Final Project AssignmentSCM 301 Fall 2015

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 evaluate the supply chain performance.

Consider yourself a consultant assigned to develop a supply chain management strategy for the company Throx. You are tasked with evaluating the company’s recent performance and recommending changes (decisions) to improve supply chain management performance. You should use concepts and methods discussed 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). 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 last but not least) 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.” It orders socks in packs of 20 three-sock sets, which are then broken down into individual three-sock sets at the Richmond facility for sale to customers. Socks are shipped via truck to the port of Shanghai to the port at Los Angeles-Long Beach. 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. If the product ordered by a customer is in stock at the Richmond facility, it typically takes 1 day to process an order and ship it out, although the maximum units that can be shipped in a week is currently 1,500 given the facility’s minimal labor force and packaging equipment.

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Product Orders (Demand) Information

The company provides you with a graph of weekly orders from customers during its past two fiscal years (2014 and 2015; Exhibit 1). (The company’s fiscal year runs from October 1 to September 30.) Weekly orders during this period are highly variable, and the company provides you with the following information for each of the two years:

Demand Characteristic FY 2014 FY 2015Annual demand, units 16,202 22,022Average weekly demand, units 312 423Variance of weekly demand, units2 77,990 42,905Maximum weekly demand, units 1,101 1,029Minimum weekly demand, units 0 54

Demand varies through the year, as shown by the percentage of sales in each month during 2015:

Month % of Annual Demand

October 7.8%November 8.0%December 9.8%January 9.3%February 6.6%March 4.0%April 11.1%May 10.5%June 6.4%July 6.8%August 9.7%September 9.9%

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 adjusted exponential smoothing. They provide you with the following information about forecasts for FY 2014 and FY 2015:

Fiscal Year Demand WMA Forecast

Adjusted Exponential Smoothing ForecastUnadjusted Trend Adjusted

2014 16,202 11,400 12,250 3,563 15,8132015 22,022 14,921 15,214 3,413 18,627

Weighted Moving Average uses Wt = 0.6 and Wt-1 =0.4.Adjusted Exponential Smoothing uses α = 0.75 and β = 0.25.

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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:

Unit order cost to Throx for an order placed with its current supplier, $/order = 5001 (S)Holding cost per set per per year for materials held in the company’s warehouse = H = $5

Their current supplier offers Throx a quantity-based discount with increasing order size for the number of three-sock sets, as follows:

Order Quantity, units Cost per Unit, $/unit0 to 2,499 5.002,500 to 3,499 3.753,500 or more 2.50

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 2,000 units for all sock styles.

FY 2015 Supply Chain Performance Information

The company also provides you with a number of exhibits (see Exhibits 2 to 6 below) that indicate key supply chain management performance indicators, including customer orders and product shipped (along with the running total of unfilled orders), inventories and to-date average inventories, to-date service level, and weekly costs for ordering, inventory holding, transportation and facilities and cumulative profit (revenues less costs).

1 Throx does not charge their online customers a fee per order.

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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:

Current Alternative Suppliers

Supplier Characteristic

Zhejiang Datang Hosiery

Group, Ltd

Anli Sock Group

Zhejiang Ubuy Socks

Manufacturing Co., Ltd

Unit price, $/3-sock set $2.50-$5.00* $4.00 $1.50

Order cost, $/order 500 400 250Defect rate 1% 0.5% 4%Average Supplier Lead Time, weeks 2 1 1.5Variance of supplier lead time, weeks2 1.00 0.25 4.00Financial condition of the firm Good Poor FairMinimum order size, units 1,000 2,000 5,000

* Depends on volume discounts. No volume discounts for other suppliers.

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 Characteristics Maersk Ocean Freight (Current)

UPS Air Express (Alternative)

Unit cost, $/sock set 1.50 2.75Damage rate 2% 0.5%Average Transit time, weeks* 4 0.5Minimum order size None None* No data are available about variation in transit times, so Throx assumes this is constant.

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.

