Large Bakers - Session 5 Essays

764 WordsOct 21, 20144 Pages
Large Bakers Memo To: Senior Management From: Gregg Gregson Date: October 16, 2013 Re: Distribution Analysis and Recommendation Summary In aligning with senior management’s initiative to reduce stock out to 1.5%, alongside implementing a variable lead time order cycle, Large Bakers will achieve an annual cost savings valued at $194,000. Background Information Given Large Bakers Management initiative that the possibility of stock-out be reduced to 1.5%, the following analysis depicts which of the following options Large Bakers should utilize throughout the company’s supply distribution network to ensure efficiency and valued cost savings are achieved. The two options are as follows: Regular, 25-car shipments, spaced 14 days…show more content…
Recommendation As the manager of Large Baker’s supply chain department, it is recommended by implementing option 2, a variable lead time, buffering against variation in lead time into the company’s supply chain distribution network that Large Bakers will achieve approximately $194,000 annually. With this alternative Large Bakers will keep a close eye on production level and order the 25 cars at variable lead time. As a result, efficient production will allow Large Bakers to save on decreased inventory costs as well as achieve greater efficiency in utilization of key transport times to align with consumer demand. Supporting Documentation Safety Stock Required Determination Known Research: Flour usage to meet demand can be taken at an average of 2,000 tonnes every 2 weeks, with a standard deviation of 300 tonnes. Variable order cycle – lead time from placement to receiving of the order = 4 days. If an absolutely regular 14-day shipping cycle is followed the railway will cut its rate by $5.00 per tonne. Under the variable order cycle the freight rate saving will be only $4.50 per tonne. Demand Varies: Level of production required: 98.5% 98.5 corresponds to 2.17 standard deviation Standard deviation of demand 300 tons Safety stock required: 2.17 x 300 tons = 651 tonnes Lead time Varies: Level of protection required = 98.5% 98.5% corresponds to 2.17 standard deviation Standard
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