Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
At the beginning of 2018, Mark Columbus was appointed the new Head of Supply Chain at Supercoffee, a California coffee pod producer both for coffee shops (e.g., Starbucks) and households (e.g., Keurig machine).
His main objective was to develop more the global outreach of the company. Currently, Supercoffee distributes its products mainly in the local markets (United States and Canada), and Columbus objectives are to start exporting at least in some countries in Central and South America.
Supercoffee in-house production consists of 158 products, which can be grouped into five families: Strong, Extra, Aroma, Napoli, and America. Each family has a specific blend, roasting temperature, processing procedure (in beans or ground), labels for domestic and international markets, and they can be sold in multiple formats (lots of pods of 2.5 kg for coffee shops, 0.25 and 0.15 kg for households)
After an initial growth in 2010-2012, demand for coffee pods has overall stabilized in the final market, and companies like Supercoffee work with coffee machines producer and distributor to produce the right mix and quantity of coffee to satisfy customer request, as they are able to issue a forecast of their future orders for at least 3 months. This way, demand trends are usually quite well characterized for different types of products, and this gives also the possibility to companies to introduce innovations in the flavor and/or packaging, considering the long lifecycle characterizing these products.
More critical, instead, is the management of the upstream part of the supply chain, for three reasons. First, high-quality coffee beans are produced only in limited regions world-wide and, has experienced some shortage in the last years due to environmental (i.e., weather) and labor (i.e., strikes) factors. Second, pod packaging needs to be source by respecting specific requirements, considering the strong attention to sustainability aspects related to their disposal. For this, although Supercoffee tries to have a consolidated set of suppliers, frequent rotation and introduction of new partners is necessary. Last, production technologies for bean processing, blending, roasting, flavoring, and packaging are in constant evolution and require companies to invest (if possible) in frequent manufacturing process renovations.
Distribution network design
Currently, Supercoffee has one central warehouse, located in Reno (Nevada).
From this warehouse, coffee pods are sent by road and/or rail to several small and big retailers all over the United States and Canada.
Once Supercoffee marketing will have defined a clear strategy for entering foreign markets in South America, the supply chain must be ready to support these efforts. For these reasons, Columbus was thinking about a new structure of the distribution network.
Instead of reaching directly the industrial customers through the central warehouse, Columbus would like to use local warehouses (owned and executed by a logistic service provider, but managed and supervised by Supercoffee) in each of the final market (United States, Canada, and other Central and South American countries), in order to make the transportation from the central warehouse more efficient, but also leave open doors to possible personalization of variety according to the characteristic of the demand in each of these markets.
QS1:
Discuss the solution proposed by Columbus.
What type of distribution network does he have in mind? Is it coherent with the Supercoffee supply chain characteristics?
Suggestions: First, classify the solution proposed by Columbus. To understand its suitability, carefully consider the characteristics of the Supercoffee supply chain. Independently from what your answer is (yes, it is suitable; or no, it is not suitable), be sure to justify why you pick your answer. Highlight the pros and cons of this choice, and explain why, in your view, pros outweigh cons or vice versa.
ANS(not less than 250 or 300 words):
Part 2
Inventory management policies
Considering the characteristics of the Supercofee supply chain, managing inventory of final products should not give the company too much of concern.
Instead, in the last two years, Supercofee production system struggled a lot to provide the central warehouse the right quantity at the right time, in order to satisfy retailers’ demand. The central warehouse does not hold safety stock, and several times, Supercoffee ended up sending urgent deliveries without saturating the trucks or the rail cars, thus ending up spending more logistics costs than planned.
Last year, Supercoffee had $ 151,081 in finished product inventory and spent $ 38,901 total inventory management costs (including both carrying costs and ordering costs), and $ 17,863 in transportation costs.
In order to reduce this problem, Columbus wants also to review the inventory management policy for finished products to be held in the central warehouse. In particular, in order to contain costs, he wants to implement an economic order quantity model with fixed reorder.
To quantify the parameter of the model, he has collected several pieces of information.
First of all, he collected the following data about production and transportation costs for the different product families.
Table 1. Production and transportation cost data of Supercoffee products ($ per unit, where 1 unit = 1 lot; each lot is made by 100 sleeves; each sleeve includes 12 pods)
Strong Extra Aroma Napoli America Production costs Coffee blend 244.20 245.60 308.90 284.20 261.20 Materials for packing 12.70 12.70 12.70 12.70 12.70 Direct labor 1.00 1.00 1.00 1.00 1.00 Duties 9.77 9.83 12.75 11.10 10.38 Taxes 7.33 7.37 9.35 8.40 7.82 Other general variable costs 5.00 5.00 5.00 5.00 5.00 Other general fixed costs 13.10 13.10 13.10 13.10 13.10 Transportation costs 1.59 1.64 2.2 2.05 1.82 The annual inventory holding rate is the same for all the families, and it is composed of mainly financial opportunity cost of capital, equal to 9%, and defined according to the interest rate on loan received by SuperCoffee. The other costs (obsolescence, storage, insurance, etc.) associated to inventory holding are instead quite low, and amount to 2.5% all-in.
