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Business Analysis
Case # 3: Food WareHousing

Prof.V.G.Venkatesh

Prepared by
Kripangshu Mitra (14020848011)
Mahima Khot(14020848013)
SathishKumar K(14020848018)

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Q1. Identify the current logistical challenges faced by Patties foods.


Ans:
Following are logistical challenges being faced by Patties foods:

Constraints in productivity
The production capacity of the factory is 2800 pallets per week, however the staging
warehouse holds only 500 pallets at a given time. As the productivity is constrained by the
storage of the facility,production capacity is underutilized, hence cost competitiveness in
longer run cannot be achieved.

Infrastructure
Lack of storage facility (other than staging warehouse), Distribution network with 3 Logistics
Service Providers (LSPs) at a distance of 4 hours from the facility shows the infrastructure
has to be restructured to utilize the efficiency of Men, Machine & Methods to the maximum.
This increases number of handlings
Production to staging storage
Staging to Temporary storage at Melbourne
Temporary storage to Customer
Which may increase the percentage of Damages to an extent.

Distance
The distance between staging warehouse (in Bairnsdale) and the distribution warehouses
(located in Metropolitan Melbourne) is about 4 hours, which hinders to optimize a solution
for its reverse logistics. Also, it increases the cost of transportationmuch higher (reefer
vehicles).
As the finished goods store, raw materials store & scrap control store are not at the same
facility, there is a higher chance of increase in costs of manpower, machinery&information.

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Very less Shelf-Life of the Product


The finished product as well as the raw materials have very minimal shelf life and requires
freezer for storage.

Information
As the finished products are handled by LSPs, there should be very high communication
standards maintained in terms of reporting. This increases the cost as well. On the other hand,
forecasting & Inventory management accuracy cannot be achieved as it is purely reliable on
LSPs data.

Q2. Map the companys original and newly developed distribution network.
Ans:

Old Distribution Network


(Factory, Staging warehouse, LSPs Distribution Network, Customers):
Higher chance of product shelf life going down as there is
Limited storage space in Staging warehouse
4 hours distance between facility and the LSPs warehouse
Also, this increases cost of transit through reefers & handling charges.
Due to inadequate storage space at staging warehouse, the production is constrained
which in turn bring in a situation where demand from the market cannot be supplied.
On Time Delivery & Just in Time production cannot be achieved due to shortage in
staging warehouse.

New Distribution Network:


(Facility, Distribution Network, Customers)

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Capacity can be utilized to the maximum
Cost competitiveness can be achieved by producing higher numbers.
Reduced cost of Men, Machine & Methods with integrated warehousing at the facility
Handling cost would be minimized
Transition time and cost will be reduced
Accuracy of inventory management is increased
With COTS WMS implementation the company can have the following strengths,
o Applications are provided at a reduced cost.
o The application is more reliable when compared to custom built software because
its reliability is proven through the use by other organizations.
o COTS is more maintainable because the systems documentation is provided with
the application.
o The application is higher quality because competition improves the product
quality.
o COTS is of higher complexity because specialists within the industry have
developed the software.
o The marketplace, not industry, drives the development of the application.
o The delivery schedule is reduced because the basic schedule is operations.

Q3. What are the key issues faced by the patties team in transitioning from the original
arrangement to the new solution?
Ans:

Synchronization in Picking & shifting activities

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As the company was operating under LSPs distribution network, it would be extremely
difficult to bring the new distribution network as smoother as the existing once. This might
disturb daily schedule of route trucks.

Management of inbound
With increased storage capacity, the productivity will be increased for cost effectiveness.
Increase in productivity will cause increase in inbound activities such as procurement, dock
management, receiving and put away. At the initial stages, managing inbound will be key
concern for the company.

Training & Communication


Training manpower with the new system is an expensive process. And here it will be much
more difficult as new methods will be applied on existing manpower to adopt. Probably,
existing man power may not adopt to the new situation in fear of work pressure or due to lack
of skills.
On the other hand, poor communication may lead to higher employee turnover.
Also there are other issues which can arise during transition, such as
o Choosing right Picking method
o Task management for WMS
o Operations work flow with increased capacity and storage
o Accuracy of physical inventory
o Labor management
o Data collection for forecasting and inventory control
o Monitoring performance drivers
o Employee morale may fall due to fear of work pressure

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Key Issue
Financing for this transition is very critical as the process is for duration of 3 years and there
is no assurance on ROI at this stage. Also, the current peak season demand is less than th of
the storage capacity. Sales Forecast has to be very accurate and promising to carry out this
transition.
At this stage, most of the companies are in favor of Zero inventory & JIT methodologies.
Hence this transition may be questioned by stakeholders for assured ROI.

