Operations Management

Mary is the manager of Alpha company in grocery industry. The major role of Alpha company 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 2018 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 2018. Mary had collected all 2018 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 2018. 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 several years and just got his MBA degree last year. Below are the goals of this project:

  1. Mary hoped Jason can determine which forecast methods will be appropriate for each of these 4 products. Moreover, Jason should provide the demand forecast of the first 4 weeks of 2019 for each of these 4 products so Mary can test Jason’s method in the first month of 2019. (30 points)
  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 2019. 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 should Jason 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 2019. 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 2019? (35 points)

  1. Product E is a new product and manufactured by Alpha company itself. This product was introduced to the market on July 2018 and the feedback of the market was very positive. Mary had provided the 2018 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 2019 for product E. Some information is given here:

2018 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? (35 points)

Sample Solution