Inventory Control 1

Running head: INVENTORY CONTROL AT WHEELED COACH AMBULANCE

Inventory Control at Wheeled Coach Ambulance

Monica Dixon

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The ABC analysis at Wheeled Coach Ambulance divides on-hand inventory into three
classifications on the basis of annual dollar volume. The underlying principle behind this system
of utilizing classifications is the fact that there are a critical few and trivial many (Heizer &
Render, 2001, p. 477). The idea is to establish inventory policies that devote more resources on
the few critical inventory parts and less on the many trivial ones as it is not prudent to monitor
inexpensive items with the same intensity as very expensive items. To determine annual dollar
volume for ABC analysis, one measures the annual demand of each inventory item times the
cost per unit. Under this pretense, one will now understand why the Class A items are to be
treated differently than those classified as Class B or Class C. Although the vehicle frames from
Ford and the aluminum sheets from Reynolds Metal may represent only about 15% of the total
inventory items at hand, they represent 70% to 80% of the total dollar usage. Class B items are
those inventory items of medium annual dollar volume. These items may represent about 30% of
inventory items and 15% to 25% of the total value. Lastly, those with low annual dollar volume
are categorized as Class C, which may represent only 5% of the annual dollar volume but about
55% of the total inventory items.
Criteria other than annual dollar volume can determine item classification. For instance,
anticipated engineering changes, delivery problems, quality problems, or high unit cost may
dictate upgrading items to a higher classification. The advantage of dividing inventory items into
classes allows policies and controls to be established for each class (Stevenson, 1996, p. 231).
Purchasing resources expended on supplier development should be much higher for individual A
items than for C items the chassis has to be a Ford, the screws and nails could come from
China. A items, as opposed to B and C items, should have tighter physical inventory control.
They belong in a more secured area, and the accuracy of inventory records for A items are

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verified more frequently. Also, forecasting for A items warrant more care than forecasting for
other items. Aluminum panels are planned for with an 8-month lead time, while nails and screws
are just ordered in bulk and replenished as needed.
Purchasing is then responsible for obtaining goods for the organization. This includes the
actual procurement of materials, supplier selection, and conducting value analyses on acquired
items. The basic decision for an inventory control manager then, is whether to centralize or
decentralize purchasing. Centralization provides for closer control and may produce certain
economies whereas decentralized purchasing tends to produce quick response and may better
serve local needs. Value analysis may be performed periodically to assure that the cost of items
purchased is being optimized against their respective costs. Vendors should be evaluated for cost,
service after the sale, reliability, and quality. But these functions will not be as effective without
an accurate forecast.
In planning for the firms inventory, the amount of lead time is considered above all else.
It is essential to know how long it will take for orders to be delivered. The greater the lead time,
the greater the need for additional stock to reduce the risk of a shortage between deliveries. In
this light, the crucial link between forecasting, planning, and inventory management becomes
clearer.
In addition to the lead time allotted for every order, holding or carrying costs are the
inventory managers second-greatest concern. These include interests, insurance, taxes,
depreciation, deterioration, spoilage, pilferage, breakage, and warehousing costs. Also included
are opportunity costs associated with having funds which could be used elsewhere tied up in

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inventory. This fact also complicates incorrect timing decisions. Unused materials must be either
returned or kept both options forcing the firm to incur unnecessary costs.
In planning on what items to purchase and how much, accurately forecasting demand is
paramount. The purchasing department uses forecasts to help it plan the use of the system.
Planning the use of the system refers to short-range and intermediate-range planning which
involves tasks such as planning inventory levels, the purchasing function itself, budgeting, and
scheduling. In spite of its use of computers and sophisticated mathematical models, forecasting is
not exact. Instead, successful forecasting often requires a skillful blending of art and science.
Experience, judgment, and technical expertise all play a role in developing useful forecasts.
Along with these, a certain amount of luck and some humility can be helpful because the worst
forecasters occasionally produce a very good forecast, and even the best forecasters sometimes
miss completely. Current forecasting techniques range from the mundane to the exotic. Some
work better than others, but no single technique works all the time.
Purchasers must know the coming of these events beforehand and having an accurate and
usable forecast will help them to allow for the surge in demand. Planning is most effective when
decision-makers know what lies ahead (Hitt, Irelend, & Hoskisson, 1999, p. 128). Forecasts are
the basis for planning. Clearly, the more accurate its forecasts, the better prepared the company
will be to take advantage of future opportunities and to reduce potential risks.
Inadequate control of inventories can result in both understocking and overstocking of
merchandise. Understocking results in lost sales and dissatisfied customers. Overstocking, on the
other hand, unnecessarily ties up funds that might be made more productive elsewhere. Although
overstocking may appear to be the lesser of the two evils, the price tag for excessive

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overstocking can be staggering when inventory holding costs are high and matters can easily get
out of hand.

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Reference
Heizer, J. & Render, B. (2001). Operations Management 6th Edition. Prentice Hall Inc.
Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (1999). Strategic Management Competitiveness
and Globalization 3rd Edition. South-Western College Publishing.
Stevenson, W. J. (1996). Production/Operations Management, 5th Edition. Irwin.