Parker Earth Moving Company Team B Week 3
Parker Earth Moving Company is learning how to optimize its operational performance. The company is looking to make these changes through process improvement and outsourcing. The initial steps PEMC will begin to make are to implement a new ordering system that uses a continuous inventory system with reorder points and reorder quantities established in the programs software, thereby creating an automatic order processing. Secondly, PEMC is looking into forwarding some of their support work to two different contractors and this paper will evaluate the two contractors and make a recommendation for the company. Finally, the PEMC management team must also make preparations for the potential of a natural disaster, which will involve adjusting the reorder points and the reorder quantities.
Parker Earth Moving Company (PEMC) is working on a continuous inventory a system which has a reorder point. The determinant of when to order in a continuous inventory system is the reorder point, the inventory level at which a new order is placed (Russell & Taylor III, 2009). The formula for the reorder point is the rate of demand per period times lead time. PEMC can produce 10,000 units per month during a five day work week, which comes out to actually 20 days a month given four weeks in a month. This means the company can produce 500 units in a day. The reorder point can be determined using the following formula:
Reorder point = (demand per period)* (lead time) = R=d*l
R = (10,000 units per month /500 units per day)*50 days=1,000
When the company has produced 1,000 units then it is time to reorder. The company can store up to 10 days which comes out to 5,000 units as the max storage capacity. The company would want to order double or more than half of what they produce in order to have a safety stock.
PEMC faces one major problem