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Introduction - Inventory Management Assignment
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Just Baked is an upscale and popular cupcake pastry kitchen headquartered in Livonia, Michigan. Just Baked got established by Pam Turkin's kitchen when she started to make more cupcakes for her kids. Most stores are claimed and worked by franchisees, however a couple are owned by the organization itself. The present report will analyse overall inventory management in Just Baked, which helps them to improve their productivity and performance.
Key Questions answered in the report
- Determine the Best service level at each store of Just Baked.
- What is the exposure period for cake mix for Baking?
- What is Holding and Stock-out costs in Cake mix for Baking ?
- What is the target stock and factors which are affecting ordering decisions?
- Calculate the process of ordering eggs in Just Baked.
Methods of Analysis
In order to answer the above key questions related to the report various themes are developed for each of the question. The themes are segmented into five parts such as
- Best Service Level at each Just Bakes store.
- Exposure Period, Cake Mix for Baking.
- Stock-out and Holding Costs, Cake Mix for Baking.
- Target Stock and Ordering Decisions, Cake Mix for Baking.
- Ordering Eggs
- Best Service Level at each Just Baked store
Best services level refers to the level pf services as expected by the Just baked as well as its franchisees in inventory management. The services related to inventory management are very important for stocking of cakes in the company as well as the stores. This theme is further divided into various parts -
- Cost of under-stocking - Cu =p – c
- Cost of overstocking - c – s
- Franchisee Best Service Level Computation - SL* = Cu / (Cu + Co)
- Company-owned store Best Service Level Computation - Cu / (Cu + Co)
- Decision-making for store level inventory lead to higher overall profitability
- Exposure Period, Cake Mix for Baking.
The Exposure period for Cake mix refers to a certain period in which cake mix or powder used in baking cakes get destroyed. It is very important to preserve cake mix effectively so that it can be used to bake the best quality cakes. It is also segmented into three parts such as -
- Review Period. Compute the Review Period for cake mix in days.
- Lead Time. Compute Lead Time for cake mix in days(Haijema and et.al, 2017).
- Exposure Period. Compute the Exposure Period for cake mix inventory planning.
Exposure Period = Review Period + Lead Time
- Stock-out and Holding Costs, Cake Mix for Baking.
The stock out cost can be referred as the cost related to the lost opportunity caused due to the exhaustion of the inventory. On the other hand Holding costs are the cost related to storing inventory which is not sold and these costs are included in the total inventory costs.
- Stock-out Costs. Compute the cost of a Stock-out of cake mix - extra labour + extra cake mix cost
- Holding Costs. Compute the annual Holding Cost of a pallet of cake mix - Annual Holding Cost H = I C
- Cost of Overstocking through 1 Review Period. Compute the weekly holding cost per pallet of cake mix.
- Best Service Level for Cake Mix. Compute the Best Service Level SL* for pallets of cake mix - SL* = Cu / (Cu + Co)
- Target Stock and Ordering Decisions, Cake Mix for Baking.
- Target Stock Level Computation.
- Order Quantity Computation - Q* = OUTL – on-hand inventory
- Ordering eggs
- Economic Order Quantity Computation
- Safety Stock Computation.
- Reorder Point Computation (ROP)
- Days of Supply expression of ROP
- Average Eggs on Hand
- Days of Supply CV
Vrio Analysis for Just Baked Inventory Management relevant investigation recognized the four rule characteristics which makes the affiliation get a high grounds. The maker of this theory suggests that firm ought to be huge, phenomenal, not completely imitable and immaculately non sensible. Thus, there must be a couple of advantages and capacities in an affiliation that can urge the high ground to association(Fichtinger and et.al, 2015).The four sections of VRIO Analysis are delineated underneath:
- Beneficial: the association must have a couple of advantages or frameworks that can manhandle openings and shield the association from genuine risks. In case the association holds some regard by then answer is yes. Resources are moreover noteworthy if they give buyer dependability and addition customer regard. This regard may make by growing partition in existing thing or decay its cost. Is these conditions are not met, association may provoke forceful hindrance. Consequently, it is critical to continually review the Just Baked Inventory Management association's activities and resources regards(de Kok and et.al, 2018)
- Extraordinary: the advantages of the Just Baked Inventory Management association that are not used by some other association are known as exceptional. Unprecedented and gainful resources give considerably high grounds to the firm. Nevertheless, when more than one couple of associations uses comparable resources and give forceful fairness are generally called exceptional resources. In reality, the engaged balance isn't needed position, however the association should not lose its gainful resources, even they are typical(Disney and et..al, 2016).