In addition to this, Columbus collected data about the reorder cost of each family (including both the set-up costs to switch from one family to the other and the average costs of administrative staff to issue the order for filling a lot from the distribution center):
Strong: 278.3 $/order
Extra: 278.3 $/order
Aroma: 342.5 $/order
Napoli: 303.1 $/order
America: 292.4 $/order
Finally, Columbus collected the data about the forecasted demand for the next year, as well as the past values of replenishment lead time from the production plant (note: this value is equal for all the families of product).
Table 2. Summary of monthly forecasted orders coming from retailers (number of units aka lots)
Strong Extra Aroma Napoli America Jan 114 42 39 654 22 Feb 128 51 79 163 10 Mar 136 52 82 180 34 Apr 233 74 151 198 44 May 219 157 66 183 26 June 284 150 127 217 33 July 343 257 96 207 35 Aug 368 179 85 186 51 Sep 230 83 61 171 16 Oct 162 72 67 205 15 Nov 246 89 103 266 26 Dec 252 181 131 257 43 Table 3. Value of the replenishment lead times from the production plant to the central warehouse during the last year (values in month)
Replenishment lead time Jan 0.33 month Feb 0.54 month Mar 0.37 month Apr 0.40 month May 0.47 month June 0.50 month July 0.43 month Aug 0.53 month Sep 0.33 month Oct 0.47 month Nov 0.50 month Dec 0.40 month QS2:
How much should Supercoffe central warehouse reorder for each product, if the objective is to minimize the inventor management costs? When this quantity should be reordered?
Fill the following table. Type the numbers using the format 2,86.78, by including only two decimals.
Note: you can use this file to elaborate on your solution. You can upload this file in the next question, together with the justification of your calculations.(u can see file below called elaborate solution 1)
Suggestions: Please look at the solution template provided. Values to calculate the reorder quantity need to be calculated for each family! And pay attention that not all of them are explicitly given by the text, so you have to calculate them. Pay extreme attention to the unit of measure, particular time! Ratio and multiplication can only be made if the variables are expressed in the same unit of time (days with days, weeks with weeks, months with months). Remember to round units and order numbers up.
to round units and order numbers up.
Strong Extra Aroma Napoli America D units/year units/year units/year units/year units/year Creorder $/unit $/unit $/unit $/unit $/unit h % % % % % Cp $/unit $/unit $/unit $/unit $/unit Quantity to be reordered units units units units units d unit/month unit/month unit/month unit/month unit/month LT months months months months months Reorder point units units units units units Cycle stock units units units units units QS3:
attach your Excel file here (be sure to put comments to highlight your hypotheses)
QS4:
If Columbus is going to adopt these models with these parameters, will the projected logistic costs be lower, higher, or similar to those of last year?
Fill the following table. Type the numbers using the format 2,86.78, by including only two decimals.
Note: you can use this file to elaborate on your solution. You can upload this file in the next question (or in the previous one), together with the justification of your calculations.(ill attach this file as solution elaborate qs4)
Strong Extra Aroma Napoli America Total Inventory value $ $ $ $ $ $ Inventory carrying costs $ $ $ $ $ $ Number of orders Inventory holding costs $ $ $ $ $ $ Total inventory management costs $ $ $ $ $ $ Transportation costs $ $ $ $ $ $ Total logistic costs $ $ $ $ $ $ Qs5:
Does this result surprise you, or does it make sense?
Justify your previous calculations and comment about the results obtained.
If you prefer, you can directly attach your Excel file here (if you didn’t do it before).
Suggestions: Once you calculate the quantity to be reordered, and the reorder point, you have all the information to evaluate potential costs of these decisions. Again, please follow the solution template provided and fill the table. You have to calculate the inventory value, the inventory management costs (carrying and ordering), and the transportation costs, and compare them to the cost of the previous year. With these new values and models, are the costs higher, lower, or similar? Does this make sense to you? Please note that this second question is very important, because it shows if you really understood what you are doing. If you are, you should already foresee what to expect, and if the costs will be lower, higher, or similar (before the calculation). So, this could be also a check to understand if your calculation makes sense, or if something is wrong.
ANS:not less than (300-250)
QS6:
Columbus would like to change the inventory management policy, but he doesn’t think that there is a need for Supercoffee to introduce safety stock for any of the families of coffee. “We can forecast and manage the demand pretty well for all the families, and our plants are very reliable for what concerns the replenishment lead time. I am pretty confident we are able to give our customers a level of service of 90-92%”, he says.
Do you agree with Columbus that safety stocks are not needed in the Supercoffee central warehouse? Carefully elaborate on your answer.
Suggestions: This is more of a reasoning and conceptual questions. Please note that it is not required to calculate the safety stock in this question. You could, if you think it is useful to support your thesis, but you can answer this question with no safety stock calculation. To do that, the meaning and role of safety stock must be clear, and also you need to be sure you understand from which variables the safety stock value depends on. If you are able to identify this, it is pretty clear from the number provided if Columbus is right or wrong. Of course, the fact that you are not asked to calculate safety stock doesn’t mean you don’t have to use numbers! To answer this question, you will need numbers at some point. So, again, if you don’t see the need to use any values you already calculate or new ones…probably you are not on the right path.
Ans: not less than 300 words.
NOTE: I have attached power points and an excel sheet to help in all answers.
RUBRIC
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