soc-200-case-study-report-1-three-jays-corporation-complete-solution

Studocu is not sponsored or endorsed by any college or university soc 200 case study report 1 three jays corporation complete solution Psychiatric/Mental Health Nursing (Nevada State College) Studocu is not sponsored or endorsed by any college or university soc 200 case study report 1 three jays corporation complete solution Psychiatric/Mental Health Nursing (Nevada State College) Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 Case Study Report 1: THREE JAYS CORPORATION 1. Using the data in case Exhibit 4 and the 2012 annual demand, calculate the EOQ and ROP quantities for the five SKUs scheduled to be produced in the last week of June. How do these amounts compare with those calculated in 2011? Compare the increases in EOQs with the increases in annual demand. (2.5 points) The 2012 Annual Demand is given as Exhibit 5: Monthly Sales Data Label Type Jan Fe b Mar Apr May June July Aug Sept Oct Nov Dec Year Total 2012 345 301 325 299 344 296 329 334 349 325 289 333 3,869 2013 566 671 384 631 616 2,868 Marran Markets Raspberry Jelly Dom's Food Stores Blueberry Jam The EOQ and ROP quantities for the five SKU’s based on 2012 annual demand is given as Total Set up cost (S) Annual Deman d (D) Carryin g Cost (i) % Unit Cost (C) EOQ (cases) ROP (cases) Strawberry Jam 63.7 3869 9% 28.34 440 223 Raspberry Jam 63.7 3006 9% 30.52 373 173 Page 1 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 3Js Strawberry Jam 2012 229 270 236 279 273 255 236 232 235 276 244 241 3,006 2013 744 737 425 379 571 2,856 Kerry's Marts Peach Jam 2012 156 176 174 144 160 178 155 159 178 166 176 148 1,970 2013 167 146 78 84 117 592 2012 92 109 98 99 102 111 103 99 94 104 107 93 1,211 2013 100 99 80 139 108 526 AAA Grocers Apple/Mint Jelly 2012 66 77 79 69 65 66 68 67 62 74 71 68 832 2013 73 63 110 146 88 480 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 Total Set up cost (S) Annual Demand (D) Carrying Cost (i) % Unit Cost (C) EOQ (cases) ROP (cases) Strawberry Jam 98.95 3869 11% 28.34 496 223 Raspberry Jam 98.95 3006 11% 30.52 421 173 Peach Jam 98.95 1970 11% 26.86 363 114 Blueberry Jam 98.95 1211 11% 29.01 274 70 Apple/Mint Jelly 98.95 832 11% 26.32 238 48 Brodie’s first assignment in his internship is to update the EOQ and ROP quantities for all 141 SKUs, to reflect the current levels of demand (D), because the original calculations were done in 2011 with sales figures from 2010. This task is simple for the ROP, where: ROP = 3wks (leadtime) D (annual demand) 52(wks/year) Making changes to the EOQ amounts is more complicated, as several logical errors exist in the data that are used as inputs for the EOQ formula. Specifically, these are the setup cost (S), the unit cost (C), and the inventory carrying cost, which is expressed here as a percentage (i). (Note: Sometimes the variables i and C are combined in the EOQ formula. When this occurs, the product of i * C is represented by the symbol H, which is the inventory holding cost in dollars per unit, per year.) Errors in Calculating EOQs Setup cost (S) errors These errors result from incorrectly including an allocation of fixed annual expenses as components of the total setup cost. Setup costs should include only actual, out-of-pocket costs (as should all the costs used in the calculation of the EOQ) that are directly related to setting up the production line to make a specific item (SKU). Jake Evans and Josh Francis — as well as the buyers who purchase the raw ingredients and packaging material for 3Js — are full-time workers who earn a predetermined yearly salary. Consequently, reasonable changes in the number of setups per year will not change the total cost of these individuals. Thus, regardless of whether Page 3 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 they are employed by Fremont Jams and Jellies, or 3Js, there are no incremental costs that are incurred with respect to setups. Therefore, the costs of changing the rails on the assembly line to accommodate different jar sizes — as well as the costs of cleaning the equipment and switching out the jar labels between batch sizes — should not be included in the setup cost (S). Similarly, the costs of the two individuals employed in the kitchen should not be included in the setup costs. These costs should be considered only as the maximum capacity f these individuals is approached and additional people and/or equipment are required. At that point, changes could be considered that would postpone the need for expansion, which would suggest that an appropriate tradeoff analysis should be conducted. Thus, with the current production system, the only relevant setup costs are the part-time wages paid to the three temporary workers, who are idle while the line is shut down for cleaning and label changes. The setup costs are therefore equal to: S = 3 workers * $12.50 per hour * 1 hour = $37.50 Notably, the cost of these temporary workers is not included in the original cost calculations, most likely because they were not working and hence were not considered as part of the setup costs. Nevertheless, their cost is an out-of-pocket expense that must be included. Carrying cost (i) errors The cost of carrying inventory typically consists of three components: (a) the cost of storing the inventory, which can include storage costs (building costs, etc.) and labor and equipment costs associated with storage, insurance, and taxes; (b) the cost of obsolescence, spoilage, and shrinkage; and (c) the cost of capital, which is the cost of the money that is tied up in inventory. Because FJ&J is not charging 3Js for storing its finished goods, the primary component of this parameter is the cost of capital, which can vary. There are three scenarios: 1) If a firm has an excess of cash, then the cost of the capital tied up in inventory is the interest lost that could have been earned by investing the money. 