can suffer huge losses if a flight gets cancelled, the reputation of a company can be on the stake. Once while waiting in the airport lounge for boarding the flight, we were informed of the cancellation of the flight because of technical reasons. It was a case of Aircraft-on-Ground (AOG), the cost of which was huge.

The airline company could not arrange the critical part in time and had to bear the cost of providing additional arrangements to the comfort of all passengers. Works Cited Skipper, G.C. “How to Keep the Right Parts on Hand.” Construction Equipment, 111. 8. (August 2008). 25 June 2011 < http://proquest.com>.