Optimal Supply Chain Strategy for Cupcake Manufacturing

This project aims to find the optimal supply chain strategy for cupcake manufacturing, focusing on increasing efficiency, maintaining quality, improving order processing, increasing customer service, and reducing costs.

MGT2320 W19
Capstone Assignment
University:
Student Name:
Student Number:
Section:
Submission Date:

Table of Contents
1. Introduction....................................................................................................................3
2. Supply chain details.......................................................................................................3
3. Location strategy...........................................................................................................3
4. Layout strategy..............................................................................................................3
5. Process strategy............................................................................................................3
6. TQM Tools.....................................................................................................................3
7. Appendices....................................................................................................................4
7.1. Cause and Effect diagram (a. k. a. Fishbone)........................................................4
7.2. SPC Charting..........................................................................................................5
7.3. ABC Analysis..........................................................................................................6
7.4. EOQ Calculations....................................................................................................7
7.5. MRP diagrams and calculations.............................................................................8
7.6. Staffing..................................................................................................................11

1. Introduction
The fundamental goal of supply chains is to efficiently deliver a product to a consumer.
In bakery goods like cupcakes, the supply chain starts with procuring raw ingredients
and ends with the delivery of baked cupcakes to the end consumer. There are various
activities at each stage which require careful planning and inventory optimization for
efficiently organizing the overall supply chain while maintaining desired quality. Short
shelf-life of ingredients and changing consumer tastes are major factor that encourage
inventory optimization. The project is aimed at finding optimal supply chain strategy with
objectives to increase efficiency, maintain quality, improve order processing, increase
customer service and reducing cost.
2. Supply chain details
The bakery will purchase various ingredients either directly from farmers or agricultural
cooperatives. Basic ingredients like flours, sugar, eggs, fruits, cream milk are widely
available, so these can be purchased from whichever supplier offers the lowest prices.
However, some special ingredients, such as vanilla bean paste and flavoured jelly
crystals might be exclusively available with limited number of suppliers. In this case, the
bakery needs to find affordable supplier which provide enough flexibility, least delivery
lead and better price.
After procuring raw materials, during the manufacturing stage of the supply chain, the
bakery converts ingredients into cupcakes. The specific manufacturing process is
adopted by the company to produce a batch of 12 units “Crazy Good Custard Filled
Cupcakes”. Then, it is packaged according to type and demand of customers The
following diagram presents a typical supply chain network of cupcake manufacturing by
the bakery.

Figure 1: Supply chain network of cupcakes manufacturing
The bakery may want to be a wholesale bakery that sells to retail stores or may open its
own retail location, or both. The bakery should also use website as an extension of the
retail location to expand the availability of products to wider consumer base. As
depicted in the above diagram, the bakery has three types of customers which may
have varying demands. The bakery will supply both directly to consumers and through
wholesaler and retail stores for delivering to end consumer.
3. Location strategy
There are many affordable commercial spaces available, if the bakery wants only to
manufacture cupcakes for delivery to wholesalers and retailers. However, as the
company plans to sell them also to end consumer, it will need a formal space in a
catchy location with space for a kitchen as well as public consumption. Though
population density will be the key criteria to select a location, it should also be noted that

the suburban community may offer a limited consumer base of the local residents.
Therefore, the bakery should estimate the number of potential consumers in nearby
geographies and plan its wholesaler-retailer network accordingly to serve larger
consumer base. This will require having a bigger kitchen area to meet growing demand
as compared to a small bakery which only serves local consumer.
4. Layout strategy
According to the business plan of the bakery and manufacturing process, the layout
strategy should be planned such that optimum utilization of available space can be
ensured. The baker wants to produce enough quantity that can be supplied to
wholesalers and retailers. The kitchen space should be ideally bigger than the public
consumption space with enough storage space for inventory. Besides, it should also
ensure a pleasant experience for the customers by having enough space for free
movements.
Figure 2: Layout plan for cupcakes manufacturing

5. Process strategy
Process strategy of a manufacturer is an approach to transform raw materials into
finished goods. There are four process strategies which depend on the volume and
variety of the output product.
 Process focus strategy: low volume and high variety of output goods;
 Repetitive focus strategy: moderate volume and variety of output goods;
 Product focus strategy: high volume and low variety of output goods;
 Mass customization strategy: high volume and high variety of output goods.
The bakery will mostly produce speciality cupcakes with limited variety but large
quantity; hence it is recommended to use product focus strategy. In this type of process
strategy, the fixed cost is high but variable costs are often low; therefore, the cost
improvement will mostly be dependent upon better utilization of facility.
6. TQM Tools
The Total Quality Management is an approach to guide quality policies of the
operations. Flowcharting can be used to help the management of the bakery to identify
areas of quality concerns. Flowcharts are created using the logical steps of the
production order to finish the production job. Different geometrical objects such as
parallelograms, rectangles and rhombus are used to denote different activities and
decision points of a production process.
Another useful TQM tool is Histograms which is a kind of bar charts. It shows the
distribution of certain variable over time by taking time on x-axis and the variable-to-be-
studied on y-axis. Histogram can be used by the bakery to measure number of
customer visits during different time of the day by recording past history. It will help the
management to better plan daily schedule of production with respect to visiting
consumers.

