Determination of Optimal Order
setup, holding, and unit
Quantity and Reorder Point of Various
Car Models of Hyundai E. Rodriguez, a
Branch of Wheels, Inc., in Reducing
Overall Costs through Inventory
Management
Catabona, Renzie Kyle P., Paclipan, Ella Jane M.,
Resurreccion, Amanda Carissa P.
Abstract
This project involves inventory management and demand
forecasting on a dealer-type firm which is Wheels, Inc.,
specifically on one of their branches, Hyundai E. Rodriguez.
Problems encountered or might be encountered in the future or
costs associated with inventory will be given emphasis and
solutions. Different methods in calculating the amount and
time to order goods will be covered, as well as forecasting the
demand.
Introduction
Inventory management, according to Stevenson (2015), is the
heart of operations management, since it has impacts on
operations, marketing, and finance. Mismanagement of
inventory causes an obstruction in operations, diminished
customer satisfaction, and higher operating costs. Even though
this definition pertains to inventories in a manufacturing firm,
it is also true for service firms, especially on dealer type of
firms.
For dealer type of firms, inventory has the second highest cost
after personnel. Inventory management has a significant
impact on the profitability of the firm but is often overlooked
(Tonks, 2010). This results to either stock outs or excessive
inventory. Excessive inventory incurs high costs since dealers
mostly store automotive, equipment, machines, and other
products of the same type which are very expensive. Since
these products also experience gradual wearing out,
maintaining to them to retain their good condition also incurs
cost. In this type of firm, it is important to accurately forecast
the demand to avoid surplus, thus avoiding further
maintenance costs. Managing inventory does not only mean
proper storing of products, but knowing when and how much
to order them so that costs associated in ordering and handling
the products are minimized. This can be done by having
reliable forecasts of demand, information about lead times and
costs associated with inventory (i.e.
costs), and record and classification systems.
The focus of this project is inventory management and
forecasting in a Hyundai E. Rodriguez, one of the branches of
Wheels, Inc., located in Quezon City, Manila. They sell
different types of vehicles like passenger, SUV (Sport Utility
Vehicle), and LCV (Light Commercial Vehicle). Aside from
that, they also sell parts and accessories and provide services
and assistance program to ensure customer satisfaction.
General Overview of the Study
Hyundai E. Rodriguez has been running for several years.
Although it has been running smoothly and financially in good
terms, the company strives for more improvement in their
processes in retailing. This improvement emerges because of
competition. Ordering of the company from their suppliers
depends on two factors current demand of customers
(dynamic ordering), and forecasted demand from previous
historical data.
For the first factor, the company produces receipts order
whenever demand of customer arises. In this scenario, the
company has no problems dealing with the customers ordering
instantaneously as they provide legal documents in case of the
customer withdrawing from their order. The only challenges
for the company are to issue, and receive the order the earliest
time possible for customers balk whenever their orders will
take too long.
For the second factor, the company already has available
forecasted demand from the past years of their sales. However,
the company still desires to minimize, better, to avoid
incurring losses due to ordered vehicles from Hyundai which
were not sold. This may be attributed to the holding cost, or
delivery cost of the cars stored and ordered, respectively, as
they play vital role in the retailing processes of the company.
The unit cost per car is not a problem because the company is
able to cover it with their revenue and the former is an
uncontrollable variable as it depends on the supplier.
Furthermore, the supplier provides price discounts whenever
the company issues bulk orders.
Scope and Limitation
The focus of this study is the improvement of processes only
in the second factor discussed previously. In addition to, the
company covered will be only Hyundai E. Rodriguez, a branch
of Wheels Inc., located in Quezon City, Manila. The said
branch has the lowest return on investment (ROI) of all the
branches of Wheels Inc. which can be due to poor inventory Meanwhile, indicated from figure 8 to figure 14 is the
management. The variants of car models that will be focused comparison of actual versus forecasted demand of the various
on will be limited to seven (7) models only varying from the car models for the year 2016. Finally, figure 15 until figure 21
most sellable to the least. This is to give an overview for the illustrates the comparison for the year 2017 of these different
company which methods to whatever variant model will be car models, but until the month of September only.
applied in order to properly allocate their money in terms of
their retailing processes that will be provided in methodology. 60
50
Background and Significance of the Study 40
In line with the goals of the company, Hyundai E. Rodriguez
30
attempts to maximize their profit with their current costs Actual
20
defined. The problem arising is that the unit cost per car is the
10 Forecasted
highest of all costs ranging hundred thousands of pesos as
0
indicated in table 1. The company resolves in price discounts
whenever they order in bulk sizes of cars. With this, the
company is able to lessen the costs of unit cost of a car. The
holding cost incurred is not a problem since it is too small
relative to the unit cost of a car, but will be focused on also to Fig 1. Comparison of actual vs forecasted demand of Eon car model in
further lessen unwanted cost. Delivery, on the other hand, will September to December 2015
also be focused on since they order monthly and that may be
improved as well. 60
50
Table 1. Hyundai model variants and their respective costs associated
40
*per unit available; ** per delivery of unit
30
Model Holding Ordering Unit Cost
Cost* Cost** 20 Actual
Eon PhP 4500 PhP 1460 PhP 415,000 10 Forecasted
Accent PhP 4500 PhP 1460 PhP 586,000 0
120 PhP 4500 PhP 1460 PhP 777,000
Tucson PhP 4500 PhP 1460 PhP 980, 000
Elantra PhP 4500 PhP 1460 PhP 1,570,000
Grand Starex PhP 4500 PhP 1460 PhP 1,762,000
H-100 PhP 4500 PhP 1460 PhP 771,000
Fig 2. Comparison of actual vs forecasted demand of Accent car model in
September to December 2015
The demand of customers on the model variants of Hyundai,
as well as the forecasted demand, is listed in the appendices.
These data came from past records starting 2015 of September, 60
until 2017 of the same month. Further, the company provided 50
data on forecasted demand based on their approach: models 40
Eon, Accent, 120, Tucson, and H-100 depend their forecasting 30
on previous semi-year, while models Elantra, and Grand 20 Actual
Starex depend their forecasting based on last quarter. Lastly, 10 Forecasted
the monthly records also indicate the set lead time and safety 0
stock of the company.

