Soc 200 Case Study Report 1 Three Jays Corporation
Evaluation/Analysis of the Formal EOQ/ROP System
We can now shift the analysis to the broader issue of applying EOQ/ROP to the current system at3Js.
Why are Jake and Josh not using the EOQ figures for scheduling production? What are the advantages
and disadvantages of using EOQ/ROP methods, given the current circumstances at
3Js? Two aspects of production operations make the application of the formal EOQ/ROP system undesirable: 1)
lack of production flexibility, and 2) demand is not constant.
Lack of production line flexibility
Use of the EOQ method assumes that the production equipment is always immediately availablefor
processing a batch (run) of an item whenever the reorder point is reached. This is not the situation at
3Js, however, wherein 141 products, or SKUs, compete for one production line (while the overall
capacity of the line is not an issue, scheduling to produce a specific SKU is very constrained).
The jam and jelly production line appears to have more than en ugh capacity, but the equipmentused in
the process is fairly inflexible. The fact that it takes two individuals an hour to adjust theuequipment
every time there is a change in jar size makes it virtually impossible for the line to respond quickly to
individual production requirements for specific SKUs. The three-week ROP lead time permits the
production of some items to be delayed, thereby allowing the batching of several items of a given size
into a single “mega” batch or run.
However, stock-outs are sure to occur because of these delays. For example, Jake Evans says that
they will be running the 8- ounce jars in two weeks and hopes that they will not run out of any SKUs
in this size before then. The inflexibility of the production line causes conflicts to arise between the pr
ducti n requirements for SKUs of different size jars.
,Using the EOQ method also generates a conflict among the production requirements of a given size.
Producing EOQ volumes for each SKU within a single-size jar will result in future requirements being out
of phase for making these items in the next production run. Thus, the production of EOQ quantities
guarantees a random distribution of the ROP among all 141 SKUs,including the four jar sizes, thereby
preventing the effective synchronization of groups of items into “mega” batches or runs.
Demand is not constant
As mentioned earlier, the EOQ and ROP quantities assume that demand is evenly distributed throughout
the year and is perfectly predictable. At 3Js, however, demand has been increasing, and this trend is
expected to continue. While seasonality does not appear to be an issue in this
instance, it would cause additional problems when using the EOQ and ROP. In that case, the fixed three-
week lead time would represent different amounts of inventory on hand that could vary significantly. As
a result, using a fixed ROP will lead to unexpected stock-outs for some items and excess inventory for
others, depending on the time of year.
Of course, the seasonality issue could be addressed with a simple adjustment. The average EOQ and
ROP amounts could be multiplied by a monthly seasonality index for the current month (the monthly
seasonality index equals the actual demand for a given month divided by the “average” demand, which
assumes a constant rate of sales throughout the year). However, we would still beleft with the issue of
an inflexible production line.
Evaluation/Analysis of the Improvised System
Realizing that the EOQ scheduling techniques are not practical for 3Js, Jake and Josh have developed an
improvised system that establishes a fixed time interval between the runs f a specific jar size (four
weeks). This technique is more commonly known as the Periodic Order Quantity (POQ) method.
However, by retaining the ROP triggering aspect of the formal system, Jake and Josh have invoked two
conflicting rules for scheduling the production runs. One rule calls for producing SKUs at a fixed future
, date, and the other calls for producing a SKU whenever the stock level of an item falls below its ROP
trigger level. Use of this hybrid system also leads to conflicts among the production requirements of
different SKUs like those describeduabove, under the formal major EOQ/ROP system. In addition, using
the ROP trigger
Evaluation/Analysis of the Formal EOQ/ROP System
We can now shift the analysis to the broader issue of applying EOQ/ROP to the current system at3Js.
Why are Jake and Josh not using the EOQ figures for scheduling production? What are the advantages
and disadvantages of using EOQ/ROP methods, given the current circumstances at
3Js? Two aspects of production operations make the application of the formal EOQ/ROP system undesirable: 1)
lack of production flexibility, and 2) demand is not constant.
Lack of production line flexibility
Use of the EOQ method assumes that the production equipment is always immediately availablefor
processing a batch (run) of an item whenever the reorder point is reached. This is not the situation at
3Js, however, wherein 141 products, or SKUs, compete for one production line (while the overall
capacity of the line is not an issue, scheduling to produce a specific SKU is very constrained).
The jam and jelly production line appears to have more than en ugh capacity, but the equipmentused in
the process is fairly inflexible. The fact that it takes two individuals an hour to adjust theuequipment
every time there is a change in jar size makes it virtually impossible for the line to respond quickly to
individual production requirements for specific SKUs. The three-week ROP lead time permits the
production of some items to be delayed, thereby allowing the batching of several items of a given size
into a single “mega” batch or run.
However, stock-outs are sure to occur because of these delays. For example, Jake Evans says that
they will be running the 8- ounce jars in two weeks and hopes that they will not run out of any SKUs
in this size before then. The inflexibility of the production line causes conflicts to arise between the pr
ducti n requirements for SKUs of different size jars.
,Using the EOQ method also generates a conflict among the production requirements of a given size.
Producing EOQ volumes for each SKU within a single-size jar will result in future requirements being out
of phase for making these items in the next production run. Thus, the production of EOQ quantities
guarantees a random distribution of the ROP among all 141 SKUs,including the four jar sizes, thereby
preventing the effective synchronization of groups of items into “mega” batches or runs.
Demand is not constant
As mentioned earlier, the EOQ and ROP quantities assume that demand is evenly distributed throughout
the year and is perfectly predictable. At 3Js, however, demand has been increasing, and this trend is
expected to continue. While seasonality does not appear to be an issue in this
instance, it would cause additional problems when using the EOQ and ROP. In that case, the fixed three-
week lead time would represent different amounts of inventory on hand that could vary significantly. As
a result, using a fixed ROP will lead to unexpected stock-outs for some items and excess inventory for
others, depending on the time of year.
Of course, the seasonality issue could be addressed with a simple adjustment. The average EOQ and
ROP amounts could be multiplied by a monthly seasonality index for the current month (the monthly
seasonality index equals the actual demand for a given month divided by the “average” demand, which
assumes a constant rate of sales throughout the year). However, we would still beleft with the issue of
an inflexible production line.
Evaluation/Analysis of the Improvised System
Realizing that the EOQ scheduling techniques are not practical for 3Js, Jake and Josh have developed an
improvised system that establishes a fixed time interval between the runs f a specific jar size (four
weeks). This technique is more commonly known as the Periodic Order Quantity (POQ) method.
However, by retaining the ROP triggering aspect of the formal system, Jake and Josh have invoked two
conflicting rules for scheduling the production runs. One rule calls for producing SKUs at a fixed future
, date, and the other calls for producing a SKU whenever the stock level of an item falls below its ROP
trigger level. Use of this hybrid system also leads to conflicts among the production requirements of
different SKUs like those describeduabove, under the formal major EOQ/ROP system. In addition, using
the ROP trigger
