MANAGING DEPENDANT DEMAND INVENTORY by M77R5T

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									                                                                                  Candyland




INTRODUCTION AND BACKGROUND

Ismail Industries limited is a public limited company incorporated on June 21, 1988. The

company manufactures and sells high quality sugar confectioneries products under the

brand name of Candyland. The company’s manufacturing facilities are located at Hub

Industrial Trading Estate. It is the largest manufacturer and exporter of confectioneries in

Pakistan. Candyland produces different products to satisfy different markets and

consumer preferences. It works its buyers from around the world to custom-made

products that would not only be the most appropriate for their respective markets, but

also give maximum profits to importers, distributors, wholesalers, brokers and retailers.



EXTERNAL ENVIRONMENT

Candyland faces labour problems due to its location in Hub, where labour is available on

contract basis, and the region has its own peculiar labour laws. Its cost structure also

comprises of custom duties to a large extent as it imports a lot of raw material from

abroad. The use of imported materials also causes another problem. Extremist groups,

local and in the Middle East, consider the imported gelatine to be “haram” and penalties

are imposed on the slightest doubt. Candyland uses high quality raw materials and state

of the art technology which increases cost, but it forgoes high profit margins in order to

keep prices reasonable and in line with the competition. The main competitors of

Candyland are Hilal Sweets and BP Sweet manufacturers. It does not face competition

from the imported candies as its products fall in a lower price range.
                                                                                   Candyland




PRODUCT LINE

The product line of Candyland consists of:

 Jellies

 Toffees

 Candies

 Bubblegums

 Chew toffees
( Refer to Appendix A)




PRODUCTION PROCESS

Candies and Toffees

The production process of candies and toffees is given in the appendix. The process starts

with cooking all the raw materials in the cooker. Here, except for the flavour, all the other

ingredients are added, as cooking the flavour at high degrees can be detrimental to the

flavour of the toffees. Once the ingredients come out of the cooker, they are placed in the

mixer. Here is where the flavours are added. The mixing machine comprises of cooling

table from where the mixture goes on to the cutting machine. The mixture is first turned

into the shape of ropes, which is then cut to obtain the desired shape. Candies and toffees

in their original shape come out primarily from these cutting machines.



The toffees are still not very firm. So they are passed from the cooling tunnel. When the

end product comes out of the tunnel, it is here where Quality Control is given most
                                                                                  Candyland




importance. Before the final product is filled in the polythene bag, it is ensured that

quality is up to standards. Wrapping procedure comes next followed by bagging. Lastly,

when the final product in bags has been placed in cartons, bailing and stamping of cartons

is done. This completes the production process.




Bubblegums and Chew Toffees

The production process of bubblegums and chew toffees is similar to that of candies and

toffees except that the machinery is different



Jellies

The production process for jellies is slightly different from that of candies and toffees.

Here, the paste is passed into the extruder is added and the liquid paste passes through the

cooling tunnel to get the liquid in shape.

The liquid is placed in the heat and/or cold curving for a period of 24 hours. Last

procedure is that of oiling and/or sugar sanding after which bagging is done so that the

goods can be shipped in the cartons.

( refer to Appendix B)




DEMAND FORECASTING

Over the years, Candyland has come to realise that the use of statistical measures and

forecasting models does not give an accurate picture of the situation, since the Pakistani

environment is characterised with volatility and it is not possible to incorporate these

variances in a mathematical model. Thus, Candyland relies on the views of its sales force
                                                                                    Candyland




and the data they glean from the current market situation to make its forecasts.



The basic assumption that Candyland has on which it bases its demand forecast is that

one kid spends one rupee per month on Candyland product. The total number of children

is assumed to be forty million.



Candyland has the advantage of shifting products from one locality to another when it

faces fluctuations in demand. For instance, if the company cannot sell a comparatively

higher priced product in a low income area, it shifts them to a high income location so

that they Candyland be sold in that area.



POSITIONING ON THE OPERATIONS PYRAMID

With reference to the Dillworth’s pyramid, Candyland occupies the two legs of quality

and cost. It maintains a high level of quality, yet mangers to keep the prices within the

range of its target customers. Quality is emphasised at each and every step of the

production process, which gives Candyland a competitive edge over others.                The

company has not yet achieved an edge over dependability as a result of which they have

had lost sales. As for flexibility, Candyland tries to respond to the shifting customer tastes

by introducing new products on a regular basis and phasing out those that are not in

demand.




CAPACITY REQUIREMENTS PLANNING
                                                                                Candyland




At Candyland capacity planning is done at the highest level of management where

corporate goals are defined and laid out. Once the company arrives at an overall target be

way of demand forecasting. This amount is then desegregated into targets for the

individual product line .In this way Candyland follows an top-down approach to

planning.



