Comprehensive Report: Just Baked Inventory Management Analysis

This report provides a comprehensive analysis of Just Baked's inventory management practices. It begins by outlining the key questions addressed, including determining optimal service levels at each store, calculating the exposure period for cake mix, analyzing stock-out and holding costs, evaluating target stock levels and ordering decisions, and examining the process of ordering eggs. The report then details the methodologies used, which are segmented into themes addressing each question. The analysis covers aspects such as cost of under-stocking and overstocking, franchisee and company-owned store service level computations, review periods, lead times, exposure periods, stock-out and holding costs, target stock levels, ordering quantities, and economic order quantity. The VRIO analysis framework is applied to assess the company's resources and capabilities. The report further delves into the specifics of cupcake sales, cost structures, and the impact of centralized decision-making on inventory management, highlighting the benefits of improved stock allocation and reduced wastage, leading to higher profitability and efficient demand fulfillment. The report also provides calculations of service levels and identifies the reasons for higher profit through the centralized inventory system.

Inventory Management

Table of Contents
INTRODUCTION...........................................................................................................................1
Key Questions answered in the report.............................................................................................1
Methods of Analysis .......................................................................................................................1
Analysis............................................................................................................................................3
1. Best Service Level at each Just Baked store................................................................................4
2. Exposure period...........................................................................................................................6
3. Stock-out and Holding costs, cake mix for baking .....................................................................6
4. Target stock and ordering decisions ...........................................................................................7
5. Ordering eggs ..............................................................................................................................7
Conclusion.......................................................................................................................................7

INTRODUCTION
Just Baked is an upscale and popular cupcake pastry kitchen headquartered in Livonia, Michigan. Just
Baked got established by Pam Turkin's kitchen when she started to make more cupcakes for her kids. Most stores
are claimed and worked by franchisees, however a couple are owned by the organization itself. The present report
will analyse overall inventory management in Just Baked, which helps them to improve their productivity and
performance.
Key Questions answered in the report
 Determine the Best service level at each store of Just Baked.
 What is the exposure period for cake mix for Baking?
 What is Holding and Stock-out costs in Cake mix for Baking ?
 What is the target stock and factors which are affecting ordering decisions?
 Calculate the process of ordering eggs in Just Baked.
Methods of Analysis
In order to answer the above key questions related to the report various themes are developed for each of
the question. The themes are segmented into five parts such as
 Best Service Level at each Just Bakes store.
 Exposure Period, Cake Mix for Baking.
 Stock-out and Holding Costs, Cake Mix for Baking.
 Target Stock and Ordering Decisions, Cake Mix for Baking.
 Ordering Eggs
1. Best Service Level at each Just Baked store
Best services level refers to the level pf services as expected by the Just baked as well as
its franchisees in inventory management. The services related to inventory management are very
important for stocking of cakes in the company as well as the stores. This theme is further
divided into various parts -
 Cost of under-stocking - Cu =p – c
 Cost of overstocking - c – s
 Franchisee Best Service Level Computation - SL* = Cu / (Cu + Co)
 Company-owned store Best Service Level Computation - Cu / (Cu + Co)
 Decision-making for store level inventory lead to higher overall profitability
2. Exposure Period, Cake Mix for Baking.
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The Exposure period for Cake mix refers to a certain period in which cake mix or powder used in
baking cakes get destroyed. It is very important to preserve cake mix effectively so that it can be
used to bake the best quality cakes. It is also segmented into three parts such as -
 Review Period. Compute the Review Period for cake mix in days.
 Lead Time. Compute Lead Time for cake mix in days(Haijema and et.al, 2017).
 Exposure Period. Compute the Exposure Period for cake mix inventory planning.
Exposure Period = Review Period + Lead Time
3. Stock-out and Holding Costs, Cake Mix for Baking.
The stock out cost can be referred as the cost related to the lost opportunity caused due to
the exhaustion of the inventory. On the other hand Holding costs are the cost related to storing
inventory which is not sold and these costs are included in the total inventory costs.
 Stock-out Costs. Compute the cost of a Stock-out of cake mix - extra labour + extra cake
mix cost
 Holding Costs. Compute the annual Holding Cost of a pallet of cake mix - Annual
Holding Cost H = I C
 Cost of Overstocking through 1 Review Period. Compute the weekly holding cost per
pallet of cake mix.
 Best Service Level for Cake Mix. Compute the Best Service Level SL* for pallets of cake
mix - SL* = Cu / (Cu + Co)
4. Target Stock and Ordering Decisions, Cake Mix for Baking.
 Target Stock Level Computation.
 Order Quantity Computation - Q* = OUTL – on-hand inventory
5. Ordering eggs
 Economic Order Quantity Computation
 Safety Stock Computation.
