Page 11 - CIMA OCS August 2018 Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

blends. To provide an indication of trends in demand, an idea would be to look to competitor
data. How useful this exercise is will depend on the availability of competitor data.

Another suggestion would be regression analysis whereby a graph would be plotted of past
demand against time and the line of best fit is found. This is then used to predict demand in
future periods. This would only really be effective if there is a strong correlation between
demand and time.
Difficulties forecasting demand in the fine teas and infusions sector
It is safe to say that the functionality, seasonality, variety and innovative nature of tea products
make for a dynamic and challenging market.

The tea market, much like the food market in general, is influenced by several factors which can
increase the complexity of planning for demand. Demand for tea, for example, is subject to
geographical factors such as customs and traditions as well as weather conditions. On the same
note, the seasonality aspect can create waves of demand, especially for certain flavours in certain
markets during certain months. We know that the market for green tea and infusions is
particularly buoyant in the summer months as they are refreshing in the hot weather.
Material requirement planning (MRP)

You are correct in your understanding that MRP is a computerised system. It is used for planning
the requirements for raw materials, work in progress and finished items. So in our case we would
plan our requirements for tea leaves, herbs for our infusions, tea bag paper, shrink wrap and
boxes used for packaging, etc.
There are quite a few functions involved in the MRP process. They include:
• identifying orders and forecasting future orders with confidence
• using orders to determine quantities of material required
• determining the timing of material requirement
• calculating purchase orders based on inventory levels
• automatically placing purchase orders
• scheduling materials for future production

And you are right that there are some benefits of MRP that would be particularly relevant to
Thomas Fine Teas’ operations. It should result in improved forecasting, improved ability to meet
orders leading to increased customer satisfaction and reduced inventory holding. Although we
aim to hold limited inventory of finished goods, this approach may lead to further cost
efficiencies. Not to mention that the MRP schedule can be amended quickly if demand estimates
change since the system is computerised.
MRP is particularly relevant to us at Thomas Fine Teas due to the nature of how we source our tea
leaves. It is a lengthy process for our buyers to travel the world visiting tea plantations, bidding at
auctions and importing the tea leaves back to Deeland via ship. The more we can plan for our
requirements, the better.

The system can also warn of purchasing or production problems due to bottlenecks or delays in
the supply chain. In addition to this, MRP tends to enable close relationships to be built with
suppliers. I suppose in that respect it is consistent with the just-in-time approach.
Having laid out the benefits for you, it has to be said that MRP will not be suitable if it is not
possible to predict sales in advance.

I hope this information is helpful. Please let me know if you have any questions or require some
further work on this.

Kind regards.

KAPLAN PUBLISHING 67