What Does the Throx Say?
A Throx Demand Fulfillment Strategy
Caleigh, Alex F., Simone, Greg H., Greg L.
Throx Overview
● Often unable to meet demand
o Variability in lead times
o Variability in demand
● Highest costs are due to the proportion of
transportation mode
● Throx needs new strategy to increase profits
Key Indicators
•
•
•
•
2014 Demand Forecast
Reorder Point (ROP)
Economic Order Quantity (EOQ)
Transportation Mode
2014 Demand Forecast
● Double exponential smoothing with
seasonality
● Ft,t+k=St+k[Lt+kTt]
○
○
Seasonality factor determined from analysis of
forecast
Kept Level and Trend constant
■ Level- Average demand in 2013 (8,149)
■ Trend- Trend line in graph (548)
2014 Demand Forecast
•
Forecast (Quarters)
o
o
o
•
o
Q5: 6,685
Q6: 10,895
Q7: 7,413
Q8: 9,794
Forecast was compared to projected
demand from Vensim Reader simulation
o
Using accuracy and bias measures
2014 Demand Forecast
● There is a 34% difference between projected demand and forecast
● Throx has been overforecasting by approximately 1,417 units
Reorder Point (ROP)
● Increase ROP from 1,400 units to 4,837
units
○
○
○
Meet demand more effectively
Increasing responsiveness
Ordering more frequently
Reorder Point (ROP)
● Optimal CSL = 97.6%
○ Confidence of 97.6% in completing a replenishment cycle without a
stock out
● Corresponding Z-score of 1.99
● Safety inventory (SI) = 2,756.15
Reorder Point (ROP)
• Equation chosen due to variation in lead
times
• SD,L = 1,385
Economic Order Quantity (EOQ)
• Decrease Q from 2,800 units
to 1,668
• Chose cost of $25.00/unit
• Annual demand (D) = 34,787
• Unit order cost = $500
• Holding cost = 0.5
Order Quantity,
units
Cost per Unit,
$/unit
0 to 9,999
25.00
10,000 to 14,999
23.75
15,000 or more
22.50
Economic Order Quantity (EOQ)
Cost per Unit, $/unit
EOQ Values
25.00
1,668
23.75
10,000
22.50
15,000
Cost/Unit
Holding Cost
Materials Cost
Order Cost
Total Cost
25.00
10,425
869,675.00
10,427.76
890,528
23.75
59,375
826,191.25
1,739.35
887,306
22.50
84,375
782,707.50
1,159.57
868,242
Transportation Mode
•
•
•
Current utilizing both truck and intermodal
transportation
o
Total costs = $28,677 per order
Implement only intermodal transportation
Saves approximately $16,150 in transportation
costs per order
o
Total costs = $12,527 per order
Transportation Mode
Performance Evaluation
•
•
•
•
•
Decreased EOQ from 2,800 to 1,668 units
Raised ROP from 1,400 to 4,837 units
Transportation mode changed to all intermodal
Throx current projected profit = $371,881
Projected profit based on new strategy = $480,235
o 30 % increase in profit versus current projected
profit
o 5.7% increase in profit from 2013
What Does the Throx Say?
The outlook for Throx is not as bleak as we originally thought.
Supplemental Slides
Calculations
Forecast Calculations
•Forecast: Ft,t+k = St+k[Lt+kTt]
•Level: Lt = 8149
•
Lt = Average demand on graph
•Trend: Tt=548
•
Tt = Slope of trend line on graph
•Seasonality: S5=0.77, S6=1.25, S7=0.85, S8=1.13
•
St = Quarter/Average quarterly demand
CSL Calculation
ROP Calculations
Z = 1.99
SD,L= 1,385
DL= D(L)= 669(3.111)= 2,081.33
ROP = 1.99(1,385)+2,081.33 = 4,838
Transportation Calculations
Intermodal Only
• 1.45/5.78 = .2508
• (.25)(669) = 167.25
• (167)(2.5)(.5) = $208.75 per
week
• 208.75(13)= $2,713.75 per
quarter
• 2,713.75(4)= $10,855 per year
• 10,855+669(2.5)=$12,527
Truck Only
• 1.10/5.78 = .19
• (19)(669) = 127.3
• (127.3)(4.5)(.4) = $229.17
• (229.17)(13) = $2,979.25
• (2,979.25)(4) = $11,917
• 11,917+669(4.5) = $14,927.50
Transportation Calculations
Intermodal (169 units)
• (.25)(170) = 42.5
• (42.5)(2.5)(.5)=53.12 per week
• (53.125)(13)=690.62 per
quarter
• (690)(4)= 2,762.5 per year
• (2,762.5)+170(.5) = 3,187.5
Truck (500 units)
• (.19)(500)=.95
• (95)(4.5)(.4)=171 per week
• (171)(13)=2,223 per quarter
• (2,223)(4)=8,892 per year
• (8,892)+500(.4)= 9,092
Total = $12,279.50
Vensim Comparison - Profit
BEFORE
AFTER
Vensim Comparison - Costs
BEFORE
AFTER
Vensim Comparison – PA Measures
BEFORE
AFTER