1. Currently, the company is purchasing parts not using an EOQ value. This purchase quantity is given in the case. Using their current order quantity, calculate the current inventory management costs based upon actual demand in FY2019. Compare this cost to the costs to that would have been achieved if the company had used its forecast for FY2019 to calculate EOQ (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 and realizing actual demand.

Question 3 Calculations:

For FY 2017 Exponential gauge:

Dramatic gauge for yearly interest, D = 19720

No. of weeks out of each year to consider = 50 weeks

Normal Weekly interest gauge, d = 19720/50 = 394.4

Fluctuation of week by week interest, \sigma_{d}^{2} = 120 (according to the clue, the change to be considered for all methodologies)

EOQ =\sqrt{}(2DS/H) = \sqrt{}(2*19720*350/5) = 1661.57

\sigma_{dL} = \sqrt{}((L* \sigma_{d}^{2}) + (d^2) * \sigma_{L}^{2}) = \sqrt{}((7*120)+(394.4^2)*1) = 395.46

ROP = dL + z\sigma_{dL} = 394.4*7 + 1.65*395.46 =3413.30

For FY 2017 Actual Demand:

Yearly Deamand, D = 23000

Normal Weekly interest, d = 480

Difference of week by week interest, \sigma_{d}^{2} = 120

EOQ =\sqrt{}(2DS/H) = \sqrt{}(2*23000*350/5) = 1794.43

\sigma_{dL} = \sqrt{}((L* \sigma_{d}^{2}) + (d^2) * \sigma_{L}^{2}) = \sqrt{}((7*120)+(480^2)*1) = 480.87

ROP = dL + z\sigma_{dL} = 480*7 + 1.65*480.87 = 4153.43

Complete Cost of the Exponential conjecture:

TC = Annual Order Cost + Annual Holding Cost + Purchase Cost

= (D/EOQ)*S + (EOQ/2)*H + D*P = (19720/1661.57)*350 + (1661.57/2)*5 + (19720*4) = 87187.83

Complete Cost of the Actual Demand:

TC = Annual Order Cost + Annual Holding Cost + Purchase Cost

= (D/EOQ)*S + (EOQ/2)*H + D*P = (23000/1794.43)*350 + (1794.43/2)*5 + (23000*4) = 100972.2

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 2018 18,000 375 FY 2019 20,000 417 90 100 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 2018 and FY 2019: Weighted Moving Exponential Year Demand Average Forecast Forecast 2018 18,000 18,200 18,780 2019 20,000 18,400 18,078 Weighted Moving Average uses W.= 0.6 and Wt-1=0.4. Exponential Smoothing uses a = 0.9. Inventory Management Information The initial inventory for all sock styles combined at the beginning of FY 2020 is 3,500 units. You also have information on current costs, which includes: Order cost to Throx for an order placed with its current supplier, $/order=S= $500 Holding cost per set per per year =H= $5 The company currently pays $4 for each set of socks. =P 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, $/order Defect Rate Financial condition of the firm Current Supplier A Supplier B $ 4.00 $ 2.50 $ 1.25 $ 500.00 $ 200.00 $ 600.00 1.0% 3.0% 0.5% Good Poor Fair Throx wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best. Throx has decided to use the following weights in analyzing the suppliers: Supplier Characteristic Weight Unit Price, $/3-sock set 0.4 Order cost, $/order 0.3 Defect Rate 0.2 Financial condition of the firm 0.1 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 Cenag. Maersk Ocean Freight (current) $ 1.50$ 2.0% UPS AirExpress (Alternative) 3.00 Transporation Supplier Characteristics Units cost, $/sock set Damage Rate Average Transit time, weeks* 1.0% 4 1 * No data are available about variation in transit times, so Throx assumes this is constant. 3 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. X Y 34 Market LA-Long Beach San Francisco San Diego Sacramento Population 500,000 890,000 1,500,000 510,000 118 122 37 33 117 39 121 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 2018 18,000 375 FY 2019 20,000 417 90 100 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 2018 and FY 2019: Weighted Moving Exponential Year Demand Average Forecast Forecast 2018 18,000 18,200 18,780 2019 20,000 18,400 18,078 Weighted Moving Average uses W.= 0.6 and Wt-1=0.4. Exponential Smoothing uses a = 0.9. Inventory Management Information The initial inventory for all sock styles combined at the beginning of FY 2020 is 3,500 units. You also have information on current costs, which includes: Order cost to Throx for an order placed with its current supplier, $/order=S= $500 Holding cost per set per per year =H= $5 The company currently pays $4 for each set of socks. =P 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, $/order Defect Rate Financial condition of the firm Current Supplier A Supplier B $ 4.00 $ 2.50 $ 1.25 $ 500.00 $ 200.00 $ 600.00 1.0% 3.0% 0.5% Good Poor Fair Throx wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best. Throx has decided to use the following weights in analyzing the suppliers: Supplier Characteristic Weight Unit Price, $/3-sock set 0.4 Order cost, $/order 0.3 Defect Rate 0.2 Financial condition of the firm 0.1 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 Cenag. Maersk Ocean Freight (current) $ 1.50$ 2.0% UPS AirExpress (Alternative) 3.00 Transporation Supplier Characteristics Units cost, $/sock set Damage Rate Average Transit time, weeks* 1.0% 4 1 * No data are available about variation in transit times, so Throx assumes this is constant. 3 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. X Y 34 Market LA-Long Beach San Francisco San Diego Sacramento Population 500,000 890,000 1,500,000 510,000 118 122 37 33 117 39 121