Final Project Assignment
SCM 301 Fall 2016
Overview of the Case Analysis
We have discussed many concepts in SCM 301 related to planning, sourcing, making and delivering products and services. The purpose of this case analysis is to integrate the different elements of the course and to apply tools you have learned to evaluate supply chain performance.
The Throx Company hired you as their first Supply Chain intern and today is your first day on the job. They recruited you from Penn State because it is the best Supply Chain program in the country. The Throx management team wants to understand how they might improve their performance. No one on the current management team has a formal supply chain degree. It is their understanding that at Penn State you are taught a number of practical and insightful tools for evaluating supply chain performance (which of course is true).
For your first assignment, you are tasked with evaluating the company’s recent performance and recommending changes (decisions) to improve supply chain management performance in the future. Your boss Axel, a marketing MBA graduate from Stanford, provides you with a background summary of recent performance and decisions (below). He would like to see your preliminary results and recommendations at the end of the week. You should use qualitative and quantitative concepts and methods you learned in SCM 301 to undertake these two tasks.
Company Background Information
Throx sells higher-end custom-design socks in three-sock sets rather than two to help address the most common complaint about sock ownership: “the dryer ate my sock” that many consumers face. The company operates from a small packaging and distribution facility in Richmond, CA from which it ships product to customers. Given the company’s location and focus, 97% of sales are in California, primarily in the major urban areas of the San Francisco bay area, Los Angeles, Sacramento and San Diego. The company sells exclusively via online sales, at an average price of $15/three-sock set, plus shipping costs charged to the customer.
The company currently orders its product from the Chinese sock manufacturer Zhejiang Datang Hosiery Group Co., Ltd in so-called “Sock City.” Socks are shipped via truck to the port of Shanghai, from where they are shipped to the port at Los Angeles-Long Beach via ocean freight. Once offloaded in Los Angeles-Long Beach, the socks are shipped via truck to the Richmond facility. On average, shipment from the manufacturer to the Richmond facility takes 4 weeks. In addition to the transit time required for shipment, the lead time from when an order is placed with the manufacturer to when it is shipped from Zhejiang is 2 weeks (order processing time). So, the total lead time is considered to be 6 weeks from when Throx places an order until it reaches the Richmond facility. Historically, the standard deviation of lead time has been 1 week.
Product Orders (Demand) Information
The company provides you with the following information for the past two fiscal years:
|
Demand Characteristic (3 sock sets) |
FY 2014 |
FY2015 |
|
Actual Annual Demand |
15,000 |
22,000 |
|
Average Weekly Demand |
290 |
425 |
|
Variance of Weekly Demand |
100 |
150 |
Product Forecasting Information
Throx uses two main forecasting methods based on annual data to predict orders for the following year, a weighted moving average and exponential smoothing. They provide you with the following information about forecasts for FY 2014 and FY 2015:
|
Year |
Weighted Moving Average Forecast |
Exponential Forecast |
Actual Demand |
|
2014 |
12,450 |
13,150 |
15,000 |
|
2015 |
14,550 |
14,815 |
22,000 |
Weighted Moving Average uses Wt = 0.7 and Wt-1 =0.3.
Exponential Smoothing uses α = 0.9.
Inventory Management Information
The initial inventory for all sock styles combined at the beginning of FY 2016 is 3,500 units. You also have information on current costs, which includes:
· Order cost to Throx for an order placed with its current supplier, $/order = S = $200
· Holding cost per set per year = H = $5
· The company currently pays $4 for each set of socks. = P
The company uses a continuous review replenishment policy, and has IT systems in place that allow constant monitoring of key information. Last year, the company used an ROP under this policy of 1,450 units for all sock styles and an order quantity Q of 4,000 units for all sock styles.
Potential Alternatives to Current Supply Chain Management
The company has asked you to evaluate a number of alternatives to their current SCM practices, including at a minimum their choice of supplier, transportation modes, warehouse capacity, order quantities and safety stock.
Alternative Suppliers
The company has contacted potential alternative suppliers in China, who have offered the following information relative to the current supplier:
|
Supplier Characteristic |
Current |
Alternate A |
Alternate B |
|
Unit Price$/3-sock set |
$4.00 |
$3.00 |
$1.50 |
|
Order Cost, $/order |
$200.00 |
$250.00 |
$400.00 |
|
Defect Rate |
1.0% |
0.5% |
4.0% |
|
Financial Condition |
Good |
Poor |
Fair |
To keep their order management simple, Throx wants to use a single-sourcing strategy, so they want a recommendation about which supplier would be best.
