Supply Chain Management

Assignment
Group-1
Toffee Inc.: Demand Planning For Chocolate Bars

Submitted to: - Submitted By:-

Dr. Sarabjit Singh Kushagra Rastogi 201601327
Anirudh Nair 201601143
Abhinav Dhananjay 201601346
Ketan Nigam 201611320
Rinku Kundu 201611317
Mangesh Bhautkar 201601133
 Case Summary
Toffee Inc. was a confectionery company working out of the Maharashtra Industrial
Development Corporation (MIDC), Amgaon, Maharashtra which started their operations in
1990. Their core competitiveness was to adaptability to customers taste and preferences. The
owner of this firm, Hansmukhlal Jadhwani who started small wholesale trading business of
confectionary and bakery items with his two brothers and as their business grow up to
manufacturing unit from trading one.

Sales and distribution network of Toffee Inc. which operated from Nagpur and had six depots
consisting of 50 authorized dealers with sales force of 85 people and reached to various towns
and cities.

Problems arises when they produced the most expensive and popular chocolate bar branded Seven
Star which packaged in bags of 20 bars and further into cartons of 100 bags each. So in order
to maintain high quality they had to take care of not having large inventory. But due to impactful
seasonal variations distributors faced problems in sales and distribution. As the Lead Time 15
days and due to nature of product it require careful handling and it takes to Ordering Cost was
Rs.8000 per order and the monthly Carrying Cost of cartons was 2.5% of cost of goods and
the cost for each carton was Rs.1200.

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)

Now their main goal was to minimize the annual cost of purchase by selecting right quantity
satisfying all needs of firm. Also they have to answered questions like what were the short term
and long term implications of these quantitative decisions on inventory management and other
aspects of effectiveness.

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 Quantitative Analysis
All calculations like EOQ, Total Cost, Reorder point, no. of order etc. are done by using Excel
Formulas used in excel are as follows :
EOQ = SQRT (2*D*S/h)
Ordering Cost = (demand/Q)*Unit Cost
Holding Cost = *Q*Cost(%)*Unit Cost
Total Cost = O.C + H.C + demand*Price
Reorder Point = (demand/working days)*lead time
No Of orders = Demand/Q

Forecasted
Demand
Demand
Year 2006 2007 2008 2009 2010 2011
Jan 742 741 869 951 1030 866.6
Feb 697 700 793 861 1032 816.6
Mar 776 774 885 938 1126 899.8
Apr 898 932 1055 1109 1285 1055.8
May 1030 1099 1204 1274 1468 1215
Jun 1107 1223 1326 1422 1637 1343
Jul 1165 1290 1303 1486 1611 1371
Aug 1216 1349 1436 1555 1608 1432.8
Sep 1208 1341 1473 1604 1528 1430.8
Oct 1131 1296 1453 1600 1420 1380
Nov 971 1066 1170 1403 1119 1145.8
Dec 783 901 1023 1209 1013 985.8

The monthly demand for the year is forecasted using moving average. Again it is visible
that the demand is high in the months where there is vacations. The demand is the highest in
the August and September hence the bulk order during that period will be the highest.
Since there is a constraint of the inventory holding period. The raw materials cant be kept
for a long period of time which will affect the quality of raw materials that can cause a fall in
the sales. Hence we find the EOQ on monthly basis depending on the demand.

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 Cocoa Powder:-
Coco EOQ
No. of bars Kg At 120.2 At 120.10 At 120.0
powder powder
1733200 51996 2651.796 332.1259609 15968.6162 20024.2999 26039.46909

