Company Background Information

Throx sells higher-end custom-design socks in three-sock sets (3). The company operates from a small packaging and distribution facility in Richmond, CA from which it ships product. Given the company's location, 97% of sales are in California, primarily in the major urban areas of the San Francisco area, LA, Sacramento & San Diego. The company sells exclusively 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

Company provides you with following information for 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 2 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:

Supplier Characteristic	Current	Alternative A	Alternative B	Weight
Unit Price, $/ 3- sock set	$7.25	$ 6.00	$6.50	0.4
order cost$/order	$275	$325	$300	0.1
QA Cpk	TBD	TBD	TBD	0.3
Financial Condition of the firm	Good	Poor	Fair	0.2

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:

Transportation Supplier characterisitcs	Maersk Ocean Freight (Current)	UPS AirExpress (Alternative)
Units cost/sock set	$1.75	$4.10
Damage Rate	3.0%	0.75%
Average Transit Time, weeks	4	0.5

* No data is available about variation in transit times for air, so Throx assumes this is constant.

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 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	X	Y
LA-LONG BEACH	16,800,000	34	118
SAN FRANCISCO	8,900,000	38	122
SAN DIEGO	6,800,000	33	117
SACREMENTO	3,500,000	39	121

Case Questions

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

Which forecast is more accurate?

Do these forecasts seem adequate for the purposes of decision making? Why or why not?

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.

This question will have you calculating 2 different EOQ and ROP values and interpreting the results. For both EOQ and ROP, give your final answer in full sock sets (ROUND UP to the next whole number). The specific questions to answer are based in parts 1-3. Tips to solve the EOQ and ROP are given below in bullet points.

Calculate EOQ and ROP for FY2020 based on the FY2020 forecast value that you determined to be most accurate in Question #1.

Calculate the EOQ and ROP based upon actual demand for FY2020

Use the total inventory cost calculation to determine total inventory costs for each of the three EOQ results: EOQ from part a, EOQ from part b, and the Q that Throx is currently using (given in the case) When determining the costs use 2020 actuals for your Demand (D) for all three scenarios.

Compare the total inventory costs from the three results and analyze what it shows you.

What are the implications of the ROP Throx is currently using versus the ROP based on Actual Demand.

See additional tips below:

Use a service level of 95% (z=1.65) when calculating the ROP; For the standard deviation of weekly demand, use the data provided in the table on page 2 of the case with the FY2020 forecast for all approaches; Annual Inventory management costs will include the following: Annual Holding Costs, Annual Ordering Costs, and Purchase Cost.

Indicate which of the three suppliers should be used for FY2021. Develop a supplier scorecard using the following scale: 3=best, 2=second best, 1=worst and the weights provided in the case to support your selection. Are there any concerns Throx should consider with your selection?

Indicate which transportation mode should be used for FY2021.

You must complete an analysis of the annual transportation costs.

When supporting your recommendation, be sure to discuss other implications (such as inventory levels, safety stock, and the resulting costs) to support/justify your recommendation.

Calculate EOQ and ROP values for FY2021 based on your forecast from Question 2 and recommendations for their sock supplier and transportation company from Question 4 & 5. (TIP: The selected supplier may change your S and P values.) Give your final answer in full sock sets (ROUND UP to the next whole number). What are the expected costs for inventory management based on your decisions? How does this compare to company's current policy for Q & ROP if they maintain that approach for the 2021 business plan?

Determine the appropriate location for a new facility if one is to be built using the weighted center of gravity approach. Round your final coordinates (X, Y) to two decimal places. Discuss other relevant factors that would influence the choice of a specific location once the (X,Y) coordinates have been identified.

Discuss considerations and potential issues with the implementation for each of your recommendations: 2021 forecast, EOQ &ROP, Supplier, Transportation , and Location What changes or resources would be necessary to implement them, and what decisions might create challenges and require additional leadership attention? Write a few sentences on each recommendation.