Indicated from figure 1 until figure 7 is the comparison of

forecasted demand versus actual demand of the model variants
Fig 3. Comparison of actual vs forecasted demand of 120 car model in
from Eon to H-100 for the year 2015 starting September. In
September to December 2015
these figures, the closest forecast that the company was able to
achieve (to meet the actual demand) is on the model Elantra.
 12 40
10 35
30
8 25
6 20
4 Actual 15 Actual
10
2 Forecasted 5 Forecasted
0 0

Fig 4. Comparison of actual vs forecasted demand of Tucson car model in Fig 7. Comparison of actual vs forecasted demand of H-100 car model in
September to December 2015 September to December 2015

1 50
0.8 40
0.6 30
0.4 20 Actual
Actual
0.2 10
Forecasted Forecasted
0 0

Fig 5. Comparison of actual vs forecasted demand of Elantra car model in Fig 8. Comparison of actual vs forecasted demand of Eon car model in 2016
September to December 2015

120
40 100
35 80
30
25 60
20 40 Actual
15 Actual 20
10 Forecasted
5 Forecasted 0
0

Fig 9. Comparison of actual vs forecasted demand of Accent car model in

Fig 6. Comparison of actual vs forecasted demand of Grand Starex car model 2016
in September to December 2015
 12 35
10 30
8 25
20
6
15
4 Actual Actual
10
2 Forecasted 5 Forecasted
0 0

Fig 10. Comparison of actual vs forecasted demand of 120 car model in 2016 Fig 13. Comparison of actual vs forecasted demand of Grand Starex car
model in 2016

35
30 35
25 30
20 25
15 20
Actual 15
10
Actual
5 Forecasted 10
0 5 Forecasted
0

Fig 11. Comparison of actual vs forecasted demand of Tucson car model in

2016 Fig 14. Comparison of actual vs forecasted demand of H-100 car model in
2016

25
25
20
20
15
15
10 Actual 10
5 Actual
Forecasted 5
0 Forecasted
0
July
August
April
January