Q4. What are the areas of focus for the inventory controller as new procedures are
established?
Ans:

Information to Purchasing, planning & Production:


Inventory controller should focus on providing/obtaining right information from/to the key
operations
o Purchasing
o Planning &
o Production
For example, implementation of technologies like barcode system (GS1) to pallets will help
the inventory controller,
o To provide real time information
o To maintain inventory as low as possible (optimum to meet out demand)
o To have a paperless work

Inventory controllers should also focus on the time the cold storages are opened for picking.

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To achieve on time delivery, inventory controller should be equipped and trained with
technologies like GPS & RFID. In this was he could be able to track the vehicle movement &
control their movement through voice.
Since the new ware house is north facing, penetration of sunlight will be high on the east side
of the warehouse during first half of the day and west side of the ware house during second
half of the day. Hence the pick-up should be scheduled accordingly to ensure that the cold
storage should not be opened against sunlight.
Key focus of the inventory controller should be,

Evaluating Suppliers
Inventory controller have the important responsibility of finding a supplier who will provide
us with the goods needed to operate and be profitable. Maintaining a good working
relationship with suppliers by communicating and dealing with concerns or problems, such
as a delay in an order being processed. In addition, an inventory controller needs to be aware
of other available suppliers in the area who may be willing to provide your business with
materials at a better cost.

Documentation
Inventory controllers are responsible for managing inventory documentation. They must
accurately record the quality, quantity, type, style, and any other characteristics of the
inventory. These documents also help the company avoid shrinkage due to loss or theft.
These documents can also be valuable information for marketing purposes and when
determining strategies to effectively move inventory.

Purchasing
The inventory controller must have a constant knowledge of what inventory is left and what
is running low. In the event inventory is low, he or she must manage ordering more from the
appropriate supplier and negotiate pricing and a timeline for delivery.

Tracking Inventory & reverse logistics maintenance

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The Inventory Controller should always focus on maintaining stock so that Over stocking
and stock out are avoided. Since excess inventory leads to higher carrying costs and lower
inventory results in opportunity loss. He should carefully ensure how reverse logistics is
handled. This will help the company in
o Saving cost out of scrap (if used)
o Track defects in products through batch numbers and manufacturing dates.

Q5. Discuss the target level of utilization in the new warehouse. What should that level be
in your view? Explain the rationale behind your decision.
Ans:

Full Utilization
Full utilization in the logistics industry is usually 86% of the capacity, which clearly states
that 100% utilization is purely not a good practice for both real time and non - real time
operations.
As per the case 85% utilization should be considered as full utilization which is almost 99%
of global standards. Hence maintaining 85% as maximum for storage is a good practice.
Though higher utilization of the warehouse space saves cost, the time delay due to picking
and shipping due to lack of free space is a cost adding feature.Target level of utilization
should be defined considering the fact that warehouse is a temporary storage place and the
higher turnover of inventory going in and out will make the warehouse efficient.
The parameters to be considered are:
Best

in

Metric

class

Median

On-time Shipments

99.8%

98.50%

Order picking accuracy

99.9%

99.50%

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Average Warehouse Capacity Used

91.2%

84.90%

Dock-to-Stock Cycle Time, in Hours

<2 hours

6 hours

Internal order cycle time

<3 hours

13 hours

Total order cycle time

<5.4 hours

33.5 hours

Peak warehouse capacity used

90%

80%

Lines picked and shipped per hour

81

29.9

Annual workforce turnover

<1%

5%

Order fill rate by line

99.80%

98%

This data is based on industry standards.The building space & how the space is utilized are
the two factors primarily to be considered to arrive at Target Utilization.

