Question

SCMN 3710

ABC INVENTORY ANALYSIS ASSIGNMENT

House & Home (H&H) is a regional retailer of furniture, housewares, and decorative items. The company operates approximately 60 stores in the southeastern U.S. H&H was founded by Auburn graduate (Class of 1981) Dusty Smith in 1985 and has enjoyed consistent growth as measured by new store openings of 1-2 per year throughout its history. During a recent review of company finances, Dusty determined that the company was holding too much inventory.

Dusty has hired you as a consultant to help distinguish the top sellers from the “dogs”. To that end, Dusty has provided you a random sample of 300 SKUs and their sales over the past 12 months. Additionally, each SKU is categorized as either a full-time stocking item that’s always in store (ST), a seasonal item that is available for sale for a two-month period (SN), or a holiday item that’s available for about 4 weeks in the November-December timeframe (HD). Dusty wants to be able to closely monitor his “strategic sellers” which constitute the 20% of ST items with the greatest sales (the A items). He wants to provide only minimal inventory management of the lowest selling 30% of items (the C items). He believes the remaining B items require a bit more attention than the C items.

Your assignment is to develop an ABC Analysis spreadsheet for the ST items using the template provided to you. We are going to assume that the profit margin on each item is the same, which will allow us to use COGS/year in descending order per SKU to rank the items. The A items will be those that make up the top 20% of this list, the B items will be the next 50%, and the C items will be the bottom 30%. Here are some key questions that you will need to answer after building the spreadsheet:

1. How many ST items are there?
2. How many ST items are A items?
3. What is the cumulative % of COGS for all the A items?
4. How many B items are there?
5. What is the cumulative % of COGS for all A and B items combined?
6. How many C items are there?
7. How would you propose to manage the inventories differently for the A, B, and C classes?

Answer 1