7. Appendices
7.1. Cause and Effect diagram (a. k. a. Fishbone)
Storage conditionsTemperature
Humidity
ProcessPersonalMachineries
Low quality of
cupcake
Working
Condition Raw Material Measurement
Improper
procedure
Wrong
baking time
Operating
condition
Old machines Fatigued
Lack of training
Scales error
Improper ratio
mixing
Brand of
ingredients

7.2. SPC Charting
162.00
164.00
166.00
168.00
170.00
172.00
174.00
176.00
178.00
180.00
1 2 3 4
Sample M ean X-Bar
Sample
Sample Mean X-Bar Chart
Mean X-Bar
X-double bar
UCL x-bar
LCL x-bar
X-Double bar = 174.16
UCL x̅ = 179.10
LCL x̅ = 169.21
0.00
5.00
10.00
15.00
20.00
25.00
30.00
1 2 3 4
Sample Range R
Sample
Sample Range Chart
Range R
Control Line R-Bar
Upper Control Limit UCL (R)
Lower Control Limit LCL (R)
R-Bar = 13.25
UCL (R) = 24.70
LCL (R) = 1.80

7.3. ABC Analysis
DESCRIPTION ANNUAL DEMAND COST Total Annual Cost
= Annual Demand X Cost
Share of Item in
Total Annual Cost
Accumulated
Share ABC Classification
Item A 200 242 48,400 28% 28% A
Item J 400 60 24,000 14% 42% A
Item K 1000 21 21,000 12% 54% A
Item G 200 100 20,000 12% 66% A
Item E 160 100 16,000 9% 75% A
Item C 150 100 15,000 9% 83% B
Item B 400 30 12,000 7% 90% B
Item D 100 65 6,500 4% 94% B
Item H 300 20 6,000 3% 98% C
Item F 175 24 4,200 2% 100% C
Total 3085 173,100
Identifying classification for each item
Category A
Category B
Category C
75-80% share of Total Annual Cost
15-20% share of Total Annual Cost
3-5% share of Total Annual Cost
High Cost Items which need high control
Medium Cost Items which need moderate control
Low Cost Items which need liitle control
Inventory management policies/rules for each classification
ABC Classification DESCRIPTION
A Item A
A Item J
A Item K
A Item G
A Item E
B Item C
B Item B
B Item D
C Item H
C Item F
Total
2.0
Calculating the number of items counted per day if the policies are:
A items every month(20 working days);
B items every quarter (60 days);
C items every six months (120 days)
3085
650
475
Per day requirement under each classification
8.2
2.7
150
400
100
300
175
Total Items in each classification
1960
ANNUAL DEMAND
200
400
1000
200
160

7.4. EOQ Calculations
Given that,
P = Purchase Cost of per unit: $12 a pan
D = Annual demand: 3600 pans of Brownies per year
Co = Cost per order: $200 per order
Ch = Cost of holding per unit: $0.55 per pan
Wd = Working days in a year: 150 days
L = Lead time: 3 days
Solutions:
1 Economic Order Quantity EOQ = = = 1618 pans
2 Average inventory = = = 809 units
3 Number of order per year N = = = 2 orders
4 Reorder point = Demand per day X Lead time = = 72 pans
5 Expected time between orders T = = = 67 days
6 Annual setup cost = = 2 X $200 = $400
Annual holding cost = Average Inventory X Ch = 809 X $0.55 = $445
7 Total Cost for managing inventory = Setup cost + Holding cost = $400 + $455 = $845
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7.5. MRP diagrams and calculations
Product Structure Tree
Level 0
Level 1
Level 2
Crazy Good Custard Filled Cupcakes
(12)
Vanilla Bean
Cupcakes (1)
Self raising flour
(225)
Salt (1)
Large Eggs (2)
Caster Sugar
(150)
Salted Butter
(180)
Sour Cream
(125)
Queen Vanilla
Bean Paste (2)
Custard Filling
(1)
Thickened cream
(125)
Full cream milk
(125)
Queen Vanilla
Bean Paste (1)
Caster Sugar (55)
Cornflour (1)
Egg yolks (2)
Jelly (1)
Flavoured jelly
crystals (1)
Boiling water
(250)
Gelatine powder
(1)
Icing (1)
Thickened cream
(300)
Vanilla Bean
Paste (1)
Seasonal fruit (1)
Bill of material
Level Item Unit of measure Quantity
0 Crazy Good Custard Filled Cupcakes unit 12
1 Vanilla Bean Cupcakes unit 1
1 Custard Filling unit 1
1 Jelly unit 1
1 Icing unit 1
2 self raising flour unit 225
2 salt pinch 1
2 large eggs unit 4
2 caster sugar unit 205
2 salted butter unit 180
2 sour cream unit 125
2 Queen Vanilla Bean Paste unit 4
2 thickened cream unit 425
2 full cream milk unit 125
2 cornflour unit 1
2 flavoured jelly crystals pkg 1
2 boiling water ml 250
2 gelatine powder pkg 1
2 seasonal fruit pkg 1

