CASE PARTS EMPORIUM
It is June 6, Sue McCaskey’s first day in the newly created position of materials manager for Parts Emporium. A recent graduate of a prominent business school, McCaskey is eagerly awaiting her first real-world problem. At approximately 8:30 A.M. it arrives in the form of status reports on inventory and orders shipped. At the top of an extensive computer printout is a handwritten note from Joe Donnell, the purchasing manager: “Attached you will find the inventory and customer service performance data. Rest assured that the individual inventory levels are accurate because we took a complete physical inventory count at the end of last week. Unfortunately, we don’t keep compiled records in some of the areas as you requested. However, you’re welcome to do so yourself. Welcome aboard!” A little upset that aggregate information is not available, McCaskey decides to randomly select a small sample of approximately 100 items and compile inventory and customer service characteristics to get a feel for the “total picture.” The results of this experiment reveal to her why Parts Emporium decided to create the position she now fills. It seems that the inventory is in all the wrong places. Although there is an average of approximately 60 days of inventory, customer service is inadequate. Parts Emporium tries to backorder the customer orders not immediately filled from stock, but some 10 percent of demand is being lost to competing distributorships. Because stockouts are costly relative to inventory holding costs, McCaskey believes that a cycle-service level of at least 95 percent should be achieved. Parts Emporium, Inc., was formed in 1973 as a wholesale distributor of automobile parts by two disenchanted auto mechanics, Dan Block and Ed Spriggs. Originally located in Block’s garage, the firm showed slow but steady growth until 1976, when it relocated to an old,