Q6. What techniques and tools could patties use to maximize the vehicle turnaround at the
site?
Ans:
Turnaround time is defined as the time taken by the transport vehicles to complete the whole
process of loading finished goods, starting from the point of entry to its exit from the factory
premises.
Key focus for minimizing turnaround of vehicle at the site are, to increase efficiency of the
overall logistics inside the factory & to Improve safety by ensuring that minimal vehicles are
inside the factory without compromising on the loading time.
SOP for Truck movement inside the plant has to be formed. To create a Standard operating
procedure one of the quality tools PDCA (Plan, Do,Check & Act) cycle & Statistical tool like
Pareto chart can be used.

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Plan: The objective of the process was to analyze the entire data for a suitable sample size
and suggest practical ways of implementing the recommendations in phases before the start
of the season.
Do: A sample number of trucks has to be identified and capture time consumed at each
levels of the processes(mentioned in table below). The collected data has to be analyzed on
the basis of time taken in each stage of the logistics (in factory - Outbound), with the help of
Pareto chart and other statistical tools.
Check: The results were then analyzed. Charting data make it much easier to see trends and
to convert the collect
Act: After analyzing the data, the pain points causing maximum time delays has to be
addressed for formulating a new SOP for truck movement inside the premises.
Stages of Logistics (in factory-Outbound):
o Documentation & Processing
o Idle time before loading
o Loading
o Reefer audit
o Idle time after loading
o Check out & check in
o Quantity check in & out
o Clearance in & out
o Weighing in & out
o Reporting to SCM office
o Wait time before & after quantity & weighing
Some more techniques that can be used to maximize vehicle turn-around time:

Self-loading by driver
Operations should be carried out by dedicated and well-trained drivers under properly
controlled conditions. Time can be saved per truck by avoiding waiting at loading points due

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to unavailability of site personnel. Opening hours of the site can be extended. Drivers role
needs to be enhanced and active involvement encouraged.

Time slot booking


It is a process in which hauliers are required to book in advance a time slot for loading,
preferably by electronic means. It enables the loading site to evenly spread the arrival of
trucks and to minimise waiting times for drivers at the loading site. 20 to 30 minutes time can
be saved as loading can readily take place upon arrival of the truck. Also, workload is evenly
spread for the loading site with no or few peak hours

Tight-fit loading of packages


This tight-fitting of the load on a vehicle will reduce the time required for securing.

Speed of loading/unloading
Data from different sites with different loading facilities show that the actual
loading/unloading activities take up to 50% of the total time spent on site by a driver.
Increasing the average loading/unloading speed will thus have a significant direct impact on
reducing this time.

Availability of auxiliary equipment


It important that the driver turns up with the correct equipment in order not to loose time in
obtaining the proper equipment.

Q7. Given that operation has seven high racking within the freezer environment, what
technological solutions might patties consider to aid the facility management?
Ans:
Barcode Systems: Every pallet that comes from the manufacturing unit will be labelled with
the barcode having date of manufacturing and batch number. FIFO is followed using auto
storage and retrieval (barcode scanned) so that the pallets from seven racks are stored,
picked, loaded and shipped efficiently.

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Barcode systems track all product locations, bin storage capacity levels and material FIFO
layers. The system allows warehouse material handlers to sort & locate product. All material
movements are received instantly at the time of scan and all data is redundantly backed up
again when reader is back in the charger cradle.
In many circumstances, RFID offers advantages over traditional barcodes. The big
difference between the two is that barcodes are line-of-sight technology. That is, a scanner
has to see the barcode to read it, which means people usually have to orient the barcode
toward a scanner for it to be read.
RFID offers a stabilized communication channel connecting Production Team, logistics
managers, Inventory controllers & Truck Drivers. This process can help the company in
following aspects:
o Reduce cost of labor reading codes (batch number of Pallets) as the stocks to be
dispatched in FIFO method.
o Reduce occurrence of out of stock & over stocking situations
o Reduces distribution costs
o provides effective communication
o Provides real time information
o Efficient inventory control
o Rapid replenishment of raw materials as well as rapid distribution of FG

