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Background

The Matrix Company manufactures stereo receivers and speaker systems. Prosperous growth at Matrix is resulting in inventory control problems. Fears that these inventory problems may limit expansion plans the president of the company, Hank Lobeski, has hired Bucky Grader for the purposes of developing a new inventory system. Since being hired, Mr. Grader has taken a few steps to analyze the present inventory situation. Based on the results found, he is faced with a number of challenges he must overcome to restructure the inventory system.

This report discuss some of these challenges and answers some questions Mr. Bucky faces.
 

Analysis and Discussion

1.      Is the present system workable, and should Greyson be given the authorization to hire two new clerks?

The answer is no, because examining the data Bucky has collected, it is clear that the demand for some of the components is increasing while at the same time the demand for some others is decreasing. A systematic approach is required to deal with this inventory pattern.

Mr. Greyson wants to implement the card system. Adding two more people would simply further complicate the existing out-of-date inventory

system. At the current average salary package of $50,000 each person, it would cost the company $100,000 to hire two more people. That is an expensive proposition for small sized Matrix.

2.  How important is a forecasting system for Matrix Company? Design a simple forecasting system. Use the system to forecast for 1977?

Forecasts are vital to every company, and for every significant management decision. It is the basis of long-term planning. Forecasts provide the basis for budgetary planning and cost control. Marketing relies on sales forecasting to plan new products, compensate sales personnel, and make other key decisions. Production and operations personnel use forecasts to make periodic decisions involving process selection, capacity planning, and facility layout, as well as for continual decisions about production planning, scheduling and inventory.

Linear Regression Forecasting System

We use linear regression forecasting because it is simple, economical and effective for the small inventory size of Matrix. The regression for each part is plotted and given in Appendix A. The projected values interpolated for 1977 from these plots are given in table-1 below.

Table 1           Yearly demand for five selected items

3.      How effective would an EOQ system be for the Matrix Company?

EOQ can reduce a lot of the headaches presently faced by Matrix. EOQ’s  reorder automation will inform the company of its consumer behavior, market trend, product tracking and many other such statistics about its products. Stock outs and over stocking can be avoided. EOQ will also lead to good and speedy service to the retailers.

3.1.           Compute the EOQ quantities for the five sample items?

Reorder and Quantity points are calculated for each part in the following tables. All the information used was gained from the three Exhibits provided. We chose a high customer satisfaction value to follow along with the company president’s vision of expansion. The value of customer satisfaction P is taken to be 0.99.

4.      Determine the reorder points?

These values are given in the above tables.

5.      What record keeping system would be preferable?

Computer based record keeping system would be the most beneficial and economical (in the long run). Employing two extra people would run the company about $100,000 per year. The computer alternative should be cheaper. Computers also work tirelessly and flawlessly. Implementation of an EOQ system would eliminate the current inventory problems. It will also  offer a very dynamic, versatile, and a standardized inventory system. It may take some time for the staff (and especially Mr. Greyson) to get comfortable in its use, but it would be a step forward for Matrix. Matrix is a an electronics company, it would be in its benefit to keep up with the up coming technology and new methods.

6.      Should access to inventory limited? Why?

Yes. If there is no control over the inventory area then it would be impossible for Matrix to know the current status of parts. General staff is likely not to follow the guidelines of subtracting the parts taken out. Limiting the inventory access to the stock room personnel only would ensure the part count is accurate and up to date. This is must for any forecasting system or EOQ to work.

7.      What behavioral problems could interfere with the success of the study? What could be done to minimize this conflict?

The most obvious behavioral problem might be the initial intimidation felt by the staff in changing to the computer based inventory system. People set in their ways don’t like change, this seems especially true in the case of Mr. Greyson. To deal with this problem, Bucky would need to take a leadership role and expose Matrix to alternative methods of inventory control. He should not abruptly change to the new system. He should make the staff feel that they are part of the big picture and they matter. He can do that by conducting short training session or seminars to teach the staff about the new system and give demonstrations of its use. He could use some creative convincing approaches, such as showing them the success a computer based system is had at other companies.

8.      If the results of the study are positive, what suggestions could you make to ensure successful implementation of the system?

Bucky appears to be creative, hardworking and committed to the task he is hired for. Therefore, I think that the results of the study would be positive.

For the system to be of any benefit, the system should be tested under all possible conditions. Bugs should be found and fixed. Once all that is done, the staff in general and the inventory personnel in specific should be trained in its use. Matrix customers should be informed of the changes. This could serve as a marketing tactic for Matrix and give Matrix an edge over its competitors for being a forward looking company.

Bucky should keep the system under strict surveillance to ensure its proper operation. He should keep a look out for new ways, such as new software packages, to improve the system. He could look at other companies for future and see how their inventory control system improves.

Conclusion

Matrix must implement a new improved inventory control system to continue its prosperity in the future. Mr. Bucky appears to be an aggressive man able to put up with challenges. Mr. Greyson may give initial resistance against the new computer system, but as Bucky is “sure, that after his new system is developed, Frank would see it his way.” An EOQ system is implementable at Matrix. It will eliminate the forecasting problems the company currently faces. For future, Matrix should keep tight control over the new inventory system to ensure its continued benefit to the company.