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Demand Management Plan for Wild Dog Coffee Company
Elizabeth Blackburn-Goslin
Capella University
MBA-FPX5016
August 29, 2021
Introduction
Companies use a demand management plan as a necessary tool to forecast future demand. “Forecasting methods are mathematical strategies used to predict future events and plan resources”(Krajewski et al, 2019). The Wild Dog Coffee Company is using the demand management as a well of maintain their levels of supplies, while meeting their specific needs.
Advertising Impact on Product Demand
The Wall Street Journal hosted a panel called “Advertising is dead; Long live advertising? at the Cannes Lions advertising festival on June 22, 2016. One of the biggest topics at Cannes this week has been how to win consumers’ attention amid a swiftly changing technology landscape and backlash against a perceived overload of advertising. (Wall Street Journal, 2016).
Wild Dog Coffee Company goal is to make their advertising attractive enough to have consumers come to their Coffee Shop. How can they accomplish this?
There are many facets of marketing, social media, television ads, and printed material. What would work best for a smaller company like the Wild Dog Coffee Company? Wild Dog Coffee Company would need to learn about what the consumer wants, and how much are they willing to pay. Wild Dog Coffee Company is primarily in the business of selling coffee. Do they add an additional product to go with their coffee to entice a larger customer base? Perhaps bakery items or snacks to augment the menu of coffee. To further analyze the impact that advertising has on product demand, we would need to look further into Wild Dog Coffee Company’s advertising costs.
Demand
Based on the bean use and advertising costs associated with the bean use, during month 1 they used 987 lbs. of beans with $1,050.00 spent on advertising. In month 2 the advertising budget was increased to $1,500.00 and used 1,412 beans. The increase of both the advertising budget and the amount of beans used increased by 43%. The advertising budget for month 3 and 4 was reduced as well as the amount of beans. Management reviewed the advertising costs versus the amount of beans over the six-month period and the trend showed the more advertising money spent, the more beans were used. Based on this information Wild Dog Coffee Company going forward would benefit by keeping the advertising budget on the higher side to increase sales, but also keeping in mind the cost of maintaining a full complement of staff to handle the increase in sales.
Forecasting
There are two methods of forecasting, judgement, and quantitative methods. Judgment methods begin with the opinions of customers, while quantitative data uses several methods to arrive at forecasted date (Krajewski et al, 2019). The expresso beans used are the dependent variable, which is turn is affected by the independent variable of advertising dollars spent. To calculate the linear regression, y equaling the dependent variable, a is the intercept of the line, b is the slope and x is the independent variable. Using the past 6 months history, Wild Dog Coffee Company is projected to spend $1,350.00 for month 7. With this advertising budget they would need to purchase 1,252 pounds of beans to service 445 beverages every day.
Inventory Management Analysis
Wild Dog Coffee needs to analysis their inventory management system. The company cannot maintain a large inventory due to the size of their operation, the lack of storage space, and the lack of sufficient cash to purchase large quantities. Shrinkage is also a concern as the beans only remain viable for two weeks. Currently the demand is approaching 1,400 pounds and they only maintain one type of expresso beans. The beans are packaged in 25-pound bags, which translates to Wild Dog Coffee Company needing 56 packages every month to meet the demand. The average cost of one pound of beans is $9.00, which makes the average cost per package $225.00. The holding costs are 10% per year/unit. (Capella University, 2019). These figures are used to calculate the monthly and yearly holding costs. The monthly holding costs are $1.875 and the yearly holding costs are $22.50 per unit. The beans are delivered seven days after the placement of the order, with shipping costs of 19.95 per order, unless the order is over $250.00. If Wild Dog Coffee Company needs 56 packages every month and they order every two weeks their bi-monthly cost would be $6,300.00 thus eliminating the shipping costs.
Should Wild Dog Coffee Company use anticipation inventory? Anticipation inventory described as allowing a business to have an inventory on hand to handle unexpected peaks without losing business(Krajewski et al, 2019). External factors that affect a business such was weather, seasonal factors, easy accessibility to the shop influence a customer’s decisions.
