SCM 301 Spring 2016 Overview of the Case Analysis We have discussed many concepts in SCM 301 related to planning, sourcing, making and delivering products and services. The purpose of this case analysis is to integrate the different elements of the course and to apply tools you have learned evaluate the supply chain performance. Consider yourself a consultant assigned to develop a supply chain management strategy for the company Throx. You are tasked with evaluating the company's recent performance and recommending changes (decisions) to improve supply chain management performance. You should use concepts and methods discussed in SCM 301 to undertake these two tasks. 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 2 weeks. Historically, the standard deviation of lead time has been 1 week. 1 Product Orders (Demand) Information The company provides you with the following information for the past two fiscal years: 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 2014 and FY 2015: Weighted Moving Average uses Wt = 0.7 and Wt-1 =0.3. Exponential Smoothing uses = 0.9. Inventory Management Information The initial inventory for all sock styles combined at the beginning of FY 2016 is 3,500 units. You also have information on current costs, which includes: Unit order cost to Throx for an order placed with its current supplier, $/order = S = $500 Holding cost per set per per year for materials held in the company's warehouse = H = $5 The company currently pays $4 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 1,750 units for all sock styles and an order quantity Q of 4,000 units for all sock styles. 2 Potential Alternatives to Current Supply Chain Management The company has asked you to evaluate a number of alternatives to their current SCM practices, including their choice of supplier, transportation modes, warehouse location, 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: To keep their order management simple, Throx wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best. 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: * No data are available about variation in transit times, 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. 3 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. 4 Final Project Deliverable to Throx You should develop a document of 4 pages or less (double-spaced, 12-point font, 1\" margins) that addresses each of the following: 1) Calculate measures of forecast accuracy for FY 2014 and FY2015 using the MFE, MAD and MAPE. Do these forecasts seem adequate for the purposes of decision making? Why or why not? 2) Calculate what appropriate values of EOQ and ROP would have been for FY2015 based on the FY2015 forecast value. Give your final answer in full sock sets (round to the appropriate whole number.) Then, calculate what appropriate values for EOQ and ROP would have been for FY2015 based on actual demand. Based on this difference, indicate what the implications are for inventory management costs in FY2015. See additional tips below: a) Compare the costs for decisions based on the forecast to the actual data b) Use a service level of 95% (z=1.65) when calculating the ROP c) Calculate average weekly demand ( d ) by dividing the forecast by 50 weeks d) For the variance in weekly demand, use the data provided in the table with the FY2015 forecast for all approaches e) Annual Inventory management costs will include the following: Annual Holding Costs, Annual Ordering Costs, and Purchase Cost. 3) Calculate inventory management costs for the company's current decisions about EOQ and ROP based upon actual demand in FY2015. Compare these to the costs to that would have been achieved if the company had used its forecast for FY2015 to calculate more appropriate EOQ and ROP values (what you calculated in Question 2). 4) Develop a forecast for FY 2016 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. Use ONE of the forecast values to support your recommended decisions in Question 5 below. 5) Provide the company with the following recommendations for FY 2016 to improve SCM performance, based on analysis of available data and appropriate methods from SCM 301. Include a discussion of WHY the recommendations would be expected to improve performance, which usually will require calculating performance metrics for your recommended decision compared to the company's current decisions. Use your forecast values from 4) as input into your decisions. a) Indicate which of the three suppliers should be used for FY2016. It will be helpful to develop a supplier scorecard (NOTE: Use scores of 3=best, 2=second best, 1=worst); b) Indicate which transportation mode should be used for FY2016. You may use a scorecard, but you must also include an analysis of the transportation costs associated with each option and discuss other implications (such as inventory levels, safety stock, etc); 5 c) Indicate an appropriate location for a new facility if one is to be built. Round your final coordinates (X, Y) to two decimal places. Use methods discussed in the course, but be sure to include discussion of other relevant factors that would influence the choice of a specific location; d) Indicate what appropriate values for EOQ and ROP would be for FY2016 based on your forecast from 4) and recommended supplier from Question 5a. Give your final answer in full sock sets (round to the appropriate whole number). What are the expected costs for inventory management based on your decisions, and how do these compare to the performance observed in FY2015 based on the company's decisions for that year (Question 3 numbers based upon the order quantity of 1000)? 6) Discuss potential issues with the implementation of your recommendations. What changes or resources would be necessary to implement them, and what might create challenges? Final Project Grading Rubric Your case analysis document will be assessed as follows: Document Submission The assignment due date is listed in the course schedule. The document should be submitted to the appropriate ANGEL Dropbox as a Word document, with the filename: LASTNAME_SCM301.docx (-5 points if not named with this format) No late submissions will be accepted due to deadlines for course grade submission. Please plan accordingly. 6