Alpha Inc. is a small medical device manufacturer. The company uses various types of materials in its manufacturing process. These materials constitute a large part of the company’s assets. The management of this critical asset greatly affects the company’s profitability. The owner of Alpha Inc. tasks you, an operations analyst, to evaluate the effectiveness of the company’s inventory management of these materials.
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The accounting department of Alpha Inc. collects inventory data of July to December 2023 for your analysis. The data set (see Appendix) includes the following information for 125 parts used in the manufacturing process.
• Part ID: the unique part identifier.
• Units Sold: the total number of units sold in the six-month period.
• Unit Cost: the estimated unit cost used in manufacturing process.
• Inventory Level: the estimated average number of units held in the warehouse.
(a) As the first step of analysis, ABC classification allows one to distinguish between critical materials and ordinary materials so that a company can optimise its efforts and resources in managing materials of different significance. Choose the techniques learnt in BUS352 to classify the 125 parts into Type A, Type B, and Type C items. You should document the detailed steps (e.g., how to do calculation, how to separate the parts into A/B/C types) in the word document and show the numerical analysis in the Excel spreadsheet. You should explicitly highlight or signify the three types of items.
With the completion of (a), classic inventory management theory suggests that Type A items are most critical items and should deserve close attention, while Type C items are least critical items and a company should optimise the efforts and resources in managing them. As a result, the owner would like to examine Type C items and see what can be done to optimise its inventory management.
(b) Analyse inventory level and unit cost data of Type C items. Provide a visualisation and a numerical description of the two variables according to the following requirements:
(i) Select one (1) appropriate chart type to visualise and present data. Provide a
brief justification of your choice. What observations and conclusions can you
make from the data visualisation? (Word count: 300)
(ii) Present descriptive statistics of the two variables. Provide a brief explanation of the key statistics. What can you observe and conclude from the descriptive statistics? Are these observations and conclusions consistent with those from (b)(i)?
(c) The owner would like to have a better understanding of the relationship between inventory level and production cost. Some employees feedback that the production department follows a simple rule in managing Type C inventory, i.e., the production department tends to place bulk orders for parts with lower prices so that the total procurement budget is not exceeded. The owner wants to find out if this hypothesis can be supported by the collected data. You are tasked to perform an association analysis for Type C items according to the following requirements.
(i) Use one (1) appropriate chart type to examine the relationship between
inventory level and unit cost. Provide a brief justification of your choice of the
chart type. What can you observe and conclude from the chart? Note that you
should NOT conduct any statistical analysis for this question and only elaborate your observation on the chart.
(ii) Use one (1) appropriate statistical tool to examine the relationship between the two variables. Clearly present the steps of analysis and components of the tool (if any), as well as the numerical result. What can be concluded from the analysis? Is this conclusion consistent with the observations and conclusions in (c)(i)? Can the result of the analysis support the hypothesis?
(iii) Is there anything that can be done to improve the plausibility and accuracy of the analysis in (c)(ii)?
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