Question

1. You own a garment factory and have two important seasons in the year: Summer and Winter. What type of inventories are needed to ensure a service level as high as possible at the same time that you keep your inventories as low as possible? Explain your answer.
2. Explain with your own words the difference between Firm, Trading and Future Planning Zone. Think of any industry you like and provide an example of the meaning of those zones in that industry.
3. In which part of the CPFR process should an MSA be documented and why?

Answer 1

1. You own a garment factory and have two important seasons in the year: Summer and winter. What types of inventories are needed to ensure a service level as high as possible at the same time that you keep your inventories as low as possible? Explain your answer.

Answer 1:

The business has two important season viz. summer and winter and in order to ensure that the service level is as high as possible, the type of inventory required to be maintained are:

1. Raw material:

Garment Company should ensure that it purchases and maintains sufficient amount of raw material so that the production processes can be carried out in a smooth manner. Since the company wants to keep the inventory as low as possible, the company should at least maintain the safety stock and before the danger level arises, the company should place the order for the necessary required inventory.

2. Work in progress Inventory:

By anticipating the demand for the products, the company should start its production. However, the production should be managed in such a way that it should not increase the quantity of finished goods beyond the forecasted demand. Work in process inventory includes raw material, sub parts or the designs associated with the product, etc. that are in the process of manufacturing activity.

3. Finished goods inventory:

These are the number and quantity of finished products stored in the warehouses. The company should not manufacture more products if the forecasted demand and the quantity of finished goods has been equalised. Under such situation, the company should stop the further manufacturing process until the sufficient quantity of finished goods are sold in the market and then depending on the further forecast of the demand, the company can start the manufacturing process for the production of the necessary required finished products.

4. Packaging material:

The garment company should maintain the safety stock of the packaging material required to pack and supply the finished products in the market.

2. Explain with your own words the difference between Firm, Trading and Future Planning Zone. Think of any industry you like and provide an example of the meaning of those zones in that industry.

Answer 2:

Difference between Firm, Trading and Future Planning Zone:

Product delivery schedules shown in the scheduling agreement are divided into three time zones viz. Firm zone, trading zone and future planning zone.

1. Firm zone:

This zone specifies that the firm has asked the supplier for producing the raw material for his firm. If the schedule lines fall within this zone than firm is considered as fully binding. If any of the scheduled line is cancelled within this zone, the supplier of the raw material or the vendor can charge the full cost of production of raw material and the cost of inputs required for the production of raw material to the firm on account of cancelling the order by the firm.

2. Trading zone:

This zone specifies that the firm has asked the supplier for procuring the input material for the production of raw material for his firm. . If the schedule lines fall within this zone than firm is considered as semi binding. If any of the scheduled line is cancelled within this zone, the supplier of the raw material or the vendor can charge the cost of inputs required for the production of raw material to the firm on account of cancelling the order by the firm.

3. Future planning zone:

Schedule lines falling beyond the firm zone and the trading zone lie within the future planning zone or forecast zone. This zone shows that the procurement of input for the production of raw material and the production of raw material has not been started yet.

Let us take an example of Parle Company which is involved in the manufacturing of biscuits for people. The major raw material required for the production of the biscuit is wheat floor.

1. Firm zone: if Parle company has placed an order for the production of wheat flour to its vendor Sunder factory and if parle cancels the order when Sunder factory has started the production of wheat flour, than schedule line will fall within the firm zone and Parle will be liable to pay the cost of procuring the wheat and the cost of production of wheat flour to the sunder factory.

2. Trading zone: : if Parle company has placed an order for the procurement of wheat to its vendor Sunder factory and if parle cancels the order when Sunder factory has procured the wheat and is about to start the production of wheat flour, than schedule line will fall within the trading zone and Parle will be liable to pay the cost of procuring the wheat to the sunder factory.

3. Future planning zone: schedule lines falling beyond the firm zone and the trading zone lie within the future planning zone or forecast zone. This zone shows that the procurement of wheat for the production wheat flour and the production of wheat flour have not been started yet and Parle Company is not liable to pay any amount to the Sunder factory for cancellation of any kind of order.

3. In which part of the CPFR process should an MSA be documented and why?

Answer 3:

CPFR process

Collaborative planning, forecasting and replenishment is a concept used for cooperative inventory management across the supply chain of the company.

There are nine steps in CPFR process as follows:

1. Making of the front end agreement.

2. Making of the joint business plan.

3. Conducting sales forecast.

4. Enlisting exceptions for sales forecast.

5. Resolving sales forecast exception.

6. Making of the order forecast.

7. Enlisting exceptions for order forecast.

8. Resolving order forecast exception.

9. Generating order.

The first two steps are termed as the joint planning zone. 3rd, 4th and 5th steps are termed as the collaborative forecasting zone whereas the 6th, 7th, 8th and 9th steps are considered as the collaborative replenishment zone.

MSA is a short form of master scheduling agreement. It is a long term agreement between a firm and its supplier for a particular material or service by taking into consideration the particular framework of time.

MSA should be documented in the first zone or the joint planning zone of the CPFR process as in this zone making of front end agreement takes place and since MSA is a scheduling agreement, it would take place in the first zone where front end agreements are made.