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Logistics/Supply Chain/logistics and supply chain management


samuel wrote at 2013-11-21 07:13:07
Asere Milling Company

Kofi, distribution manager for Asere Milling, has become increasingly aware that the company

has a major problem as it continues to try to reduce inventories while maintaining the levels of

service its customers have come to expect.

Company and Product

Founded in 2005, Asere Milling has provided high-quality bakery flours to commercial bakeries

as well as to the consumer market. While commercial customers tend to have consistent buying

patterns as well as brand loyalty, Asere has found that consumers have minimal loyalty but also

generally prefer known names over the store brands. Demand is highly seasonal, with the

annual peak occurring just before Christmas and slacking off dramatically during January and

February. To offset this, both Asere and its major supermarket chain accounts run special deals

and sales promotions.

Production planning, located at the Asere headquarters has responsibility for controlling

inventory levels at the plant warehouse at the Industrial Area as well as at the three

distribution centers located at Accra, Kumasi, and Takoradi. Planning has routinely been based

on past history. No forecasting is performed, at least not in a formal sense. Distribution Centers

(DCs) are replenished by rail from Tema; and lead times are typically seven days, with fortyeight

to fifty-four pallets per car depending upon the type used.

Should emergencies occur, eighteen pallets can be shipped by truck with a one-day transit time.

Recently Asere has experienced two major stockouts for its consumer-size five pound sacks of

bleached white flour. One of these was due to problems in milling operations; the other

occurred when marketing initiated a "buy one, get one free" coupon promotion. Since these

events, planning has become overly cautious and errs on the side of having excess inventories

at the DCs. Additionally, two other events have affected DC throughput:

(1) implementation of direct factory shipments for replenishing the five largest supermarket

chains, and (2) a price increase making Asere flour more expensive than its national brand

competitors, such as Takoradi Flour.

Current Situation

Of the 1,500 pallets in the Accra DC, Asere shows only 396 pallets for open orders. This has led

the company to use outside overflow storage, where there are another 480 pallets. Flour is

easily damaged; hence, Asere prefers to minimize handling. Overstocking at the DC alone costs

$1.85 per pallet for outside storage, to which must be added $4.25 per pallet for extra handling.

Similar scenarios are being played out at the other DCs as well.

Esi, director of distribution services, has developed the following information:

Annual demand: 36,000 flours

Flour value (price): $40

Inventory carrying cost: 25 percent

Order cost to replenish inventory: $200

In-transit inventory carrying cost: 15 percent

Order cycle time using rail: 4 days

Order cycle time using motor carrier: 2 days

Rail rate: $1.00 per kg

Motor rate: $1.25 per kg

Unit weight: 50 kg per flour

Pallet: 500 kgs of flour

Possible Solutions

Kofi has been contemplating various approaches to solving the inventory issue. Clearly, product

needs to be in place at the time a consumer is making a buying decision, but Asere cannot

tolerate the overstocking situation and the stress that it is putting on facilities and cash flow,

Kofi's first thought is that a better information system is needed, one that not only provides

timely and accurate information but also extensively shares that information throughout the

organization. Several questions immediately come to his mind; however, he needs additional

information prior to coming to any solutions.

Case Study Questions

1. Evaluate the alternative solutions being considered by Kofi.

2. What is the economic order quantity (EOQ)?

3. What is the total cost (not considering transportation-related costs) of the EOQ?

4. What is the total cost using rail transportation?

5. What is the total cost using motor carrier transportation?

Logistics/Supply Chain

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Peter A. Crosby


Supply chain strategy, supply chain management, supply chain information systems, supply chain operations, sourcing, manufacturing, warehousing, freight transportation, inventory management. Cannot answer military logistics questions.


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225 general management consulting engagements and projects from startups to Fortune 100 clients. Nestle, Kraft, Safeway, Longs Drugs, McKesson, IBM, AT&T, Danone, Crystal Geyser, USBorax, Union Oil, Weyerhauser, Georgia Pacific, Office Depot, McDonald's, Georgia Pacific, Allied Signal, Airborne Express, and 83 more consumer and industrail products manufacturers.

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