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RFID technology makes product inventory control and intelligent logistics technologies
realizable. With the help of tags, the company may realize the real-time monitoring raw
material, half-finished product, end-product, transportation, stock, delivery, putting on the
shelf and sales even returning the goods. For instance, through RFID technology, the
operator can immediately know the situation and do rapid replenishment, to reduce 10-30%
safety stock and storage costs. It will make the whole logistics management transparent and
efficient by increasing the automation and decreasing error rate. RFID technology is widely
applicable to the storage shelves, transportation management, material tracking, delivery
vehicles, supermarkets and other requiring non-contact data collection and exchange
occasions.
Hence best practices in the industry with effective tools in the following segments are
mandatory for effective WMS.
o Collaboration
o Receiving
o Inventory Layout
o Picking Procedures
o Loading & Shipping
Other tools such as multi-purpose Fork Lifts, multi-level racks, Auto storage & Retrieval
(using Barcode scanner) helps in effective management.
Q8. Develop a warehouse layout document detailing the number and type of docks, racking
requirement and layout and any other key elements of the new warehouse. Include in your
design a future expansion plan to double the size of the warehouse you are currently
designing. Explain the rationale for the choices you have made.
Ans: Storage efficiency refers to the amount of space needed to store a single pallet.
Whereas warehouses are measured in square feet, the amount of space a pallet consumes
when stored using the full cubic height of the building is significantly less.
As per the case the total storage area for warehouse is 5700 Sq m, and using standard
Australian Pallet (45.9 X 45.9 ) then,

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With 7 stage stacking, the total space required for storing 10,000 pallets would be 21,626
ft (approx.).
To Calculate the number of fork lifts needed, lets assume there are 10,000 pallets stored
and multiply it with annual turns (12) = 120000 pallet moves per year. If number of
weeks worked -52 weeks then, total moves per week is 2308.
If total number of work days is 7 (Patties operates on 7 days a week ) then 330 moves per
day.
Assume there are two shifts per day, then moves per shift is 165.
Per hour (8 hours shift) 21 moves.
Inward move and outward move has to be considered, then the total number of moves per
hour will be 42 moves.

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To calculate number of fork lifts needed for the warehouse, the following table has to be
referred.

Precisely, 11 Sit-down counterbalanced Truck or 8 Stand- up counter balanced (pacer) is


optimum for the number of moves calculated.

Assuming that there are few SKUs in the Warehouse are prioritised based on its demand
in the market. Then the utilization of storage space for each SKU has to be

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Layout Design:
Increase in storage would help the company reduce cost of transportation and third party
logistics distribution cost considerably.
Also, for 10,000 pallets only 21700 Sq ft (approx) is needed, hence doubling the storage unit
will have positive impact on WMS.
Hence there should be two independent storage units

Storage unit 1 with 12 docks

Storage Unit 2 with 10 docs

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Both the units should have docking under roof to avoid direct sunlight. Also there should be
multi-move option for Fork Lifts to arrange pallets

For FIFO stocking and dispatch

Sorting & Storing as per SKUs

Picking and staging

Loading

Shipment from one unit to the other

Shipment from any unit to waste management process unit

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Q9. Explain the cost savings you anticipate with your design to double the size of the
warehouse. In what areas do you expect a cost increase?
Ans: There will be considerable amount of savings in the cost by doubling the size of
warehouse.
It reduces the cost of transition from Manufacturing unit to the Melbourne storage units. It
also reduces

the number of material handlings

the number of vehicles

the number of storage units (different locations)

The potential cost savings are expected in the following areas,

Areas where cost increase are anticipated:

High infrastructure costs(includes racking and storage devices)

Very high maintenance cost (Cold Storage)

Cost of vehicles

Cost of a standard WMS tool

Training and implementation costs

IT tools and maintenance costs

Increased power

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Under utilization of storage will result in high inventory costs.

Q10. Consider the consolidation of three picking warehouses in Melbourne into a single
facility. Discuss the basis of the inventory policy you would institute in this single facility.
What information would you need to make a decision about the amount of space needed in
this new facility?
Ans: As the company have not followed any inventory policy for the distribution network
from Melbourne to Customers, it is very essential to define and follow high-standard
inventory policies.
Inventory Management is to ensure that stock is available to meet the needs of the beneficiaries
as and when required. Inventory represents a large cost to the humanitarian supply chain. This is
made up of the cost of the inventory itself, plus the cost of transporting the goods, cost of
managing the goods (labor, fumigation, repackaging, etc) and keeping the goods in warehouses.
The inventory manager's job is to make inventory available at the lowest possible cost.In order to
achieve this, the inventory manager must ensure a balance between supply and demand by
establishing minimum holding stocks to cover lead-times. To achieve this, the inventory manager
must constantly liaise with the programs to keep abreast of changing needs and priorities. The
warehouse must always have sufficient stocks to cover the lead-time for replacement stocks to
avoid stock-outs.
Inventory Control has to be followed by maintaining

