Som 306

Memorandum

Date: November 26, 2011

To: Emma Smith, Powered by Koffee (PBK) Operations Managaer

Re: Analysis of existing EOQ/ROP of Phish Roasters and desirability of switching to El Camino.

Thank you for allowing us to work with Powered by Koffee in evaluating your business decision. We appreciate you asking our group to analyze your current strategies and comparing them with the offer from the South American import/export company, El Camino. Per your request, we have considered the weaknesses and strengths of your current system and assessed the possibility of switching to the new model. Our analysis uses your current monthly demand of 50 bags of whole bean coffee in both models to evaluate which method is more cost efficient. Based on our study, we have reached the following conclusions:

1. The cost of coffee purchased from Phish Roasters is a lot lower than El Camino under the current system; the cost of El Camino is higher than Phish Roasters under the EOQ/ROP inventory system.

2. Coffee is a perishable product, and under EOQ/ROP inventory system purchasing coffee under method 2 would be less efficient, than method 1, costing some of product to spoil.

3. We recommend that the company should continue to purchase it’s coffee from Phish Roasters rather than looking to seek a new deal through El Camino.

The rest of this memo explains the basis of our conclusions. We will present our analysis in three sections which will follow as: Product Cost Analysis, Weakness of New Cost System, and Conclusion and Recommendations. The first part deals with the comparison of product cost under the existing system and the new system. The second part discusses with the weaknesses of the new system in terms of fresh quality beans. The third sections states our recommendations for your company for which system to choose.

Product Cost Analysis

We began our analysis by calculating the various costs of the two products, Phish Roasters and El...