Mary is the manager of the Alpha company in the grocery industry. The major role of Alpha company is working as a grocery distributor though the company also produces some products. There are 4 products W, X, Y, and Z caused a lot of troubles for Mary in the past several years since the inventory and sales records were not available. From 2019 with the investment of IT and supply chain infrastructure, Mary can continuously monitor the sales and inventory information of these 4 products. It was the end of 2019. Mary had collected all 2019 weekly 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 2019. Mary wanted 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 for several years and just got his MBA degree last year. Below are the objectives of this project:
- Mary hoped Jason can determine which forecast methods will be appropriate for each of these 4 products. Moreover, Jason should provide the demand forecast for the first 4 weeks of 2020 for each of these 4 products so Mary can test Jason’s method in the first month of 2020. (25 points)
According to our textbook the simple moving average serves as an estmaye of the next period’s demand therefore I will be applying simple moving average to this problem.
- 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 2020. The sale price/unit for each product is listed below:
Product W
Product X
Product Y
Product Z
$220
$50
$5
$3
Jason decided to use ABC rule to classify these 4 products. ‘A’ category product(s) will have the target service level of 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.
a) How should Jason classify the ABC products? (10 points)
b) 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 2019. But based on the historical data. The attached spreadsheet document includes the order information for 2019. The company places the order of all products on each Wednesday. Jason found the lead time of orders has variations for all these 4 products. Which ROP model should Jason implement? (5 points)
c) What are the reorder points for each of these 4 products for the first week of 2020? (30 points)
- Product E is a new product and manufactured by the Alpha company itself. This product was introduced to the market in July 2019 and the feedback of the market was very positive. Mary had provided the 2019 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 2020 for product E. Some information is given here:
2019 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 choose to get the lowest expected cost? (30 points)
Sample Solution
