8. Toffee Inc.: Demand planning for chocolate bars

The inventory manager of sales and distribution for Toffee Inc., a confectionery company, had just concluded a meeting with all relevant personnel. The meeting had not been entirely positive. The words of the production manager still echoed in his ears: "If the ingredient inventory is not re-examined and reworked to the firm's advantage then [soon] the final products based on these ingredients will cease to yield the kind of profits that the firm expects." The inventory manager needed to do a comprehensive forecasting and inventory management plan with a view to minimize the cost of managing the supply chain by judicious use of resources, better forecasting, and improvement in the ingredient inventory purchasing and management systems.

Suggested questions

Q1: What kind of sales demand is Toffee Inc. looking at? Which forecasting method is best suited to the situation that the company is in?

Q2: How are seasonal forecasting factors computed?

Q3: How can regression be used for quarterly forecasting for 2011, and then extrapolated to monthly forecasts?

Q4: What is the safety stock to be maintained by the sales and distribution division for a service level of 95 percent?

Q5: What are the replenishment trigger (re-order level) for the sales and distribution division with the given lead time and expected service levels?

Q6: What is the most economic order quantity for the sales and distribution division? Compute the number of orders per year and the order cycle as well.

Q7: What is the total annual inventory cost?

Q8: What is the production quantity for Seven Star (assuming zero losses in production) and hence, what is the annual requirement for primary ingredients in terms of quantity needed?

Q9: What is the best quantity bargain for the firm for various primary ingredients? how are the purchase quantity levels decided and what is the total cost outlay for the same?