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Question 1. What is the optimal number of boxes to order for each time an order is placed?
Annual demand= Total pairs of shoes/ pairs per box
= 98,000/10
= 9,800 shoeboxes
Cost of one shoe box= $59
Percentage holding cost= 35%
Holding cost= holding percentage cost * shipping cost per box
= 35% *$517
= $180.95
Optimal number of boxes per order= √(2*annual demand*cost per box)/holding cost
= √(2*9,800*$59)/$180.95
=79.9420
=80 boxes
Question 2. What is the total annual shipping cost?
Annual shipping cost= No. of orders placed annually* cost per order
=(Annual demand/ order quantity)*cost per order
=(9,800 boxes/80 boxes)*$59
=$7227.5
The forecast does not pass the reasonability test. For a forecast to be reasonable and to achieve an optimal order quantity, the ordering cost and the annual holding cost should be similar or have an insignificant difference. In Feet’s case above, the difference between the ordering and annual holding costs is huge. The annual holding cost stands at $180.95, while the ordering cost is $59. This result indicates that the expenses linked to Feets shoe Compnay’s inventory are very high.
Part B
Question 1. Which alternative would you recommend and why?
Cost of using 5-day freight= $1,500
Cost of using 2-day freight=$13.562*80 boxes
=$1084.96
I would recommend the Feet shoe Company adopt the 2-day freight because it is cheaper than the 5-day freight. If the company uses the 2-day freight, it will only use $1084.96, unlike the 5-day freight, which would cost them$1,500.
Question 2. What is the total annual shipping cost?
Total annual shipping cost=number of orders per year*cost of using 2-day freight per order
= Number of orders per year
= annual demand/optimal number of boxes per year
=9,800 boxes/80 boxes
= 122.5
=123 orders per year.
=123*$1084.96
= $ 133,450.08
Importance of measuring the supply chain performance
Measuring the supply chain performance of an organization enables it to stay on course and accomplish its long-term goals. Through this assessment, the company can determine if its supply chain has improved over a certain period. It also helps a firm point out areas in the supply chain that need concentration and works towards improving them, thus enhancing the overall performance. Measuring supply chain management allows the firm to evaluate internal and external indicators of a progressive performance. Examples of these indicators include but are not limited to the quality and the overall life cycle of the commodity, operation costs, productivity of employees, customer retention rate and profit margins. It also helps a company identify errors in their inventory and correct them quickly to avoid a disruption in different levels of the supply chain.
