3. This question will have you calculating 2 different EOQ and ROP values and interpreting the results. For both EOQ and ROP, give your final answer in full sock sets (ROUND UP to the next whole number). The specific questions to answer are based in parts a-c. Tips to solve the EOQ and ROP are given below in bullet points.

1. Calculate EOQ and ROP for FY2020 based on the FY2020 forecast value that you recommended in Question #1.
2. Calculate the EOQ and ROP based upon actual demand for FY2020
3. Use the EOQ results from above and the Q that Throx is currently using (given in the case) and determine total inventory costs using 2020 actuals for your Demand (D).
   1. Compare the total inventory costs from the three results and analyze what it shows you.
   2. What if any are the implications of the ROP based on the forecast and Throx current ROP vesus the ROP determined using Actual Demand.

See additional tips below:

• Use a service level of 95% (z=1.65) when calculating the ROP
• For the variance in weekly demand, use the data provided in the table on page 2 of the case with the FY2020 forecast for all approaches.
• Remember that there is a difference between variance and standard deviation and how you apply these values in the ROP formula
• Annual Inventory management costs will include the following: Annual Holding Costs, Annual Ordering Costs, and Purchase Cost.

Product Orders (Demand) Information
Demand Characteristic	2019	2020
Annual Demand, sets	26,000	29,500
Avg. Weekly Demand	500	567
Variance of Weekly Demand	125	142

Product Forecasting Information
	Actual Demand (three sock sets)	Weighted Moving Avg. Fcst.	Exponential Forecast
2017	19,000	14,500	15,000
2018	22,500	17,750	18,600
2019	26,000	21,450	22,110
2020	29,500	24,950	25,611

Weighted Moving Average uses W_t = 0.7 and W_t-1 =0.3.

Exponential Smoothing uses = 0.9.

Inventory Management Information

The initial inventory for all sock styles combined at the beginning of FY 2021 is 2,250 units. You also have information on current costs, which includes:

• Order cost to Throx for an order placed with its current supplier, $/order = S = $250
• Holding cost per set per per year = H = $1.50
• The company currently pays $6.50 for each set of socks. = P

The company uses a continuous review replenishment policy, and has IT systems in place that allow constant monitoring of key information. Last year, the company used an ROP under this policy of 1,800 units for all sock styles and an order quantity Q of 4,000 units for all sock styles.

Potential Alternatives to Current Supply Chain Management

The company has asked you to evaluate a number of alternatives to their current SCM practices, including at a minimum their choice of supplier, transportation modes, warehouse capacity, order quantities and safety stock.

Alternative Suppliers

The company has contacted potential alternative suppliers in China, who have offered the following information relative to the current supplier:

Supplier Characteristic	Current	Alternative A	Alternative B	Weight
Unit Price, $/3-sock set	6.50	5.75	5	0.4
Order Cost, $/order	250	325	200	0.1
QA Pck	TBD	TBD	TBD	0.3
Financial Condition of the firm	Good	Poor	Fair	0.2

For the quality performance assessment of the suppliers, Throx would like you determine the Capability Index for each Supplier based on the following information. Target Sock Thickness: 6mm +/- 1mm

Transportation Supplier Characteristics	Maersk Ocean Freight (current)	UPS Air Express (alternative)
Unit cost, $/sock set	1.25	3.75
Damage Rate	2.8%	0.5%
Avg. Transit time, weeks	4	0.5

* No data are available about variation in transit times, so Throx assumes this is constant.

Similar to their decision about sourcing, Throx wants to use a single-sourcing strategy for transportation, so they want a recommendation about which mode would be best.

Alternative Warehouse Location

The company would also like to assess whether its current warehouse location is appropriate based on where customers are located. It provides you the following information about its key markets, and indicates that its orders in each market are roughly proportional to the total population.

Market	Population	X	Y
LA - Long Beach	19,800,000	34	118
San Francisco	8,700,000	38	122
San Diego	5,300,000	33	117
Sacramento	2,500,000	39	121