Mary is the manager of Alpha company in grocery industry. The major role of Alph
ID: 462925 • Letter: M
Question
Mary is the manager of Alpha company in grocery industry. The major role of Alphacompany is working a grocery distributor though the company also produces some products. There are 4 products A, B, C and D caused a lot of troubles for Mary in the past several years since the inventory and sales records were not available. From 2014 with the investment of IT and supply chain infrastructure, Mary can continuous monitor the sales and inventory information of these 4 products. It was the end of 2014. Mary had collected all 2014weekly sales data and order history for these 4 products shown in the attached spreadsheet. This file also includes the historical order information for every week’s order in 2014. Marywanted to use scientific ways to forecast demand and manage inventory for these 4 products. She decided to assign a project to Jason who has worked in the company several years and just got his MBA degree last year. Below are the goals of this project: 1. Mary hoped Jason can determine what forecast methods will be appropriate for each of these 4 products. Moreover, Jason should provide the demand forecast of the first 4 weeks of 2015 for each of these 4 products so Mary can test Jason’s method in the first month of 2015. 2. After building a scientific way for demand forecasting, Mary hoped Jason can propose the optimal inventory/ordering policies for these 4 products for the first week of 2015. The sale price/unit for each product is listed below: Product A Product B Product C Product D $230 $50 $5 $3 Jason decided to use ABC rule to classify these 4 products. ‘A’ category product(s) will have the target service level 95%. ‘B’ product(s) will have the target service level 90% and ‘C’ products(s) will have the target service level 85%. After setting the appropriate service level, Jason will use the service level information to calculate the safety stock level for each product. How shouldJason classify the ABC products? After classifying these 4 products, Jason wanted to use the ROP model for inventory/ordering management. He believed he would get an accurate demand forecasting for the first week of 2015. But based on the historical data, he found the lead time of orders has variation for all these 4 products. Which ROP model should Jason implement? What are the reorder points for each of these 4 products for the first week of 2015? 3. Product E is a new product and manufactured by Alpha company itself. This product was introduced to the market on July 2014 and the feedback of the market was very positive. Mary had provided the 2014 historical sale data of product E in the attached file. She wanted Jason to determine the optimal production plan for the first 4 weeks of 2015 for product E. Some information is given here: 2014 last week’s output =2,800 Beginning inventory = 0 Inventory holding cost = $40 per unit per week Hiring employees = $40 per unit Terminating employee = $80 per unit Subcontracting cost =$60 per unit Unit cost on regular time = $30 per unit Overtime cost = $15 extra per unit Jason’s job is to develop an aggregate plan. The three initial options he wants to evaluate are: a. Plan A: a chase strategy that hires and fires personnel as necessary to meet the forecast. b. Plan B: a level strategy. c. Plan C: a level strategy that produces 2,800 units per week and meets the forecasted demand with inventory and subcontracting. Which strategy Jason should to choose to get the lowest expected cost?
211
12/31/2014
Week 2014 Product A Product B Product C Product D 1 31 54 250 200 2 32 51 250 199 3 32 55 246 206 4 32 55 247 198 5 34 54 246 199 6 37 56 255 208 7 34 56 246 199 8 38 56 247 201 9 39 52 245 203 10 43 56 246 202 11 42 56 239 203 12 44 55 239 203 13 45 62 245 200 14 46 52 237 203 15 45 57 240 205 16 49 52 244 203 17 47 65 238 203 18 47 56 243 205 19 49 62 239 203 20 49 55 236 204 21 48 57 242 205 22 54 66 236 202 23 53 68 237 203 24 54 58 236 210 25 55 67 236 203 26 57 64 229 210 27 58 64 237 206 28 61 66 234 206 29 61 62 235 208 30 59 64 231 205 31 58 65 230 209 32 64 62 229 202 33 55 70 228 206 34 63 67 225 207 35 57 71 230 209 36 67 68 228 209 37 70 70 228 203 38 64 63 227 208 39 70 69 228 206 40 66 71 224 204 41 74 67 225 211 42 70 73 224 211 43 75 68 223 205 44 74 76 214 205 45 79 75 223 208 46 77 75 221 210 47 75 72 223 211 48 72 72 221 209 49 76 78 220 210 50 83 78 223 215 51 83 79 220 209 52 77 75 215211
Explanation / Answer
Forecasting:
Here we choose Simple Moving Average (4-month) Model as lot of historical data is available and data has been collected at regular time intervals.
Product A:
Week (2014)
Actual Sales / Demand
49
76
50
83
51
83
52
77
Week (2015)
Actual Sales / Demand
Forecast (4-month average)
1
80 (assumed based on forecast)
79.75 [= (76+83+83+77)/4]
2
81 (assumed based on forecast)
80.75 [= (83+83+77+80)/4]
3
80 (assumed based on forecast)
80.25 [= (83+77+80+81)/4]
4
79.5 [= (77+80+81+80)/4]
Product B:
Week (2014)
Actual Sales / Demand
49
78
50
78
51
79
52
75
Week (2015)
Actual Sales / Demand
Forecast (4-month average)
1
78 (assumed based on forecast)
77.5 [= (78+78+79+75)/4]
2
77 (assumed based on forecast)
77.5 [= (78+79+75+78)/4]
3
77 (assumed based on forecast)
77.25 [= (79+75+78+77)/4]
4
76.75 [= (75+78+77+77)/4]
Product C:
Week (2014)
Actual Sales / Demand
49
220
50
223
51
220
52
215
Week (2015)
Actual Sales / Demand
Forecast (4-month average)
1
220 (assumed based on forecast)
219.5 [= (220+223+220+215)/4]
2
219 (assumed based on forecast)
219.5 [= (223+220+215+220)/4]
3
218 (assumed based on forecast)
218.5 [= (220+215+220+219)/4]
4
218 [= (215+220+219+218)/4]
Product D:
Week (2014)
Actual Sales / Demand
49
210
50
215
51
209
52
211
Week (2015)
Actual Sales / Demand
Forecast (4-month average)
1
212 (assumed based on forecast)
211.25 [= (210+215+209+211)/4]
2
212 (assumed based on forecast)
211.75 [= (215+209+211+212)/4]
3
211 (assumed based on forecast)
211 [= (209+211+212+212)/4]
4
211.5 [= (211+212+212+211)/4]
One can use Single-Period Model of inventory management as service levels are involved and the products are perishable.
Week (2014)
Actual Sales / Demand
49
76
50
83
51
83
52
77
Week (2015)
Actual Sales / Demand
Forecast (4-month average)
1
80 (assumed based on forecast)
79.75 [= (76+83+83+77)/4]
2
81 (assumed based on forecast)
80.75 [= (83+83+77+80)/4]
3
80 (assumed based on forecast)
80.25 [= (83+77+80+81)/4]
4
79.5 [= (77+80+81+80)/4]