SUBJECT: Operations Management

SUBMITTED TO: Prof. Aravind Panicker

DATE: 17/02/20

TOPIC
Case Analysis:
Toffee Inc.: Demand Planning for Chocolate Bars

SUBMITTED BY:
Name Roll Number
Amrit Parmar AU1914017
Heni Kamani AU1914038
Aditi Chandarana AU1914056
Nemi Udani AU1914057
Prerak Mehta AU1914087

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 Forecast the demand expected by Toffee Inc for the year 2011. Break it down into
quarterly forecasts and see if that gives you a better picture of the expected
demand.
According to Exhibit 1, the 2006-2010 demand is given. Convert this data in quarterly data. Using the
Residual values which are found during Regression, the demand for 2011 can be predicted.

Comparing the historical demand with the current demand, historical demand was similar to current
demand, so this method is reliable.

Demand (no.
Years Quarter
of cartoons)

Q1 3740.025
Q2 4458.325
2011
Q3 5079.125
Q4 4428.325
Total 17705.8

Total demand for the year 2011 is predicted to be 17705 cartons in a year.

Using the expected demand forecasted, calculate the EOQ for each of the raw
materials required. Using this EOQ value, calculate the frequency of purchase and
the expected total cost incurred in purchasing inventory for the year 2011.
As calculated, the expected demand is 17795 cartons.
𝟐𝑨𝑶
The EOQ value can be found by using the formula 𝒆𝒐𝒒 = √( 𝑪𝑯 );

A= Quantity needed

O= Ordering Cost

H= Holding Cost

C= Price/kg

Frequency of
Ingredients Quantity needed Ordering Cost Carrying Cost EOQ Total Cost
Buying
Dark chocolate 276210.48 800 29057342.5 3463.66 127592.4986 80
Cocoa butter 219551.92 1200 15812129.28 4572.08 107016.3508 48
Cocoa powder 180599.16 1000 21671899.2 2930.13 132075.5233 62

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 Dry fruits nuts 141646.4 2100 12762340.64 4341.00 117467.5517 33
Total 484151.9245

Carrying cost can be calculated for the quantity needed by using trial and error method.
𝒏𝒆𝒆𝒅𝒆𝒅 𝑬𝑶𝑸
Total Cost = (𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝑬𝑶𝑸
∗ 𝑶𝒓𝒅𝒆𝒓𝒊𝒏𝒈 𝑪𝒐𝒔𝒕) + ( 𝟐
∗ 𝑯 ∗ 𝑪)

𝑸𝑵𝒆𝒆𝒅𝒆𝒅
Frequency of Buying = 𝑬𝑶𝑸

Given the range of discounts available on bulk buying, should Toffee Inc. stay with
the EOQ order or should it try to take advantage of the bulk buying discount.
Calculating total cost given that the ingredients are ordered in bulk,

Frequency of
Ingredients Quantity needed Ordering Cost Carrying Cost Quantity Total Cost
Buying
Dark chocolate 276210.48 800 29057342.5 3750.00 69048.36 74
Cocoa butter 219551.92 1200 15812129.28 3000.00 120229.77 73
Cocoa powder 180599.16 1000 21671899.2 6000.00 174099.86 30
Dry fruits nuts 141646.4 2100 12762340.64 7500.00 124129.742 19
Total 487507.732

The total cost is Rs. 487507 which is Rs. 3356 more than when buying at EOQ Quantity.

Therefore, even when buying in bulk, the discounts are not significant. Also, the frequency of buying
decreases.

On the basis of your calculations and your common sense, comment on what is the
best approach for Toffee Inc. towards its demand planning.
Buying at EOQ quantity is the best way to go for Toffee Inc. which is because the total cost incurred will
be less and the frequency of buying will be more.

As calculated the frequency of demand for the year, we can forecast the quarterly order which will be
required to be made.

Quarter % of total raw material Frequency of times Quantity of Raw

required the raw material material that needs
needs to be ordered to be ordered
Q1 21.12
Dark chocolate 17 58335.65
Cocoa butter 10 46369.37
Cocoa powder 13 38142.54

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 Dry fruits nuts 7 29915.72
Q2 25.18
Dark chocolate 20 69549.8
Cocoa butter 12 55283.17
Cocoa powder 16 45474.87
Dry fruits nuts 8 35666.56
Q3 28.69
Dark chocolate 23 79244.79
Cocoa butter 14 62989.45
Cocoa powder 18 51813.9
Dry fruits nuts 9 40638.35
Q4 25.1
Dark chocolate 20 69328.83
Cocoa butter 12 55107.53
Cocoa powder 16 45330.39
Dry fruits nuts 8 35553.25

The demand per Quarter will also increase which means fresh produce will be manufactured and hence
the selling will be higher.

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