Question

Amy Lin, materials planner at Denniston Spices, in Phoenix, Arizona, was faced with an important problem caused by a supplier who was implementing a new en- terprise resource planning (ERP) system. It was Tuesday, April 9, 2014, and during a call the previous day from Juan Aranda, sales manager at Whittingham Foods, Amy learned that potential supply problems might occur start- ing in September as the new system was implemented at the Whittingham’s Indianapolis plant. In order to avoid stockouts, Juan asked Amy to provide a forecast of her plant’s needs for September to November by April 30th, so he could make arrangements to have product shipped to Denniston in late August.

Founded in 1903 by Walter J. Denniston, Denniston Spices was a global leader in the food industry—manufacturing, marketing, and distributing a wide variety of spices, mixes, condiments, and other seasoning products to the retail, commercial, and industrial markets. Headquartered in Chicago, the company had sales revenues of $5.5 billion and sold its products in more than 100 countries world- wide. Its customers included retail outlets, food manu- facturers, restaurant chains, food distributors, and food service businesses. Denniston Spices was also a leading supplier of private label items.
The Phoenix plant manufactured and distributed spices, herbs, extracts, and seasoning blends to retail and in- dustrial customers in the southwest United States. Amy Lin was responsible for managing approximately 300 stock-keeping units (SKUs) consisting of spices and com- pounds, purchased from Whittingham Foods, which was the sole supplier for these products. All SKUs supplied to the Phoenix plant by Whittingham came from their Indianapolis facility.

It was company policy that each SKU had minimum safety stock inventory to protect against stockouts. Safety stock levels were set by the materials planners and typi- cally ranged from two to four weeks. Reorder points were set at the safety stock level for each SKU plus four weeks, which reflected the lead time from Whittingham Foods for most products. Orders were constrained by minimum order quantities set by the supplier.
Forecasting and setting reasonable safety stock levels were made difficult because of variability in demand, par- ticularly from industrial customers. Many of the Phoenix plant’s industrial customers were small- and medium- sized manufacturers that ordered sporadically.
Prices for products supplied by Whittingham Foods ranged from $50 to $250 per pound, and had shelf-lives of either 90, 180, or 270 days. The major challenge in Amy’s role was to balance high inventory costs and short shelf lives with the risks of stockout costs and in- ventory spoilage. Denniston Spices offered 10-day de- livery lead times to its customers and it typically took 2 to 7 days for an order to be processed and shipped. The Phoenix plant had a customer service level target of 98 percent.

As Amy Lin, what is your analysis of the situation at Denniston Spices?

What recommendations would you make to Kevin Sherman regarding the inventory build of products supplied from Whittingham Foods and why?

Can anyone help me solving this please? Thank you in advance.

Answer 1

As Amy Lin, the analysis of the situation states that fall in the supply of the raw materials in the coming days might lead to problem of under supply and thus might shift the supply curve of the company leftwards. This will lead to increase in the price level of Denniston Spices. To prevent this increase in price level and shift the retailers to other brand, adequate stock of the spices has to be maintained.

The company's team need to come out with with innovative strategy that can increase the shelf life of the Spices. This can help in stocking the product and prevent supply short falls. Also, the concerned person should have a meeting with Food nutrition team to increase the shelf life without destroying the nutrient content of the food.