May

September
February

June
March

Fig 12. Comparison of actual vs forecasted demand of Elantra car model in

2016 Fig 15. Comparison of actual vs forecasted demand of Eon car model in 2017
 100 10
80 8
60 6
40 4
Actual Actual
20 2
Forecasted Forecasted
0 0
July

July
August

August
April

April
May
June

September

May

September
January

January

June
March

February
March
February

Fig 16. Comparison of actual vs forecasted demand of Accent car model in Fig 19. Comparison of actual vs forecasted demand of Elantra car model in
2017 2017

20 50
15 40
30
10
20
5 Actual Actual
10
Forecasted Forecasted
0 0
July

July
August

August
April

April
May

September

May

September
June

June
January

March

January
February
March
February

Fig 17. Comparison of actual vs forecasted demand of 120 car model in 2017 Fig 20. Comparison of actual vs forecasted demand of Grand Starex car
model in 2017

35
30 35
25 30
20 25
15 20
10 Actual 15
5 10 Actual
Forecasted
0 5
Forecasted
0
July
August
April
January

May

September
June
March
February

July
August
April
January

May

September
February

June
March

Fig 18. Comparison of actual vs forecasted demand of Tucson car model in

2017 Fig 21. Comparison of actual vs forecasted demand of H-100 car model in
2017
Based on previous data, the forecasted demand often does not
meet the actual demand by the customers. This means that
opportunity cost of selling an actual car model is present for
the company should have been able to realize this revenue
given that they have set a proper forecast for the demand. Eon
9% 7%
Accent
Detailed comparison of the demanded models of Hyundai cars
18% 120
are given in figures 22, 23, and 24 for the year 2015, 2016, and
2017, respectively. In 2015, it can be observed that Elantra Tucson
model had zero (0) units demanded while Eon and Accent 2%
48% Elantra
models contended for the top demanded car models. In 2016, 12%
Grand Starex
Accent is still the top in-demand car model in Hyundai E.
Rodriguez, and model 120 has the least demand for that year. H-100
In 2017, Accent is still on top while Elantra, 120, and Eon were 4%
the models which have low demand relatively.
Fig 24. Percentage of demand of Hyundai car models in 2017
The main goal of the study is to reduce the overall costs of the
company by at least 20% reduction of the current costs through Methodology
proper inventory management. To achieve the goal, Hyundai E. Rodriguez aims to lessen the costs they are
appropriate forecasting technique will be applied and optimal incurring. It is upon request of Ms. Mylene Garcia, Accounting
quantity to be ordered, safety stock level, and reorder point will Department Head of the said company, to aid her in the proper
be calculated for each model of car. allocation of orders of these different models of Hyundai cars,
when to order them, and in what quantity, thus Inventory
Management in total.
Eon
10% Accent Data will be available through the historical data of Hyundai
30% E. Rodriguez and will be gathered upon request to the company
120
16% per se. The costs associated in their retailing processes will be
0% Tucson gathered through interview as well on their Accounting
5% Elantra Department. These data are indicated in the appendices part of
the paper.
6% 33% Grand Starex
H-100 Forecasting technique shall be used to determine the demand
for the next coming quarter from October 2017 to December
Fig 22. Percentage of demand of Hyundai car models in 2015
2017. With these available facts, inventory management shall
be made to determine whether the companys current
inventory management can be further improved (from their
Eon current set stock out level and lead time).
8%
15% Accent
15% After the forecast has been determined, the optimal mix of
120
these factors will be determined by these parameters:
5% Tucson a. Number of cars per model to be ordered from the
10% Elantra supplier (order quantity).
45% b. Time when to issue these orders.
Grand Starex c. Number of cars per model to be stored in the
2%
H-100 warehouse.
d. Time the order issued will be delivered (if the
Fig 23. Percentage of demand of Hyundai car models in 2016
company will be able to change lead time, then better)
When this optimal mix has been identified, it will then be used
to calculate the possible costs incurred and the gross profit
earned if the proposed method is used by the company. It will
then be compared to the gross profit earned and cost incurred
by the company during the month of October 2017 using their
current method.
A. Conceptual Framework
In order to achieve the improvement in retailing processes that
the Accounting Department Head desires, the optimal mix of
strategy should be determined. The parameters have been set
in methodology. Further, these parameters can only be set once
forecasted demand for the upcoming year has been computed.
These future demands for the various models of Hyundai cars
will be computed by Trend Analysis technique. Lastly, these
data will come from the company itself, Hyundai E.
Rodriguez, by utilizing the historical data on demand provided
by them to be able to come up with forecasted demand for the
next year.
the company orders in bulk sizes as to maintain price
discounts. The price discounts that the suppliers often offer
have been constant ever since which were agreed upon terms
of the communicating companies. The supplier is assured that
Hyundai E. Rodriguez will always order from them given this
time of the month. This in return, allows Hyundai E. Rodriguez
to decrease its unit cost since price discount entails lowering
of unit cost per order.
Afterwards, these orders will be delivered by third party
people, mainly on logistics services, provided by the supplier
also. These logistics people always maintain integrity in terms
of their service, thus failure in delivery would always assume
bonuses or incentives. These bonuses or incentives given vary
from time to time and will depend on the supplier, according
to Mrs. Garcia, which roots on the penalties incurred by the
dilemmas provided by the logistics. But historically, minimal
amount of lateness in deliveries have been recorded and the
reputation of the logistics firm is respectable.

