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Mary is the manager of the Alpha
company in the grocery industry. The major role of Alpha company is
working as a grocery distributor though the company also produces
some products. There are 4 products W, X, Y, and Z caused a lot of
troubles for Mary in the past several years since the inventory and
sales records were not available. From 2019 with the investment of
IT and supply chain infrastructure, Mary can continuously monitor
the sales and inventory information of these 4 products. It was the
end of 2019. Mary had collected all 2019 weekly sales data and
order history for these 4 products shown in the attached
spreadsheet. This file also includes the historical order
information for every week’s order in 2019. Mary wanted to use
scientific ways to forecast demand and manage inventory for these 4
products. She decided to assign a project to Jason who has worked
in the company for several years and just got his MBA degree last
year. Below are the objectives of this project:
Mary hoped Jason can determine which forecast methods will be
appropriate for each of these 4 products. Moreover, Jason should
provide the demand forecast for the first 4 weeks of 2020 for each
of these 4 products so Mary can test Jason’s method in the first
month of 2020. (25 points)
According to our textbook the simple moving average serves as
an estmaye of the next period’s demand therefore I will be applying
simple moving average to this problem.
After building a scientific way for demand forecasting, Mary
hoped Jason can propose the optimal inventory/ordering policies for
these 4 products for the first week of 2020. The sale price/unit
for each product is listed below:
Product W
Product X
Product Y
Product Z
$220
$50
$5
$3
Jason decided to use ABC rule to classify these 4 products.
‘A’ category product(s) will have the target service level of 95%.
‘B’ product(s) will have the target service level 90% and ‘C’
products(s) will have the target service level 85%. After setting
the appropriate service level, Jason will use the service level
information to calculate the safety stock level for each product.
a) How should Jason classify the ABC products? (10 points)
b) After classifying these 4 products, Jason wanted to use
the ROP model for inventory/ordering management. He believed he
would get an accurate demand forecasting for the first week of
2019. But based on the historical data. The attached spreadsheet
document includes the order information for 2019. The company
places the order of all products on each Wednesday. Jason found the
lead time of orders has variations for all these 4 products. Which
ROP model should Jason implement? (5 points)
c) What are the reorder points for each of these 4 products
for the first week of 2020? (30 points)
Product E is a new product and manufactured by the Alpha
company itself. This product was introduced to the market in July
2019 and the feedback of the market was very positive. Mary had
provided the 2019 historical sale data of product E in the attached
file. She wanted Jason to determine the optimal production plan for
the first 4 weeks of 2020 for product E. Some information is given
here:
2019 last week’s output =2,800
Beginning inventory = 0
Inventory holding cost = $40 per unit per week
Hiring employees = $40 per unit
Terminating employee = $80 per unit
Subcontracting cost =$60 per unit
Unit cost on regular time = $30 per unit
Overtime cost = $15 extra per unit
Jason’s job is to develop an aggregate plan. The three
initial options he wants to evaluate are:
a. Plan A: a chase strategy that hires and fires personnel as
necessary to meet the forecast.
b. Plan B: a level strategy.
c. Plan C: a level strategy that produces 2,800 units per
week and meets the forecasted demand with inventory and
subcontracting.
Which strategy Jason should choose to get the lowest expected
cost? (30 points)
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