- Over the top to imitate: the advantages are costly to impersonate, if distinctive affiliations can't reflect it. Regardless, pantomime is done in two ways. One is duplicating that is prompt pantomime and the other one is substituting that is meandering pantomime. Any firm who has vital and phenomenal resources, and these advantages are extreme to impersonate, have achieved their high ground. In any case, resources should moreover be perfectly non supportable. The reasons that advantage pantomime is extreme are recorded conditions, accommodating dubiousness and social disperse quality(Feng and et..al, 2014).
- Made TO Capture value: resources, itself, can't give good conditions to relationship until the point that the moment that it is dealt with and attempt to do all things considered. A firm (like Just Baked Inventory Management) must deal with its organization structures, methodology, game plans and strategies to totally utilize the advantage's capacity to be gainful, remarkable and costly to duplicate.
1. Best Service Level at each Just Baked store.
Simply Baked cupcakes sold at retail locations at costs running from about $2.30 each for less difficult cupcakes by the dozen up to about $3.50 for the fanciest cupcakes sold independently. The vast majority of the cupcakes were sold in 2-packs valued at $5.50. A rough general normal offering cost was $2.75 per cupcake. Franchisees were charged $1.25 per cupcake. Organization possessed stores were additionally "charged" a similar exchange cost of $1.25 per cupcake. Add up to variable expenses per cupcake out of the Livonia pastry kitchen were about $0.50, speaking to $0.25 in coordinate material and $0.25 in factor work. Cupcakes not sold before the day's over were disposed of. Simply Baked credited the stores $0.75 for each unsold/disposed of cupcake. Research demonstrated that clients were by and large ready to buy cupcakes from those accessible, regardless of whether they needed to substitute a moment decision for a most favoured ï¬‚avour. For the motivations behind this activity, under-stocking costs are confined to the quick lost sales profit. In practice, Just Baked is not allowing there franchisees to make cupcake ordering decisions on their own. Instead of this they bake and deliver cupcakes to all stored on the basis of centralized decisions.
The cost of overstocking is a loss or any of an organisation, cost of overstocking for Just baked is around $0.50. The franchisees of Just Baked pays around $1.25 cost of Overstocking within which $0.75 gets credit by the organisation which again brings the figure or the cost to $0.50. It is important to control the overstocking in order to eliminate this cost of overstocking which adds up to overall expense of Just Baked. The cost of overstocking can be a loss for an organisation if demand of the products is very low, production should be planned according to demand within marketplace. Franchisees can manage their inventory according to the sales of products, in order to minimise cost of overstocking it is very essential for franchisees to order cakes with regards to the demand in the market and their sales volume(Wild and et.al, 2017). On the other hand Just Baked should ensure their production rate is not higher than demand of cakes.
In order to provide best level services for the management of Inventory Just Baked needs to spend a little money. The Best service level for cupcake stocking at franchisee stores is around $0.75, this cost is to get most effective services required in the stocking of the cupcakes in the franchisee store. The services related to inventory management are essential in order to protect the cakes by getting destroyed.
Company owned store best services level computation - Just backed service level is easy to calculate. It can be calculated by dividing number of calls answered within the service level from the number of calls offered. Company calculate its service level in each financial years so that cost can be identified and it can make strategy to minimize its cost. Service level calculation make them aware with the performance of the business. From the calculation it can be analysed that Co is the unit cost of overage and Cu is the unit cost of under-age(Natarajan and et.al, 2014). Just Backed is required to identify the number of raw material which needs to be purchased in order to manage daily demands. Here unit cost of overage is 0.50 and under-age is 2.25 thus service level result is 0.82 which is higher than franchise best service level. That is 0.75. Standard service level is of if it is between 0-45, if it is between 45-90 then it is average but if it is between 90+ then it is considered as poor. From the present result it is found that this is 00.82 or 82% that means company's level of services are good and it can manage its cost well. That show that inventory system of the firm is good it can manage its stock well. This clearly show that demand is clearly met for the stock.
