The question below is from the attached image of a video case file from Operations Management: Processes and Supply Chains (11th Edition) by by Krajewski, L. J., Malhotra, M. K. & Ritzman, L. P. 1. Explain how both independent and dependent demand items are present at Crayola. VIDEO CASEInventory Management at CrayolaManaging inventory at Crayola is a fine balancing act. With the back-to-school period driving 42% of company demand for crayons, markers, paints,modeling compounds and other products, production starts in February soenough finished goods are in the 800,000 square foot warehouse in time tosupply 3,600 Walmarts, 1,400 Targets, and thousands of other retailers inthe United States for the fall school supply rush.This means demand forecasts for raw materials in the master produc-tion schedule must be developed months before any of the finished productsmove to those retail customers. Lead times range from 60 days for domesticraw materials sources to upwards of 90 days for finished goods from suppli-ers outside the United States. As production ramps up for the back-to-schoolseason well before the first day of classes, Crayola plans inventory levels forthe entire year so that production remains reasonably steady. While the back-to-school season represents the lion's share of annual sales, holiday salesaccount for 35% of revenues, and the rest comes from spring sales. Crayolahas over 1,500 SKUS, with close to 225 top sellers, so accurate forecasts areessential.Historical sales patterns as well as orders generated by its U.S. sales di-visions located in Easton, Pennsylvania (headquarters), Bentonville, Arkansas(near Walmart's headquarters), and Minneapolis (near Target's headquarters)help managers attain the accuracy needed. Marketing co-branding for thelatest movies and comic books plays a role in creating the forecast for newSKUS and bundles, which must be coordinated to hit retailers the same timethe movies and comics debut or the company risks missing the market andending up with inventory that can't easily be sold.Crayola's inventory holding costs run about 25%, and its averageinventory value is $110 million. The company must assure there is ware-house space for finished goods as well as raw materials used in production.Pigments, clays, and packaging materials are moved from the warehouseand positioned close to the production lines, using a Kanban system to pull rawCrayola must supply customers with nearly 1,500 products, which requiresan average inventory investment of $110 million. Finished goods inventory,shown here, must be stored in advance of seasonal demand peaks, such asthe back-to-school period, which accounts for 42 percent of annual demand. INVENTORY MANAGEMENTCHAPTER 9355materials inventory as needed. Rail tanker cars from Louisiana and Pennsylvaniacarying paraffin wax are delivered twice a week for crayon production. Since therail cars feed directly into production, any disruption in delivery has the poten-tial for shutting down production. Bad weather is a particular risk in this partof the company's supply chain since it can prevent the transport of goodsduring hurricanes or snowstorms.Crayola attempts to source as many raw materials from domesticsources as possible. Cartons, clay, ink, labels and corrugated boxes comefrom the mid-Atlantic region of the United States, while those plastic compo-nents Crayola does not manufacture on site, such as nibs for markers, aresourced from Asia and can take up to 120 days to ship through the PanamaCanal to the Port of Newark. Materials used in kits and bundles come fromAs a countermeasure, Crayola established duplicate capacities in China andthe U.S. to meet the aggregate potential demand. In China, the company pro-duced the original forecast and delivered to customers as planned. However,when the actual demand was 26% over the original forecast, Crayola couldmeet the surge in demand because it had positioned the long lead time inkbottles in its Pennsylvania plants and was able to mold the plastic parts usingmarker components from its core marker product. By utilizing existing machinecapacity in its plants, reducing the lead time of ink bottles by making them inPennsylvania, and by duplicating tooling, Crayola was able to ensure that itscustomers and consumers were satisfied during the holiday season.QUESTIONSKorea, China, Vietnam and Brazil, and face similar shipping logistics.When considering work-in-process inventories at Crayola, paints, mark-ers, modeling clays, and many of the crayons coming off the production lineare boxed into trays for use downstream in creating kits and bundles. Theseitems are considered work-in-process items, even though the individual unitsare finished goods (i.e., a crayon or marker is completely manufactured onceit comes off the line). The same is true for marker barrels, paint pots andother plastics. Specialized equipment is used to make these items which feeddownstream production.Recently, Crayola's leadership expected that actual demand for its popu-lar Marker Maker© toy product might come in higher than the original forecast.1. Consider the pressures for small vs. large inventories. Which situationdoes Crayola seem to fit, and why?2. Explain how both independent and dependent demand items are pres-ent at Crayola.3. The Marker Maker© product recently experienced an unexpected surgein demand and the supply chain's agility was credited with helping tomeet the crisis. We have discussed four ways to classify operationalinventories by how they are created. Regarding the ways managerscan use these inventories to satisfy demand, explain how Crayola canachieve the flexibility to adjust to unexpected demand surges.

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Description: The question below is from the attached image of a video case file from Operations Management: Processes and Supply Chains (11th Edition) by by Krajewski, L. J., Malhotra, M. K. & Ritzman, L. P. 1. Explain how both independent and dependent demand it