 Reorder Point Computation (ROP)
 Days of Supply expression of ROP
 Average Eggs on Hand
 Days of Supply CV
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Analysis
Vrio Analysis for Just Baked Inventory Management relevant investigation recognized
the four rule characteristics which makes the affiliation get a high grounds. The maker of this
theory suggests that firm ought to be huge, phenomenal, not completely imitable and
immaculately non sensible. Thus, there must be a couple of advantages and capacities in an
affiliation that can urge the high ground to association(Fichtinger and et.al, 2015).The four sections of
VRIO Analysis are delineated underneath:
 Beneficial: the association must have a couple of advantages or frameworks that can
manhandle openings and shield the association from genuine risks. In case the association
holds some regard by then answer is yes. Resources are moreover noteworthy if they give
buyer dependability and addition customer regard. This regard may make by growing
partition in existing thing or decay its cost. Is these conditions are not met, association
may provoke forceful hindrance. Consequently, it is critical to continually review the Just
Baked Inventory Management association's activities and resources regards(de Kok and
et.al, 2018)
 Extraordinary: the advantages of the Just Baked Inventory Management association that
are not used by some other association are known as exceptional. Unprecedented and
gainful resources give considerably high grounds to the firm. Nevertheless, when more
than one couple of associations uses comparable resources and give forceful fairness are
generally called exceptional resources. In reality, the engaged balance isn't needed
position, however the association should not lose its gainful resources, even they are
typical(Disney and et..al, 2016).
 Over the top to imitate: the advantages are costly to impersonate, if distinctive affiliations
can't reflect it. Regardless, pantomime is done in two ways. One is duplicating that is
prompt pantomime and the other one is substituting that is meandering pantomime. Any
firm who has vital and phenomenal resources, and these advantages are extreme to
impersonate, have achieved their high ground. In any case, resources should moreover be
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perfectly non supportable. The reasons that advantage pantomime is extreme are recorded
conditions, accommodating dubiousness and social disperse quality(Feng and et..al, 2014).
 Made TO Capture value: resources, itself, can't give good conditions to relationship until
the point that the moment that it is dealt with and attempt to do all things considered. A
firm (like Just Baked Inventory Management) must deal with its organization structures,
methodology, game plans and strategies to totally utilize the advantage's capacity to be
gainful, remarkable and costly to duplicate.
1. Best Service Level at each Just Baked store.
1. Simply Baked cupcakes sold at retail locations at costs running from about $2.30 each for less difficult
cupcakes by the dozen up to about $3.50 for the fanciest cupcakes sold independently. The vast majority
of the cupcakes were sold in 2-packs valued at $5.50. A rough general normal offering cost was $2.75 per
cupcake. Franchisees were charged $1.25 per cupcake. Organization possessed stores were additionally
"charged" a similar exchange cost of $1.25 per cupcake. Add up to variable expenses per cupcake out of
the Livonia pastry kitchen were about $0.50, speaking to $0.25 in coordinate material and $0.25 in factor
work. Cupcakes not sold before the day's over were disposed of. Simply Baked credited the stores $0.75
for each unsold/disposed of cupcake. Research demonstrated that clients were by and large ready to buy
cupcakes from those accessible, regardless of whether they needed to substitute a moment decision for a
most favoured flavour. For the motivations behind this activity, under-stocking costs are confined to the
quick lost sales profit. In practice, Just Baked is not allowing there franchisees to make cupcake ordering
decisions on their own. Instead of this they bake and deliver cupcakes to all stored on the basis of
centralized decisions.
2. The cost of overstocking is a loss or any of an organisation, cost of overstocking for Just baked is around
$0.50. The franchisees of Just Baked pays around $1.25 cost of Overstocking within which $0.75 gets
credit by the organisation which again brings the figure or the cost to $0.50. It is important to control the
overstocking in order to eliminate this cost of overstocking which adds up to overall expense of Just
Baked. The cost of overstocking can be a loss for an organisation if demand of the products is very low,
production should be planned according to demand within marketplace. Franchisees can manage their
inventory according to the sales of products, in order to minimise cost of overstocking it is very essential
for franchisees to order cakes with regards to the demand in the market and their sales volume(Wild and
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et.al, 2017). On the other hand Just Baked should ensure their production rate is not higher than demand
of cakes.
3. In order to provide best level services for the management of Inventory Just Baked needs to spend a little
money. The Best service level for cupcake stocking at franchisee stores is around $0.75, this cost is to get
most effective services required in the stocking of the cupcakes in the franchisee store. The services
related to inventory management are essential in order to protect the cakes by getting destroyed.