Then, the company shall receive these orders. Receiving by the

Deployment Department has its own sub-processes,
requirements, checklists, and etc. In order for the ordered car
to be accepted in Hyundai E. Rodriguez, maintenance will be
made and checking of parts will also be conducted by their
experts team.

Finally, when these cars pass the test, they shall be stored in
warehouses, waiting to be sold to customers looking for the
exact model of Hyundai car they will be ordering.

Ordering
1. Conventional
Delivery
ordering (depending Receiving
Fig 25. Conceptual Framework of the study on historical data). Thirdy-party firm
2. Additional (Logistics) will Cars are further
Storing
customer demand deliver the cars to checked if it
(not included in the warehhouse conforms to Cars are stored
previous order). of Hyundai E. standard. The depending on their
Results and Discussions Rodriguez. company will reject variants - same
or accept depending variatns are stored
A. Systems Documentation on the car model in the same
The retailing processes of Hyundai E Rodriguez start from quality. location for ease of
access.
determining the demand of the customers through forecasting.
These demands per Hyundai car model will be limited only to
the second factor indicated in the overview of the study. Based
Fig 26. Retailing Processes of Hyundai E. Rodriguez
on historical demand, the company will then strive to aim for
the optimum quantity they will order from the suppliers which
There are other processes after storing but are disregarded
is the first step.
due to their complicated nature. For example, if there are cars
that are stocked for too long that the dealer thinks it will not be
The company will order units to their supplier based on the
sold at a regular price, the dealer can put the car at auction or
forecasting the company has been doing ever since. Usually,
can be sold at a much lower price. Since it is hard to predict
bidders, such process is not considered. The concern of the
proponents is the direct sales of the product.
B. Systems Analysis
The company experiences problems in their inventory such as
stock-outs of some models in some periods and overstocking
in other periods. Stock-outs results to loss of profit and
customer. On the other hand, overstocking results to additional
maintenance cost and other holding costs. To find the root
cause of these two problems, a Why-Why analysis is
conducted. Figure 27 and 28 shows the breakdown of causes
of overstocking and stock-out problems, respectively. The
zoom-in versions of these figures are in the appendices.
Fig.27. Fishbone Diagram Referring to Overstocking Problem
Fig.28. Fishbone Diagram Referring to Stock-out Problem
Overstocking has three possible causes: error in inventory
accounting system, sales not meeting the forecasted demand,
and excessive quantity ordered. These assumptions are made
from the comparisons of data of forecasted demand and actual
demand. When sales do not meet the forecasted demand, it
results to excessive inventory. It happens when the forecasting
technique used is unreliable or not appropriate for the nature
of the business. Breaking down the third cause, which is
excessive quantity ordered, it can be caused by mistakes in
calculating the optimal quantity to be ordered and
underestimated surplus in the previous period. Underestimated
surplus is due to error in inventory accounting system. Error in
calculation of optimal quantity to be ordered can be caused by
inappropriate quantity model used to solve the optimal
quantity and unreliable demand forecast.
The possible causes of stock-outs, on the other hand, are
insufficient quantity ordered, actual demand exceeding the
forecasted demand, error in inventory accounting system,
pilferage, obsolescence, and insufficient safety stock.
Insufficient quantity ordered can be caused by wrong optimal
quantity ordered, which is also the effect of inappropriate
quantity model used and unreliable forecast of demand, and
overestimated surplus which is also the effect of error in
inventory accounting system. Actual demand exceeding the
forecasted demand is also caused by unreliable forecast of