1633200 48996 2498.796 322.4023282 15501.10394 20154.06393 26351.04503

1799600 53988 2753.388 338.428147 16271.62531 19951.3468 25854.25218

2111600 63348 3230.748 366.5931202 17625.79722 19719.57407 25167.88196

2430000 72900 3717.9 393.2616713 18908.02116 19620.03284 24697.83994

2686000 80580 4109.58 413.4580842 19879.06469 19608.18124 24437.16179

2742000 82260 4195.26 417.7459123 20085.22346 19611.84903 24391.09333

2865600 85968 4384.368 427.0574161 20532.92056 19626.68279 24301.35267

2861600 85848 4378.248 426.759254 20518.58493 19626.06657 24304.01441

2760000 82800 4222.8 419.1148267 20151.04087 19613.44799 24377.02763

2291600 68748 3506.148 381.8984454 18361.67726 19649.80785 24879.16423

1971600 59148 3016.548 354.2320794 17031.47838 19803.50962 25442.44102

Sum 836580 42665.58

The number of bars is calculated from the monthly demand of cartons forecasted multiplied
by the number of bars in one carton, i.e. 2000.
The number of bars multiplied by 30 would give the weight of bars.
That weight multiplied by 0.0051 would give us the demand for the cocoa powder.
The EOQ is found out for individual month.
We can deduce the bulk amount that should be ordered on a monthly basis differs due to the
variation of demand.
The numbers that are in bold are the total cost of that will be involved every month. The cost
of ordering varies from 120.2 to 120.

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 Coco Butter:-

Kg Coco Butter EOQ Butter A maximum lot size of >3000

51996 3223.752 598.410558 6464.629257
48996 3037.752 580.890926 6275.364677
53988 3347.256 609.765571 6587.297464
63348 3927.576 660.512033 7135.511491
72900 4519.8 708.562304 7654.598571
80580 4995.96 744.95135 8047.709429
82260 5100.12 752.676978 8131.169389
85968 5330.016 769.454053 8312.41213
85848 5322.576 768.916837 8306.608588
82800 5133.6 755.14343 8157.814472
68748 4262.376 688.088523 7433.420311
59148 3667.176 638.24043 6894.91137
836580 51867.96

Here we can see that it is better to order the maximum lot size of 3000 every month.
This value would give us the most optimum total cost.

Dark Chocolate:-

Kg Dark Chocolate EOQ Dark Chocolate Above 3750

51996 4055.688 419.8076692 15457.31838

48996 3821.688 407.5169841 15004.77536

53988 4211.064 427.7736409 15750.62546

63348 4941.144 463.3742057 17061.43825

72900 5686.2 497.0832907 18302.60677

80580 6285.24 522.6115843 19242.55853

82260 6416.28 528.0314049 19442.11633

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 85968 6705.504 539.8011584 19875.47865

85848 6696.144 539.4242812 19861.60203

82800 6458.4 529.7617145 19505.82633

68748 5362.344 482.7201577 17773.75621

59148 4613.544 447.7498332 16486.14886

836580 65253.24

In the case of dark chocolate we order at 3750 since it gives the minimum cost.

Dry fruits:-

Kg Dry Fruits EOQ Dry Fruits At EOQ At 90.2 At 90.15 At 90.1

51996 2079.84 623.0865 14019.45 14035.02 14031.13 14027.24
48996 1959.84 604.8444 13609 13624.12 13620.34 13616.56
53988 2159.52 634.9098 14285.47 14301.34 14297.37 14293.41
63348 2533.92 686.9859 15491.53 15491.53
72900 2916 736.9621 16618.49 16618.49
80580 3223.2 774.8096 17471.96 17471.96
82260 3290.4 782.8449 17653.15 17653.15
85968 3438.72 800.2944 18046.64 18046.64
85848 3433.92 799.7357 18034.04 18034.04
82800 3312 785.4102 17711 17711
68748 2749.92 715.6677 16138.31 16138.31
59148 2365.92 663.8216 14952.58 14969.18 14965.03 14960.88
836580 33463.2

In the case of dry fruits we can see that we have to order different bulk quantities over the
period of time.

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 The bold numbers show at what price range every month it should be ordered to find the right
quantity.
This helps in reducing the cost.

Conclusion

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 dont 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.

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