Scotburns Dairy Demand Forecast

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 Executive Summary
To find the feasible set of lot sizes for Scotburn Dairy company, the following steps were
used. Determining the demand for each family over the next three weeks. We have two families,
F1 and F2 and their respective demands are 100 units, 150 units and 200 units over the three-
week period therefore the demand is forecasted. Calculating the total demand for each family is
guiding us in knowing the expected cost and time. The paper also focuses on determining the
production time available per week and since each week has 40 hours available, we have a total
of 120 hours over the three-week period. Calculating the production rate for each family which is
the total demand divided by the available production time. For example, the production rate for
Family F1 is x units / 120 hours = x units per hour. Calculating the setup cost for each family
incurred each time a new production lot is started. The forecast results indicated that the demand
in production hours were 36, 34 and 24 hours respectively of each week. The cost included
equipment setup, labor and other related expenses. Estimating the holding cost for each family is
calculated for storing and holding inventory. The cost could include storage fees, insurance and
the opportunity cost of fixing the capital in inventory goods. Lastly, the total cost for each lot
size for each family is calculated including the setup cost and holding cost for each lot size.
 Table of Contents

Executive Summary...................................................................................................................2
Table of Contents.......................................................................................................................3
List of Tables and Charts..........................................................................................................4
Background information...........................................................................................................5
Production forecast in Hours and Cost....................................................................................5
Total Working hours for change requirements......................................................................................5
Costs............................................................................................................................................6
Recommendation on how to save costs....................................................................................8
Just-in-time (JIT) inventory management..............................................................................................8
Regular review of lot sizes.....................................................................................................................8
Accurate demand forecasting.................................................................................................................9
Employee training and engagement.......................................................................................................9
Economic order quantity (EOQ)............................................................................................................9
Utilize technology and automation........................................................................................................9
Conclusion...................................................................................................................................9
Appendices................................................................................................................................12
List of Tables and Charts
Table 1 Production Forecast............................................................................................................5
Table 2 Cost distribution.................................................................................................................5
Table 3 Aggregate Planning details...............................................................................................10

Chart 1 Production Forecast in hours..............................................................................................6

 Background information
Scotsburn is a manufacturing company that is currently facing a master planning dilemma
in terms of determining the manufacturing quantity for each item during the next 13 weeks while
considering its aggregate output hour restriction. Therefore, this means that Scotsburn needs to
optimize its production process to meet the demand within a limited number of hours per week.
Scotsburn has decided to forecast the production costs for future demand to mitigate this
challenge. The company can efficiently allocate its resources and minimize costs by ensuring
accurate demand prediction for each item over the next 13 weeks.

One method they plan to use is the Economic Production Quantity (EPQ) model. The
EPQ model is a widely used tool in inventory management that aims to calculate the maximum
lot size for production. By determining the lot sizes for each item in every week, Scotsburn can
effectively balance its setup and holding costs. The company will meet the demand while
minimizing inventory costs and ensuring efficient production. In this particular case Scotsburn
needs to determine the lot sizes for each family of items for each week over the next three weeks.
The challenge lies in meeting the demand while adhering to the 40-hour workweek constraint.
By finding the optimal lot sizes, Scotsburn can make the most of its available production hours
and ensure efficient utilization of their resources.

Production forecast in Hours and Cost

Total Working hours for change requirements
Capacity = 40 hours per week
1 hr production = 1 unit
It is preferable to do it for a similar family current week and keep it for one week if the
output of a product is less than ten units the following week.
It will not achieve loads of Week 3 (42 greater than our set 40 hours in a week).
Concentrating on either F1 week 3 or F2 week 3 earlier is significant. Since F1 week 3 is lesser,
it should be made and held for one week in Week 2.
However, this (18 hours) and week necessities (28 hours) will surpass Week 2's 40 hours.
We would then move either Family 1-week2 or Family 2-week2 to Wk 1. and can shift it to
Week 1. F1-week2 is smaller (12 hours); consequently, the cheapest strategy to reduce
configuration and keep costs is
Table 1 Production Forecast in Hours

Family week 1 week 2 week3

F1 10 18 13
F2 18 22 20
Total 28 40 33
Chart 1 Production Forecast in hours

Forecasting
25

20
Production hours

15

10

0
Week 1 Week 2 Week3

Week Forecast

F1 F2

Costs
$300 changeover plus $300 in mix loss is the setup cost. $600
Setting up cost / carry cost = $600 / $60 = 10 units.
Table 2 Cost distribution