demand. Insufficient safety stock is also caused by
inappropriate quantity model and unreliable demand forecast.
Analyzing the two problems and the breakdown of their
causes, the most probable causes of the two problems are the
inappropriate quantity model, unreliable demand forecast.
Although excess stocks help to buffer the stock-outs in the
succeeding periods, excess stocks incur holding costs. To
address these problems, the proponents of this study will find
the most appropriate model to be used in ordering the products
and use the more appropriate forecasting technique.
C. Designed Solutions or Alternatives
To address the problem of stock outs and overstocking, the
forecast of demand should be resolved first. In forecasting, it
is necessary to know first the reason for forecasting, the range
of the forecast, and technique to be used which depends on the
method to be used, either qualitative or quantitative. The goal
of forecasting in this paper is to determine the most probable
demand in the succeeding periods, from October 2017 to
December 2017. The proponents chose the medium ranged
forecasting since the firm under study is a dealer firm which
sells expensive products, thus requiring more accurate
forecast. It is known that long term forecasting is more
subjected to uncertainty than medium ranged forecasting.
 (Chambers, Mullick, & Smith, 1971)
As for the method of forecasting, the proponents chose the
quantitative method for accuracy of results. There are various
techniques that can be used, and the effectiveness of each
technique varies depending on the range of forecasting and the
nature of the data. Box-Jenkins, X-11, Trend Projection,
Exponential Smoothing, Regression, and other Time Series
Analysis techniques are presented in the figures 29 and 30.
above. The proponents found out that Trend Projection is
appropriate for the data provided by the company since it is
good to use for 3 months to 1 year of forecasting and the data
exhibits a trend or pattern. However, there are issues
encountered by the proponents regrading the distributions of
the demand in each model of car.

First, there are car models under study that are not normally
distributed. The succeeding figures shows the normality test of
the demand per car model.

Figure 29. Time Series Analysis and Projection: Moving Average and
Exponential Smoothing (Chambers, Mullick, & Smith, 1971)

Figure 31. Normality Test for Eon

Figure 32. Normality Test for Accent

Figure 30. Box-Jenkins, X-11, and Trend Projections

 Figure 33. Normality Test for 120
Figure 34. Normality Test for Tucson
Figure 35. Normality Test for Elantra
Figure 36. Normality Test for Grand Starex
Figure 37. Normality Test for H-100
It can be seen from figures 33, 35, and 37 that the car models
120, Elantra, and H-100, respectively, are not normally
distributed. What makes them not normally distributed are the
zero demands in some months. These models have intermittent
demands and follows different distributions like Poisson.
There are various forecasting techniques applicable for
intermittent demand such as Crostons method, however, these
methods are not within the capability of the proponents of the
study. Due to this, the models to be forecasted and managed
are only limited to Eon, Accent, Tucson, and Grand Starex, in
which Trend Analysis will be used.
After removing the outliers from the data, using Minitab, the
following forecasts are made for the months October 2017 to
December 2017 for each product. It should be noted that the
chosen model or equation to be fitted for each product are not
the same. The basis used in choosing the fitted equation are the
parameters Mean Absolute Percentage Error (MAPE), Mean
Absolute Deviation (MAD), and Mean Squared Deviation
(MSD). The equation or model for each product with the
relatively lowest MAPE, MAD, and MSD are used.
The figure above shows the fitted model for Accent, which is
quadratic with the equation of () = 28.5 + 3.72
0.1160 2 from September 2015 to September 2017, along with
the forecasted demand for October 2017 to December 2017.
Table 3 shows the values of the forecasted demand for Accent.