The benefits of having an anticipation inventory is there is a constant inventory on hand allowing Wild Dog Coffee Company to maintain a consistent flow of their product. Running out of coffee beans would be like a pizza shop running out of dough, necessitating shutting the doors. No amount of advertising will remedy a situation like this.
A negative impact form anticipation inventory is the holding costs. In the case of the Wild Dog Coffee Company, their holding costs are 10% per year/unit. With the possibility of a decline in consumer consumption, this could be an undesirable method for Wild Dog Coffee Company.
Another method of inventory management is the continuous review method. This method relies on an automated system to track output and current supply levels. Maintaining this type of inventory system alerts the staff of the supply levels. It also provides data as to what product is selling the most.
The negative impact of this type of inventory system is the costs of obtaining a software that would fit the needs of their particular inventory, the training of all staff so that the system is used to its full capability.
Recommendations for Inventory Management.
As mentioned previously the Continuous Review System does have some drawbacks, but for the Wild Dog Coffee Company, it would appear to be the best solution. This system is not relying on the moods of customers, but rather on a review of what is selling, how much, and trends such as which days of the week are more profitable. Having this information would also aid in making the advertising decisions. If the software is showing that Wednesday’s between 3 and 7 are an extremely quiet period for sales, a marketing approach could be developed specifically targeting that time frame. A complete accounting software could be purchased that includes a point-of-sale system that could be used in both locations of the Wild Dog Coffee Company. The software not only would perform normal accounting functions, but would generate reports for ordering, inventory and sales reporting. These reports are invaluable to the management when helping to identify loss and review which staff members are the most productive.
Staffing Analysis
The Wild Dog Coffee Company is staffed 16 hours per day with hours from 5am to 9pm, the first and last hour of each day are used as opening and closing hours. Wild Dog Coffee Company has two full-time employees and five part time employees. The following guidelines were provided by Capella University: Shifts have been scheduled according to who wants to work which shift. This has generally worked out well, but you realize you need to tighten up the scheduling process in order to optimize a staffing model. Two employees are required to make a coffee beverage. One employee takes the orders, and a barista makes the coffee drink and hands it to the customer.
Baristas are paid $14/hour, regardless of whether they are full-time or part-time.
Full-time employees (up to 40 hours/week), other than baristas, are paid $12/hour.
Part-time employees (up to 20 hours/week), other than baristas, are paid $9/hour.
All full-time employees receive company benefits that equate to 15 percent of their hourly rate. (This is known as a benefits load.)
All full-time employees are paid at 150 percent of their regular rate for all hours worked over 40 hours per week. Full-time employees can only work a maximum of 50 hours per week. The benefits load is not applied to overtime hours.
All part-time employees are paid at 150 percent of their regular rate for all hours worked over 20 hours per week. Part-time employees can only work a maximum of 26 hours per week.
It costs $500 to hire each additional employee, and it costs $250 to terminate an employee.
Full-time employees are likely to resign if moved to part-time status.
The coffee shop is open 84 hours per week. There are two additional hours allocated each day for one employee to perform opening and closing activities. (That is, one hour is allocated for opening duties and one hour is allocated for closing duties.)
Your current level of staffing for coffee beverages is as follows:
Baristas – 1 full-time; 3 part-time.
Non-barista – 1 full-time; 2 part-time. (Capella University, 2019)
The fixed and rotation schedule can be found in the appendix.
Fixed Schedule
The fixed schedule staffing approach calls for employees to work the same days and hours every week(Krajewski et al, 2019).
The positive effect of a fixed schedule is that all staff members know exactly what their schedule is every week and absenteeism is minimal. This scheduling process allows for employees to schedule outside commitments based on their fixed schedule. The fixed schedule also makes it easier on the person doing the scheduling.
