Write-up Background: Jacobs Industries is a company with a single factory and warehouse in Calliope that manufactures and sells air conditioning retrofitting kits. Its only products, a light- weight foam, is an industrial chemical that can be mixed with air to create an efficient thermal acoustic insulator. Jacobs Industries produces chemicals in batches and loads the drums to be shipped by truck to the warehouse. If Jacobs Industries cannot fill the order within 24 hours of receiving the order then the business is lost.
The chemical is packed and shipped in drums costing $1450 apiece. The company has been running for two years (730 days) and has shown a seasonal trend in sales. In two years’ time a new foam technology will brand the current Jacobs Industry foam product obsolete.
All customers are knowledgeable of the forthcoming new technology, leading to the conclusion that demand will decrease to zero on day 1460. In the Jacobs factory, the chemical is produced in batches and shipped in trucks to the warehouse as soon as they are finished.A truck can hold up to 200 drums and cost $1 5,000 regardless of how many drums are in a the truck and takes 7 days to get o the warehouse for sale; mailing the product to customers will cost $1 50 per drum and take only 1 day. Problem: The company has been operating for two years already and within the following two years the product that they are producing will be outdated and obsolete. The company is also losing demand, and they don’t know why. There’s not enough capacity to meet demand and they don’t understand inventory planning or forecasting.Our team, Professionals, was called up to assess and fix issues within Jacobs Industries’ operations.
Our Job was to generate the most profit for Jacobs, and our first issue at hand was to decrease costs and increase revenue. Lowering the costs is composed of changing the number of drums that are loaded into the truck, along with changing the batch size. In order to increase revenue, we needed to change the capacity of the machines, along with the reorder point so we can be certain the factory would never shut down. The company had already accrued $2,738,867.
6 which we could use for future operations. And we were also provided with two years of past data (below) to work with Jacobs Industries for the next two years (from day 730 to 1460) According to ten given data Trot ten past two years, we calculated ten total anemia to be 28,611 drums total. We can assume this would mimic the next two years because of its seasonal trend. We need to see if we are producing enough with the capacity that we have. Below is data that shows how much demand was lost due to lack of inventory.
The lack of inventory happens at the peaks of our seasonal business times. Many lost business was taken elsewhere due to this. Below is a graph that shows when the demand was lost, how much was lost on top of the demand graph. The points where we lose demand is very substantial because our lost business is occurring at these high points of our demand. We have to be certain we have enough inventory to cover these increase in demand. To immediately address this problem we decided to invest our money in increasing our capacity to produce from 20 drums a day to 40 drums.
Inventory: Over time the warehouse will keep telling the factory that we need more drums because we haven’t hit our reorder point. We will keep our reorder point high to ensure our factory is constantly producing the inventory we need. Once we realize e have passed the second peak of our two year forecast, we will calculate the forecasted demand that’s left and shut down the factory once we have enough inventory to cover our remaining demand. End game strategy: During the low demand periods we will expect our cash to drop dramatically.
This is normal because we will be incurring all the cost of constantly producing our drums of chemical but not generating much revenue because of the low demands. Once we start climbing towards the peak of our season we begin to increase our revenues that can help cover some cost. When shut down, our revenue will sky rocket because by hutting down our factory we do not have to pay any production cost( because we are not producing anymore) and we don’t have to pay for shipping cost (because there’s nothing to ship).Conclusion: As soon as the factory became operational, immediately we increased our production capacity from 20 to 40 with the initial money already given to us to work with.
This was our first priority because of the 90 day waiting period to set up and increase our capacity. Then our quantities should be increased from 200 to 400 using two trucks ensure we minimize our shipping cost. The most cost efficient way to transport thing s through a full truck. The reorder point will be set to a ridiculously high number to ensure that the factory is constantly producing and does not shut down.While it is producing we can stock up on inventory during our low demand portions of our season so that we will have enough to sell during the high points at the season. Once we hit our last peak of high demand we will close our operation in the factory and sell our inventories reach zero.
During the low demand portion, the money is spent on production to ensure our inventories are high enough to supply during the high demand portion of season. As soon as start declining from our second peak of our season, the factory will shut down minimizing our cost to near zero.While the factory is shut down, we are selling the rest of our inventory to generate as much revenue as we can to ensure the maximum amount of money for Jacobs Industry. I ransack Day Parameter New Value History Schedule factory capacity change in Calliope Order quantity: Calliope factory to Calliope warehouse. Order point: Calliope factory to Calliope warehouse.
1325 Order point: Calliope warehouse. Order quantities Calliope factory to Calliope warehouse.