1. Review the demand data provided in Appendix 1.

Describe any patterns, outliers, or

a. For patterns, I notice that about every month, there is one order for around 60
items, which is large in comparison to the average of 10 items per order. Most
seem to be orders of less than 10, but there are a few outliers over 50 that bump
the average up. There are a couple of unusual customers who buy over 50 items at
once.
2. Plot the frequency distribution for demand of the item in Appendix 1 and draw
conclusions from what you observe.

a. My conclusion from this chart is that there are several clear outliers that could
mess up the predictions of what will be needed in stock based upon regular

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 patterns. For example, there is one single order of 100. The system in place needs
to know that that order of 100 has only happened once so they don’t stock up and
prepare for another order of 100 when this was the only one. Most products are
sold in 10’s or below, so the company should keep as many in stock as they have
based off of trends without the outliers. Consolidated Electric Company can
advertise that if a customer wants to make an order of 50 or more items, they need
to provide the company with more notice so they can be made to order. This way,
they will not waste money and inventory space.
3. Is a P System or a Q System more appropriate for this item? Explain. What
formulas are needed for your suggested system, and how do they compare to the
formulas currently being used?
a. Jose should use the P-System. P systems are ideal for analyzing demand rate, and
can help when determining the lead time and quantity. This will be very helpful
since Jose deals with a variety of products with several varying demand rates and
lead times. The P system (or fixed order interval system) makes it so once the
order interval is fixed (which Jose has mastered), the quantity is all that has to be
determined. For the P system formula, maximum quantity can be found by M =
(Demand rate * Review Period) + (Demand Rate * Lead Time) + Safety Stock. Q
= M - C, whereas M = Maximum quantity and C = Current Inventory Level.
b. I chose the P-system over the Q-system, which requires the inventory level to be
checked regularly. The P system seems to be more stable for Jose’s market. If the
ordering cost is $4.36 per order, carrying cost is 28%, demand rate is 10, safety
stock is 10, and lead time is 10, the maximum quantity totals to be 210 units of
electric products.
c. The formulas being used currently are based upon the earning margin and
inventory turn, and I think that this will be a better fit in comparison. It focuses a
bit more on the current demand rate as opposed to playing it safe based upon past
trends. With outliers that throw the process off, I think the P-system will be more
accurate in the big picture.
d. If the ordering cost is $4.36 per order, carrying cost is 28%, demand rate is 10,
safety stock is 10, and lead time is 10, the maximum quantity totals to be 210
units of electric products.
4. Design an inventory control system for this business, based on your suggestion in
question 3.
a. If the ordering cost is $4.36 per order, carrying cost is 28%, demand rate is 10,
safety stock is 10, and lead time is 10, the maximum quantity totals to be 210
units of electric products.
b. In this inventory control system, demand is at the forefront of each decision,
which will allow the company to save money. This will help to prevent a surplus

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 of inventory being kept in the warehouse. Ultimately, that will reduce storage
costs and allow the company to maintain their low prices that they are known for.
This will also allow the company to maintain a great relationship with their
suppliers as they communicate clearly what the forecasted demand will be.
5. What customer-service objectives are reasonable for this business?
a. Communicate with suppliers to make sure products are always in stock based
upon demand for customers.
b. Optimize problem solving and organizational skills
c. Timeliness to ensure customer inquiries will be answered quickly
d. Proactive habits to predict any gaps or shortcomings in inventory

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