Operations management

Section- 2
Case analysis- Toffee Inc.

Name Roll Number

Selvi Shah 1711186
Aarzoo Vohera 1712145
Aayush Modi 1711310
Shubham Padhiar 1811131
Vansh kotadia 1811393

Submitted to Professor Arvind Panicker

 Introduction
 Toffee Inc. was established by Mr. Hansmukhlal Jadhwani (the owner and sole proprietor)
with his two younger brothers. As the business grew the owner expanded their reach in the
market by increasing the manufacturing capacity and new technology. This case talk about
one of the product namely- seven star. Toffee Inc. is into the candies and toffees and among
them the most expensive product is the seven star a chocolate bar. We can see that the sales
team and high level people of firm are concerned about the future sales and demand as the
product has a seasonal demand.

Q-1. Forecast the demand expected by Toffee Inc. for the year 2011. Break it down into
quarterly forecasts and see if that gives you a better picture of the expected demand.
A-1

 The above graph is the representation of the quarterly demand of seven star chocolate bar
from 2006 to 2010. According to the figure 1, the demand or sales is the highest during the 3rd
quarter and lowest during the 1st quarter. The overall demand during the 5-year period as per
the data has an increasing trend except for decline in the 4th quarter for the year 2009.
 And by comparing the historical we can have a prediction that the demand for 2011 will have
an increasing trend. As it has been seen in the past years. If the increasing trend continues in
2011 as well then demand can be at 5% increase as compared to 2010. As there are quarterly
variations in demand, we will estimate the demand by calculating the quarterly/seasonal
demand while considering the seasonal factors. The projections are as follows
Year 2006 2007 2008 200 2010 Seaso Seasonal Foreca
 9 nal Factors sted
Aver Deman
age d for
2011
Q1 2215 2215 2574 275 3188 2588. 0.74227 3094
0 4 8684
Q2 3035 3254 3585 380 4390 3616. 1.03633 4319
5 8 3916
Q3 3589 3980 4212 464 4747 4234. 1.21436 5061
5 6 1504
Q4 2885 3263 3646 421 3552 3511. 1.00702 4197
2 6 5895
Averag 2913 3178 3504 385 3969 Total of 16671
e .25 3 .25 2011
Total 11724 1271 1401 154 1587 Average 4168
2 7 12 7 2011
Grand 69742
Total
Overall 3487.
Averag 1
e
2011 4167. 5%
Foreca 713 incre
sted ase
Averag
e

 First we have calculated the quarterly average of all the 5 years and named it as a seasonal
average and then we have determined the seasonal factor indices by dividing the seasonal
average of each respective quarter with the overall average of all the data of the 5 years.
 After that, we have estimated the total annual average for the year 2011 by assuming it to be
5% more than that of 2010’s demand (5% increase of 3969.25= approx. 4168). From that
forecasted average demand of 2011 we have forecasted the quarterly demand for the whole
year by dividing the seasonal factor indices with that forecasted average demand. Thus, we
 arrive at the total annual demand for the year 2011 by summing up the quarterly demand
which is 16,671 i.e., approximately 16700 cartons sold for 2011.

Q-2 Using the expected demand forecasted, calculate the EOQ for each of the raw materials
required. Using this EOQ value, calculate the frequency of purchase and the expected total
cost incurred in purchasing inventory for the year 2011.

A-2The demand forecast for the year 2011 is given 14504 cartons. In each and every carton, it
contains 100 bags in which there are 20 bars each. So, the total demand for 2011 will be
14504 * 100 *20 = 290, 08,000 grams chocolates.

Annual demands for other ingredients are as shown in the below table: (calculations are
shown in excel)

Grams per bar Annual Demand (in IN KG EOQ

gms)
Dark Chocolate 7.8 226266300 226266.3 3136
Coco Butter 6.2 179852700 179852.7 4469
Cocoa Powder 5.1 147943350 147943.35 2483
Dry Fruits and 4 116034000 116034 4651
Nuts
Other ingredients 6.9 200158650 200158.65
Total 30

The frequency of purchase (i.e. no. of times for placement of the order) using EOQ for the
year 2011 is counted as;

Number of order=Annual demand/ EOQ

a) For Cocoa powder no of order are=147943.35/2483

= 60 orders
b) For Cocoa butter no. of order are = 179852.7/4469

= 40 orders

c) For Dark chocolate no of order are = 226266.3/3136

= 72 orders
d) For dry fruits and nuts no. of order are = 116034/4651

=25 orders.