Figure 38. Trend Analysis Plot for Eon

Table 2. Demand Forecast of Eon from October 2017 to December 2017

Month Forecast (in units) Figure 40. Trend Analysis Plot for Tucson
October 5.20957
November 4.79639 Table 4. Demand Forecast of Tucson from October 2017 to December 2017
December 4.43739 Month Forecast
October 19.0939
The figure above shows the fitted model for Eon, which is November 19.8725
quadratic with the equation of () = 34.97 1.85 + December 20.6763
0.0271 2 from September 2015 to September 2017, along with
The figure above shows the fitted model for Tucson, which is
the forecasted demand for October 2017 to December 2017.
quadratic with the equation of () = 7.69 + 0.11 +
Table 2 shows the values of the forecasted demand for Eon.
0.0126 2 from September 2015 to September 2017, along with
the forecasted demand for October 2017 to December 2017.
Table 4 shows the values of the forecasted demand for Tucson.

Figure 39. Trend Analysis Plot for Accent

Table 3. Demand Forecast of Accent from October 2017 to December 2017

Month Forecast Figure 41. Trend Analysis Plot for Grand Starex
October 46.9226
Table 5. Forecast of Grand Starex from October 2017 to December 2017
November 44.5001
December 41.8457 Month Forecast
October 27.4774
November 29.2214
 December 31.0871

The figure above shows the fitted model for Grand Starex,
which is quadratic with the equation of () = 28.84
1.48 + 0.0608 2 from September 2015 to September 2017,
along with the forecasted demand for October 2017 to
December 2017. Table 5 shows the values of the forecasted
demand for Grand Starex.

Figure 42. Trend Analysis Plot for H-100

Table8. Forecast of H-100 from October 2017 to December 2017

Month Forecast
October 10.1209
November 10.0395
December 9.9464

Fixed-order quantity model with safety stock is the method

Figure 41. Trend Analysis Plot for Elantra
most applicable for the companys production characteristics.
Table 6. Forecast of Elantra from October 2017 to December 2017 Unlike other models under the FOQ like the basic Economic
Month Forecast Order Quantity and Production Order Quantity, in this model,
October 4.4200 demand is not assumed to be constant. Other assumptions are
November 4.51692 constant lead time and normally distributed demand during
December 4.61385 lead time.

The mean and variance of the demand for each model in a

month is summarized in the table below. A service level of
95% was assumed, thus, a z-value of 1.96 was used in
computing for the economic order quantity (Q) and the reorder
point (ROP). The value of lead time used was 7/30 since it
must be in the unit of months.

Table 9. Mean and Variance of the monthly demand for each model
Model Mean ( ) Variance ( )
Eon 4.814 0.149
Accent 44.42 6.45
Tucson 19.881 0.626
G-Starex 29.26 3.26
Figure 42. Trend Analysis Plot for 120
From these data, the ROP was then computed following the
Table7. Forecast of 120 from October 2017 to December 2017
formula below.
Month Forecast
October 3.16
= ( ) + ()( )
November 3.11692
December 3.07385 where: = 2
Table 10. Standard deviation of lead time demand and RO for each model the end of the month, if there is an ending inventory, the
Model ROP* holding cost is incurred. After doing the simulation, the
Eon 0.186458217 2 following computations are made if the proposed solution is
Accent 1.226784415 13 implemented.
Tucson 0.382186691 6
G-Starex 0.872162064 9
Table 13. Beginning inventory, sold units and ending inventory (simulated),
* values are rounded up
October 2017
Model Beg. Inv.* Sold Units End. Inv.*
Eon 38 3 35
The economic order quantity was computed as follows: Accent 41
39 73
Tucson 15+34=49 23 26
2
= G-Starex 10+50=60 24 36