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Alternative Warehouse Capacity

The current warehouse is a small space adjoining the Throx administrative offices, and has a storage capacity of 5,000 three-sock sets at any given time. Throx is considering an alternative to expand its storage capacity to 10,000 units and move it to a location more centrally located to its demand. It assesses its current and potential costs as:

Warehouse Characteristics Current Facility in Richmond

Alternative Facility, Location TBD

Fixed Costs, $/year* 50,000 75,000Variable Cost, $/unit sold/year 4.00 3.00Storage capacity, units 5,000 10,000Processing capacity, units/week 1,500 2,500Labor required per unit shipped, days 0.01 0.005Labor cost, $/day 80 80* Fixed costs include the investment required to construct the new facility, as well as administrative and overhead costs for the current facility and the new facility.

If the number of units to be stored exceeds the current facility’s capacity, Throx has arranged for surplus storage capacity, but at a cost of $5/unit/week. The company believes that this arrangement would also be possible for any new facility. If the number of orders received in a week exceeds the processing capacity, orders are backlogged until they can be filled.

Alternative Warehouse Location

The company would also like to assess whether its current warehouse location is appropriate based on the current locations 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.

Metropolitan Area Market 2014 Population Latitude Longitude

Los Angeles-Long Beach-Santa Ana 14,083,662 34.1 -118.2San Francisco-Oakland-San Jose 4,945,708 37.8 -122.3San Diego 2,956,746 32.7 -117.2Sacramento 1,723,634 38.6 -121.5

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Final Project Deliverable to Throx

You should develop a document of 4 pages or less (double-spaced, 12-point font, 1” margins) that has the following three components:

1) An assessment of Throx’s SCM performance during FY 2015

The evaluation of Throx’s FY 2015 SCM performance should include discussion of:

Forecast accuracy for FY 2014 and FY2015 for the two methods used; Throx’ current inventory management decisions (EOQ and ROP) and inventory management

performance based on a review of performance graphs and evaluation using tools from class; Throx’ financial performance, based on a review of performance graphs.

In addition to describing the key elements of performance, link the performance to current decisions or methods. That is, indicate why performance is as it is—this will help you to make recommendations for improvement.

2) A forecast for FY 2016 to support decisions based on the two forecasting methods currently used by the company

Your forecast for FY 2016 will influence your recommendations, and should use both of the company’s current forecasting methods. Comment on the appropriateness of these forecast values based on your assessment of forecast accuracy. Use ONE of the forecast values to support your recommended decisions for 3) below.

3) THREE recommendations for FY 2016 to improve SCM performance, based on analysis of available data and appropriate methods from SCM 301, and a discussion of WHY the recommendations would be expected to improve performance.

Recommendations may include any of the following:

A monthly S&OP for FY 2016 based on your forecast and cost information above2. Preferred supplier for FY 2016 (current or alternative) Transportation mode to be used for FY 2016 (current or alternative) Facility to be used for FY 2016 (current or new facility) Location of new facility Order size (Economic Order Quantity) and Re-order point (safety stock) for FY 20163

2 Note that Throx is more like a supplier of services (sock packaging and shipping) than a manufacturer. You should focus on labor requirements as this is a key resource decision for the S&OP for Throx—See Example 10.1 in the eText. You can use the monthly demand percentages from FY 2015 to approximate monthly demand during FY 2016.3 Because both of these values are key components of a continuous replenishment inventory management system, they are considered 1 recommendation.

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Note that many of the decisions will require the forecasted values for FY 2016, as well as the use of other information provided in the case.

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Final Project Grading Rubric

Your case analysis document will be assessed as follows:

Formatting and Length

Is the document consistent with guidelines for length and formatting? (-10 points if not)

4-page text limit, double-spaced, 12-point font, 1” margins, US Letter sizeYou may include up to 2 additional pages of tables, charts or calculations (not additional text)

Note that this page limit will require you to be very efficient in your discussion. You will want to think carefully and write briefly. Bullet points that are complete, clear sentences may be used if helpful to communicate the key points.

Clear, Logical and Complete Written Presentation (20 points)

The document is written clearly in a logical way, without grammatical or spelling errors, and completely addresses the content requested by the company?

Is the document clearly your own work? All documents will be checked for originality. (Appropriate grade penalties and academic integrity processes will be followed for work that is deemed not original.)

Content (80 points)

1) An assessment of Throx’s SCM performance during FY 2015 (20 points)

The document includes complete and appropriate analysis and discussion of forecast accuracy, inventory management and financial performance for FY 2015 based on exhibits and appropriate course tools;

The document includes discussion of linkages between decisions and observed supply chain performance during FY 20154.

