Blanchard Importing

Barry Densmore

OM 523 Case Paper #1

Blanchard Importing and Distributing Co.

The EOQ and ROP values were recalculated based on the 1972 estimated return on investment of 20% for the wine merchandising versus the 9% originally used in 1969. The calculations were also made for both the 1971 Year End demand numbers and the 1972 1st Quarter demand numbers. By using the 20% in the carrying cost instead of 9% all of the EOQ values were reduced by at least 15%. Using the 1971 demand numbers, the only significant changes in ROP were a 36% increase for the Scotch and a 21% decrease for the Rum. Using the 1972 1st Quarter demand numbers, the ROP for Vodka and Gin were increase 28% and 24% respectively while the Whiskey was decreased 35%. All of these values can be seen in the tables below.

The disadvantage of the actual system used by Blanchard is they were tying up extra assets by bottling more than one cycle’s worth of product at one time that was just sitting in inventory. The disadvantages of the formal EOQ/ROP system is that it would tend to be less efficient with the use of the equipment because it would more than likely cause more equipment changes and down time. The formal EOQ/ROP system also ignores the vast knowledge and experience of the people such as Bob and Eliot that schedule and perform the work. For a company that is successful and plans to continue business as currently running, I would prefer the actual system used that relies on the knowledge and experience of the staff that has made the company successful. However, for a company looking to expand into a thriving market such as this, I would prefer to use the EOQ/ROP system to free up the assets needed to expand the wine merchandising.

Hank should recommend switching to the EOQ/ROP system based on the calculations from the 1st Quarter sales of 1972. This aligns the calculated order quantities and reorder points with the most current sales data while freeing up needed assets to pursue...