PowerPoint Presentation
Case Study: Steel Works Inc.Presented by: Waqas Iqbal & Ci
Chao
Inventory Management
Founded in 1980, USA, by 3 material scientists from MITA
manufacturer of Custom Use Steels Custom Products DivisionSpecialty
Use Steels Specialty Products DivisionCurrently employs more than
2,500 people at 5 different locations
Company Background
#Inventory levels are extremely high !!!Customer service level
is the worst !!!Customers are going to competitors losing market
shareSales are dropped 30% !!!Expenses are up 25% !!!
Current IssuesCEO wants to know how to fix all these problems in
1-week
#Custom Product Division:General Strategy :Operates in 3
manufacturing plants, located near R&D centers and several
warehouses, to serve West, Midwest, and Eastern regions of the U.S.
CustomersDevelops under contract for a single customer, and sale
exclusively to that particular customer
Data Collection & Analysis :
#Custom Product Division:Negotiates with that customer to allow
to sell the product to anyone by the time the product is no longer
leading-edge, with premium added
Data Collection & Analysis :
#Custom Product Division:
Data Collection & Analysis#Custom Product Division:Response
to the question Why the inventory levels are so high? as follows;
Weve got to keep our customers happy. Customers arent satisfied
when you tell them that they to wait 3 weeks for delivery! We
listened to that corporate inventory reduction mandate in 1991 and
cut our inventories back 20 percent and we were running out of
product every week!
Data Collection & Analysis#Specialty Product
Division:General Strategy :Operates in 3 plants with 6 different
product linesExploit economies of scale in productionRely on the
logistics network to distribute productsMainly manufactures product
families in the same plant to minimize manufacturing costs
Generates 67% of the companys total revenueSpecialty Divisions
largest customer brings 10% of the companys total revenue
Data Collection & Analysis#Specialty Product Division:
Data Collection & Analysis#Specialty Product Division:
Data Collection & Analysis#Specialty Product
Division:Suggests that the manufacturing is to be blamed for not
having any steel in the warehouse to ship
Data Collection & Analysis
MFG#Customer Service Level:
Data Collection & Analysis#Feasible solution(s) recommended
by logistics consultantDiscontinue all slow-moving products that
are either rarely sold of never sold at all, and focus on high
margin & volume productsUse least squares regression to predict
demandConsolidate warehouses : fewer warehouse = less inventory
Consulting#Conflicts to the consultants solutions:Discontinue
all slow-moving products that are either rarely sold of never sold
at all, and focus on high margin & volume productsMost
important customers buy those productsUse least squares regression
to predict demand80% of specialty products fall in High Volatile
Category (C.V. > 0.50)Reduce warehousesLonger leadtime, maybe
cost more by added transportation costs
Reality Sets In#Monthly Sales of DURABEND R12 (SKU #
S0121958):
Other Provided Data of Specialty Products
#Monthly Sales of DURABEND R12 (SKU # S0121958):
Other Provided Data of Specialty Products#,Other Provided Data
of Specialty Products
#,Other Provided Data of Specialty Products#Solutions for
Customer Division:Since most of the custom products sell
exclusively to only one particular customer, to reduce the high
inventory level, yet service level is maintained,, the company
should negotiate with each customer to use Demand Pull Ordering
which its production lead time matches with the customers required
date of delivery.
Our Recommended Solution(s)
WIN WIN SITUATION#Solutions for Specialty Division:
Customers Forecast and Forecasts Follow-Up (to manage products
in a high volatile category)Centralized Computer-Based System
Our Recommended Solution(s)#a) Based on the spreadsheet data,
characterize Steel Works products?. About Steel Works customers?
Give your answer and the information in the case what does this
suggest?Ans: Steel works has two types of products; Custom Products
and Specialty Products. It contains following range;Durabend
R12Durabend R10Durabend R15Durabend R23Customers: Steel works has
130 customers and 120 products in specialty division.
Discussion Questions#b) What does the coefficient of variation
tell us? Can you determine the coefficient of variation for
Durabend and DuraFlex product lines?Ans: In probability theory and
statistics, thecoefficient of variation(CV) is a standardized
measure of dispersion of a probability distribution or frequency
distribution. It is defined as the ratio of the standard deviation
to the mean.CV for Durabend: 5.25CV for DuraFlex: 5.62
Discussion Questions#c) How much inventory has steel works been
holding? How much would they have been holding?Ans:
Discussion Questions
DF R15 and DF R23 are very lumpy, so might set base stock equal
to maximum monthly demand
#d) Although no data is given for custom products division, are
there any obvious opportunities that are suggested by the
information in the case?Ans:Discussion Questions
Why is actual service so bad? Not enough Item Available#
