Ice House Toys

Topics: Economic order quantity, Costs, Inventory Pages: 7 (2396 words) Published: November 2, 2012
Ice House Toys

Case Study


Ice House Toys

Index of contents
  Ice House Toys presentation
I-  Mail-Order Operation and prospects of change  
I-1 Capacity constraints
I-2 Extension of the warehouse capacity
I-3 Other ways to overcome capacity constraints
I-4 The website impact on operations
II- Long-term capacity planning issues
III- Alternative purchasing policy  
IV- Overtime payment
V- Appendixes

Ice House Toys presentation
Ice House Toys (IHT) company consists of five shops and one mail-order business. The mail-order operations warehouse is situated in a building of three floors, each 1200 m². Ice House Toys send three catalogues of toys and games every year. The winter and spring catalogues are sent to 90,000 customers and results in 6,900 orders with an average order value of £23. The Christmas catalogue is the major catalogue, sent to 160,000 customers and resulting in 22,600 orders with an average order value of £42. The stock for the Christmas sales is ordered by the end of July and received in two phases. 75 percent arrives in the first week of October and filled the stock areas to capacity. The remainder is ordered after the first 2,500 orders have been processed in the fourth week of November. In 1999, stock with a resale value of £1.1m was ordered. The mail-order operation is divided into three stages: recording, assembly & packing and dispatch. The appendix 1 shows the operations layout during 1999. IHT plans three main changes for the mail-order operation.

- Firstly, IHT will do an agreement with a company which sells upmarket children’s clothes. This will lead to 30,000 new names and addresses of customers. - Secondly, IHT will spend £18,000 on advertising: each £1,000 led to 190 additional orders in the past. - And the third future change will be the new website. On this, the ordering will be easier because the user hasn’t to print the descriptions and codes. IHT think that the customer’s average order value will be around £60 and five per cent of existing users will use this service. I-  Mail-Order Operation and prospects of change  

I-1 Capacity constraints
IHT should focus its efforts on the bottleneck parts of the operation by identifying the location of constraints, working to remove them and then looking for the next constraint that will pace the output. The main constraint of IHT operation seems to be the limited warehouse space and, therefore, the varying number of staff when it is required. The layout of operations in appendix 1 shows clearly that the packing stage is the main constraint in the supply network. The expected order figure will increase from 22,600 in 1999 to 30,258 in 2000 (appendix 2). This means an increasing ratio of 34% and the maximum weekly amount of orders is expected to reach 4,954 (appendix 2). IHT could cope only with 3,096 orders in a week as a maximum in a week of five days and 4,334 orders in a week of seven days. Appendix 2 shows the weekly demand-capacity mismatches. IHT should go for a normal week of five days when demand is lower than output capacity. IHT has to hire more workers for a week of seven days when demand is higher than output capacity. In spite of this, IHT should increase his hourly output capacity by increasing warehouse space when the necessary overtime exceeds 2 days. I-2 Extension of the warehouse capacity

Ice House Toys could process its orders on a chase demand basis from October to December. There are different methods of adjusting capacity for example working overtime, varying the size of workforce or using part-time staff. In this case the company should hire additional staff from October to December and/or use part time staff for the weekends. In order to meet its dispatch policy and deliver within three days of order receipt, IHT has two possibilities for chasing demand: By increasing the...
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