3 JAYS CASE SUBMISSION

BY GROUP NO 9 Section A

GROUP NO 9

SECTION A

G Karthikeyan PGP/23/015 karthikeyang23@iimk.ac.in

Rishi Raj Udiniya PGP/23/044- rishiraj23@iimk.ac.in

Ritika Sharma PGP/23/045- ritikas23@iimk.ac.in

Shalu Singh PGP/23/048- shalus23@iimk.ac.in

Sharan Jagadish Gull PGP/23/049- Sharang23@iimk.ac.in

Answer 1)

Calculation of EOQ and ROP (Exhibit 4) and Annual Demand Data for 2012

12-Ounce Jar Strawberry Raspberry Peach Jam Blueberry Jam Apple/Mint

Jam Jelly Jelly
Total Setup 63.7 63.7 63.7 63.7 63.7
Cost (S)
Annual 2993 2335 1492 886 625
Demand in
2010 (D)
2012 (D) 3869 3006 1970 1211 832

% Carrying 9% 9% 9% 9% 9%
Cost (i)
Unit Cost 28.34 30.52 26.86 29.01 26.32
(C)
EOQ based on 387 329 280 208 183
2011

Calculations Based on Updated 2012 Annual Demand

𝟐∗𝑫𝑺 𝟐∗𝟑𝟖𝟔𝟗∗𝟔𝟑.𝟕
EOQ strawberry = √ 𝒊𝑪
=√ 𝟎.𝟎𝟗∗𝟐𝟖.𝟑𝟒
= 440 Similarly other calculations are made.
𝟑𝟖𝟔𝟗
% Change in Demand for strawberry = (𝟐𝟗𝟗𝟑-1) *100 = 29.5% and so on
𝟒𝟒𝟎
Change in EOQ =( -1) *100=13.7% and so on
𝟑𝟖𝟕

Strawberry Raspberry Peach Jam Blueberry Jam Apple/Mint

Jam Jelly Jelly
EOQ (found) 440 373 323 244 212

ROP (Found) 224 174 114 70 48

% Increase in 29.5% 28.9% 32.6% 37.3% 33.3%

Demand
% Increase in 13.7% 13.7% 15.4% 17.3% 15.8%
EOQ
There is an increase in EOQ and there is an increment in Demand. We can also see significant increase in
obtained EOQ from the 2012 year’s annual demand, which show exhibit was not correct. We need
updated EOQ and ROP based on current and latest data.
Answer 2)

Looking at the various costs:

1. Set up costs:
a. Order processing cost: This cost was incurred by the purchasing department of FJ&J to
their own buyers and thus is not relevant here for 3Js.
b. Product prep, cooking, and cleaning cost: Emma and Julia were responsible for this task
and were permanent employees so paid a fixed salary. Thus, this cost.
c. Size change-over cost: Jake and Josh performed these tasks and were permanent
employees on fixed payroll. Thus, the cost doesn’t change with the number.
d. Production-line cleaning cost: Same as above point.
e. The part time workers who get paid on hourly basis account for the setup cost as their pay
varies with the number of runs. As there are three workers the total setup cost per hr is
$12.5*3 = $37.
2. Unit cost:
All the other parts of the cost remain, only the fixed overhead cost is not to be accounted as
this cost doesn’t change with the number of units produced. Thus, there will be a reduction of
$2.55 from all the SKU’s unit costs.

3. Carrying cost: The cost of carrying or holding inventory is the sum of the following costs:
a. Money tied up in inventory, such as the cost of capital or the opportunity cost of the
money.
b. Physical space occupied by the inventory including rent, depreciation, utility costs,
insurance, taxes, etc.
c. Cost of handling the items.
d. Cost of deterioration and obsolescence.

In this case, we see that the opportunity cost is 20% as it is the return 3Js would get if they were able to
do the required marketing. This also includes the cost of capital at 6%. Also, the other carrying costs are
also to be included in the sum. Thus, the total carrying cost becomes: 20%+3%+6%= 29%.

Strawberry Raspberry Peach Jam Blueberry Jam Apple/Mint

Jam Jelly Jelly
EOQ (found) 196 165 144 109 95

C 25.79 27.97 24.31 26.46 23.77

i 0.2900 0.2900 0.2900 0.2900 0.2900
S 37 37 37 37 37
3869 3006 1970 1211 832
Answer 3) The revised model has updated carrying cost and set up costs. This has led to significantly lower
EOQs. This would require more frequent production of SKUs. 3J is currently using Fixed period inventory
control. They produce each size every 4 weeks as it takes longer time for production line arrangements to
be made. The lower EOQs mean that we need to accommodate variations in demand at constant lead
times at desired service levels to estimate safety stock. This is essential to calculate ROP. Hence Basic EOQ
may not be very suitable considering the variability in demand and lack of accurate forecasting data. A
comparison can be seen below

Strawberry Raspberry Peach Blueberry Apple/Mint

Jam Jelly Jam Jam Jelly
EOQ Revised 196 165 144 109 95
EOQ found
440 373 323 244 212
earlier

Answer 4)

Jake and Josh follow a fixed time-period model whereas the 3J wants to follow a EOQ based model. It is
better for 3J to follow Jake and Josh’s model because the proposed Basic EOQ model assume demand to
be constant, it does not incorporate production rate and usage rates. We have seen both these are not
true. There was a significant increase in the demand, this might. Hence, they have to periodically review
their quantity and reorder based on the previous month’s demand as opposed to ordering constant EOQ
every week. This could lead to stock outs as there was no calculation accounted for demand variability
and forecast accuracy.