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Q1. Use exhibit 4 and the 2012 annual demand to find out EOQ and ROP for the 5 SKU’s scheduled to be produced in the last week of June.

Product (12 oz) 3JS (Strawberry Jam)

Marran (Raspberry Jelly)

Kerry (Peach Jam)

DOM (Blueberry Jam)

AAA (Apple/Mint Jelly)

Sales/week 74 58 38 23 16 Setup cost 63.7 63.7 63.7 63.7 63.7 Annual demand 3869 3006 1970 1211 832 Carrying cost 0.09 0.09 0.09 0.09 0.09 Unit cost 28.34 30.52 26.86 29.01 26.32 EOQ 440 373 322 243 212 ROP 223 173 114 70 48 % increase in sales

28% 29% 31% 35% 33%

% increase in EOQ

14% 13% 15% 17% 16%

Three Jays Co. used one-month-old data to estimate demand for the

following month. By adding risk and safety factor and by using 2012’s annual demand, changes in EOQ and ROP are represented as follows: Old EOQ New EOQ Old ROP New ROP Strawberry Jam 387 440 173 223 Raspberry Jelly 329 373 135 173 Peach Jam 280 322 86 114 Blueberry Jam 208 243 51 70 Apple/Mint Jelly 183 212 36 48

This shows that the corporation needs to acquire the necessary amount of data to forecast demand and to function at an optimal level. This will also lead to the management of inventory in an efficient manner.

In fact, the entire scheduling was flawed. The new amounts will help the company to operate at the optimal level while reducing overall costs.

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Q2. What changes in cost would you recommend in Exhibit 2?

• Setup cost is considered a cost that is incurred uniformly for a single batch. I would say that the labor costs should not be a part of setup cost because the salary was supposed to be given at regular intervals.

• Carrying costs includes storage costs, maintenance (particularly in regard to perishable items), insurance and other less tangible expenses, such as opportunity costs and losses due to theft. This is sort of the cost that you bear for overstocking. Therefore, shrinking cost, storage cost, obsolescence cost and holding costs should be added in it. Capital cost shouldn’t be a part of carrying costs, because those are your investments in assets.

Q3. Compare the original costs with recommended costs.

• New setup cost = 3*12.50*1 =$ 37.50. (Since three part time workers supported the operations and each was paid $12.50).

• New carrying cost = 3% + 20 = 23% • New unit cost would be =$25.79 for Strawberry jam, $27.97 for Raspberry

jelly, $24.31 for Peach jam, $26.46 for Blueberry jam, and $23.77 for Apple/Mint jelly.

Old cost New cost Carrying cost 9% 23% Setup cost 63.70 37.50

Determining the correct costs properly will determine EOQ properly and will

help the company to perform better while allowing them to better handle their inventory. Q4. Which inventory model is most optimum?

EOQ model was not a marvel for their operations as in EOQ, unit cost is fixed with constant demand. Three Jays should use Periods Review Model or the ABC Model, since their demand is not constant. PRM would include regular checks of inventory level and forecasting is done based on this data gathered.

Therefore, it was the need of the hour that they substituted existing EOQ to a more efficient and reliable inventory model to ensure that they operated at the optimal level and such that the inventory was managed properly to ensure reduced costs.

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Q5. What recommendations should Brodie present to Jana?

• The company should reevaluate their cost calculation method were not properly constructed and had ample room for errors while estimating carrying, setup and unit cost.

• Using EOQ as inventory system is not appropriate, because their demand is not constant and should be changed to Periodic Review Model or ABC Model. Using this model, managers will be able to check inventory on a regular basis.

• Since the demand is not constant, the date for previous month should be used to forecast the demand for coming month as the current system was leading to further problems in terms of inventory management.

• Scheduling is not properly developed and it is crucial to rectify for enhancement of the efficiency of the production process.

• By calculating cost properly and using data of 2012, we have following EOQ and ROP:

Product (12 oz) 3JS (Strawberry Jam)

Marran (Raspberry Jelly)

Kerry (Peach Jam)

DOM (Blueberry Jam)

AAA (Apple/Mint Jelly)

Sales/ week 74 58 38 23 16 Setup cost 37.5 37.5 37.5 37.5 37.5 Annual demand 3869 3006 1970 1211 832 Carrying cost 0.23 0.23 0.23 0.23 0.23 Unit cost 25.79 27.97 24.31 26.46 23.77 EOQ 221 187 163 122 107 ROP (3 weeks) 223 173 114 70 48 ROP (4 weeks) 297 231 151 93 64