Alternative Transportation
An alternative to their current transportation approach available to Throx is shipment by UPS Express Air from Shanghai to Richmond, which averages 3.5 days. The comparison of costs is given as:
|
Transportation Supplier Characteristic |
Maersk Ocean Freight (current) |
UPS AirExpress (Alternative) |
|
Shipping Cost $/3-sock Set |
$1.50 |
$2.75 |
|
Damage Rate |
2.0% |
.5% |
|
Order Processing Time |
2 Weeks |
2 Weeks |
|
Average Transit Time |
4 Weeks |
.5 Weeks |
|
Standard Deviation of Transit Time |
1 Week |
1 Day |
Similar to their decision about sourcing, Throx wants to use a single-sourcing strategy for transportation, so they want a recommendation about which mode would be best.
Alternative Warehouse Location
The company would also like to assess whether its current warehouse location is appropriate based on where customers are located. It provides you the following information about its key markets, and indicates that its orders in each market are roughly proportional to the total population.
|
Market |
Population |
X |
Y |
|
LA-Long Beach |
14,000,000 |
34 |
118 |
|
San Francisco |
5,000,000 |
27 |
122 |
|
San Diego |
3,000,000 |
33 |
117 |
|
Sacramento |
1,800,000 |
39 |
121 |
Final Project Deliverable to Throx
1) You want to impress Axel, so you should develop a summary document of 4-6 pages (double-spaced, 12-point font, 1” margins) that addresses each of the following questions. There’s no need to write a “formal” paper. For each question below: 1. Complete the required calculations and show your results in a table. 2. Make a recommendation and/or outline your result. 3. Provide a bullet point discussion on the results, any additional qualitative factors considered in your recommendation and/or risks.
2) Calculate the measures of annual forecast accuracy for FY 2014 and FY2015 using the MFE, MAD and MAPE. Do these forecasts seem adequate for the purposes of decision making? Why or why not?
3) a.) Calculate the EOQ and ROP based on the FY2015 forecast value. Give your final answer in full sock sets (round to the appropriate whole number.) b.) Calculate the EOQ and ROP based on FY2015 actual demand. Comparing the results, indicate what the implications were for inventory management costs in FY2015. See additional tips below:
a) Compare the costs for decisions based on the forecast to the actual data
b) Use a service level of 95% (z=1.65) when calculating the ROP
c) Average weekly demand () (given in summary table-rounded to nearest “5”)
d) For the variance in weekly demand, use the data provided in the table with the FY2015 forecast for both approaches
e) Annual Inventory management costs will include the following: Annual Holding Costs, Annual Ordering Costs, and Purchase Cost.
4) Calculate inventory management costs for the company’s current decisions about Order Quantity (Q) and ROP (provided in the case) based upon FY 2015 actual demand. Compare these to the costs to that would have been achieved if the company had used its forecast for FY2015 to determine EOQ and ROP (what you calculated in Question 2 part b).
5) Develop a forecast for FY 2016 using the two forecasting methods currently employed by the company. You will be calculating a simple two period forecast—use 2014 and 2015 annual forecasts/actuals to develop your 2016 forecast. Comment on which of the forecasts is likely to be more appropriate to support decisions based on your assessment of forecast accuracy. Use ONE of the forecast values to support your recommended decisions in Question 5 below.
6) Provide the company with the following recommendations for FY 2016 to improve SCM performance, based on analysis of available data and appropriate methods from SCM 301. Be sure to justify your recommendation. Use your forecast values from 4) as input into your decisions.
a) Recommend which of the three suppliers should be used for FY2016. It will be helpful to develop a supplier scorecard (NOTE: Use scores of 3=best, 2=second best, 1=worst);
b) Recommend which transportation mode should be used for FY2016. You may use a scorecard, but you must also include an analysis of the transportation costs associated with each option and discuss other implications (such as inventory levels, safety stock, etc);
c) Recommend an appropriate location for a new facility if one is to be built. Round your final coordinates (X, Y) to two decimal places. Use methods discussed in the course, but be sure to include discussion of other relevant factors that would influence the choice of a specific location;
d) Recommend the EOQ and ROP for FY2016 based on your forecast from Question 4 (round to full sock sets) and recommended supplier from Question 5a. Use the variability of demand from 2015 as an estimate for variability of demand in 2016. Calculate the expected costs for annual inventory management based on your recommendations (see Question 2e). How do these costs compare to the performance observed in FY2015 based on the company’s decisions for that year (Question 3 numbers based upon the order quantity of 4000)?
Final Project Grading Rubric
Your case analysis document will be assessed as follows:
Document Submission
The assignment due date is listed in the course schedule. The document should be submitted to the appropriate ANGEL Dropbox as a Word document, with the filename:
LASTNAME_SCM301.docx (-5 points if not named with this format)
No late submissions will be accepted due to deadlines for course grade submission. Please plan accordingly.