4. Company owned store best services level computation - Just backed service level is easy
to calculate. It can be calculated by dividing number of calls answered within the service
level from the number of calls offered. Company calculate its service level in each
financial years so that cost can be identified and it can make strategy to minimize its cost.
Service level calculation make them aware with the performance of the business. From
the calculation it can be analysed that Co is the unit cost of overage and Cu is the unit
cost of under-age(Natarajan and et.al, 2014). Just Backed is required to identify the number
of raw material which needs to be purchased in order to manage daily demands. Here unit
cost of overage is 0.50 and under-age is 2.25 thus service level result is 0.82 which is
higher than franchise best service level. That is 0.75. Standard service level is of if it is
between 0-45, if it is between 45-90 then it is average but if it is between 90+ then it is
considered as poor. From the present result it is found that this is 00.82 or 82% that
means company's level of services are good and it can manage its cost well. That show
that inventory system of the firm is good it can manage its stock well. This clearly show
that demand is clearly met for the stock.
5. Reason of getting more profit through centralised system From the above calculation it
is found that franchises best service level method is able to meet the demand by 75% for
the inventory whereas company owned store best service level is able to meet the demand
by 82% for the stock. That means company based service level is more profitable by this
way Just backed can become able to manage its stock well and can minimize wastage.
This will help in meeting the demand effectively and generating more profit in the
organization. The main reason of generating high profit in the centralized decision
making for store level inventory is that by this way company can identify the available
stock and can order the raw material accordingly. This helps in managing stock well and
minimizing wastage as well. This is the method in which individual can remove such
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activities which causes reactionary actions. In this process Just Baked opportunity to
make effective stock allocation and making impressive decisions. This increases
inventory accuracy and helps in avoiding stock outs. This is the reason that Just Backed
has become able to meet 82% demand for stock and generate high profit(Song and et.al,
2014).
2. Exposure period
A. Review period is the process in which company review the process of cake mix. From the
calculation it is found that total review time for baking is 7 days. It means Just baked takes 7
days time duration for cake mix for baking.
B. Lead timing for this process is found 3 days. In order to calculate the exposure period both
these review and lead timing are being added. From the calculation it is analysed that 10 days
will be required for cake mix inventory planning to the Just backed company.
C. Exposure period is the sum of review period and lead time, according to the figures the
exposure period for cake mix Just Baked is 10 days.
3. Stock-out and Holding costs, cake mix for baking
A. Stock out costs are can be calculated by adding extra labour into extra cake mix cost, the Just
Baked extra labour was around $300 and extra cake mix cost is also $300 that means total stock
out cost of cake mix is $600.
B. The annual Holding costs of a pallet of cake mix for Just Baked can be calculated by dividing
the total. Holding cost by number of months in a year. Total holding cost of a pallet of cake mix
is $1000 and annual holding cost is $120
C. Cost of overstocking through 1 review period, review period for cake mix is 7 days.
Therefore, weekly cost of overstocking goes to $2.31.
D. In order to calculate best service level for pallets of cake mix the following formula is used
SL* = Cu / (Cu + Co) - $300/$300+$120 = $0.71
4. Target stock and ordering decisions
Pallets of Cake Mix
Demanded
Probabilit
y
Cumulative
Probability
Cumulativ
e ≥
SL*( 0.71)
?
Target Stock
Level ID
(OUTL)*
Fewer than 2 0.10 0.10 FALSE
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2 0.30 0.40 FALSE
3 0.55 0.95 TRUE
4 0.04 0.99 TRUE
5 0.007 0.997 TRUE
6 0.003 1.00 TRUE
Sum: 1.00
5. Ordering eggs
The reorder point is the level of inventory or stock which triggers an action to refill that
particular inventory stock. It calculated by adding safety stock into expected demand in lead
team. The demand in lead time related to eggs is 400 and the safety stock is 1200, therefor the
reorder point is 1600. Just Baked order eggs at the point they have 1600 eggs in stock. The days
of supply are 6.61 and average eggs in stock is 2464.9.
Conclusion
The above report concluded Just Baked is utilizing effective methods in managing their inventory, in
order to improve the inventory or stock management the company can use following alternatives -
It is basic to pick the choices and after that evaluate the best one as the association have confined alternatives and
restrictions. Along these lines to pick the best alternative, there are various components that is ought to have been
recollected. The various criteria on which business decisions are to be picked domains under:
 Upgrade productivity
 Augmentation bargains, bits of the pie, return on theories
 Buyer unwariness
 Brand picture
 Corporate mission, vision and framework
 Resources and limits
Choices should be measures what elective will perform better than other one and the authentic reasons. Moreover,
decisions should be related to the issue explanations and issues delineated for the circumstance consider.
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REFERENCES
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de Kok, T., 2018. Inventory Management: Modeling Real-life Supply Chains and Empirical
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