Company Background Information

Throx sells higher-end custom-design socks in three-sock sets (rather than two). The company operates from a small packaging and distribution facility in Richmond, CA from which it ships product to customers. Given the companys location and focus, 97% of sales are in California, primarily in the major urban areas of the San Francisco bay area, Los Angeles, Sacramento (and last but not least) San Diego. The company sells exclusively via online sales, at an average price of $18/three-sock set, plus shipping costs charged to the customer.

The company currently orders its product from the Chinese sock manufacturer Zhejiang Datang Hosiery Group Co., Ltd in so-called Sock City. Socks are shipped via truck to the port of Shanghai, from where they are shipped to the port at Los Angeles-Long Beach via ocean freight. Once offloaded in Los Angeles-Long Beach, the socks are shipped via truck to the Richmond facility. On average, shipment from the manufacturer to the Richmond facility takes 4 weeks. In addition to the transit time required for shipment, the lead time from when an order is placed with the manufacturer to when it is shipped from Zhejiang is 3 weeks. So, the total lead time is considered to be 7 weeks from when Throx places an order until it reaches the Richmond facility. Historically, the standard deviation of lead time has been 1.5 weeks.

Product Orders (Demand) Information

The company provides you with the following information for the past two fiscal years:

Demand Characteristic	2019	2020
Annual Demand, sets	26,918	31,763
Average Weekly Demand	518	611
Standard Deviation of weekly Demand	130	153

Product Forecasting Information

Throx uses two main forecasting methods based on annual data to predict orders for the following year, a weighted moving average and exponential smoothing. They provide you with the following information about forecasts for FY 2017 through FY2020:

	Actual Demand (Three Sock Sets)	Weighted Moving Average Fcst	Exponential Forecast
2017	18,850	15,500	16,300
2018	22,432	17,060	18,340
2019	26,918	20,614	21,613
2020	31,763	24,765	25,857

Weighted Moving Average uses W_t = 0.6, W_t-1 =0.3 W_t-2 =0.1

Exponential Smoothing uses = 0.8.

Inventory Management Information

The initial inventory for all sock styles combined at the beginning of FY 2021 is 2,250 units. You also have information on current costs, which includes:

Order cost to Throx for an order placed with its current supplier, $/order = S = $275

Holding cost per set per year = H = $2.25

The company currently pays (P) $7.25 for each set of socks

The company uses a continuous review replenishment policy, and has IT systems in place that allow constant monitoring of key information. Last year, the company used an ROP under this policy of 2,200 units for all sock styles and an order quantity Q of 5,000 units for all sock styles.

Potential Alternatives to Current Supply Chain Management

The company has asked you to evaluate a number of alternatives to their current SCM practices, including at a minimum their choice of supplier, transportation modes, warehouse capacity, order quantities and safety stock.

Alternative Suppliers

The company has contacted potential alternative suppliers in China, who have offered the following information relative to the current supplier:

QA CPk: Current: 1.11, Alternative A: .83,Alternative B: -1.3

For the quality performance assessment of the suppliers, Throx would like you determine the Capability Index CPk for each Supplier based on the following information.

Measures in mm	Current	Alternative A	Alternative B
Mean Sock Thickness	6..00	5.8	6.1
Standard Deviation	0.15	0.12	0.10

Alternative Transportation

An alternative to their current transportation approach available to Throx is shipment by UPS Express Air from Shanghai to Richmond, which averages 3.5 days. The comparison of costs is given as:

Similar to their decision about sourcing, Throx wants to use a single-sourcing strategy for transportation, so they want a recommendation about which mode would be best. Alternative Warehouse Location

The company would also like to assess whether its current warehouse location is appropriate based on where customers are located. It provides you the following information about its key markets, and indicates that its orders in each market are roughly proportional to the total population

Calculate measures of forecast accuracy: MFE, MAD and MAPE using the data from FY2017 through FY2020.

MFE		5,506	4,463
MAD		5,506	4,463
MAPE		21.79	17.52

Which forecast is more accurate? Do these forecasts seem adequate for the purposes of decision making? Why or why not?

The exponential forecast is more accurate.

Yes, these forecasts seem adequate for the purpose of decision making because the MFE, which measures the bias of the forecast model, and the MAD, which tracks the average size of the errors, of the exponential forecast are lower than the MFE and the MAD of the actual demand forecast. The MAPE considers the absolute value of the forecasting errors, giving an indication of the magnitude of the errors. The MAPE of the exponential forecast is lower. This means there could be more error in the exponential forecast.

QUESTION) Develop a forecast for FY2021 using the two forecasting methods currently employed by the company. Comment on which of the forecasts is likely to be more appropriate to support decisions based on your assessment of forecast accuracy from Q1. Are there any other considerations that you would recommend to Throx.