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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?