PROJECT: TOFFEE INC.

: DEMAND PLANNING FOR CHOCOLATE BARS

YING MA

According to the project of TOFFEE INC., the main tasks include a

comprehensive forecasting and inventory management plan with a view to minimize
the cost of managing the supply chain. Specifically, the demand (production) of
chocolate bar should be forecasted according to the old data from 2006 to 2010, and
according to the quantitative relation between chocolate bar and four ingredients
(dark chocolate, cocoa butter, cocoa powder, dry fruits and nuts), we can use EXCEL
to calculate each demand, economic order quantity (EOQ), total cost (TC), reorder
point (ROP), number of order and cycle time (CT) etc. (Exhibit 1)
Firstly, type all data (demand from 2006 to 2010 and each cost data) given
from the project to EXCEL sheet 1(named DATA), and then copy the demand from
2006 to 2010 into EXCEL sheet 2(named 2011 Forecast Demand) in one column, and
type from 1 to 75 in the second column as number. Use data from 2006 to 2010 to
build scatter graph (scatter with smooth lines and markers), select the formula and
get the liner formula: Y = 8.747X +895.58. So we can get the initial forecast
demand number of 2011. And because the demand followed a seasonal variation, so
I need calculate the seasonality index. The method is use average of each month
demand divided by average of all month demand. (e.g. 2011-01:
=(C2+C14+C26+C38+C50)/5/AVERAGE($C$2:$C$61)). Using the initial forecast
number times the seasonality index to get the final forecast number and rebuilt the
graph by the new forecast values. (Exhibit 2) And because of the stock should be
maintained to keep meeting the expected service levels of 95%, so I calculate the
forecast daily demand and use the formula: =(B2/365)*B6+1.64*SQRT('Chocolate
Bar'!B6*STDEV('2011 Forecast Demand'!F62:F76)^2+0) to calculate the reorder
point.

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 PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA

Secondly, because the meeting was concluded in March 2011, so I calculate

the sum of forecast number from 2011-04 to 2012-03 and the final number is yearly
demand of chocolate bar. And according to formula EOQ = SQRT (2*D*S/h), and then
calculate the total cost, reorder point (assume 365 working days/year), number of
order per year etc.

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 PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA

Because chocolate bar is made up four ingredients: dark chocolate (7.8 grams
per bar), cocoa butter (6.2 grams per bar), cocoa powder (5.1 grams per bar), dry
fruits and nuts (4 grams per bar), so I can calculate each yearly demand (convert to
kg) and EOQ. And because purchasing prices are different in different quantity in kg.
So I should use the right number between the limit to calculate the holding cost,
ordering cost and purchasing cost. Finally, select the minimal total cost plan.
(assume lead time: 1)
The formula include:
EOQ = SQRT (2*D*S/h)
Ordering cost = (Yearly Demand/Q) * Unit Cost
Holding Cost = 1/2*Q*Holding Cost (%)*Unit Cost
Total Cost = Ordering Cost + Holding Cost + Yearly Demand*Price
Reorder Point = (Yearly Demand / working days) * lead time
Number of Order = Yearly Demand / Q
Cycle Time = Working days/year / Number of Order

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PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA

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 PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA

Conclusion:
So after comparing with different plans, I choose the most saving plans, which
include:
Coco Powder: 4001 ~ 6000kg plan Dark Chocolate: above 3570 kg plan
Coco Butter: above 3000 kg plan Dry Fruits & Nuts: 5001 ~ 7500 kg plan

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 PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA

For short term implications of these quantitative decisions:

This kind of plan can reduce the total cost because of the optimal order size, order
quantity and reorder point, resulting in saving of investment on useless inventory.
For long term implications of these quantitative decisions:
This kind of plan can be time consuming. And because we don’ t have the lead-time of
four ingredients, so we cannot calculate the MRP. And since real business have more
factors should be take into account, so in long term some calculations and cost
should be added into the plan.
Exhibit 1

Exhibit 2

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PROJECT: TOFFEE INC.: DEMAND PLANNING FOR CHOCOLATE BARS
YING MA