Michelle Sayer is Johnson & Johnson’s Walmart account manager, meaning that she oversees all operational interactions between Walmart and Johnson & Johnson. The Walmart account is so important to J&J that Michelle actually lives in Bentonville, Arkansas, which is where Walmart’s corporate headquarters is located.

Rafael Ellwood works for Walmart and is Michelle’s main contact person. Rafael was concerned that Walmart was not purchasing as efficiently from J&J as it could, so he arranged for a meeting with Michelle to discuss their strategy.

To focus the conversation, Rafael suggested they look at one product, Listerine Cool Mint 250 ml. Table 12.6 reports sales data for that product in one of Walmart’s stores over a 30-week period, while Figure 12.3displays the data in a graph. Table 12.7 provides data on demand, ordering costs, and holding costs for this product.

Rafael turns to Michelle and asks, “What order quantity do you recommend we use for this product? Remember, we only ship in case quantities.”

Michelle reminds Rafael that the two companies are looking for ways to streamline the flow of product through the supply chain. One way to do so would be to ship only in tier quantities. If each order to the store was for a single tier, then the tier could be created in J&J’s warehouse. The tier would then be shipped to Walmart’s distribution center and immediately sent on from the distribution center to the super center. Rafael agrees that a tier quantity might help the rest of the supply chain, but he fears that it would be costly to order one tier at a time for this super center. Are Rafael’s concerns justified?

Putting aside the issue of ordering a single tier (which requires some more information to come to a resolution), Rafael wanted to raise another issue with Michelle. Looking at Figure 12.3, he points out that there are periods of time when demand looks like it is 50 percent higher than the average, and other times when demand is as much as 50 percent lower than the average. Given this variation in demand, he wonders if choosing a single order quantity (in cases) is a reasonable strategy. Or should it adjust its order quantity throughout the year? Making adjustments to the order quantity would be a hassle, especially given the number of products it manages and the number of stores it has, but if it needs to do that to save on costs, it will.

TABLE 12.6

Weekly Sales of Listerine Cool Mint 250 ml at One Walmart Supercenter

Week	Sales
1	18
2	16
3	19
4	15
5	12
6	15
7	17
8	13
9	8
10	9

Week	Sales
11	9
12	10
13	9
14	5
15	6
16	7
17	11
18	10
19	10
20	7

Week	Sales
21	11
22	10
23	12
24	13
25	19
26	14
27	13
28	18
29	18
30	15

TABLE 12.7

Information Regarding Demand, Ordering Costs, and Holding Costs for Listerine Cool Mint 250 ml

Purchase price per unit	$2.50
Annual holding cost percentage	25%
Fixed ordering cost	$6
Average weekly sales (units)	12.3
Units per case	12
Cases per tier	24
Tiers per pallet	5

Answer rating: 100% (QA)

The EOQ comes out to be 111 units but since the product is coming in cases the closest order coul... View the full answer