2) If the funds could be better used — other than in inventories — by investing in a project that would generate additional revenues and profits, or significantly reduce costs, then the cost of capital is the opportunity cost associated with not having the funds available for that specific project. Page 4 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 production of a specific size jar is scheduled for a given week, and any requirements prior to that week will be delayed until that time. (Note: When Assumptions 3 and 4 are valid, stock-outs most likely will not occur, which is why there is no need to consider them in the EOQ formula.) 5) There are no interactions among the different items produced. There are significant interactions at 3Js, however, because of the relatively high setup cost associated with changing the jar size. As a result, items are grouped to reduce this cost, thereby affecting when they are produced. Comparing Old and New EOQs The calculation of the original EOQs shown in Table 1 below (and the attached Excel spreadsheet) are presented in case Exhibit 4: Table 1. EOQ Calculations Using Existing Method (see case Exhibit 2) and 2010 Sales Data Product (12 oz.) 3Js Marran Kerry Dom AAA sales/wk 58 45 29 17 12 S = Setup Cost 63.70 63.70 63.70 63.70 63.70 D = Annual Demand (cases) 2,993 2,335 1,492 886 625 I = Carry Cost 9% 9% 9% 9% 9% C = Full Cost/Case 28.34 30.52 26.86 29.01 26.32 EOQ (old) 387 329 280 208 183 ROP (3 weeks) 172.7 134.7 86.1 51.1 36.1 If we just update this using the 2012 sales data, we have the comparison shown in Table 2 below (and the attached Excel spreadsheet): Table 2. EOQ Calculations Using Existing Method (see case Exhibit 2) and 2012 Sales Data Product (12 oz.) 3Js Marran Kerry Dom AAA sales/wk 74 58 38 23 16 S = Setup Cost 63.70 63.70 63.70 63.70 63.70 D = Annual Demand (cases) 3,869 3,006 1,970 1,211 832 I = Carry Cost 9% 9% 9% 9% 9% Page 6 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 C = Full Cost/Case 28.34 30.52 26.86 29.01 26.32 EOQ (old) 440 373 322 243 212 % Increase - Sales 29.3% 28.7% 32.0% 36.7% 33.1% % Increase - EOQ 13.7% 13.5% 14.9% 16.9% 15.4% The increases in sales range from 28.7% to 36.7%, but the increase in EOQs ranges from 13.5% to 16.9%. This difference is attributable to the fact that the EOQ is directly related to the square root of the demand, and not the demand itself. When demand doubles, the EOQ increases approximately 41% (the square root of 2 being 1.41). If we introduce the corrected costs, we have the revised EOQs shown in Table 3 below (and the attached Excel spreadsheet): Table 3. EOQ Calculations with Recommended Costs and 2012 Sales Data Product (12 oz.) 3Js Marran Kerry Dom AAA Sales/wk 74.40 57.80 37.90 23.30 16.00 S = Setup Cost 37.50 37.50 37.50 37.50 37.50 D = Annual Demand (cases) 3,869 3,006 1,970 1,211 832 I = Carry Cost 0.23 0.23 0.23 0.23 0.23 C = Cost/Case 25.79 27.97 24.31 26.46 23.77 EOQ (new) 221 187 163 122 107 % Increase - Sales 29.3% 28.7% 32.0% 36.7% 33.1% % Increase - EOQ -42.8% -43.1% -42.0% -41.2% -41.7% ROP (4 weeks) 297.6 231.2 151.5 93.2 64.0 As noted in Table 3 above, the new EOQs are significantly less than the initial EOQs, even though sales have increased significantly. This can be attributed mainly to the significant difference in the setup cost and the cost of carrying inventory, both of which drive down the EOQ. Page 7 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 Evaluation/Analysis of the Formal EOQ/ROP System We can now shift the analysis to the broader issue of applying EOQ/ROP to the current system at 3Js. Why are Jake and Josh not using the EOQ figures for scheduling production? What are the advantages and disadvantages of using EOQ/ROP methods, given the current circumstances at 3Js? Two aspects of production operations make the application of the formal EOQ/ROP system undesirable: 1) lack of production flexibility, and 2) demand is not constant. Lack of production line flexibility Use of the EOQ method assumes that the production equipment is always immediately available for processing a batch (run) of an item whenever the reorder point is reached. This is not the situation at 3Js, however, wherein 141 products, or SKUs, compete for one production line (while the overall capacity of the line is not an issue, scheduling to produce a specific SKU is very constrained). The jam and jelly production line appears to have more than en ugh capacity, but the equipment used in the process is fairly inflexible. The fact that it takes two individuals an hour to adjust the equipment every time there is