Inventory Decision Making Activity.

03 Feb Inventory Decision Making Activity.

12480In this week’s Interactive Experience, you’ll get a real-world lesson on the role inventory plays in a company’s performance, operational efficiency, and customer satisfaction. In this simulation, you will help a company make an inventory decision and see the results.

Directions: Please complete this week’s Interactive Experience (link below), and when finished, submit your PDF answer sheet to earn the points associated with this activity.

Inventory Decision Making Interactive Experience Links to an external site.
Inventory Decision Making Process

Strayer University logo
Intro
Memo
Your Desk
Staff
You Make the Call
Assessment
Inventory Decision Making Process

Managing Inventories in the Supply Chain.

In this simulation, you will evaluate the role inventory plays in a company’s performance, operational efficiency, and customer satisfaction.

One of the difficulties of inventory management is that every function in an organization generally views inventory objectives differently. Marketing and operations prefer high inventory levels to provide the best possible customer service and process efficiency, whereas financial personnel seek to minimize inventory investment and thus would prefer small inventories. Top management needs to understand the role that inventory plays in a company’s financial performance, operational efficiency, and customer satisfaction, and strike the proper balance in meeting strategic objectives.

Through the following activities you will discover ways to improve inventory management without affecting operations and customer satisfaction.

Begin Activity
Company logo
Memo

You are the new Production Manager of a beverage producing company. You have received a memo from the the CEO of Best Berry Beverages.

Click the memo icon Memo to continue.

View Your Desk
Company logo
Attn: Production Manager, Best Berry Beverages

MONDAY, JUNE 28. 10:04AM
Congratulations on your new position as Production Manager of Best Berry Beverages!

We have complete faith in your ability to problem solve and manage a team of talented individuals. Our company is preparing for a national rollout with a major convenience store chain, and we have to launch our new product in time to coincide with a movie premiere in August. Your team will be turning to you for help in making decisions.

Feel free to reach out to the members of your team to gain a better understanding of their roles in the company. Also, we have a good relationship with our largest supplier, Citrus Supply, Inc. They will be instrumental in completing this new product launch.

James Denton James Denton Marketing Manager
Candace Hong Candace Hong Financial Manager
Keisha Moore Customer Service, Citrus Supply, Inc.
We wish you the best of luck.

Sincerely,

Hondo Nyakutse CEO
“We’re the berry best!”

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Your Desk

You are the Production Manager of a beverage producing company. Your company has entered into an agreement with a national convenience store chain to release a new flavor of slushie to coincide with a movie premiere in August.

Select each icon to continue.

Voicemail from James Denton

Email

Fact Sheet
Good work! The team has gathered in the conference room.
Staff Meeting
Voicemail

Voicemail Client

Recent Voicemail
Caller IDReceivedDuration
Denton, James1:12pm0:29

Voicemail Transcript

Hi this is James, the marketing manager.

We have just finalized our agreement with QuickiMart to sell the Berry Slushie with the release of “Attack of the Berry Flies.” The movie premieres in August, so that gives us roughly five weeks for production, and two weeks for distribution. Given the tight turnaround we need to start production as soon as possible. I’m also sending you an email with all of the details.

I’m here if you have any questions.

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Email Inbox

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Inbox – (5)
NEW
James Denton
New Production Agreement Tuesday, 2:30 PM

From: James Denton
To: production@bestberrybeverages.com
Good afternoon,

We have entered into an agreement with QuickiMart for the sale of the Berry Slushie to coincide with the release of the movie “Attack of the Berry Flies”, which releases in August. QuickiMart’s requirement will be 500 gallons of concentrate to supply its entire network. The successful launch and market introduction can trigger new orders, extending the demand for our product until October. This is a great opportunity to showcase our new flavor and to increase our projected revenue by 15% for the quarter. As budget information is being prepared, can you tell me how soon can we begin production?

Thank you,

James Denton
Marketing Manager

NEW
You
RE: New Production Agreement Tuesday, 2:45 PM

From: You
To: James Denton
CC: Candace Hong
Hello James,

To produce the 500 gallons of concentrate for the Berry Slushie, we will need to procure ingredients. Sugar, food coloring, and fruit flavors can be procured immediately. The key ingredient, which is the Berry extract, must be ordered from our supplier in England, Citrus Cupply, Inc. I will follow up with you regarding the lead time, price, and availability of the quantities required in our production.

NEW
Candace Hong
RE: RE: New Production Agreement Tuesday, 3:10 PM

From: Candace Hong
To: production@bestberrybeverages.com
Good afternoon,

I am concerned about the budget and allocating expenses for ingredient purchase, delivery costs, distribution costs, and the cost of storage for finished goods. Can you assure the stakeholders that the purchases will have no negative effect on the budget?

Please let me know when you have procured production costs for the new product rollout

Thank you,

Candace Hong
Financial Manager

NEW
You
New Supply Order Tuesday, 3:45 PM

From: You
To: Keisha Moore
Hello Keisha,

I am the new Production Manager for Best Berry Beverages. I understand you are the sales rep for Citrus Cupply, Inc. We have a project launch and will need 600 kgs of Berry Extract. I will need the shipment to deliver in 3 weeks. I may need to order another 100 kgs in 6 weeks. Please let me know as soon as possible if you can meet the delivery timeline and the cost for the quantities I require.

