Statement of Problem

Cass-Lodge’s bar wants to optimize its stock control and order sizes of one of their products, a champagne bottle. They have the set of information for the demand, holding cost, order cost and unit cost and want to find the optimal order size to minimize annual costs in 3 scenarios:

1. A scenario with a simple fixed order quantity system that arrives in one batch

2. A scenario where the supplier offers to ship the champagne in batches of 100 a day during shipping periods

3. A scenario where the supplier offers tiered discounts on unit price when bulk buying

(100/100 words)

Statement of Overall Solution Approach

The scenarios will be evaluated by constructing a spreadsheet model using established formulas for Optimal Order Quantity (OOQ) and Annual Total Costs (TC). The goal is to minimize TC while still satisfying annual demand, which can be found by finding the OOQ for each of the three scenarios. After finding a solution for the values given by Cass-Lodge, a separate spreadsheet will be created with variable multipliers, to allow the management to experiment what happens to OOQ and TC if one or more of the variables change. Example scenarios are provided in the What-if section of this report.

(98/100 words)

Executive Summary

The following findings were made:

1. If given no alternative shipping methods or tiered discounts of bulk buying, the most profitable order quantity of the particular champagne bottles in Scenario 1 is in batches of 448, approximately every 16 days. This policy will have Annual Total Costs of £253,967.66.

2. If the supplier offers to ship the champagne bottles via its own truck as in Scenario 2, this policy should be implemented. The annual savings with this shipping policy compared to Scenario 1 will be £660.89. Optimal order size will be 525 bottles per batch approximately every 19 days, and Annual Total Costs will be £253,306.77

3. If quantity discounts are introduced, the bar should implement these into their supply policies. The most profitable order size will be 1000 bottles per batch with using the supplier’s own truck. An additional £198.42 will be saved in comparison to Scenario 2, bringing Annual Total Costs down to £253,108.36. This supply policy also is the most stable option in sensitivity analysis, and is strongly recommended to be the one implemented.

4. If having to choose between either supplier’s truck and quantity discounts, Scenario 2 is the most profitable.

Note: Due to there being no data on seasonal demand, it is possible that some money will be lost with these policies: during busy periods the stock will run out, and during low periods there will be unnecessary holding costs.

(235/250 words)

Date: 2015-04-20; view: 894