Scenario: Firm AMU-7 is interested in analyzing their finished goods inventory o
ID: 347165 • Letter: S
Question
Scenario: Firm AMU-7 is interested in analyzing their finished goods inventory of Product X-2 in round 5. Their ending finished goods inventory at month 4 were » 4,000Units at DC 1 . 1,500 units at DC2 Their round 5 demand forecast for Product X-1 were 11,500 units in region 1 and 7,000 units in region 2. The company implements a responsive strategy and thus has a policy of keeping 10% of its sales forecasts as safety inventory 1. Given round 5's sales forecast, round 4's ending finished goods inventory and that the 2. Based on your answer in question (2), how many units should AMU-7 produce of 3. Assume that the company decided to use carrier N to ship forecasted sales volume to company, how many units of Product X-1 should be shipped to DC2? Product X-1 in total, given their safety inventory policy? DC2, given that actual sales were 4,600 units What was DC2's ending inventory of Product X-2 for round 5? (you need to calculate best, normal and worst case scenarios) 4. Assume that AMU-7 uses Shipper N to ship the number of units of of Product X-2 (calculated in Question (1)) to DC2 via surface mode and had actual sales higher than forecasted Sales: 5,300 units. Assume that 90% ofthe shipments arrived on time and there was no postponed production. Complete the following finished goods inventory accounting as you would expect to see it in round 5 DC2's FG Invento Beginning Invento +Plants Shipment, Surface +Plant Shipments, Air +Plant Shipments, Emergenc 22Postponed Production Available Invent -Sales. Region #2 Plant Shipments, Delayved -Ending InventoExplanation / Answer
Assumption - Let us assume that DC1 stocks will be used for Region 1 sales, and DC2 stocks will be utilized for Region 2 sales.
1) We need to find out the number of units of X-1 that should be shipped to DC2
Demand Forecast for X-1 in Region 2 = 7000 units
Safety Inventory that needs to be maintained = 10% of Sales Forecast = 700 units
Total Stock Requirement at DC2 = 7000 (Forecast) +700 (Safety Inventory) = 7700 units
Beginning Inventory of X-1 at DC2 = 1500 units (Same as Ending inventory of Round 4)
Net Requirement at DC2 = 7700 - 1500 = 6200 units
Hence, 6200units of X-1 should be shipped to DC2
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2) Here, we need to find the total number of X-1 to be produced considering the safety inventory policy of the company.
Total Sales Forecast of X-1 = 18500units
Safety Inventory to be maintained = 10% x 18500 = 1850 units
Total Stock Requirement for Round 5 (Demand Forecast + Safety Stock) = 18500+1850 = 20350 units
Total Beginning Inventory at DC1 and DC2 = 4000+1500 = 5500
Net units of X-1 to be produced = 20350 - 5500 = 14850 units.
Hence, total 14850 units of X-1 should be produced to meet the sales forecast as well as safety inventory criteria.
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3) Since Actual sales is much lower than forecasted quantity, DC2's ending inventory would be 3100 units in all 3 cases (best, normal and worst). The cases have been explained below, as per shipper's delivery reliability scenarios (100% on time, 80% on time and 50% on time).
Best Case
(100% on Time)
Normal Case
(80% on Time)
Worst Case
(50% on Time)
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4)
Following is the ending inventory calculation considering 90% on time delivery of the forecasted volume. Here, since only 6200 units need to be shipped for DC2, 5580 units have been considered as on-time.
Best Case
(100% on Time)
Normal Case
(80% on Time)
Worst Case
(50% on Time)
Beginning Inventory at DC2 1500 1500 1500 +Plant Shipments, Surface 6200 4960 3100 +Plant Shipments, Air 0 0 0 +Plant Shipments, Emergency 0 1240 3100 Postponed Production 0 0 0 = Available Inventory 7700 6460 4600 - Sales, Region#2 4600 4600 4600 +Plant Shipments, Delayed 0 1240 3100 = Ending Inventory 3100 3100 3100Related Questions
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