Problem Set 1 Information and Forecasting
Mike McNeely, logistics manager for the Illumination Light Company, has considered replacing
the firm’s manual customer order management system with electronic ordering, an EDI
application. He estimates the current system, including labor, costs $2.50/order for transmission
and processing when annual order volume is under 25,000. Should the order volume equal or
exceed 25,000 in any given year, Mr. McNeely will have to hire an additional customer service
representative to assist order reception in the manual process. This would raise the variable cost
to $3.00/order. He has also estimated the rate of errors in order placement and transfer to be
EDI would cost $100,000 upfront to implement and variable costs are determined to be
$.50/order regardless of volume. EDI could acquire and maintain order information with an
error rate of 3/1000 orders. An EDI specialist would be required to maintain the system at all
times as well. Her salary is $38,000 in the first year and increases 3 percent each year
Order errors cost $5.00 per occurrence on average to correct in the manual system. EDI errors
cost $8.00 on average to correct since the specialist inspects the system for flaws on most
If the firm expects order volume over the next 5 years to be 20,000, 22,000, 25,000,
30,000, and 36,000 annually, would EDI pay for itself within the first 5 years?
What Effects Aside From Cost Might Mr. Mcneely Consider When Implementing Edi?
Mr. McNeely currently batches orders for processing under the manual order management
system. The orders are batched for daily processing. If Mr. McNeely opts to implement EDI,
might this affect his current means of order processing? If so, how?
Quality Marketing Technologies, Inc., has hired you as a sales representative. You have been
asked to call on Quikee Stop, a small convenience store chain with five locations in your
region. What benefits of UPC and bar coding applications might you illustrate to encourage
Quikee Stop to utilize these technologies to track sales at its retail outlets?
Comfortwear Hosiery, Inc., produces men’s socks at its manufacturing facility in Topeka,
Kansas. The socks are stored in a warehouse near the factory prior to distribution to DC
locations in Los Angeles, Memphis, and Dayton. The warehouse uses a top-down forecasting
approach when determining the expected quantities demanded at each DC.
The aggregate monthly forecast for June is 12,000 pairs of socks. Historically, the Los Angeles
DC has demanded 25 percent of the warehouse’s stock. Memphis and Dayton have demanded
30 percent and 35 percent, respectively. The remaining 10 percent is shipped directly from the