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 company's 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 $15/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 Threx places an order til it reaches the Richmond facility. Historically, the standard deviation of lead time has been 1 week. Product Orders (Demand) Information The company provides you with the following information for the past two fiscal years Demand Characteristic Annual demand, units Average weekly demand, units Variance of weekly demand, units FY 2016 FY 2017 16,000 320 80 18,000 360 90 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 2015 and FY 2016: WeightedMoving Exponential YearDemand 2016 2017 16,000 18,000 Average Forecast Forecast 14,320 15,664 14,100 15,700 Weighted Moving Average uses W-0.7 and W-1-0.3 Exponential Smoothing uses = 0.8 Inventory Management Information The initial inventory for all sock styles combined at the beginning of FY 2018 is 3,500 units. You also have information on current costs, which includes . Order cost to Zares for an order placed with its current supplier, $order = S = $350 * Holding cost per set per peryear-H-$5 . The company currently pays $4 for each set of socks.-IP 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 1,500 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: Supplier Characteristic Unit Price, $/3-sock set Order cost, S/order Defect Rate Financial condition of the firm Current Alternative A Alternative B 3.00 $ 350.00$300.00 $250.00 4.00 $ 5.00$ 4.0% 2.0% Poor 0.5% Fair wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best. Tbrox has decided to use the following weights in analyzing the suppliers Supplier Characteristic Unit Price, $/3-sock set Order cost, $/order Defect Rate Financial condition of the firm0.3 Weight 0.4 0.2 0.1 Alternative Iransportation 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 Maersk Ocean Freight current UPS AirExpress Alternative Transporation Supplier Characteristics Units cost, $/sock set Damage Rate Average Transit time, weeks* 1.60 $ 3.00 2.0% 0.5% 0.5 * No data are available about variation in transit times, so Throx assumes this is constant Similar to their decision about sourcing, Tbrox 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. Market Population 105 150 LA-Long Beach 14,000,000 8,900,000 4,750,000 2,200,000 San Francisco San Diego Sacramento 34 47 29 37 120 4) Currently, the company is purchasing parts not using EOQ and ROP values determined by the tools we are using. These values are given in the case. a) Using their current order quantity, calculate the current inventory management costs based upon actual demand in FY2017 aka use this as D. Compare this cost to the costs to that would have been achieved if the company had used its forecast for FY2017 to calculate EOQ and ROP values (what you calculated in Question 3a). TIP: When calculating costs based upon the forecasted EOQ, use the actual demand as D in your total cost equation. This will ensure you find the true savings or increase that the company would have seen by using the EOQ value. b) 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 company's 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 $15/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 Threx places an order til it reaches the Richmond facility. Historically, the standard deviation of lead time has been 1 week. Product Orders (Demand) Information The company provides you with the following information for the past two fiscal years Demand Characteristic Annual demand, units Average weekly demand, units Variance of weekly demand, units FY 2016 FY 2017 16,000 320 80 18,000 360 90 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 2015 and FY 2016: WeightedMoving Exponential YearDemand 2016 2017 16,000 18,000 Average Forecast Forecast 14,320 15,664 14,100 15,700 Weighted Moving Average uses W-0.7 and W-1-0.3 Exponential Smoothing uses = 0.8 Inventory Management Information The initial inventory for all sock styles combined at the beginning of FY 2018 is 3,500 units. You also have information on current costs, which includes . Order cost to Zares for an order placed with its current supplier, $order = S = $350 * Holding cost per set per peryear-H-$5 . The company currently pays $4 for each set of socks.-IP 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 1,500 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: Supplier Characteristic Unit Price, $/3-sock set Order cost, S/order Defect Rate Financial condition of the firm Current Alternative A Alternative B 3.00 $ 350.00$300.00 $250.00 4.00 $ 5.00$ 4.0% 2.0% Poor 0.5% Fair wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best. Tbrox has decided to use the following weights in analyzing the suppliers Supplier Characteristic Unit Price, $/3-sock set Order cost, $/order Defect Rate Financial condition of the firm0.3 Weight 0.4 0.2 0.1 Alternative Iransportation 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 Maersk Ocean Freight current UPS AirExpress Alternative Transporation Supplier Characteristics Units cost, $/sock set Damage Rate Average Transit time, weeks* 1.60 $ 3.00 2.0% 0.5% 0.5 * No data are available about variation in transit times, so Throx assumes this is constant Similar to their decision about sourcing, Tbrox 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. Market Population 105 150 LA-Long Beach 14,000,000 8,900,000 4,750,000 2,200,000 San Francisco San Diego Sacramento 34 47 29 37 120 4) Currently, the company is purchasing parts not using EOQ and ROP values determined by the tools we are using. These values are given in the case. a) Using their current order quantity, calculate the current inventory management costs based upon actual demand in FY2017 aka use this as D. Compare this cost to the costs to that would have been achieved if the company had used its forecast for FY2017 to calculate EOQ and ROP values (what you calculated in Question 3a). TIP: When calculating costs based upon the forecasted EOQ, use the actual demand as D in your total cost equation. This will ensure you find the true savings or increase that the company would have seen by using the EOQ value. b)