2) A forecast for FY 2016 to support decisions based on the two forecasting methods currently used by the company (10 points)

The forecast is correctly calculated for both methods used by the company, calculation details are shown with appropriate notation.

The forecast to be used to support recommendations for 3) below is clearly indicated and a justification is provided.

4 An example would be linking the service level to decisions about ROP.

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3) THREE recommendations for FY 2016 to improve SCM performance, based on analysis of available data and methods from SCM 301, and a discussion of WHY the recommendations would be expected to improve performance. (50 points)

Provides THREE specific recommendations to Throx for FY 2016 from among those listed above that are designed to improve supply chain management performance;

Uses appropriate course tools to support the decisions, showing relevant details of any calculations;

Indicates specifically why the decision would be expected to improve supply chain performance, with a quantitative estimate if this is possible5.

Discussion of other (qualitative) factors that might limit the ability of Throx to implement your recommendation or to benefit in terms of improved supply chain management performance.

Document Submission

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)

The due date is:

12/16/15 at 11:59pm ET. (0 points if submitted after this time)

No late submissions will be accepted due to deadlines for course grade submission. Please plan accordingly.

5 An example would be comparing relevant costs with current and recommended order quantities.

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Recommended Outline for the Case Analysis Document

Executive Summary (1 page or less)

Bullet point listing (one sentence each) with key points such as:

Throx’s key supply chain performance issues during FY 2015 based on available data

are…and arise because….

Throx’s forecasted demand during FY 2016 is from…to… and the value...should be used

for FY 2016 decisions because…

Three recommended actions for Throx to improve performance during FY 2016 are…

which will improve…[specific outcomes]

Assessment of Throx’s Performance for FY 2015 (1/2 page)

Based on the information provided in the case document (discussion and exhibits), the key

performance issues for Throx are…

These issues appear to arise due to decisions such as…[based on specific comments and

calculations]

Forecasted Demand for FY 2016 (1/2 page)

Based on the methods used by the company for previous years forecasted demand for FY 2016 is

expected to range from…to….

Calculations are shown as…

We would expect the…to be preferred for decisions in FY 2016 because…

Specific Recommendations for Throx for FY 2016 (2 pages)

Although many other decisions could be considered we focused on assessing…[three decisions]

For each decision:

I recommend decision “X” based on the following calculations [as appropriate].

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Our recommended decision would improve…[performance indicator] by…[amount, if possible],

because…

Challenges for the implementation of our recommendation might include…

Additional Suggestions:

Start on this project as early as you can. It will take more time than typical assignments. Carefully review ALL case information to be clear that you understand the available

information and the requirements for the project. Ask questions of your instructor if you are uncertain about what is being expected or if you are having difficulty getting started.

Once you have reviewed the case information, try to rather quickly decide which decisions you will focus on.

Carefully consider with class methods (calculations) are appropriate to support each of the decisions you will recommend.

Review the course materials and previous assignments as needed to clarify concepts—some may provide examples for this project. It may be helpful to develop an outline of the material from the course and the specific tools that have been covered (and the decisions they provide insight for).

You may need to make (and justify) assumptions to complete the analysis (it is typical for cases that not all possible relevant information is provided). Try to be clear about and support your assumptions and state how they affect your analysis.

Follow carefully all guidelines for the assignment—make sure that you provide all information required, in the format required.

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Exhibit 1. Weekly Orders (Demand) during FY 2014 and FY 2015 (October 2013 to September 2015)

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Exhibit 2. Customer Orders and Shipments to Customers (units per week) and Unfilled Orders (units ordered) for Throx, FY 2015 (October 2014 to September 2015)

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Exhibit 3. Product Inventory in Richmond Warehouse (units) and Average Inventory in Richmond Warehouse (units), FY 2015 (October 2014 to September 2015)

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Exhibit 4. To-Date Service Level (Proportion of Replenishment Cycles Completed Without a Stockout), FY 2015 (October 2014 to September 2015)

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Exhibit 5. Costs ($/week) for Orders with Suppliers, Inventory Holding Costs, Facilities Costs and Transportation Costs, FY 2015 (October 2014 to September 2015)

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Exhibit 6. Cumulative To-Date Profit (Revenues less Costs), FY 2015 (October 2014 to September 2015)

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