FIXED CAPACITY

Candyland has a total fixed capacity of 6,000 tons of confectionery per annum. However,

the annual demand exceeds the fixed capacity by a large amount. They supplement this

by adjustable capacity planning. Since they feel that the cost of missed sales is too high

and they can tap greater demand, they have decided expand current capacity by 80%. A

new plant is being constructed on the land adjacent to the current plant. In addition

Candyland has also undertaken the construction of storage warehouses.



ADJUSTABLE CAPACITY PLANNING

Candyland operates in an industry characterised by fluctuating demand. For instance in

summer their demand for confectionery falls significantly due to intense heat and the

schools’ holiday season. In the rest of the year the demand is higher than normal

capacity.


Normally Candyland uses two shifts of workers. The first shift starts at nine in the

morning and ends at six in the evening. The second shift takes over at six and works till

four in the morning. In periods of low demand, such as in the summers, the factory does
                                                                                   Candyland




not cut down its normal production of 25 tones of confectionery per day. Since most of

the products have long shelf lives, any excess amount produced is stored.



In periods of high demand, Candyland uses a mixed strategy of varying it work forces

size and inventory. The excess inventory store form periods of low activity first utilised

to meet the increased demand . Here Candyland has an advantage as it does not have a

high cost of storage due to ample space available. Once the inventory is consumed, any

additional demand is met through overtime use of the workforce. The overtime use of the

workforce is done on Sundays and during the five hours gap between the two shifts. If the

existing workforce is unwilling, Candyland hires people from outside. However, these

workers can only be assigned to low skill jobs such as manual sealing and packaging. In

extreme circumstances, the company has no choice but to suffer the cost of missed sales.

Recently, this has become quite frequently. Therefore they have decided to increase there

fixed capacity.




MANAGING DEPENDANT DEMAND INVENTORY

Dependant demand inventory management is an important area at Candyland as most of

its raw materials are imported. It is important to ensure that these materials are available

at the right time, so as not to stall the production process and delay delivery.



Materials Management and Inventory Determination

This process starts with the business plan, which is prepared based on the forecasted
                                                                                  Candyland




demand of the period, at the top level of management which, includes the heads of

finance, marketing and production. The production head then translates the business plan

into quantitative number of units of each product family that are to be produced every

month. In this way, Candyland follows the top down approach to production planning.



This production schedule is then converted into a master schedule, which is a detailed

plan of production, and this plan is for a time fence of a week. This plan is made for each

individual product.



Inventory is ordered according to the family of products. This is because products of each

family contain many similar materials, and it is not important to order materials

separately for each product. However, each product has a different flavour and

packaging, which have to be specifically ordered and managed. Thus, with the exception

of flavours and packaging, the bill-of-materials is prepared for each family of products.



The inventory reordering occurs when the concerned department issues a requisition form

to the stores. The stores have computerised inventory status files, and the requisition

forms received are fed into a complicated program of inventory management. (This

program is very complex and tailored especially for the company. However, the company

was unwilling to let us access the program due to purposes of confidentiality). This

updates the inventory status file every time materials are requisitioned, and the reorder

level are adjusted and generated.
                                                                                   Candyland




The inventory status file has the predetermined minimum level of safety stock

programmed into it, which it takes into account every time the reorder level is generated.

The lead times are also fed into the program. (Lead times are discussed in the next

section). As the lead times are fed into the program, the program gives a date on which

each raw material is to be ordered so that there is no unnecessary delay and the lack of

raw materials does not delay the production process.



Now the stores department uses these planned order releases to place purchase orders to

the vendors.

( refer to Appendix C)




Lead Time And Safety Stock

Candyland believes in carrying a large safety stock of most of its materials in order to

protect itself from the unstable conditions and volatility in the environment, so that it can

prevent interruptions to its production process. Candyland does not incur large storage

costs as most its raw materials are not very bulky. Also the company has its own

warehouses on the factory premises, and this further reduces the storage cost.



The size of the safety stock depends on two factors:

 Locally procured or imported

 Space occupied by the materials



The safety stocks for imported products are larger, while those for the locally procured
                                                                                  Candyland




materials are smaller. Most of the imported raw materials are flavours and packaging,

which are specially made for Candyland. Since the reordering cost for these items are

high due to freight costs, Candyland believes in ordering these items in bulk to reduce

reordering costs and ensure continual supply. Safety stock of one month is generally kept

on hand of raw materials such as gumbase and flavours.



Bulkiness of the items also determines the size of the safety stock. Items that occupy

large spaces, such as cartons, or shippers as they are called, and tanks of glucose, are not

stored in huge quantities since this increases the storage cost steeply.



The lead times for materials are not statistically determined, but are based on past

experiences. These lead times are important as the inventory level is dependant on them.

