Your friend
Jane
, an entrepreneur living in Boston, needs your help. Jane is considering opening an on line store
to
sell
a product that will have a logo of one of the top universities in Boston
.
She is very secretive at this point
and will not tell you the type of product
–
just that it comes in five colors and
will
contain one
of the 8
logo
s
(i.e.,
there are
40
diffe
rent configurations of the product). She asked another friend to make demand forecasts
. The
forecast indicates level demand over the year, with the average daily demand and the standard deviation of the
daily demand forecast shown in Table 1. Demand wil
l be independent across products but demand will be
positively correlated over time.
Table
1
: Demand Forecast
Jane
has also contracted with an offshore manufacturing facility to produc
e the
products. Their lead
–
time
agreement specifies that ordered products will be received 12 weeks after the order is placed.
Jane will place
orders on a weekly basis (once per week).
Jane has the option of printing the logo herself (after a customer
place
s an order) or having the
offshore supplier print the logo. She
estimates
her
average printing cost to
be
$
0.75 per unit. Unfortunately, because the supplier’s manufacturing processes are typically setup to include
printing, there will be no decrease in
supplier production costs if Jane prints the logos. The offshore production
costs
per unit
are shown in Table 2.
Table
2
: Production Costs
Jane needs help with inventory planning.
In particular, she has two options in mind. The first option will consist
of holding final product inventory for all
40
of the
product configurations. She likes this option because she
would be able to
immediately
ship products
to customers
. The second o
ption would consist of holding inventory
of the five product colors, and print
ing the
university logo
s
herself before shipment
to customers
. She likes this
option because it simplifies inventory requirements.
For this assignment
,
create a
n
Excel spreadsheet to evaluate the two options.
The comparison
should
compare:
(a)
the annual holding cost of safety stock
for the “no aggregation” option, where all 40 final product
configurations are held in inventory, and (b) the annual holding cost of
safety stock plus the increased printing
cost for the “aggregation” option, where inventory is held by color so that only 5
different items
are held in
inventory
.
When analyzing the two alternatives, use a target product fill rate of 99%.
After explaining
inventory holding costs
to
Jane
, y
ou agree to use
an annual holding rate of 35%
for your
analysis
because jane will need to rent warehouse space
. However, this value is uncertain
. So,
you agree to use
a graphical display to show her how the options comp
are if the
annual
holding rate is change
d
over a range from
15% to 50%.
The assessment of
this
work will
be based on
the accuracy
and clarity
of
your
spreadsheet
and the graph
.
Submit
one Excel file, using a file name Lastname_
PS
3
.
0 comments