a change in jar size makes it virtually impossible for the line to respond quickly to individual production requirements for specific SKUs. The three-week ROP lead time permits the production of some items to be delayed, thereby allowing the batching of several items of a given size into a single “mega” batch or run. However, stock-outs are sure to occur because of these delays. For example, Jake Evans says that they will be running the 8- ounce jars in two weeks and hopes that they will not run out of any SKUs in this size before then. The inflexibility of the production line causes conflicts to arise between the pr ducti n requirements for SKUs of different size jars. Using the EOQ method also generates a conflict among the production requirements of a given size. Producing EOQ volumes for each SKU within a single-size jar will result in future requirements being out of phase for making these items in the next production run. Thus, the production of EOQ quantities guarantees a random distribution of the ROP among all 141 SKUs, including the four jar sizes, thereby preventing the effective synchronization of groups of items into “mega” batches or runs. Page 9 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 Demand is not constant As mentioned earlier, the EOQ and ROP quantities assume that demand is evenly distributed throughout the year and is perfectly predictable. At 3Js, however, demand has been increasing, and this trend is expected to continue. While seasonality does not appear to be an issue in this instance, it would cause additional problems when using the EOQ and ROP. In that case, the fixed three-week lead time would represent different amounts of inventory on hand that could vary significantly. As a result, using a fixed ROP will lead to unexpected stock-outs for some items and excess inventory for others, depending on the time of year. Of course, the seasonality issue could be addressed with a simple adjustment. The average EOQ and ROP amounts could be multiplied by a monthly seasonality index for the current month (the monthly seasonality index equals the actual demand for a given month divided by the “average” demand, which assumes a constant rate of sales throughout the year). However, we would still be left with the issue of an inflexible production line. Evaluation/Analysis of the Improvised System Realizing that the EOQ scheduling techniques are not practical for 3Js, Jake and Josh have developed an improvised system that establishes a fixed time interval between the runs f a specific jar size (four weeks). This technique is more commonly known as the Periodic Order Quantity (POQ) method. However, by retaining the ROP triggering aspect of the formal system, Jake and Josh have invoked two conflicting rules for scheduling the production runs. One rule calls for producing SKUs at a fixed future date, and the other calls for producing a SKU whenever the stock level of an item falls below its ROP trigger level. Use of this hybrid system also leads to conflicts among the production requirements of different SKUs like those described above, under the formal major EOQ/ROP system. In addition, using the ROP trigger quantities as a buffer stock provides varying lead times as described previously. Jake and Josh assume that following the formal EOQ system—and thereby having to produce SKUs as called for by this system—would be prohibitively expensive and inconvenient. Their assumption is correct. Some consideration might be given to the formal system, but since 3Js has 141 products, it is almost undoubtedly prohibitive. The production line is currently underused, so the equipment could be adjusted for size changes more often without creating any bottleneck. At Page 10 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522

SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Case Study 1 – Three Jays Corporation 831512392 problem to produce additional SKUs as the need arises (because of forecasting errors), even though they are not scheduled for another four weeks. As the production line is currently running at less than 40% capacity (based on a 40-hour week), there appears to be ample time available to absorb any increases in the number of setups required. As management develops experience with the new system, both the two-week safety stock and the eight-week interval between productions of individual SKUs can be reduced. 2) Improve the forecasting of future sales. This effort can be accomplished in two parts. First, develop long-term trends that capture the growth that 3Js has experienced. Second, if it appears to be warranted, develop a monthly seasonality index to reflect seasonal changes in sales. As management improves the accuracy of forecasts with these appoaches, the amount of safety stock can be reduced. Better forecasting will not only reduce the probability of stock-outs but also reduce the amount of safety stock on hand. 3) Produce a greater number of different but same-size items in each production run to allow better control of a larger part of the inventory. Final score: 9.0/10 Page 12 of 12 SOC 200 - Case Study Report 1: THREE JAYS CORPORATION Complete solution New Update 2023 Downloaded by Seerat Fatima (seeratfatima53000@gmail.com) lOMoARcPSD|15670522