Reason of getting more profit through centralised system From the above calculation it is found that franchises best service level method is able to meet the demand by 75% for the inventory whereas company owned store best service level is able to meet the demand by 82% for the stock. That means company based service level is more profitable by this way Just backed can become able to manage its stock well and can minimize wastage. This will help in meeting the demand effectively and generating more profit in the organization. The main reason of generating high profit in the centralized decision making for store level inventory is that by this way company can identify the available stock and can order the raw material accordingly. This helps in managing stock well and minimizing wastage as well. This is the method in which individual can remove such activities which causes reactionary actions. In this process Just Baked opportunity to make effective stock allocation and making impressive decisions. This increases inventory accuracy and helps in avoiding stock outs. This is the reason that Just Backed has become able to meet 82% demand for stock and generate high profit(Song and et.al, 2014).
2. Exposure period
- Review period is the process in which company review the process of cake mix. From the calculation it is found that total review time for baking is 7 days. It means Just baked takes 7 days time duration for cake mix for baking.
- Lead timing for this process is found 3 days. In order to calculate the exposure period both these review and lead timing are being added. From the calculation it is analysed that 10 days will be required for cake mix inventory planning to the Just backed company.
- Exposure period is the sum of review period and lead time, according to the figures the exposure period for cake mix Just Baked is 10 days.
3. Stock-out and Holding costs, cake mix for baking
- Stock out costs are can be calculated by adding extra labour into extra cake mix cost, the Just Baked extra labour was around $300 and extra cake mix cost is also $300 that means total stock out cost of cake mix is $600.
- The annual Holding costs of a pallet of cake mix for Just Baked can be calculated by dividing the total. Holding cost by number of months in a year. Total holding cost of a pallet of cake mix is $1000 and annual holding cost is $120
- Cost of overstocking through 1 review period, review period for cake mix is 7 days. Therefore, weekly cost of overstocking goes to $2.31.
- In order to calculate best service level for pallets of cake mix the following formula is used
SL* = Cu / (Cu + Co) - $300/$300+$120 = $0.71
4. Target stock and ordering decisions
Pallets of Cake Mix Demanded
Cumulative ≥ SL*( 0.71)?
Target Stock Level ID (OUTL)*
Fewer than 2
5. Ordering eggs
The reorder point is the level of inventory or stock which triggers an action to refill that particular inventory stock. It calculated by adding safety stock into expected demand in lead team. The demand in lead time related to eggs is 400 and the safety stock is 1200, therefor the reorder point is 1600. Just Baked order eggs at the point they have 1600 eggs in stock. The days of supply are 6.61 and average eggs in stock is 2464.9.
The above report concluded Just Baked is utilizing effective methods in managing their inventory, in order to improve the inventory or stock management the company can use following alternatives -
It is basic to pick the choices and after that evaluate the best one as the association have confined alternatives and restrictions. Along these lines to pick the best alternative, there are various components that is ought to have been recollected. The various criteria on which business decisions are to be picked domains under:
- Upgrade productivity
- Augmentation bargains, bits of the pie, return on theories
- Buyer unwariness
- Brand picture
- Corporate mission, vision and framework
- Resources and limits
Choices should be measures what elective will perform better than other one and the authentic reasons. Moreover, decisions should be related to the issue explanations and issues delineated for the circumstance consider.
Books and journal
- Wild, T., 2017. Best practice in inventory management. Routledge.
- Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management. The Accounting Review, 90(2), pp.529-557.
- de Kok, T., 2018. Inventory Management: Modeling Real-life Supply Chains and Empirical Validity. Foundations and Trends® in Technology, Information and Operations Management, 11(4), pp.343-437.
- Disney, S.M., Maltz, A., Wang, X. and Warburton, R.D., 2016. Inventory management for stochastic lead times with order crossovers. European Journal of Operational Research,248(2), pp.473-486.
- Haijema, R., van Dijk, N.M. and van der Wal, J., 2017. Blood platelet inventory management. In Markov Decision Processes in Practice (pp. 293-317). Springer, Cham.
- Fichtinger, J., Ries, J.M., Grosse, E.H. and Baker, P., 2015. Assessing the environmental impact of integrated inventory and warehouse management. International Journal of Production Economics, 170, pp.717-729.
- Natarajan, K.V. and Swaminathan, J.M., 2014. Inventory management in humanitarian operations: Impact of amount, schedule, and uncertainty in funding. Manufacturing & Service Operations Management, 16(4), pp.595-603.
- Song, D.P., Dong, J.X. and Xu, J., 2014. Integrated inventory management and supplier base reduction in a supply chain with multiple uncertainties. European Journal of Operational Research, 232(3), pp.522-536.