Change over $300

mix loss $300
Total set-up cost $600
From the table above, the changeover and mix loss costs are constant given the capacity is 40
hours/weeks

It is preferable to do it for the exact same family this week to maintain it for one week if
the output of a product is fewer than ten units the following week. Week 3 is not going to be
sufficient to meet the expectations of Week 3 (42 > 40 hours per week); therefore, it is crucial to
submit either F1 wk3 or F2 wk3 earlier. It should be created and held for one week in Week 2
because F1 Week 3 is shorter. However, the combined needs for this week (18 hours) will be
longer than Week 2's 40 hours. Then, either F2-wk2 or F1-wk2 would be moved to Wk 1. For.
Since. It may be moved to the first week. F1-wk2 is shorter (12 hours), hence 24 is the lowest
option to cut deployment and maintenance costs.

Recommendation on how to save costs

To minimize the total setup and holding cost, it is essential to determine the most feasible
and efficient lot sizes for each family in each week.

Just-in-time (JIT) inventory management

JIT is a production framework that endeavors in minimizing inventory levels and
eliminate waste by synchronizing production with demand. A JIT approach will help Scotburn
Dairy business to reduce holding costs by efficiently maintaining a lean inventory. Lot sizes can
be adjusted according to the actual demand during a specific period hence ensuring efficient use
of resources. JIT also helps in reducing setup costs as production is aligned with demand and
minimizing the risk of inventory deterioration (Niaz, 2022).

Regular review of lot sizes

Due to the changing market conditions and demand patterns, it is important to regularly
revise the lot sizes to adjust. The latter can be achieved by conducting periodic analysis and
reassessment through which opportunities for further cost savings are identified. Later on the
business will have a minimized setup and holding costs (Benmamoun et al.,2023).

Accurate demand forecasting

Accurate demand forecasting is crucial for effective management of inventory through
analyzing historical sales data, market trend and customer. Employing advanced forecasting
tools and techniques, such as machine learning algorithms can significantly enable the
identification of cost-saving opportunities.

Employee training and engagement

Investing in employee training and engagement can lead to cost savings by improving
productivity and reducing errors. Well-trained employees are more likely to effectively execute
production schedules, minimize setup times and ensure quality control. Additionally, engaging
employees and empowering them to contribute ideas for process improvement can lead to
innovative-cost-saving opportunities (Naqshbandi et., 2019).

Economic order quantity (EOQ)

EOQ is a widely recognized inventory management method that focuses on finding the
optimal lot size to minimize the total holding and setup costs. By considering factors such as
demand variability, ordering costs and holding costs businesses can determine the ideal quantity
to replenish inventory. Implementing EOQ not only reduces unnecessary holding costs but also
ensures that enough stock is available to meet customer demand (Nazuk et al., 2021).

Utilize technology and automation

Investing in technology and automation can significantly improve efficiency and reduce
costs. Automated inventory management systems can help track inventory levels in real time,
ensuring optimal lot sizes and minimizing stockouts. Additionally, implementing manufacturing
execution systems (MES) software can enhance production planning, reduce setup times and
improve overall operational efficiency (Kurmanov, 2023).

Conclusion
In a nutshell, minimizing total setup costs requires careful analysis of demand patterns,
optimization of production and inventory management processes. By employing strategies such
as demand forecasting and lot size revision, Scotburn Dairy can achieve significant cost savings.
Additionally, employee training and engagement will facilitate the development of a holistic
approach that will enhance overall operational efficiency. Regular monitoring is crucial to ensure
that cost-saving efforts remain effective and aligned with changing market dynamics.
 References

Benmamoun, Z., Fethallah, W., Ahlaqqach, M., Jebbor, I., Benmamoun, M., & Elkhechafi, M.
(2023). Butterfly Algorithm for Sustainable Lot Size Optimization. Sustainability,
15(15), 11761.

Kurmanov, S. (2023). Various production planning models for manufacturing execution systems.

Naqshbandi, M. M., Tabche, I., & Choudhary, N. (2019). Managing open innovation: The roles
of empowering leadership and employee involvement climate. Management Decision,
57(3), 703-723.

Nazuk, A., Rashid, M., & Salman, V. (2021). Optimizing Inventory Management Cost: Case of
Simap. Statistics, Computing and Interdisciplinary Research, 3(2), 99-116.

Niaz, M. (2022). Revolutionizing Inventory Planning: Harnessing Digital Supply Data through
Digitization to Optimize Storage Efficiency Pre-and Post-Pandemic. BULLET: Jurnal
Multidisiplin Ilmu, 1(03).