Gator Pop Operations

1. Gator Pop Operations Dr. Everette S. Gardner, Jr.

2. 1. Introduction The alert student will recall that Alligator Sushi was originally developed at Wildflour Restaurant’s flagship location in Missouri City. This product is composed of thin slices of fresh alligator marinated in corn liquor. The processing cycle is relatively simple. Fresh alligators are received daily from a supplier in Hope, Arkansas. On arrival, the alligators are released in a pit in Wildflour’s bar. Accompanied by cheers from bar patrons, Danny Darwin and John Cangelosi descend into the pit, wrestle the alligators into submission, and tie them up. Next, the executive chef, Jose Lima, enters the pit to slay and slice the beasts. Jose tosses the sushi into vats of 150-proof corn liquor. Bartenders fish out slices from the vats as needed. Matt Galante, Wildflour CEO, decided to develop a new version of Alligator Sushi as a supermarket and liquor-store product. The sushi will be frozen and marketed as an adult popsicle under the trade name “Gator Pops.” You have been engaged as an operations management consultant to Matt. Gator Pops

3. 2. Simple exponential smoothing and seasonal adjustment Your first task is to forecast national quarterly sales of Gator Pops. The table below shows the results of seasonal adjustment for the first two years of actual sales (in millions of pops). Actual Moving Sum of # of Avg. Seas. Adj. Year Qtr t Data Avg. Ratio ratios ratios ratio Index Data 1998 1 1 280 0.0 0.00 0.82 1 0.821 0.820 341.4 2 2 290 0.0 0.00 0.89 1 0.891 0.889 326.1 3 3 400 330.0 1.21 2.45 2 1.225 1.223 327.0 4 4 350 327.5 1.07 1.07 1 1.069 1.067 327.9 1999 1 5 270 328.8 0.82 Sum 4.005 4.000 329.2 2 6 295 331.3 0.89 331.7 3 7 410 331.3 1.24 335.2 4 8 350 0.0 0.00 327.9 Apply simple exponential smoothing with a weight of 0.50 to the last year of seasonally-adjusted data. Start with a forecast of 329.2 for the first quarter of 1999. A. What are the MAD and MSE values for 1999? B. What are the seasonally-adjusted forecasts for each quarter in the year 2000? C. Reverse the seasonal adjustment in the forecasts. What are the final forecasts for each quarter in the year 2000? Gator Pops

4. 3. Trend-adjusted smoothing Sales in Arcola, Texas (in thousands of pops) for the first three months after product introduction in that market were: MonthArcola sales September 100 October 120 November 130 There is not enough data to estimate seasonality in that market. Apply trend-adjusted smoothing with the following weights: level = .3, trend = .1, and trend modifier = .9. A. What is the forecast for December? B. What is the forecast for January? C. What is the forecast for April? Gator Pops

5. 4. EOQ and safety stocks After several years of Gator Pop production, Matt Galante realized that he needed a better inventory management system for the major Gator Pop components: Gators, wrappers, and popsicle sticks. Matt ordered every item once per week. He was concerned about the reordering workload and wanted to explore alternative ordering rules. Matt asks you to develop an EOQ-based inventory management system for Gator Pop components. As a test case, Matt provides annual demand forecasts in dollars for the Brice’s Crossroads, Mississippi, sales region: Item Annual demand $ Gators $10,000 Wrappers 900 Sticks 64 You may assume that demand is very stable and there is no need for safety stock. The demand values above are forecasts for the next year from simple exponential smoothing. You may ignore corn liquor demand because it is produced on site in bulk quantities from very inexpensive components—fermentation time is only about two hours so any shortages can be remedied quickly. Answer the following questions: A. What is Matt’s total inventory investment and re-ordering workload for these items under current policy (ordering every item once per week)? Assume that the work year includes 50 weeks, that is Matt orders every item 50 times per year. B. Suppose that you implement the EOQ model with K = 1. Compute inventory investment and re-ordering workload. What are the investment and workload savings from the EOQ model? Gator Pops

6. 4. EOQ and safety stocks (cont.) Matt becomes unhappy with the EOQ using K = 1 for Gators. He feels that the ordering rate is still too high. Furthermore, demand has become variable and he is concerned about possible stockouts. The demand forecast for next year is still $10,000, although the standard deviation of forecast errors for monthly forecasts has increased from near zero to $120. Answer the following questions: C. Compute the EOQ and reordering workload for Gators using K = 5. D. Compute the reorder point and safety stock. Leadtime is 1 month and Matt wants a 10% probability of running out of stock during one leadtime. E. What are the minimum and maximum inventory investment values for the new EOQ and safety stock policy for Gators? Gator Pops

7. 5. MRP Matt asks you to experiment with MRP techniques for managing Gator Pop sticks. Here are gross requirements for the next 6 weeks, in thousands of sticks: Week 1 2 3 4 5 6 Gross requirements 20 5 10 20 5 70 Currently, there are 25,000 sticks on hand, with 5,000 sticks allocated to a special order (for “Road Party 77” to celebrate the completion of the last section of the Sam Houston Tollway—never mind that less than half of the exits on the Tollway are complete). There is a scheduled receipt of 15,000 sticks due in week 1. Matt asks you to order lot-for-lot, with a 2-week leadtime, and maintain a safety stock of 5,000 sticks. Answer the following questions: A. What are the net requirements for the 6-week period? B. When should planned orders be received and released? Gator Pops

8. 6. Project management Here are the activities in rolling out a new Gator Pop promotion: TaskDescriptionTimeImmediate Predecessors A Get Matt to approve budget 2 weeks B Select advertising theme 2 A C Produce flyers 12 A D Buy radio time 3 B E Schedule magazine ads 3 B F Train salespeople 1 B G Prepare radio copy 4 D H Prepare magazine copy 6 E I Distribute flyers 2 C,F J Run special in supermarkets 3 G,H,I Draw this project in activities on arrows format. Then answer the following questions: A. What is the earliest that this project can be finished? B. Which activities are critical? C. Which activities have the most slack? Gator Pops

9. 7. Waiting-line analysis Matt asks you to analyze the idea of selling Gator Pops from a refrigerated cart on the club level at Enron Field. This idea came from Yogi Berra, who was coaxed out of retirement to assist the Astros in food service. Yogi estimates that customers will arrive at the cart at the rate or 170 per hour throughout a ball game. Yogi plans to run the cart himself and thinks he can serve about 3 customers per minute. Matt’s instructions were as follows: “This may be a super idea, but I want to know how long the waiting line is likely to be. If there are too many people in line, the club level could get congested. I think about 20 people in line is all we can stand. Also, how long will it take for people to wait in line and get served? If the fans think they will miss a half-inning, they won’t bother to get in line. Here’s something else to worry about: How do we know that Yogi can handle this thing himself? What would happen if we had two or even three cart attendants? Get back to me when you can answer my questions.” What is your response to Matt? Gator Pops

10. 8. Dimensional analysis There are two alternative sources of alligators that offer the quality necessary to make Gator Pops. Shania’s Gators (Wildflour’s current supplier) has a 5-day leadtime and sells its Gators for $38.50 per pound. Monica’s Gators is both cheaper ($35.00 per pound) and quicker (4-day leadtime). However, Monica’s records show that she is in stock only 80% of the time, while Shania is in stock 95% of the time. Matt asks you to pick a supplier using dimensionless analysis. He feels that leadtime should receive a weight of 2, with price weighted at 4. The in-stock percentage is most important and should receive a weight of 5. Gator Pops