The lead times for imported materials are 10-12 works. The lead times for locally

procured materials varies from one day to one week, depending on the location of the

supplier. For instance, sugar is bought from the suppliers in the Jodia Bazaar at the spot

rate, which has a lead time of one day. Four days inventory of sugar is usually kept on

hand. Glucose is another important locally procured raw material, which is delivered

every day to the factory from Rafhan, Faisalabad.



VENDOR RELATIONS

Candyland prefers to keep sole suppliers for its imported raw materials as these are

tailored to Candyland's needs. For each product of Candyland has its own individual

packing materials and its own distinct flavour. However, for some locally procured
                                                                                   Candyland




materials, the company prefers to have four to five suppliers rather than a single source.

Having sole suppliers gives them an advantage in negotiating and bargaining prices,

which leads to lower costs. Furthermore, this arrangement also helps the company to

ensure good quality of raw materials. Having sole suppliers also gives the added benefits

of incorporating the delivery cost of the materials in the contract price of the goods,

thereby minimising reordering costs. Moreover, Candyland prefers to be the largest

customer of the local suppliers so that it can exercise some control over the supply side of

its production process.




SCHEDULING

Schedules are based on the demand schedule generated by the sales department. These

schedules are made weekly on Saturday afternoons by the production head and

communicated to the machine supervisors of each product line. This is done to ensure

that each department and work centre has a schedule to follow for the coming week and

has a definite workload target.



Dispatching is done on the basis of the delivery schedule for the week given by the sales

department form which they plant manger generates a weekly dispatch list. Usually at a

time there are a number of products of one family waiting in queue to be processed. The

priority is given to those items in the particular family that is to be delivered first. They

refer to this method of dispatching as first-demanded first-made. Batches that are due

first, have a very short queue time, while those that are demanded later will be processed

as and when capacity becomes available.
                                                                                 Candyland




As mentioned earlier, Candyland has different machines for each of its five product lines

and they can manufacture a wide range of items on a particular line of the same line. No

extra set up costs are incurred when any item of the same family is substituted for the

other. In this way it has a great scope of flexibility in meeting its demand targets.

However, there is a limit to the flexibility. In circumstances of shortage of labour or

excess demand of one product type , the work of one work centre cannot be shifted to

another. For instance, bubblegums cannot be manufactured on the jelly line due to

differences in production process and technology.




QUALITY CONTROL

Quality control takes place at three levels.

 Receipt of raw materials

 During production

 Finished Goods



Candyland begins its quality control with materials procurement, where having sole

suppliers ensures high quality raw materials. The raw materials are then inspected upon

delivery by the quality control department. The most rigorous inspection is done for

glucose, where the glucose is tested for the water level due to fear of adulteration by the

glucose delivery truck drivers. The rest of the materials are inspected by following the

mill's standard of 10% + 1 sampling.
                                                                                   Candyland




Quality is ensured during production by random checks conducted by the quality control

supervisors. Workers are also trained to inspect the product as it passes through the

production process. If a defect is detected, then the supervisor is called to take corrective

action.



Finished goods are inspected before the bagging stage. This is done by quality control

attendants present at each individual machine who discard any defected product found.

( refer to Appendix D)
                                             Candyland




 PRODUCTION & OPERATIONS MANAGEMENT


                  REPORT ON



A STUDY OF THE PRODUCTION PROCESS

            AT CANDYLAND




                SUBMITTED TO:

         MR. MIRZA SARDAR HUSSAIN

                SUBMITTED BY:

                MANOJ SITANI

                    BBA 5/1




      INSTITUTE OF BUSINESS ADMINISTRATION
Candyland
Candyland
                                                                                                                Candyland




TABLE OF CONTENTS




INTRODUCTION AND BACKGROUND .................................................................... 1

EXTERNAL ENVIRONMENT ...................................................................................... 1

PRODUCT LINE .............................................................................................................. 2

PRODUCTION PROCESS .............................................................................................. 2

CANDIES AND TOFFEES………………………………………………………………2
BUBBLEGUMS AND CHEW TOFFEES …………………………………………….3
JELLIES   ……………………………………………………………………………………………3

DEMAND FORECASTING ............................................................................................ 3

POSITIONING ON THE OPERATIONS PYRAMID ................................................. 4

CAPACITY REQUIREMENTS PLANNING ............................................................... 4

  FIXED CAPACITY ......................................................................................................... 5
  ADJUSTABLE CAPACITY……………...…………………………………………….5
MANAGING DEPENDANT DEMAND INVENTORY ................................................ 6
   MATERIALS MANAGEMENT AND INVENTORY DETERMINATION................ 6
  LEAD TIME AND SAFETY STOCK………………………………………………….8
VENDOR ELATIONS……………………...………………………………………….10
SCHEDULING…………………………….……..……………………………………..11
QUALITY CONTROL………………………………………..………………………..11
APPENDIX…………………………………………………….………………………..12
Candyland

								
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