*with safety stock and reordered quantity
Table 11. The quarterly demand and Q for each model
Table 14. Breakdown of simulated cost for the month of October 2017
Model Quarterly Demand Q*
Model Total Unit Setup Cost Holding
Eon 14.442 9
cost (Php) (Php) Cost (Php)
Accent 133.26 75
Eon 0 0 157500
Tucson 59.643 34
G-Starex 87.78 50 Accent 0 0 328500
*values are rounded up Tucson 25480000 37960 117000
G-Starex 45812000 52560 162000
Every time the inventory for each model reaches the value of
the ROP, an order quantity Q for each model specified above Table 15. Simulated total cost incurred for the month of October 2017
should be ordered. Model Total cost (Php)
Eon 157500
D. Solutions Validation/Testing Accent 328500
Tucson 25634960
In testing if the proposed solution is better than the current G-Starex 46026560
system of the company, the parameters used are the costs
associated with each model and the gross profit earned for each Table 16. Comparison of Total Costs incurred
model. The models of the car to be used for the comparison are Model Current (Php) Proposed (Php)
Eon, Accent, Tucson, and Grand Starex. To compare the costs Eon 157,500 157,500
and gross profits of the current system and the proposed Accent 3,542,760 328,500
solution, the following data are obtained: Tucson 14,753,400 25,634,960
G-Starex 26,456,400 46,026,560
Table 12. Sales and beginning inventory for the month of October 2017
Model Total Cost (Php) Beg. Inv.*
Eon 157,500 19 The simulated costs are calculated by the following step by
Accent 3,542,760 19 step procedure:
Tucson 14,753,400 0
G-Starex 26,456,400 0 First, using the beginning inventory obtained from the
*safety stock is not included company, it can be determined if the inventory level reached
the ROP. If the inventory level is lower than the ROP, then a
The obtained sales and beginning inventory of Eon, Accent, quantity Q should be ordered. This will incur a setup cost and
Tucson, and Grand Starex for the month of October 2017 are total unit cost. If the inventory level is higher than the ROP,
used to compute for the costs and profits if the proposed then no order is made, and there is no incurred total unit cost
solution is implemented. It is done by knowing the forecast of and setup cost. Then, using the actual demand of the company,
the demand for the month and the inventory level including the it can be determined if there is a stock out or excess inventory.
safety stock. If the forecasted demand exceeds the ROP, the A holding cost is incurred if there is an ending inventory. If
order is made, incurring a setup cost. Using the obtained data there is a stock-out, the cost incurred is due to lost of customer
for sales, a revenue is generated. After selling the products at
or due to back-ordering cost which can be incurred in the next
month. However, this cost is not considered in the
computation. Finally, the total cost is calculated by adding the
total unit cost, holding cost, and setup cost.
As shown in Table 13, the total costs incurred for Tucson and
Grand Starex in the proposed solution is greater than in the
current system. On the other hand, for Eon and Accent, the
proposed solution has less costs incurred. However, it cannot
be concluded that the proposed solution is better than the
current method (or vice versa) since the proposed solution will
take effect on the succeeding months.

In calculating the costs incurred in the simulation, the

proponents used the current safety stocks (and beginning
inventory) of the company in comparing the current level with
the ROP. It is because, the idea is that the company is
transitioning from the current system to the proposed system.
In the end of October, the safety stock level will be changed
into the proposed level. To determine the effectiveness of the
proposed solution, it is necessary to compare the results from
October to December. However, due to the limitation of time,
the comparison that can be made is for the month of October.

