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Case from journal
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Reference no. JIACS16-07-08
Published by: Allied Business Academies
Published in: "Journal of the International Academy for Case Studies", 2010

Abstract

The primary subject matter of this case concerns managing inventory shortages and their associated costs. Secondary issues examined include: inventory costs, inventory policies, forecasting sales, and prioritizing customers. The cases have a difficulty level of 3, junior level, for cases (A) and (B) and level 4, senior level, for cases (C) and (D). The cases are targeted to operations management, inventory management, and supply chain management courses. The cases are designed to be taught in 2 class hours and are expected to require 4 hours of outside preparation by students. The cases address the inventory issues faced by a distributor of soft-drinks, Bama Drinks Company. The discussion about inventory policies starts when an important customer places an order and the product is not in stock. Since demand with newer customers has begun increasing, some of Bama Drinks’ regular customers have been forced to accept some late shipments. This sparks the discussion about whether all customers should be treated equally and the company’s inventory policy in general. In Case (A) students are exposed to the realism of managing inventory shortages and their associated costs. Some of Bama Drinks’ functional managers are introduced, and their mention is continued throughout the case portfolio. Case (B) provides specific cost details (eg, leasing, freight, order placement, and holding costs) and requires the students to develop inventory ordering policies (economic order quantity and reorder point). It also asks the students to determine the needed inventory storage space based on the inventory policies – a serious management issue. Case (C) builds on the techniques utilized in Case (B) by adding the realistic complexities of predicting future sales when a trend and seasonality are present. This is essential to overcome since inventory policies are based on future, rather than historic, sales patterns. The more accurate the sales forecast, the more realistic the inventory policies can be. It also gives the students the opportunity to explore different sales forecasts using numerous mathematical formulations. The students learn the linkage between forecasting and inventory decisions and the reality that an accurate forecast must precede. Finally, Case (D) explores the difficult, but realistic situation of having different service levels for various customers. Prioritizing customers is necessary for they do not all represent the same economic benefit to the company. The trade-offs necessary when designing such inventory policies are explored.
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Abstract

The primary subject matter of this case concerns managing inventory shortages and their associated costs. Secondary issues examined include: inventory costs, inventory policies, forecasting sales, and prioritizing customers. The cases have a difficulty level of 3, junior level, for cases (A) and (B) and level 4, senior level, for cases (C) and (D). The cases are targeted to operations management, inventory management, and supply chain management courses. The cases are designed to be taught in 2 class hours and are expected to require 4 hours of outside preparation by students. The cases address the inventory issues faced by a distributor of soft-drinks, Bama Drinks Company. The discussion about inventory policies starts when an important customer places an order and the product is not in stock. Since demand with newer customers has begun increasing, some of Bama Drinks’ regular customers have been forced to accept some late shipments. This sparks the discussion about whether all customers should be treated equally and the company’s inventory policy in general. In Case (A) students are exposed to the realism of managing inventory shortages and their associated costs. Some of Bama Drinks’ functional managers are introduced, and their mention is continued throughout the case portfolio. Case (B) provides specific cost details (eg, leasing, freight, order placement, and holding costs) and requires the students to develop inventory ordering policies (economic order quantity and reorder point). It also asks the students to determine the needed inventory storage space based on the inventory policies – a serious management issue. Case (C) builds on the techniques utilized in Case (B) by adding the realistic complexities of predicting future sales when a trend and seasonality are present. This is essential to overcome since inventory policies are based on future, rather than historic, sales patterns. The more accurate the sales forecast, the more realistic the inventory policies can be. It also gives the students the opportunity to explore different sales forecasts using numerous mathematical formulations. The students learn the linkage between forecasting and inventory decisions and the reality that an accurate forecast must precede. Finally, Case (D) explores the difficult, but realistic situation of having different service levels for various customers. Prioritizing customers is necessary for they do not all represent the same economic benefit to the company. The trade-offs necessary when designing such inventory policies are explored.

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