The expected total cost considered Incurred in purchasing inventory is: (calculations are
shown in Excel)

Total cost = Total purchasing cost+ total ordering cost + total Carrying cost/ holding cost

a) For Cocoa powder:

Purchase Price 17782790.67

ordering cost 59587.25031
Carrying cost 59686.5624

Total Cost 17902064.48

b) For Cocoa butter:

Purchase Price 12952991.45

ordering cost 48290.47637
Carrying cost 48281.53783

Total cost 13049563

c) For Dark chocolate:

 Purchase Price 23814528.08
ordering cost 57727.3771
Carrying cost 57758.73363

Total cost 23930014.19

d) For dry fruits and nuts:

Purchase Price 10466266.8

ordering cost 52386.53589
Carrying cost 52444.67855

Total cost 10571098.01

 Hence, the total cost for purchasing all the inventory is:

Total cost = 17902064.48+ 13049563+23930014.19+10571098.01

= Rs.65452740
Q-3 Given the range of discounts available on bulk buying, should Toffee Inc. stay with the
EOQ order or should it try to take advantage of the bulk buying discount. 
A-3 Cocoa Powder
1000-2000 2001-4000 4001-6000 6000+ EOQ
Quantit 1500 2500 4500 7500 2675
y
ordered
Purchas 20711615.9 20694399.3 20677182.6 20659966.0 20712773
e cost 4 6 2
Orderin 114777.589 68866.5534 64361.2648
g Cost
Holding 36090 60100 64363
Cost
Total 20862482.5 20823365.8 20841497.2
Cost 2 5 6
No. Of 114.7775 68.8665 38.2591 22.9555 64.3612
orders
Total 172166.383
cocoa 5
powder
needed
(in KGs)
Holding 0.4
cost
Orderin 1000
g Cost 
Price 120.3 120.2 120.1 120

For cocoa powder, they should go for bulk buying of 6000+ quantity as they are getting at a price
of 120 and overall cost is also less.
COCOA BUTTER
1-1000  1001-2000  2001-3000  3000+ EOQ
Quantit 750 1500 2500 3750 4820.7314
y
ordered
Purchas 15082180.2 15080087.2 15075901.2 15073808.2 15073808.2
e cost 9 9 8 8 8
Orderin 334880.495 167440.247 83720.1237 55813.4158 52100.0548
g Cost 5
Holding 8106.75 16211.25 27011.25 40511.25 52078.3615
Cost
Total 15425167.5 15263738.7 15186632.6 15170132.9 15177986.7
Cost 4 9 6 5
No. Of 279.067 139.5335 83.7201 55.8134 43.4167
orders
Total 209300.309
cocoa 4
butter
needed
(in KGs)
Holding 0.3
cost
Orderin 1200
g Cost 
Price 72.06 72.05 72.03 72.02

For cocoa butter, they should go for bulk buying option of 3000+ quantity as they are getting at a
lesser rate compared to others and less overall cost also i.e. 72.02.
Dark Chocolate
1-1250 1251-2500 2501-3750 3750+ EOQ
Quantity 750 1500 3000 4000 3381.0233
ordered
Purchas 27726889.6 27726889.6 27713724.0 27700558.3 27700558.3
e cost 9 9 3 6 6
Orderin 280867.511 140433.756 87771.0974 65828.3231 62303.8085
g Cost 9 1 3
Holding 13820.625 27641.25 55256.25 73640 62244.6406
Cost
Total 28021577.8 27894964.7 27856751.3 27840026.6 27825106.8
Cost 3 7 9 1
No. Of 351.0843 175.5421 87.7710 65.8283 77.8797
orders
Total 263313.292
dark
chocolat
e needed
(in KGs)
Holding 0.35
cost
Orderin 800
g Cost 
Price 105.3 105.3 105.25 105.2

For Dark Chocolate, they should go for bulk buying of 3750+ quantity as they are getting at a
price of 105.2 which is lesser in comparison to other options.
Dry-Fruits and Nuts
0-2500 2501-5000 5001-7500 7500+ EOQ
Quantit 750 1500 3000 4000 5020.56359
y
ordered
Purchas 12152921.1 12179927.6 12173176.0 12166424.4 12166424.4
e cost 9 8 6 3 3
Orderin 378090.881 189045.440 45010.8192 33758.1144 56481.3403
g Cost 4 7 9
Holding 8437.5 16912.5 33806.25 45050
Cost
Total 12539449.5 12385885.6 12251993.1 12245232.5 12279449.8
Cost 7 2 3 5 7
No. Of 180.1432 90.0216 45.0108 33.7581 26.8958
orders
Total 135032.457
dry 7
fruits
and nuts
needed
(in KGs)
Holding 0.25
cost
Orderin 2100
g Cost 
Price 90 90.2 90.15 90.1

For Dry fruits and nuts, they should go for EOQ as the total cost is less in case of EOQ model.
And next best option can be quantity purchase of 0 to 2500 as the price is 90.
Q 4. On the basis of your calculations and your common sense, comment on what is the best
approach for Toffee Inc. towards its demand planning
A-4The best approach for TOFFEE INC. towards its demand planning can be seasonal discounts.
 The company should go for seasonal discounting means they should provide discounts when
the sale is less and when the sale is more they should not provide any discounts. And if Toffee
Inc. Demand Planning chooses to pick the value entrance system, it should set the lower cost
than competitors. The organization will be able to win market share based on discounted
pricing when the sale is less. Be that as it may, the executives ought to know about the
potential reprisal from rivals as an undesired price war.
 The decision of the skimming procedure will require clear communication of separation basis
and how such separation legitimizes the additional cost.
 Because the present clients are not keen on knowing the 'cost' but an all-out cost associated
with securing, devouring and discarding the product.
12 | P a g e