4TH YEAR SUPPLY CHAIN COURSE

The industry is fast-moving in that models with new features and/or cosmetics are released every 12-18 months.

In order to keep manufacturing costs low, Easy-Brew negotiated a lease with an Asian manufacturer to provide adequate production for the foreseeable future. Also in the spirit of managing costs, Easy-Brew transports product from Asia to Vancouver by ocean transport in TEU containers. One TEU container can hold up to 1,000 coffee machines. The lead-time from when Easy-Brew places an order with its Asian supplier, until the product arrives at the DC, is eight weeks. Orders are shipped to individual customers using the services of Canada Post.

The math geek sales analyst has determined that the monthly (by monthly we mean a four week period) demand follows a normal distribution with mean of 1,000 units and standard deviation of 250 units. December, where demand randomly falls between 1,500 2,500 units, is an exception.

The daughter of the Easy-Brew CEO recently attended an introductory workshop on supply chain management. At Thanksgiving dinner she suggested that she had some ideas that might be useful for Easy-Brew to pursue.

Proposal #1:

A sample of historical Easy-Brew demand data, it was determined that a decent package will be able to predict monthly demand with the following accuracy: within 120 units eight weeks into the future.

Proposal #2:

Switch from ocean transport to air-shipping in LD6 containers (which can hold up to 250 units). This will reduce the order-to-delivery lead-time from 8 weeks down to 2 weeks.

Other information:

• It takes one week for the supplier to process the order and to make it available for pick-up/shipping. (Hint: the transfer of ownership takes place one week after the order has been placed.)
• The company assumes an inventory holding cost of $5 per unit
• The cost of shipping by ocean is $15 per unit. The cost of shipping by air is $20 per unit.

	Base
	$
Sales	1,028.0
Cost of Sales	621.0
Gross Profit	407.0
Operating Expenses (incl SG&A)	340.0
Operating Profit	67.0
Interest Expense	0.0
Other Income	0.0
Pre-Tax Profit	67.0
Taxes (25%)	16.8
Net Profit	50.3

	Base
Assets	$
Cash	123.0
Other Current	53.0
Accounts Receivable	156.0
Inventories	60.0
Short Term Investment	0.0
Total Current Assets	392.0
Net Fixed Assets	206.0
Other Assets	157.0
Total Assets	755.0
Total Liabilities and Equity
Other Current Liabilities	71.0
Accounts Payable	31.0
Long-term Debt	10.0
Total Current Liab.

COMPLETE THE FOLLOWING:

Engage in a operational analysis and an analysis of the financial impacts of each proposal. Explain the operational and financial implications. Which one is the best option?

Determine the following: Safety stock, lead time demand, Inventory turnover, Weeks of supply, Average weekly cost of goods sold.

Would you select proposal #1 or #2? briefly explain why