Case Study: JNG Foods Distribution. JNG Foods owns and operates 31 grocery stores In Ontario Canada. You joined JNG 12 months ago. Since then, you've worked at three different stores doing everything from stocking, checkout, staffing, and store manager. For the last several weeks you've been on temporary assignment In the Sourcing Department at corporate headquarters In Ottawa, and beginning next week you will start work In a new position as a product manager for private label beverages. Product managers at JNG are charged with overseeing the entire supply chain process for a group of products, which spans activities from product acquisition (e.g., vendor selection, negotiation of purchase contracts, inbound transportation) to final sale (e.g., pricing, promotion, display). You are brimming with ideas for improving the business, some of which will require significant investment and also offer the potential for large profit gains. From your experience in the field, you know that a history of small successes can be critical when it comes to gaining support for more substantive changes. Accordingly, your strategy going into your new position is to initially focus on implementing a series of "quick and easy" improvements, while at the same time gathering information that you can use to refine your ideas on major improvement initiatives. A candidate for a potential quick and easy improvement involves the ordering policy. You've gathered some data, blocked out some time during the weekend, and plan to pitch a proposal to your boss on Monday. GROCERY STORE REPLENISHMENTS JNG owns and operates four distribution centers (DCs). A DC in Ottawa, for example, supplies eight grocery stores located in and around Ottawa. The DCs are used for breakbulk and mixing1. Vendor product is shipped to the DC, sometimes in large quantities, and company-owned vehicles make daily deliveries from the DC to the grocery stores. Approximately 95% of the product line is stocked at DCs; the other 5% is comprised of highly perishable items such as breads and some dairy products, which are delivered to grocery stores direct from suppliers. You've learned from experience to favor small-scale tests of your ideas in the field prior to full-scale roll-out. Accordingly, you've targeted the Ottawa DC as the pilot site, and this is where you will focus your analysis. 1 Break-bulk refers to the activity of transforming large inbound quantities into small outbound quantities, for example, products from a few distant suppliers are shipped in large quantities to a warehouse, and the warehouse ships in small quantities to many nearby customers. Mixing refers to the activity of transforming inbound shipments that each contain a limited variety of different products into outbound shipments that each contain a wide variety of different products, for example, truckloads containing a single type of product coming from different sources arrive at a warehouse, and the warehouse ships truckloads of mixed product to customers. PRIVATE LABEL BEVERAGES AND THE OTTAWA MARKET JNG sells cans of soda under its own label. These products are supplied by AR Beverage located in London Ontario, and are shipped F.0.B. origin, freight collect2 to the Ottawa DC. The policy is to order 300 12-packs at a time3. There are a number of elements associated with this policy that have led you to suspect that money can be saved by making some changes to the ordering policy. First, you know that economic order quantities often depend on levels of demand. Second, you know the policy has not changed or been evaluated in years, yet volumes in this product line have been increasing by nearly 15% per year over the last five years. Third, demand within a year is highly seasonal. Fourth, from a quick inspection of accounting data, the annual cost of carrying cycle stock of private label beverages is notably less than the annual transaction cost associated with placing orders. A BASIS FOR A PROPOSAL The challenge is to create an Excel spreadsheet that computes economic order sizes for alternative demand rates, and computes annual savings over the current policy of ordering 300 12-packs at a time. Such a spreadsheet can be updated over time to reflect changing cost rates, and can be used as a guide for determining order quantities over the course of the year as demand rates change (e.g., due to seasonal effects). QUESTIONS 1. Based on a review of accounting data, the annual cost of carrying cycle stock is notably less than the annual transaction cost. Why is a low cycle stock carrying cost relative to order transaction cost an indicator of a potential savings opportunity for JNG? Consider that transportation cost rates decrease as the order quantity increases. How does a quantity discount cost structure affect the "benchmark" ratio of cycle stock holding cost to order transaction cost4? 2. Prepare a spreadsheet that uses the costs below to compute the optimal order quantity as well as the savings over the current policy for the following average demand rates in 12-packs per week: 10, 20, . . . , 350. The range of demand from 10 to 350 more than covers what has been observed in recent years. For example, the average demand for 12-packs per week last year was 122; during the slow season the average was 50 (i.e., mid-winter), and during the high season (i.e., August) the 2 F.O.B. origin, freight collect means that ownership (and responsibility for freight claims associated with damages in-transit) is transferred from AR Beverage to JNG Foods when it is loaded on the truck (i.e., at the origin) and that JNG Foods is responsible for paying the transportation costs. 3 A 12-pack holds 12 cans, each containing 355 ml of soda (i.e., about 12 ounces). 4 A benchmark ratio is the value one would expect to see when costs are minimized. average was nearly 200. Order quantities are limited to increments of 100 12-packs (e.g., the order quantity can be 100, 200, 300, etc.)5. The annual inventory holding cost as a percentage of product cost is estimated at 25%. The purchase cost per 12-pack is $4.80, and the cost to place and process each purchase order is estimated to be $15. A pallet of 100 12-packs weighs 939.15 pounds (and 426.00 kilograms). The cost per cwt to transport from AR's facility in London to JNG's DC in Ottawa is given in the following table. The spreadsheet should be structured so that one can change the cost and/or demand rates, and the calculations are automatically updated (i.e., it is not necessary to make any manual adjustments to formulas). Also, create a graph that concisely displays the results of your analysis. Create a one-page proposal that consists of the graph, an explanation of what the graph is showing, and how the graph could be used as a quick reference for determining how much to order during different times of the year.

Full Truckload Minimum Charge $31.45 Weight 0-499lbs 500-999 1000-1999 2000-4999 5000-9999 10000-19999 20000-45000 $/cwt $11.23 $8.98 $7.44 $6.60 $5.26 $4.74 $984.40 Full Truckload Minimum Charge $31.45 Weight 0-499lbs 500-999 1000-1999 2000-4999 5000-9999 10000-19999 20000-45000 $/cwt $11.23 $8.98 $7.44 $6.60 $5.26 $4.74 $984.40