Reorder level policy

Reorder cycle policy

Stock Control & Movements: Apart from maintaining and controlling stock in Warehouses ,
stock in Transit has to be monitored and controlled. To have control on stock the followings has
to be analyzed and understood

Consumption trend

Periodic Stock balances

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Quantity, lead-time and availability of each item supplied

Record of goods stored, non-stored, ordered, in transit from the supplier

Best Practices:

Tracking orders in transit

Controlling stock movements

Establishing minimum stock levels and monitoring

Goods receipt quality inspections

Physical stock control in the warehouse

To facilitate and account for movement of stocks the following documents could be used:
Delivery notes , goods received notes, stock card, bin card and Consignment notes.
Information Technology & Tools:
By implementing effective Ware House Management Tools, RFID, Barcode tracking,
GPS Vehicle Tracking & ERP solutions robust inventory policies can be defined and
followed.

Q11. Assume you are logistical consultant engaged to assist the group manager logistics in
developing the business case for the new warehouse. Compile a list of questions for the
GML that will assist in your task. (Tip: Consider issues such as land size, cost and access)
Ans: Current Scenario:
As a consultant, the following information are needed to develop the business case for the
new ware house.
Capacity utilization of existing warehouse (staging)
Total cost of logistics (spent on LSP network)
Anticipated Production forecast based on Sales forecast for the year

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Anticipated savings by having new warehouse, in terms of

Manpower

Time

Cost

Infrastructure:
Total available land space
Total space planned for Warehouse, vehicle movement
Number of Docks
Number of Racks
Number of Pathway, Parking area, maintenance station inside warehouse
Pallets dimension, number of pallets
Type of Fork Lifts, Number of Fork lifts, manpower needed to operate etc.,

Costing:
Cost for infrastructure, IT, new machinery, Man power & Vehicles
Anticipated duration for ROI
Training and implementation of procedures
Training and implementation of IT solutions and tools if any
Functionality & Access:
Unit Load of the Warehouse
Requisite storage capacity
Choice of storage systems (Integration with handling systems)

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Storage & Structural Module (for Fork lift movement and handling)
Spaces for Receipts & Dispatch
Warehouse external dimension
Aisles orientation
Materials flow Goods In & Out
Loading & Unloading maneuvering area width
Also the time of operation for stock loading and unloading has to be known to determine the
manpower needed for the process.

Q12. Construct a high level of business case and operational plan for the proposed solution.
You may make any assumptions that are necessary. Document the assumptions made.
Ans:
Business Need & Current Situation:
Currently business is in the process of expansion and diversification in its product range.
But the storage space in its staging ware house and cost spent on LSPs are the only
primary constraint for expansion of business. Hence there is a need for new warehouse at
the facility which will enhance the production capacity as well as reduce the cost of
logistics.

Project Overview:
GML and the management have decided to build a 7 level stacking warehouse in the
facility.

Objective:

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To have a single warehouse for storage in the facility (Cold Storage with 7 level stacking
option)
Scope:
Having a warehouse at the facility,

will reduce logistics cost

will help increasing production capacity

eliminate damages during transit

Saves cost & Time

Deliverables: Key deliverables of the project is to have provision for storing 10,000
pallets in the facility.
StakeHolders: Key StakeHolders of the project are the Management, GM Logistics, GM
Marketing, Finance and administration team.
Resources: Landspace, Machinery, Power, Water, Storage equipments, vehicles (reefer
Vans), ForkLifts, Man Power, Information Technology, Communication Tools, WMS
tools, Training & Development Documents, Raw material sourcing.
Strategic Allignment: The project of building new warehouse in the facility has to be
focused to get it alligned with company expansion strategy.
Market Readiness: When the storage is increased to hold the capacity of 10,000
pallets, Market should be ready to accept the new SKUs planned. There should be regular
take off in primary as well as secondary sales.
Alternatives: The contracts LSPs should not be terminated all at once, there should be
atleast one LSP as partner for companys SCM.
Since the investment is huge, company should have back up for regular cash in-flow for its
operating expenditures (Financing)
Company has planned for COTS, hence it can apply for subsidies and other benefits offered
in the geography.