NEW
Keisha Moore
RE: New Supply Order Tuesday, 4:15 PM

From: Keisha Moore
To: production@bestberrybeverages.com
Good afternoon,

We will not be able to meet your delivery timeline of 3 weeks. However, we can have the Berry Extract available to ship in 4 weeks. The price will be $12.00 per kg. If you will require an additional delivery of 100 kgs in 6 weeks, I will need to receive your purchase order for the additional quantities within 2 weeks.

Sincerely,

Keisha Moore
Customer Service, Citrus Supply, Inc.

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Characteristics that Impact Inventory Decisions

Number of items. To manage and control these inventories, each item is often assigned a unique identifier, called a stock-keeping unit (SKU).
Nature of demand. Demand can be classified as independent or dependent, deterministic or stochastic, and dynamic or static.
Number and size of time periods. The type of approach used to analyze “single-period” inventory problems is different from the approach needed for the “multiple-period” inventory situation.
Lead time. Lead time is affected by transportation carriers, buyer order frequency and size, and supplier production schedules and may be deterministic or stochastic (in which case it may be described by some probability distribution).
Stockouts. Backorders result in additional costs for transportation, expediting, or perhaps buying from another supplier at a higher price. A lost sale has an associated opportunity cost, which may include loss of goodwill and potential future revenue.

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Staff Meeting

After hearing from your team members, you have requested a staff meeting. Select each individual to hear their input.

Select a character icon Character to continue.

James Denton
Marketing Manager,
Best Berry Beverages

James Denton’s comments.

Candace Hong
Financial Manager,
Best Berry Beverages

Candace Hong’s comments
Now you make the call!

James Denton
Marketing Manager, Best Berry Beverages
“I am concerned about missing the August launch to coincide with the movie release as it can mean a loss in the sale of the new product. QuickiMart can change direction if the product is not delivered in a timely fashion.”

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Close Interview

Candace Hong
Financial Manager, Best Berry Beverages
“I’m concerned that due to the delay, 600kg of extract may be too much for the amount of product we can feasibly produce in time for shipment. It could leave us with too much excess product that could monopolize our storage capacity, and a loss of revenue through potential expired supply.”

Close
Close Interview

Keisha Moore
Customer Service, Citrus Supply, Inc.
“Customer Service will be concerned about the availability of the Berry Extract, receiving a timely purchase order for additional quantities, and ensuring that all Berry Extract prepared for sale is purchased.”

Close
Close Interview
You Make the Call

Address the Production Issue

As the Production Manager of Best Berry Beverages, you have the role of identifying and addressing the production issue. What actions would you take after receiving the email from the supplier? Would you wait for the budget information and approval before submitting the purchase order for ingredients? If so, why? What would be your advice to the Marketing Team regarding the second purchase order? Would you move forward and order the Berry extract without informing the finance Manager to ensure that the ingredient would be available for the timely production of the Berry Slushie?

Review the three solutions provided below by clicking on each one to see the positive/negative outcomes.

Keisha, Supplier: Unfortunately, we will not be able to meet the delivery timeline of 3 weeks. However, we can have the Berry Extract available to ship within 4 weeks, at a price point of $12.00/kg. Furthermore, if your company ends up needing an additional 100kg of extract, that purchase order will have to be submitted within the next two weeks.

Advice from James, Marketing Manager: I think we should order all of the extract we think we might need. This is a great opportunity for our company, and the last thing we want to do from a PR perspective is not have enough Slushies to meet demand.

Advice from Candace, Financial Manager: I don’t think we should order a second shipment of extract. Since the first order is already delayed, we can’t justify the additional cost of distribution and storage for an additional shipment that we may not produce in time for the movie premiere.

You decide:

Review the three solutions provided below by clicking on each one to see the positive/negative results. Reset the activity to see how a different choice may affect the outcome.

“I think we should wait for the budget information and approval before submitting the purchase order.” “We need to get these Slushies into production, ASAP! Let’s just order everything now and we’ll sort out the details later.” “I think we need to find another supplier that can better meet our timeline.”
Waiting for budget approval will ensure that operational expenses for ingredients, production, finished product, and distribution for the project are properly allocated. There is also a risk of project delay if the budget approval is not received in a timely manner and the supplier lead-time is missed.

Restart
Ordering everything needed and sorting out the details later will ensure that the materials are received in time for production and the company will be able to meet the project launch date. However, if the customer does not agree to receive the finished goods in four weeks instead of three, the convenience store order could be cancelled resulting in financial exposure due to product overflow.

Restart
Finding another supplier for the ingredient can result in shrinking the lead time allowing Berry Beverages to receive the order in three weeks (not four); thereby, improving the product delivery date. There is a risk that the alternate supplier will be unable to fulfill the order, or the ingredient could cost more, or the quality of the ingredient fails to meet required standards.

Restart
Continue to the Assessment
Assessment

After hearing from the marketing manager, inventory manager and financial manager, these questions should help you reflect on what you’ve heard.

Please answer the following questions, based on your observations, in no less than 5 sentences. Download and save the document to your computer. To submit the completed document, save and name the file as “Interactive One” and submit using the submission link through Blackboard.

What actions would you take after receiving the email from the supplier?

Would you wait for the budget information and approval before submitting the purchase order for ingredients? If so, why?

What would be your advice to the Marketing Team regarding the second purchase order?

Would you move forward and order the Berry extract without informing the finance manager to ensure that the ingredient would be availabl-Making Interactive Experience Links to an external site.