Strategic Cost Management: Sunflower Seed Supply Chain Essay

This is a fairly complex problem. The following approach is suggested:
•    Use the historical price data set as input to a time series forecast model in order to generate forecasted prices for the average price of sunflower seeds, oil and mash in the next production period.  Use standard measures of error to decide between a three-period moving average model or an exponential smoothing model (with α = 0.2).  Use the type of model for all three time series forecasts.  That is, if you decide to use the moving average model, use a three-period moving average model fit the relevant data for all three series.  Don’t use the moving average for one time series and the exponential smoothing model for another time series.
•    Formulate a linear program to minimize the cost of raw sunflower seeds.  Use the average price of seeds forecasted from the previous step in order to determine supplier prices.
•    Perform a cost-volume-price analysis (review the handout entitled Cost-Volume-Profit Analysis for details) using the average cost per short ton average selling price per short ton.
o    you can generate an effective cost per short ton by dividing the total cost of supply (from the linear program) by the total volume (that you assumed in the linear program).
o    You can generate an effective selling price per short ton from the expected percentage yields and the forecasted average price of sunflower oil and mash.
o    Because of the way that the contract is written, you can assume that the purchase of raw sunflower seeds is a variable cost (you only purchase what you require).

In this case study, you will act as a consultant for a company that crushes sunflower seeds to produce high quality refined sunflower oil for sale the wholesale market.  The company is looking for you to make a recommendation on the optimal blend of raw materials required for its next production cycle.  You will use a number of decision analysis tools including time series forecasting, linear programming, and cost-profit-volume analysis to make the recommendation and provide analysis on the profitability of the company.

You will be required to submit a written report to management, and to include the spreadsheet models you used to generate price forecasts, optimize the raw material, and a perform the break-even analysis.  All analysis should be done using Excel and the various models should be implemented on separate worksheets or in separate workbooks.

TourneSol Canada, Ltd. is a producer of high quality sunflower oil.  The company buys raw sunflower seeds directly from large agricultural companies, and refines the seeds into sunflower oil that it sells into the wholesale market.  As a by-product the company also produces sunflower mash (a paste made from the remains of crushed sunflower seeds) that it sells into the market as base product for animal feed.

The company has a maximum input capacity of 150 short tons of raw sunflower seeds every day (or 54,750 short tons per year).  Of course the company cannot run at full capacity every day as it is required to shut down or reduce capacity for maintenance periods every ,