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092450 1 (1971-10-29)

handle is hein.gao/gaobacwjf0001 and id is 1 raw text is: vi UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 CIVIL DIVISION OCT 2 9 1971 LM092450 Dear Mr. Spence: During a meeting with representatives of your staff on August 12, 1971, we discussed an inventory management technique that can be used by the Government Printing Office to reduce its levels of stored paper stock. We are bringing this matter to your attention because you expressed to us that you would welcome suggestions for increasing the efficiency of Printing Office operations and because you may wish to give this matter your personal attention. We recently inquired into the basis used by the Printing Office to de- termine levels for paper stockage. The Printing Office has an established reorder point for each item in its paper stock. The reorder point is calcu- lated by multiplying the average monthly usage by a month factor that varies for each item and ranges from 2 to 6. This means that on-hand and on-order levels are not intended to fall below the equivalent of 2 months' usage for some items and 6 monthst for others. A major weakness in the method used to determine the month factor is the heavy reliance on personal judgment and the little use of readily available historical data. To test our observations, we selected three frequently used items: offset book paper (property number 10087), white writing paper (property number 205), and United States postal card paper (property number 1139). We introduced historical data covering a 2-1/2 year period into a com- puter simulation of Printing Office operations. The data included factors such as purchase order dates, quantities ordered and received, receiving dates, and daily usage. We projected the simulation forward 5 years. Our analysis of simulated inventory activity showed that the Printing Office could substantially reduce its reorder points without running short of pa- per. Our study indicated that existing inventory practices may be resulting in unnecessarily large cushions of stock on-hand or on-order. The inventory model which we developed provides a method for determining reorder points and quantities of paper to be purchased that is more efficient than one relying heavily on peisonal judgment. The model used for each of the three items we selected is adaptable for use for all paper items purchased by the Printing Office. Based on our review of these three items, we estimate that the Printing Office may be able to reduce its total investment in paper inventory by about $2 million, or 23 percent of the Printing Office's paper inventory investment, by using the model to calculate reorder points and purchase quantities. We have not attempted to estimate the amount of savings that may accrue from reductions in storage and related costs.

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