You have been hired as Supply Manager by True Titletown Sports (TTS), a leading wholesaler of sports equipment based in Boston. TTS has a single warehouse located in Jamaica Plain (just outside of Boston), from which it sells baseball bats, hockey sticks, football helmets and thousands of other products to retailers across Massachusetts. One of the main suppliers of TTS is Northeast Athletics, a large distributor of sporting goods based in New York. TTS places orders to its suppliers almost every day. In the case of orders placed to Northeast before 4PM on a given day, the goods are shipped early the next business day from New York and usually arrive at TTS's warehouse in Jamaica Plain later that afternoon.

Although True Titletown Sports are pretty sure that placing each order costs about the same, the company is not sure about how much this cost is exactly. After pestering your colleagues at Sales for weeks, the best guess you have obtained is that the cost of placing an order should be "somewhere between $10 and $150" per order. You didn't have much better luck when you spoke with the Finance department to ask about the estimated cost of carrying inventory: the best they could tell you was "It depends!" They insist that the cost is equal for all products, but they could not give you an exact figure. "Depending on what you include, it is between 5% and 25% of the product cost per year."

You were very relieved to find out that the guys at Logistics could provide you - at least - with some firm data: they gave you the annual demand and unit cost of the fifty class B items (SKUs) that TTS buys from Northeast Athletics

Part A

Identify in the spreadsheet the line for SKU 1A.

What is the demand for SKU 1A, Di, in units?

What is the cost per unit for SKU 1A, ci in dollars?

For SKU 1A, what is the value of (Di)(ci)?

For SKU 1A, what is the value of the square root of (Di)(ci)?

Part B

Calculate the value of Dici for each SKU.

What is the sum of all these values? Round to the nearest integer.

Build an exchange curve for cycle stock

Based on the sum of all the Dici values, you set out to build an exchange curve for the cycle stock.

You know that the company is currently carrying $50,000 worth of cycle stock for products from that list, and making around 300 replenishments from Northeast Athletics per year. TTS's VP of Supply Chain suspects that the number of replenishments could be reduced, and has asked you to look into the matter.

Maintaining the same budget of $50,000 for cycle stock from this supplier, how many replenishments per year would you recommend? Give your answer rounded to the nearest multiple of 10.

Part C

If, on the other hand, you were asked to retain the 300 replenishments per year from Northeast Athletics, what would happen to the budget required for the cycle stock?

It would increase by about a third

It would decrease by about a third

It would stay the same

Part D

After much pestering on your part, and some additional pressure from the top, you have finally received more accurate figures for the holding charge and the ordering cost. The holding charge, you are told, has been put at 20% of the product cost per year, and the ordering cost at $40 per order.

With this new information, how many replenishments would you recommend per year?

You have explained to your boss that, for the given value of cth=200, the recommended budget would be $45,000. He asks you:

What would be the value of the cth fraction that would justify a $50,000 budget? Round to the closest integer.

Part E

After you present your calculations in a meeting with the VPs of Sales, Finance and Supply Chain, they agree that before a decision is made, the company should make an effort to better calculate the values of ct and h. A team is created to conduct the calculation. After a week of work, they come to you with a revised value for ct80. The holding charge stays the same.

For the revised value of cth400, how many replenishments should TTS do from Northeast Athletics every year? Round your answer to the nearest integer.

For the revised value of cth400, how much should TTS set aside as a budget for the cycle stock for products from Northeast Athletics? Round your answer to the nearest multiple of $100.

For a long time, the Sales Department of TTS has been asking to upgrade their IT system. "The current system is obsolete", they explain. "For every order, a person has to enter each item by hand, one by one, into the computer." Most of the $80 charge per order goes to pay for this manual work. "However, if we automate the process, we can reduce the effort to place a new order to just pushing a button." The cost of placing an order with the new system would be only $5 per order.

The VP of Sales is trying to gain support from other departments for the idea of an updated IT system. "The new system would result in lower logistics costs," she claims.

The VP of Purchasing is not convinced: "I don't think you have understood this correctly," he says. "A lower cost per order will result in more orders being placed and in higher inventory levels."

What effect can you expect from a reduction in the cost of placing an order from $80 to $5? Select all that apply.

A. The cth fraction is expected to remain the same, since the carrying charge as a percentage is expected to increase in the same proportion

B. Admittedly, the cost per order decreases, but the number of orders per year increases in the same proportion, so the overall effect on the ordering cost is negligible

C. You can expect to see a decrease in the cost of placing orders, but an increase in the budget required to carry cycle stock

D. You can expect to see a decrease in both the cost of placing orders and in the budget required to carry cycle stock

E. You can expect to see an increase in both the cost of placing orders and in the budget required to carry cycle stock

Data Below:

SKU ID	Annual Sales	Unit Cost
1A	576	$ 55.00
1B	60	$ 30.00
1C	2520	$ 5.12
1D	324	$ 7.07
1E	120	$ 37.05
1F	144	$ 86.50
1G	576	$ 14.66
1H	1404	$ 49.92
1I	144	$ 47.50
1J	1128	$ 31.24
1K	48	$ 84.03
1L	84	$ 65.00
1M	24	$ 51.68
1N	48	$ 56.00
1O	144	$ 49.50
1P	24	$ 59.60
1Q	1200	$ 28.20
1R	24	$ 29.89
1S	60	$ 86.50
1T	720	$ 58.88
1U	96	$ 58.45
A	2064	$ 27.73
B	96	$ 110.40
C	36	$ 60.60
D	48	$ 19.80
E	24	$ 134.34
F	180	$ 160.50
G	48	$ 49.48
H	36	$ 8.46
I	48	$ 40.82
J	12	$ 34.40
K	2544	$ 23.76
L	48	$ 53.02
M	144	$ 71.20
N	24	$ 67.40
O	24	$ 37.70
P	12	$ 28.80
Q	48	$ 78.40
R	144	$ 33.20
S	36	$ 72.00
T	216	$ 45.00
U	600	$ 20.87
V	228	$ 24.40
W	12	$ 48.30
X	120	$ 33.84
Y	324	$ 210.00
Z	396	$ 73.44
AA	12	$ 28.80
AB	48	$ 78.40
AC	144	$ 33.20