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Three Jays Corporation Case

Study

LOGS 6654 Distribution & Inventory Control

Spring 2018

Dr. Sara Liao-Troth

Three Jays Corporation Timeline

1954 – Fremont Jams and Jellies (FJ&J), founded by Alex Fremont, parent company

to Three Jays (3Js)

1971 – FJ&J entered into a contract with major super market to product private label

jams and jellies

1980 – Andrew Fremont joined FJ&J after graduating from business school, focused

on increasing the overall efficiency of FJ&J manufacturing processes

1992 – Andrew Fremont named President of FJ&J

2000 – FJ&J only producing private-label jams and jellies

2005 – Jana Fremont joined FJ&J after graduating college and two years in the

Peace Corps, founded Three Jays Corporation to focus on organic food products

2010 – Introduction of the Economic Order Quantity method to 3Js

Executive Summary

A subsidiary of Fremont Jams and Jellies (FJ&J), Three Jays Corporation (3Js) was

founded in 2005. 3Js has established a business model of producing organic jams

and jellies under the ownership of Jana Fremont, who saw the market potential.

Production has been set up as a separate entity from FJ&J.

Core Issues

Jana Fremont is looking to make the most of the growing market for organic food

products and 3Js has seen significant growth since its start. Wanting to take

advantage of the demand, she will need to invest in a major marketing campaign

that will yield an estimated return of 20%. However, in order to fund this

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investment, the easiest and quickest way is to reduce the finished-goods inventory,

which she believes is too high.

Fremont has tasked Brodie Arens, a new intern at 3Js that is working on his MBA,

with familiarizing himself with the production process and various costs associated

with it. After evaluating the current inventory situation, Brodie is to provide a

recommendation that will help reduce the current levels of inventory.

Analysis

3Js currently produces 141 SKUs comprised of six types of jams and jellies that are

packaged in 2, 4, 8, and 12 ounce jars, all under its own label. All raw-material

inventories, consisting of packing materials and ingredients that are used for most

of the product recipes, are purchased by a buyer at FJ&J. In order to determine the

optimal order quantity to be produced, the production team should be

implementing the Economic Order Quantity (EOQ) and Reorder Point (ROP)

calculated figures. Demand data from the first full year sales is used for the EOQ

and ROP calculations. Brodie initially begins by updating the EOQ and ROP figures

for each stock keeping unit (SKU) using 2012 demand data because the original

calculations were done in 2011 with sales numbers from 2010.

Comparison table of years 2011 vs 2012 found in Appendix 1

However, Brodie quickly determines that the formal production planning system

was being ignored by the production team for several reasons. 3J’s production

crew, Jake and Josh, felt that changing the lines would require more cost. By

reducing the number of line changes as much as possible, they thought they were

saving money. It was also thought that a longer run would ensure that there would

be less production delays due to emergency situations while changing the lines.

Jake and Josh also kept safety stock too high for fear of stock outs. This lead to high

and costly inventory levels. It affected the inventory turnover rate. They

erroneously established a technique known as Periodic Order Quantity (POQ)

method.

POQ table found in Appendix 2

Brodie has to decide what needs to be done with the system and how to implement

his recommendations. Brodie starts by questioning the EOQ calculations as it will

assist in reducing ordering and inventory carrying charges. He determined the EOQ

assumptions to be as follows:

 Unit cost remains constant and does not vary

 There is no demand uncertainty

 Constant demand over time

 There are no stock-out costs

 Immediate replenishment of inventory

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