A comparison of two companies

Company 1

Outsources all production to an external supplier who creates a food product for them to then ship to their warehouse.

Lead time from placing order to receiving the order at the warehouse takes 90 days

Customer demand is uncertain and fluctuates for the company

They stock their product in two warehouses across the US.

Lead time is also sometimes uncertain as the supplier sometimes deals with uncertainty of ingredients

Company 2

Is a manufacturing company producing tents for a consistent customer base of local retailers.

The company purchases raw materials including: steaks, tent poles, and tent fabric to produce the finished good: the tent

The company has varying levels of demand for their tents month by month but their production level is split to be consistent month over month even if this means they have to backorder.

The lead time in ordering the raw materials is fairly consistent. They order from other suppliers that are made to stock. If their regular supplier is out of stock, the product is generally considered a commodity and they can purchase elsewhere.

Case study Questions:

1. Explain the difference in the demand forecasting process for the two companies? Do both have to consider dependent and independent demand? Explain the terms CPFR and Sales and Operational Planning and what these might mean to each company? (9 points)

2. Explain the relationship between MRP, demand forecasting, inventory management and distribution planning for both companies? Ie you should explain two workflows. (10 points)

3. Provide an example of a BOM that Company 2 might use to create their finished goods (you can make assumptions). (2 points)

4. What is safety stock and why is it important for both companies? Explain where safety stock might occur for both.

5. What is the impact of safety stock on reorder points? (6 points)

Calculation Questions:

1. The revenue for a firm is $2,500,000. Its cost of revenue is $850,000, and its average inventory for the year is $62,000. What is the inventory turnover? (1 point)

2. The annual requirement of a part is 360,000 units. The order cost is $120 per order, the holding rate is 12 percent and the part cost is $2,500 per unit. What are the (a) EOQ, (b) annual holding cost, (c) annual order cost, and (d) total annual inventory cost? (4 points)

3. If the company above decided to order at a lot size of 2,800 units instead of the EOQ quantity, what are the (a) annual holding cost, (b) annual order cost, and (c) total annual inventory cost? What can you conclude about these costs compared to ordering the EOQ quantity? (6 points)