References:
(1) Chambers, Mullick, & Smith. (1971). Time Series Analysis and
Projection: Moving Average and Exponential Smoothing.
(2) Stevenson, W., Operations Management, 12th ed., New York: McGraw-
Hill, 2015, pg. 547.
(3) Service Inventory Management. Retrieved October 1, 2017 on
http://nptel.ac.in/courses/110106046/Module%2010/Lecture%201.pdf
unpublished.
(4) Tonks, S. (2010). Retail Inventory Management. Retrieved October 24,
2017. From: http://www.academia.edu/25263850/Retail_Inventory_
Management_ Inventory_Management_in_Dealer_Oriented_Industries
Appendices:

September October November December

Demand per model

Eon 20 34 48 28
Accent 49 14 22 57
120 15 6 0 4
Tucson 10 0 3 11
Elantra 0 0 0 0
Grand Starex 35 17 11 5
H-100 12 10 7 17
Lead times 7 Days 7 Days 7 Days 7 Days
Table A. Data for actual demand (sales), lead times, and safety stock level for the year 2015 starting September

September October November December

Demand per model

Eon 25 25 25 25
Accent 30 30 30 30
120 2 2 2 2
Tucson 5 5 5 5
Elantra 0 0 0 0
Grand Starex 20 20 20 20
H-100 5 5 5 5
Table B. Data for forecasted demand for the year 2015 starting September

Demand per January February March April May June

Model
Eon 14 42 10 21 24 19
Accent 49 14 71 50 85 30
120 0 1 0 10 1 0
Tucson 1 4 22 15 17 13
Elantra 0 3 0 2 0 8
Grand Starex 20 29 21 31 11 27
H-100 0 8 1 15 9 10
Lead Times 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days
Demand Per July August September October November December
Model
Eon 24 16 6 7 24 10
Accent 65 98 73 12 44 45
120 7 4 0 1 5 0
Tucson 12 31 7 10 10 2
Elantra 0 20 7 21 2 0
Grand Starex 2 27 8 12 19 8
H-100 0 13 11 0 11 29
Lead Times 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days
Safety Stock 30 30 30 30 30 30
Levels
Table C. Data for actual demand (Sales), lead times, and safety stock level for the year 2016 starting January
 Demand per January February March April May June
Model
Eon 20 20 20 20 20 20
Accent 30 30 30 30 30 30
120 5 5 5 5 5 5
Tucson 5 5 5 5 5 5
Elantra 1 1 1 2 2 2
Grand Starex 15 15 15 20 20 20
H-100 10 10 10 10 10 10
Demand Per July August September October November December
Model
Eon 20 20 20 20 20 20
Accent 40 40 40 40 40 40
120 4 4 4 4 4 4
Tucson 12 12 12 12 12 12
Elantra 5 5 5 10 10 10
Grand Starex 20 20 20 15 15 15
H-100 12 12 12 12 12 12
Table D. Data for forecasted demand for the year 2016 starting January

Demand per January February March April May June

Model
Eon 16 0 22 13 0 1
Accent 59 63 44 54 56 54
120 4 0 16 0 2 12
Tucson 3 8 23 0 6 15
Elantra 0 0 0 1 0 1
Grand Starex 12 4 40 16 12 34
H-100 9 29 24 0 0 0
Lead Times 7 Days 7 Days 7 Days 7 Days 7 Days 7 Days
Demand Per July August September
Model
Eon 0 23 1
Accent 87 56 31
120 0 2 3
Tucson 30 25 20
Elantra 3 2 9
Grand Starex 43 16 16
H-100 0 0 30
Lead Times 7 Days 7 Days 7 Days
Table E. Data for actual demand (Sales), lead times, and safety stock level for the year 2017 starting January until September
Demand per January February March April May June
Model
Eon 20 20 20 20 20 20
Accent 50 50 50 50 50 50
120 8 8 8 8 8 8
Tucson 15 15 15 15 15 15
Elantra 7 7 7 0 0 0
Grand Starex 9 9 9 15 15 15
H-100 10 10 10 10 10 10
Demand Per July August September
Model
Eon 20 20 20
Accent 50 50 50
120 8 8 8
Tucson 15 15 15
Elantra 0 0 0
Grand Starex 15 15 15
H-100 10 10 10
Table F. Data for forecasted demand for the year 2017 starting January until September

Model Safety Stocks per month

Eon 19
Accent 20
120 17
Tucson 15
Elantra 12
Grand Starex 10
H-100 15
Table G. Safety Stock per Model
Fig.9. Fishbone Diagram Referring to Overstocking Problem

Fig.10. Fishbone Diagram Referring to Stock-out Problem