Case Analysis: Blanchard Importing and Distributing Co. Inc. (HBS Case 9 - 673 - 033)
Submitted by: Tushar Kothavale (130) NMIMS, FT MBA 2009-2011
1) Correct the Economic Order Quantity (EOQ) and Reorder point (ROP) quantities for each of the five items mentioned in the case.
We first predict the annual demand for the year 1972 based on trend for 4 months of 1972 based on corresponding months of 1971.
Calculations for Annual demand (R):
The assumption made here is that the same trend for sales as that for the four months of 1972 would be followed for the rest of the months of the 1972. Sales prediction for annual demand for year 1972 | | | | | | | | | | | | Feb | Mar | Apr | May …show more content…
5) It is valid for a single product and not a basket of products. (Assumption made while deriving the EOQ/ ROP.) 6) It does not take into account the other production factors such as times required for production run (as in this case, all one size items are produced in one go rather than changing the sizes and hence a sufficient quantity of other sizes need to be at hand in order to reduce the stock out situations.)
System used at Blanchard:
1) At Blanchard finished case inventory storage area is not a constraint (as actual finished goods inventory had never occupied more than 50% of the reserved space) hence carrying cost is fixed (i.e. security, heating, cooling etc.) regardless of the volume of the finished goods inventory. Hence Blanchard importing & distributing co. can focus on reduction of other costs. 2) The substantial cost incurred at Blanchard is that of setting up cost in which the size changeover takes one complete day. Hence it is necessary to reduce this time by reducing the size changeover. Bob and Hank are exactly doing the same. 3) Bob and Hank are not following the EOQ/ ROP set as per 1969 as it is now obsolete, the basis on which these values were based was with the certain pattern of demand for items as per 1969 data. Also it did not account for the pattern of production (i.e. all items of same size in one batch). Usage of latest data for predicting demand and accounting for the pattern of production