# Supply Chain Management Inventory Impact

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```							Supply Chain Management Inventory Impact
The Boro Brewery and Bagel Works is struggling to compete with the large national
brands. Since they can’t increase prices, their only hope is to cut costs to increase their
operating margins. They are planning to implement Supply Chain Management
techniques and partner with their suppliers and distributors to reduce their inventory
investment. The inventory levels of the current system are listed below with a daily usage
for each item and the cost of each item. They expect the Supply Chain Management
System will allow them to maintain an 8-day supply (Days of Inventory Held) of Hops,
Barley and Sugar with only a 3-day supply of Honey and Yeast.

To determine the cost savings they can expect, you must do the following:
1. For the Current System determine
a. Days of Inventory Held = Inventory Units / Units Used per Day
b. Cost of Inventory Held = Inventory Units *Cost per Unit
2. For the New SCM System determine
a. Inventory Units = Days of Inventory Held * Units Used per Day
b. Cost of Inventory Held = Inventory Units *Cost per Unit
3. To compare the two systems you will determine
a. Reduction in Inventory = Cost of Inventory Held (Old) - Cost of Inventory
Held (New)
b. Annual savings is equal to the reduction in carrying costs, which is 10% of
the value of the inventory reduction.
4. To better visualize the impact of the change, you will graph the Inventory value
under the Old system versus the Inventory value under the SCM system by item.

Current System
Units
Inventory Used per Cost per
Item      (units)   Day      Unit
Hops       2,437,250  97,645    \$2.50
Barley     3,687,450 105,530    \$0.95
Sugar      1,287,230  29,632    \$1.90
Honey        525,662  65,225    \$2.25
Yeast        200,338  21,650    \$5.45
TOTAL      8,137,930 319,682

Email the spreadsheet as an attachment in a message to

pditmore@edinboro.edu

```
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