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Business & Operational Impact:
Capacity utilization (Production) will increase as there is immense space available to hold
raw materials and finished goods at the facility itself.
Distribution Network will be in companys control.
Sales, purchase Forecasting can be most accurate with the help of WMS tools.
Increase in capacity can offer the company to have cost competitiveness.
Risk Assessment & Analysis: There is a high risk as the ROI cannot be realized in the due
course, the chance of market acceptance of the product is also unpredictable at this stage. The
distribution networks efficiency can cost the company a lot.
Feasibility analysis: This project was an outcome of experiences accumulated for years.
And it is highly feasible as the company is performing well during recent past. The proposal
has quantifiable data for management to consider the project. Hence this project is viable.
Implementation Strategy:
It has to be implemented in different stages for difference segments for better
outcome.Such as, the changes and improvisation in Processing Methods, Machinery
operation & Information sharing should be communicated to manpower with the stress on
benefits of the change.
The management should perform a top down approach for implementing this change.
Recommendations: The management should focus on doubling the warehouse storage in
the near future. WMS tools should be considered and practiced by the employees for
better outcome. Also other SCM enhancers like Barcode implementation, AS-AR, RFID,
GPS tracking and best practices like Cross-Docking, Zero Inventory Models has to be
considered for implementation in the future.
Assumptions:
Plant has options to increase the production immediately.
Manpower is supportive to cope up with increased targets

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Market is open to accept new SKUs
Management has funds to invest in WMS
Distribution network will be solely handled by the company.
Sourcing is accessible for the company to meet increased production.

Q13. Evaluate the viability of the proposed solution. Develop a financial model that could
be used to underpin the business case.
Ans: Sales Forecast: At present the average sales during Peak season is jus 2500 Pallets approx
per week. With increased capacity for storage at 10,000 pallets and increased production
capacity, the sale is expected to go high in the following years.
Expenses budget: The estimated cost for increasing capacity is $22 million including the cost
for total transition.
Cash Flow Management: There should be a strong cash flow management to support this
transition.
Income projections: Income is expected to be received by

Saving cost of LSPs

Saving additional expenses for Logistics

Saving handling and movement costs

Cost competitiveness

Increased market reach

Along with this, the Break even analysis has to be made for the entire investments as well as
ROI for each segment.
By these measures this project can be supported.

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Q14. Develop alternative solutions to the challenges you identified in Question 1
Ans: Constraints in productivity , Infrastructure and Distance Productivity can be
increased without concerning about the storage since the products can be easily shifted to the
market with the use of reefer vehicles & cross-docking wherever possible. Hence the
company should focus on
o Expanding its customers base,which will help in liquidating
the stock immediately thus achieving Zero Inventory Model.
o Investing on Reefer Vehicles than on storage units.
o Also, the company should focus on evaluating and enhancing
Suppliers & LSPs.
o Product shelf-life will also be maintained to optimum.
Information: As the company is already practicing S&OP , it should focus on implementing
Tools and techniques to enhance supply chain. This can be achieved through providing
RFID, GPS Tracking and mobile applications for the LSP manpower as well as for the
suppliers.

Q15. Patties foods has been working with S&OP process over the past 12 months. Discuss
the role of forecast accuracy in the validity of the S&OP output. Refer to the key factors
that contribute to inventory accuracy or inaccuracy from the perspective of patties sales
team, manufacturing logistics, retailers and consumers.
Ans: The proper utilization of S&OP process will help the company in achieving higher
percentage in,

Customer Service Levels (on-Time and complete by customers requested date)

Average cash conversion

Average forecast accuracy

Also there are chances of inaccuracies in inventory due to S & OP process. The usual failures are
due to the following reasons,

The planning process is too long and too infrequent.

Many S&OP processes are volume-based allocations rather than value-based plans

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Increasing product proliferation and differentiation requires more dynamic product


portfolio management.

The development of multiple scenarios is often difficult

Complex, multi-site and global companies struggle to co-ordinate timely S&OP across
their businesses.

Poor feed-back and monitoring of performance to plan.

Key Sales and Operations Planning measures and commitments are not reflected in
individual performance contracts

Reluctance to commit to technology.

The Sales and Operations Plan is sub-optimal and perhaps infeasible