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Instructions: Create an Excel spreadsheet to evaluate the two options. The comparison should compare: a. The annual holding cost of safety stock for the no
Instructions: Create an Excel spreadsheet to evaluate the two options. The comparison should compare: a. The annual holding cost of safety stock for the "no aggregation" option, where all 40 final product configurations are held in inventory b. The annual holding cost of safety stock plus the increased printing cost for the "aggregation" option, where inventory is held by color so that only 5 different items are held in inventory. Inventory Aggregation Your friend Jane, an entrepreneur living in Boston, needs your help. Jane is considering opening an online store to sell a product that will have a logo of one of the top universities in Boston. She is very secretive at this point and will not tell you the type of product, just that it comes in five colors and will contain one of the 8 logos (i.e., there are 40 different configurations of the product). She asked another friend to make demand forecasts. The forecast indicates level demand over the year, with the average weekly demand and the standard deviation of the weekly demand forecast shown in Table 1. Demand will be independent across customers and demand will be perfectly correlated across weeks. Table 1: Demand Forecast Jane has also contracted with an offshore manufacturing facility to produce the products. Their lead-time agreement specifies that ordered products will be received 12 weeks after the order is placed. Jane will place orders on a weekly basis (once per week). Jane has the option of printing the logo herself (after the customer places an order) or having the offshore supplier print the logo. She estimates her average printing cost to be $0.75 per unit. Unfortunately, because the supplier's manufacturing processes are typically setup to include printing, there will be no decrease in supplier production costs if Jane prints the logos. The offshore production costs per unit are shown in Table 2. Table 2: Production Costs Jane needs help with inventory planning. In particular, she has two options in mind. The first option (No Aggregation) will consist of holding final product inventory for all 40 of the product configurations. Demand is perfectly correlated across weeks. She likes this option because she would be able to immediately ship products to customers. The second option (Aggregation) would consist of holding inventory of the five product colors and printing the university logos herself before shipment to customers. Demand is independent across customers. She likes this option because it simplifies inventory requirements. For this assignment, create an Excel spreadsheet to evaluate the two options. The comparison should compare: (a) the annual holding cost of safety stock for the "no aggregation" option, where all 40 final product configurations are held in inventory, and (b) the annual holding cost of safety stock plus the increased printing cost for the "aggregation" option, where inventory is held by color so that only 5 different items are held in inventory When analyzing the two alternatives, use a target product fill rate of 99%. After explaining inventory holding costs to Jane, you agree to use an annual holding rate of 25% for your analysis because Jane will need to rent warehouse space. The assessment of this work will be based on the accuracy and clarity of your spreadsheet
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