Introduction
Different kinds of paper products are being sold by Paper and More Company. The first store for the paper products of the company was opened with the help of the personal finances of Mr. Brown in the year 1995. For the previous 2 years, the demand of the customers is being met by maintaining very high levels of inventory in the company and based on this Mr. Brown has created a great reputation and goodwill for the company in the eyes of the customers. The location of the distributors and the stores of the company were also near standing at about a distance of just 3 hours which further made the operations of the business more convenient. Finally, the business was entering the maturity stage of its business cycle and it was in the year 1997 that a decision was made by Mr. Brown in order to expand the operations of the business. It was planned to open 8 new paper stores in the coming 2.5 years.
Problem Diagnosis
One of the venture capitalist named as Mr. Mathew Abraham wanted Mr. Brown to address a range of concerns before a final decision is made for opening the 8 new stores. These issues were the costs associated with the operations of the new stores such as inventory, holding, sitting etc., how to achieve the economies of scale by reducing the costs by producing more and finally, identifying the popularity of the products of the company in the range of the different markets.
All of the above issues were interconnected with the inventory management of the new stores. Mr. Abraham wanted that inventory management should be evaluated because it was the only way through which all the concerns could be addressed if the management of the company was successful to raise the required funding for expanding the operations of the company. Lastly, it was decided to analyze the Great White brand of the company at an acceptable new 98% fill rate which according to Mr. Brown would result in the lower inventory costs. This paper attempts to address all the above concerns related to the management of the inventory so that the order up to policy would be optimal to identify the target order up to level each time when the company was short of stock.
Analysis
A range of analysis has been identified in order to evaluate the 98% fill rate and to also identify the specific order up to point quantity for the range of the products all of these following analysis have been performed to address all the concerns of Mr. Brown.Paper and More Case Solution
Analysis # 1
Ques. A
1) The order up to the points that gives a 98% stock rate is the order up quantities ranging from 77 to 83. This is going to provide the required Type 1 service level or a 98% stock rate.
2) A 98% fill rate or the type 2 service level is at the order up to quantity of 69.
3) The maximum position of the inventory that Mr. Brown is willing to have is the order up to level. However, fill rate is basically the fraction of the total demand that is served from the stock. For a particular period a stock reflects the amount of the demand that has been fulfilled in that period. Therefore, the stock percentage and the fill rate could be different. The back orders could be identified with the help of the fill rate if it is not exactly 100%.
However, if the demand of the product is more than 100% then stock rate will become less than 100% and as a result stock out would occur. Back orders could be sued to increase the fill rate,therefore, for a low order up to quantity it could be high. But for a large order up to quantity, high in stock probability is required. This is the reason due to which the order up to point is not the same in 98% stock rate and 98% fill rate.
The fill rate at the end of the season is almost equal to the probability of the in stock. This probability shows the chances of fulfilling the demand of the customers. A high number of customers could then be usually satisfied during the season and those that are not satisfied would be due to stock outs at the end of the season. The reason for this is that by using the back orders the fill rate could be increased; however this is not the case with stock probability. This is the reason due to which in stock probability is lower than the fill rate......................
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