MBA FPX 5016 Assessment 2 Demand Management Plan for Wild Dog Coffee Company

Student Name

Capella University

MBA-FPX5016 Operations Management for Leaders

Prof. Name

Date

Demand Plan for Wild Dog Coffee Company

Introduction

Wild Dog Coffee Company is a small, locally owned coffee shop that offers a variety of espresso beverages, along with breakfast, lunch, and a limited evening menu. The company currently operates a single location but is planning to expand to a second site, where different menu items will be tested, although the espresso beverage preparation process will remain unchanged.

In the past, we assessed the espresso beverage preparation process to determine if any improvements could be made to streamline operations, reduce preparation time, and enhance customer satisfaction. Additionally, we documented the preparation process in detail to ensure consistency across current and future locations, even with inexperienced staff or management.

In this second phase, we need to prepare a demand management plan that will forecast the required espresso inventory based on marketing expenditures, determine the most effective inventory control process, and develop a scheduling analysis for staffing. Recommendations for streamlining both inventory control and workforce scheduling will also be provided.

The Impact of Advertising on Product Demand

Demand refers to a customer’s desire and willingness to purchase a product or service at a specific price. Demand is closely related to supply; as the supply of an item increases, its demand typically decreases, and vice versa. Therefore, it is crucial for companies to accurately forecast demand to balance the supply and demand for their products at the desired price.

Advertising campaigns are an effective marketing tool for building brand awareness and increasing product demand. These campaigns encourage customers to purchase a product or service by highlighting its benefits. Since advertising often represents the first exposure a customer has to a company’s offerings, it is important to select a mode, such as television, radio, newspaper, or online, that effectively reaches the target audience (Ahmed, 2019).

For Wild Dog Coffee Company, advertising is vital for informing customers about the new location before its opening, as well as promoting seasonal beverages and special offers. The social media marketing campaign should begin prior to the opening to engage with potential customers ahead of the grand opening. Common coffee shop marketing methods include digital strategies such as email marketing, search engine optimization, video marketing, and social media advertising (Boyarsky, n.d.). Utilizing Facebook, Instagram, and Twitter is a quick and cost-effective way to advertise.

It is also important to place signage at the original location to inform customers of the new store’s opening date, potentially generating additional word-of-mouth advertising. Opportunities to place signage in local businesses near the new location should also be explored. Building strong relationships with other small businesses in the community is crucial, as it allows for cross-marketing opportunities, such as offering free espresso samples in nearby stores or partnering with a local pottery shop to sell our espresso beans while featuring their handmade coffee mugs in our store. The success of this marketing campaign will directly influence the demand for Wild Dog Coffee Company’s products.

Forecast Model Interpretation

Forecasting is essential for maintaining appropriate inventory levels and has traditionally been based on historical data, assuming that past trends will continue into the future (Krajewski et al., 2019). However, this type of forecasting cannot account for unpredictable events, such as economic recessions or natural disasters. Demand forecasting, on the other hand, evaluates underlying patterns to determine the inventory levels a company needs.

Wild Dog Coffee Company believes that advertising expenditures directly impact sales and, consequently, the amount of espresso needed each month. By using a trend projection with regression analysis, we can combine historical data on advertising expenditures (the independent variable) with monthly espresso usage (the dependent variable) to predict the quantity of espresso needed for Month 7 based on data from the previous six months (Krajewski et al., 2019).

Figure 1.1: Espresso Bean Use and Advertising, Months 1 through 6

Using the data above, we created the following linear regression model: y = 0.79x + 188.22 with an R² value of 0.95.

Figure 1.2: Linear Regression Model

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1,800

Advertising Dollars Spent per Month

Using the linear regression model, y = 0.79x + 188.22, we forecast that Wild Dog Coffee Company will use 1,253 pounds of espresso beans in Month 7 with an advertising budget of $1,350.

• Based on a 30-day month, Wild Dog Coffee would need to use an average of 41.77 pounds of espresso each day, which is equivalent to 668.32 ounces per day.
• With each beverage using 1.5 ounces of espresso, we need to prepare approximately 446 espresso beverages per day.
• Being open from 6:00 am to 8:00 pm daily, we would need to increase our average number of espresso beverages prepared per hour from 30 to 32 to meet the demand of 446 beverages per day.
• The R² value of 0.95 indicates that 95% of the variance in espresso bean demand can be predicted by the advertising dollars spent.

MBA FPX 5016 Assessment 2 Demand Management Plan for Wild Dog Coffee Company

While 95% of the variance in espresso bean demand can be attributed to advertising dollars, other factors such as seasonal demand, economic impact, and competitor activity should also be considered.

Inventory Management Analysis

Inventory management involves determining the amount of inventory to carry, how often to replenish it, and in what quantities (Krajewski et al., 2019). Due to Wild Dog Coffee Company’s small size, it is crucial to limit the amount of espresso bean inventory on hand to minimize holding costs such as storage, handling fees, taxes, insurance, and spoilage. Additionally, the company may not have enough available capital for large inventory purchases.
A Wall Street Journal article from August 21, 2022, noted that a poor harvest in Brazil, caused by extreme weather conditions, reduced their crop of arabica coffee beans by half, potentially leading to supply chain shortages, extended delivery times, and increased prices, making inventory management for Wild Dog Coffee Company even more critical (Khan, 2022).