Selected inventory information file *Total no of batch = 5
Level Item Unit of measure Planned
Production* Lead time Lot size Safety Stock Project on
hand
Schedule
receipts
2 self raising flour unit 1125 1 day L4L 200 200 100 on day 3
2 large eggs unit 20 2 days FOQ 12 0 0 0
2 caster sugar unit 1025 2 days 25 25 60 0
2 sour cream unit 625 2 days LFL 0 0 150 on day 2
2 Vanilla Bean Paste unit 20 3 days FOQ 25 2 2 0
2 thickened cream unit 2125 1 day FOQ 1000 100 100 0
2 full cream milk unit 625 4 days FOQ 50 0 25 50 on day 1
MRP Schedules
Item: self raising flour Level Code: 2 Safety Stock: 200
Lot Size: L4L Lead time: 1 day
1 2 3 4 5 6 7
1125
100
200 200 300 300 300 300 200
1025
1025
1025Planned order release
Days
Gross Requirement
Schedule receipts
Project on hand: 200
Net Requirements
Planned order receipts
Item: large eggs Level Code: 2 Safety Stock: 0
Lot Size: FOQ 12 Lead time: 2 days
1 2 3 4 5 6 7
20
0 0 0 0 12 12 4
8
12 12
12 12
Net Requirements
Planned order receipts
Planned order release
Days
Gross Requirement
Schedule receipts
Project on hand:
Item: caster sugar Level Code: 2 Safety Stock: 25
Lot Size: 25 Lead time: 2 days
1 2 3 4 5 6 7
1025
60 60 60 60 60 60 10
990
1000
1000
Project on hand: 60
Net Requirements
Planned order receipts
Planned order release
Days
Gross Requirement
Schedule receipts
Item: sour cream Level Code: 2 Safety Stock: 0
Lot Size: LFL Lead time: 2 days
1 2 3 4 5 6 7
625
150
0 150 150 150 150 150 0
475
475
475
Schedule receipts
Project on hand: 0
Net Requirements
Planned order receipts
Planned order release
Days
Gross Requirement

Item: Vanilla Bean Paste Level Code: 2 Safety Stock: 2
Lot Size: FOQ 25 Lead time: 3 days
1 2 3 4 5 6 7
20
2 2 2 2 2 2 7
18
25
25
Gross Requirement
Schedule receipts
Project on hand: 2
Net Requirements
Planned order receipts
Planned order release
Days
Item: thickened cream Level Code: 2 Safety Stock: 100
Lot Size: FOQ 1000 Lead time: 1 day
1 2 3 4 5 6 7
2125
100 100 100 100 1100 2100 875
125
1000 1000 1000
1000 1000 1000Planned order release
Days
Gross Requirement
Schedule receipts
Project on hand: 100
Net Requirements
Planned order receipts
Item: full cream milk Level Code: 2 Safety Stock: 0
Lot Size: FOQ 50 Lead time: 4 days
1 2 3 4 5 6 7
625
50
25 75 75 75 125 175 0
450
50 50 450
50 50 450
Order 9 lot of FOQ 50
Planned order receipts
Planned order release
Days
Gross Requirement
Schedule receipts
Project on hand: 25
Net Requirements
Summarised MRP Report
Level Item Unit of measure Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7
2 self raising flour unit 0 0 0 0 0 1025 0
2 large eggs unit 0 0 12 0 12 0 0
2 caster sugar unit 0 0 0 0 1000 0 0
2 sour cream unit 0 0 0 0 475 0 0
2 Vanilla Bean Paste unit 0 0 0 25 0 0 0
2 thickened cream unit 0 0 0 1000 1000 1000 0
2 full cream milk unit 50 50 450 0 0 0 0

7.6. Staffing
a. Daily Demand: 300 cupcakes
b. Number of cupkaes in one batch:
12 cupcakes
c.
Planned production of batch:
= a / b 25 batches
d.
Standard time to make a batch of
cupcakes: 86 mins
e.
Total time required to meet daily
demand: = c X d 2150 mins
f.
Total work day available:
(4.5 hours X 60 mins) 270 mins
g.
Number of workers required:
= e / f 8 workers