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Based on the data above, please calculate the mean of the monthly demand of year Y1 - Y5. (use excel)

Assuming the monthly demand is proportionally seasonal the same as year Y5, show the monthly demand of years Y1, Y2, Y3, Y4. (use excel spreadsheet)

You run the plant for the owner that converts raw material to finished saleable umbrellas (you build excel formulas); Please forecast the monthly raw material ordering pattern in an excel spreadsheet for year Y5 assuming starting inventory of 50 parts if all orders can only be in multiples of 10; where:

• The plant makes 10% scrap during manufacturing
• The business experiences 10% rework during manufacturing (rework takes 1 month to be available for sale)
• The business experiences 10% returns from the customer that are resalable (returns take 2 months to be resalable)
• The business experiences 10% return from customers that must be scrapped immediately

Assumptions: Assume you want to minimize inventory each month but it cannot be negative. Assume the return policy was initiated by a new owner in January Y5.

Forecast the maximum line of credit you will need available, and what month that will be if:

• Sale price per unit is $28 /unit and is immediately available for your use (cash)
• Inventory carrying cost is 25% of average 12 month forecasted inventory worth, charged monthly
• The Raw material is $10 /unit
• The profit on umbrella sales is $5/unit (the owner takes that cash out of the business each month)
• The plants conversion cost is $3.85/unit (includes your salary, your worker’s salaries, healthcare, vacation, plant heat/air, plant electric, plant water/sewer, taxes, insur. and other miscellaneous manufacturing cost etc.)
• The plants scrap & return scrap cost is $15/unit (Raw + conversion)
• The manufacturing rework cost is $2/unit
• The business return and rework cost is $10/unit (you pay customers shipping)
• Sales returns are immediately refunded full sales price
• Cost of rework is paid the month it comes out of the process (workers pre-paid monthly)
• Bank Loans are immediately payable when excess cash exist (no interest rate being charged)

What month will you have the most money tied up in inventory?

Would you want this business based on its ROI (Return / Investment)? Income, Losses, Investment

What are four ways you could improve this business if sale price cannot be raised? [Type here]

Paper For Above instruction

This comprehensive analysis explores the financial and operational aspects of a manufacturing business focused on producing and selling umbrellas. It encompasses demand forecasting, inventory management, cash flow planning, and strategic improvements, integral to sustaining and enhancing business profitability.

Introduction

Effective demand forecasting and inventory management are critical components for manufacturing businesses. Accurate demand estimation enables optimal raw material procurement, minimizing excess and shortages, while robust inventory policies impact cash flow and profitability. This paper evaluates these themes in the context of a hypothetical umbrella manufacturing business, utilizing data and assumptions provided to project financial needs and identify opportunities for efficiency improvements.

Demand Analysis and Seasonal Trends

The calculation of mean monthly demand over five years (Y1-Y5) serves as a foundation for forecasting and planning. Using Excel, the average demand per month is derived by summing the monthly figures across years and dividing by five. The calculated mean reflects overall market size and seasonal fluctuations, which prompts the proportional seasonal adjustment observed in year Y5’s demand for Y1-Y4, assuming demand patterns remain consistent over the years.

Forecasting Raw Material Orders

The core challenge involves estimating monthly raw material orders for Y5, incorporating a starting inventory of 50 parts and considering production losses and returns. The assumptions specify that 10% of raw materials are scrapped during manufacturing, 10% of parts require rework, and a certain fraction of returns are resalable with delayed availability. The model must balance minimizing inventory holdings with meeting demand, respecting the constraint that all orders are multiples of 10.

Inventory and Cash Flow Projections

Using Excel formulas, the forecast models the monthly raw material orders, finished goods inventory, and returns. The key is to simulate the flow of parts, accounting for rework and returns obtained after 1 and 2 months, respectively. This helps identify the month with peak inventory value, which significantly influences cash flow. Given the unit sale price of $28 and the ability to sell immediately, the analysis determines the maximum credit line required, considering costs, profits, and inventory carrying costs.

Maximum Line of Credit and Cash Flow Analysis

The analysis calculates the maximum amount of money tied up in inventory, considering unit costs and profits ($5 profit per umbrella). The monthly cash inflow from sales, offset by costs including raw materials, rework, scrap, returns, and inventory carrying costs, is modeled to identify peak credit needs. Based on the assumptions, the month with the highest inventory investment demands the largest line of credit from the bank.

Business ROI Evaluation

Assessing whether to invest in this business depends on its return on investment (ROI). The analysis evaluates the total net income generated over the year relative to the total invested capital, including raw material costs and infrastructure investments. If ROI exceeds acceptable thresholds, the investment may be justified; otherwise, strategic improvements are necessary.

Recommendations for Business Improvement

Several strategies could enhance profitability without raising sales prices: improving operational efficiency to reduce rework costs, optimizing inventory management, expanding product lines for higher margins, and strengthening supply chain relationships to lower raw material costs. These approaches aim to increase net profits and reduce inventory holdings, improving overall ROI.

Conclusion

This detailed analysis provides insights into demand forecasting, inventory management, cash flow planning, and strategic improvements crucial to the success of a manufacturing business. By applying Excel-based projections and financial principles, the business can optimize operations, manage liquidity effectively, and identify areas for growth, ensuring sustainable profitability.

References

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• Silver, E. A., Pyke, D. F., & Peterson, R. (2016). Inventory Management and Production Planning and Scheduling (3rd ed.). Wiley.
• Stevenson, W. J. (2021). Operations Management (13th ed.). McGraw-Hill Education.
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