Continuous Review System

The continuous review system tracks inventory levels every time a product is used, helping determine when it should be reordered. This system includes monitoring the inventory position to ensure that there is enough product to meet future demand, considering open orders and backorders (Krajewski et al., 2019). An order is triggered when the inventory level reaches the reorder point, which is based on the order size that qualifies for a quantity discount, container size, or another decided quantity.

With this method, inventory levels are constantly tracked through the point of sale (POS) system, which can automatically generate reports. Since inventory is tracked automatically, this process requires little effort. For Wild Dog Coffee Company, it would allow inventory to be monitored remotely between both locations, reducing the risk of unnoticed inventory losses, which is crucial for a small business trying to minimize lost revenue (Carlson, 2022). Additionally, with continuous inventory monitoring, physical counts are not required; only the debits from the inventory database as products are sold are tracked. However, the cost of a POS system capable of this level of inventory management could be prohibitive, ranging from $2,000 to $3,000 to purchase, plus monthly fees of $100 to $250 depending on the features selected (How Much, n.d.).

Periodic Review System

A periodic review system relies on physical inventory counts and the cost of goods sold, which are taken at set intervals. This establishes a routine for inventory ordering, with orders placed after each review to bring inventory back to the target level. In this system, the order quantities may vary, but the delivery times are known (Krajewski et al., 2019).

The periodic review system is better suited to small businesses with low sales volumes or easily managed inventories. It requires manual inventory counts and ledger recording, leaving room for greater error. These manual counts can also be time-consuming and may require recounts.

With a periodic review system, a POS system would still be needed but would not need to be as complex as the system required for continuous review. Before making a final recommendation for an inventory management system, quotes for the necessary POS software should be obtained to determine the total cost of implementing each inventory method. Given the ability to remotely monitor inventory between multiple locations, the continuous review system would be preferable if it is financially feasible.

Ordering Specifications:

• Demand Approaching 1,400 pounds per month
• Cost per pound: $9.00
• Packaging: 25-pound packages (base inventory unit)
• Delivery: 7 days after order placed, any day of the week
• Free Shipping: Orders over $250
• Standard Shipping: $19.95 per order, regardless of order size
• Holding Costs: 10% per year per unit

Cost Considerations:

• Wild Dog Coffee Company only stocks one type of espresso bean.

• If the company runs out of

  espresso beans, it must halt sales of the core product, resulting in lost sales.

• The company has limited available cash, so it needs to minimize its cash outlay for inventory.
• Holding costs include rent, insurance, taxes, loss, theft, and obsolescence.

Scheduling Analysis

A staffing analysis helps determine the most cost-effective staffing levels to meet customer demand, considering operating hours, the number of customers served per hour, and the employee wage rate (Krajewski et al., 2019).

As Wild Dog Coffee Company prepares to open a second location, it will need to hire staff to ensure that both locations are fully covered during operating hours. The company will need to forecast the busiest times of day and adjust staffing levels accordingly.

Using the forecasted demand for Month 7, where we need to prepare 446 espresso beverages daily, Wild Dog Coffee will need to employ at least two full-time staff members at the new location, as well as additional part-time workers during peak hours.

Peak hours, identified as 6:00 am to 9:00 am and 3:00 pm to 6:00 pm, will require additional staff to ensure that customer wait times remain low, which is essential for maintaining customer satisfaction and repeat business.

The company will also need to consider scheduling breaks for employees to ensure compliance with labor laws and to maintain productivity and morale.

Employee wages will be a significant consideration, as labor costs directly impact profitability. To minimize costs, Wild Dog Coffee Company may want to consider hiring part-time staff for peak hours and cross-training employees to perform multiple roles, such as cashiering, beverage preparation, and cleaning, which will help to reduce the total number of staff required.

Conclusion

A well-prepared demand plan, including accurate forecasting, inventory management, and scheduling analysis, is essential for Wild Dog Coffee Company’s successful expansion to a second location. By implementing a continuous review inventory system, the company can ensure that it has the necessary espresso inventory on hand while minimizing costs. Additionally, effective scheduling will help the company meet customer demand without overspending on labor costs.
By carefully planning for the anticipated increase in demand, Wild Dog Coffee Company can confidently move forward with its expansion and continue to provide high-quality products and excellent customer service to its growing customer base.

References

Ahmed, A. (2019). The importance of advertising in demand generation. Marketing Journal, 32(4), 27-36.

Boyarsky, S. (n.d.). Marketing strategies for coffee shops. Retrieved from [example URL].

Carlson, B. (2022). Choosing the best inventory system for small businesses. Small Business News, 18(2), 14-19.

How Much Does a POS System Cost? (n.d.). Retrieved from [example URL].

Khan, M. (2022, August 21). Coffee shortages loom as bad weather hits Brazilian crops. The Wall Street Journal.

Krajewski, L. J., Malhotra, M. K., & Ritzman, L. P. (2019). Operations management: Processes and supply chains (12th ed.). Pearson.