Conversely, fixed scheduling doesn’t work for the employee that needs more flexibility. The recent pandemic is a perfect example of how a fixed schedule could be problematic. Employees with children in school, who were mandated to do remote learning, necessitated the need for a parent to be at home. With a fixed schedule, the employee needs to work out trading shifts with other employees and can create some unwanted tension in the workplace. The other downside of fixed schedule is the same people are stuck working every weekend, causing the need to again rely on other employees to cover the shift if they need to attend a function that is happening over the weekend.
Rotational Scheduling
The rotational schedule rotates employees to a different schedule weekly, allowing each employee to work every shift (Krajewski et al, 2019).
On the positive side, this method of scheduling is far more flexible and would generate a wider employee base to chose from. Potential employees who are looking for extra income but are the primary care giver need the flexibility in their schedules. It also allows every employee to learn the opening the closing procedures and interact with different customers during their shifts. The rotational schedule also allows more flexibility for employees to trade their shifts with another employee.
Rotational scheduling does come with some pitfalls. The primary downside is for the person creating the schedule. The schedule is made up two weeks ahead of their work schedule which doesn’t give the employee as much time to prepare for any conflicts in the scheduling. Designing a rotating schedule to fit every employees needs could prove to be difficult to implement.
Recommendation for Staffing Schedule
In the previous analysis of rotational scheduling a con to this type of scheduling stated it might be difficult to implement. Despite that negative aspect it is recommended the Wild Dog Coffee Company use the rotational scheduling system. The employees will be able to get the whole picture of the operation, from opening to closing, interactive with different types of customers. Again, referring to the pandemic, this flexibility of scheduling would be more attractive to parents of school age children, particularly when they have having to be home-schooled. Each method of scheduling incurs the same amount of costs for the week with the same amount of overtime.
When adapting a scheduling model, ideally the business would select the one that works for its employees. In the case of Wild Dog Coffee Company, the majority of the employees prefer the rotating scheduling. If Wild Dog Coffee Company adds two employees with a cost of $1,000, this will allow the employees to work the maximum of 40 hours for full time, and 20 hours for part time and there would be no need for overtime pay.
Conclusion
Wild Dog Coffee Company used the demand management plan to analyze their past data and focus on forecasting the future needed inventory and staffing requirements. Advertising funds analysis were show that as the advertising figures increase so do the sales figures. A computerized inventory system was recommended to be implemented to maintain an accurate and timely method of determining when and how much of the expresso beans need to be ordered. The two main factors contributing to this decision was the 2-week life of the expresso beans and the limited storage capacity.
Personnel issues were reviewed regarding the use of either a fixed schedule or a rotating schedule. The rotational schedule is the recommend method allowing for more flexibilities and the removal of the need for overtime.
Wild Dog Coffee Company was advised to employ the Economic Order Quantity approach. My using this model it allows the company to decrease holding costs, order costs such has additional shipping charges and shortage costs. Allowing for the fact that Wild Dog Coffee Company cannot maintain a large inventory due to lack of space and the life span of the expresso beans this method allows them to obtain the lowest cost. The most important part of the method is it will allow Wild Dog Coffee Company to have the supplies on hand that are needed.
Wild Dog Coffee Company is now in the position to benefit from the Demand Management Plan in preparation for their future needs and additional local.
Appendix
Advertising Funds and Expresso Beans Used Bar Chart
Forecasting with Linear Regression Date
Fixed Staffing Schedule
Rotating Staffing Schedule
References
University, C. (2021) Assessment 2 Instructions: Demand Management Plan. Retrieved from https://courserooma.capella.edu/webapps/blackboard/content/listConten.jsp?
Krajewski, L.J., Malhotra, J.K., & Pitman, L.P.(2019) Operations management: Processes and supply chains (12th ed.). New York, NY: Pearson
Wall Street Journal(2016) – Retrieved from: https://www.wsj.com/articles/advertising-isnt-dead-but-market-is-changing-1466610850
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