SoxyBack, a manufacturer of fancy men's socks worn by fashionable gentlemen everywhere, is located in Oshkosh, Wisconsin. The socks are sold directly to fashion-conscious men all over North America. SoxyBack currently divides the United States into ten territories, each with its own sales force. All product inventories are maintained locally in each territory and replenished from Oshkosh every five weeks using UPS. The average replenishment lead time using UPS is one week. UPS charges at a rate of $0.75 + 0.33xwhere xis the quantity shipped in pounds. The products sold fall into two categories–Dandy and Popinjay. Dandy products weigh 0.2 pounds and cost $350 each. Popinjay products weigh 0.10 pounds and cost $35 each.
Weekly demand for Dandy products in each territory is normally distributed, with a mean of μH=3 and a standard deviation of σH=6. Weekly demand for Popinjay products in each territory is normally distributed, with a mean of μL =25 and a standard deviation of σL =6. Soxy Back maintains sufficient safety inventories in each territory to provide a CSL of 0.975 for each product. Annual holding cost at SoxyBack is 30 percent. In addition to the current approach, the management team at SoxyBack is considering two other options:
Option A: Keep the current structure but replenish inventory once a week rather than once every five weeks.
Option B: Eliminate inventories in the territories, aggregate all inventories in a finished goods warehouse at Oshkosh, and replenish the warehouse once a week.
If inventories are aggregated at Oshkosh, orders will be shipped using FedEx, which charges $7.25 +0.77xper shipment, where xis the quantity shipped in pounds. The factory requires a one-week lead time to replenish finished-goods inventories at the Oshkosh warehouse. An average customer order is for 1 unit of Dandy and 10 units of Popinjay.
Management need answers to the following questions:
1 - What is the total annual cost of SoxyBack's current transportation network?
2 - What is the total annual cost of Option A for SoxyBack's transportation network?
3 - What is the total annual cost of Option B for SoxyBack's transportation network?
4 - What would be the total annual cost of SoxyBack's current system if a series of promotions increases the standard deviation of demand for both the Dandy and Popinjay lines to 10? Assume that the mean weekly demand for both product lines remains the same.
5 - Which transportation design option has the lowest annual inventory cost?
6 - What would be the percentage increase in total annual cost of SoxyBack's current system if the cost of transportation triples while all other parameters are held constant?
7 - In a follow-up management meeting at SoxyBack Headquarters, Al suggests that the reorder interval be changed from 5 weeks to 2.5 weeks, Bob suggests the ten locations be consolidated to five locations, Charles demands that the customer service level be set at 0.925 instead of 0.975, and David declares their holding cost should be 25% rather than 30%. If these four statements are made regarding the current system as described in the problem statement, which option has the lowest annual inventory cost?
8 - In the same follow-up management meeting at SoxyBack Headquarters, Al suggests that the reorder interval be changed from 5 weeks to 2.5 weeks, Bob suggests the ten locations be consolidated to five locations, Charles demands that the customer service level be set at 0.925 instead of 0.975, and David declares their holding cost should be 25% rather than 30%. Their boss, Indecisive Ivan decides to make all of these changes to the current system as described in the problem statement. How much money will be saved in annual inventory costs from the current system?
9 - Which transportation design option would you recommend to the SoxyBack management? Justify your answer.
To provide answers to the above questions requires the use of appropriate formulas and calculations. Develop an Excel workbook with which you could complete necessary calculations.