Inventory Management Case Study: ACME International

QAB020N502A Understanding Operations

Question:

Part B (Analytical case study)

ACME International manufactures and distributes soft drinks. Product A is delivered to the customers through a warehouse facility. The demand for product A is illustrated in Table Q1-1 where SKU’s are packs of product A.

Demand history over a planning period

SAMPLE	SALES	SAMPLE	SALES
	(SKU’s)		(SKU’s)
1	100	14	80
2	80	15	90
3	70	16	90
4	60	17	100
5	80	18	140
6	90	19	110
7	120	20	120
8	110	21	70
9	100	22	100
10	110	23	130
11	130	24	110
12	120	25	90
13	100

Table Q1-1: Demand data for product A.

Additionally, the replenishment lead time from the manufacturing plant to warehouse is characterised by some variability shown in the data in Table Q1-2.

Lead time performance history

SAMPLE	LEAD TIME	SAMPLE	LEAD TIME
	(days)		(days)
1	7	9	11
2	10	10	13
3	9	11	10
4	11	12	12
5	8	13	9
6	12	14	11
7	10	15	8
8	9	16	10

Table Q1-2: Lead time performance data.

The warehouse manager aims to increase the service level for product A from 95% to 99%.

Additionally, he has to consider recent changes in the packaging of the drink packs, and he wants to fully utilise a new contract with a 3PL company where the replenishment transport cost covers use of two lorries, capable of carrying 8 pallets each. The new packaging allows 6 packs in each box and 13 boxes in each pallet (unit load).

Assuming the following information:

Projected yearly demand = Average daily demand * 250 days (in packs)

Carrying cost = 20% of unit value

Unit value at cost = £20

Ordering cost = £100

Calculate the additional annual cost on the warehouse operations following implementation of the new inventory policy?

Your answer to this question should include

A short introduction to the problem
Step by step explanation how you will solve this problem
All the calculations involved in answering the questions.
A short discussion of the results and on the assumptions that you have adopted in employing methods to solve the problem

(THIS COURSEWORK CONTRIBUTES 50% TOWARDS YOUR FINAL MARK)

Marks will be awarded as follows:

Calculate SD for demand/performance

Calculate combined SD

Calculate EOQ

Adjust EOQ for transport

Calculate safety factors

Calculate costs / compare to budget

Discussion / conclusions