SCM Research Project/Case Study

LOGISTICS AND GLOBAL SCM INVENTORY/TRANSPORT CASE:
THE HAPPY HAM
The Happy Ham is a well-established smoked foods company specializing in smoked hams and
has been selling its products throughout the north-western part of the continental United States
since the 1960s. Initially owned and operated by Lorenz Bauer, a German immigrant and his
family, the key to the company’s success lays in a secret smoking process. By 2022 the firm
had 250 retail outlets and 400 franchisees. Although the company sells a variety of pork
products its competitive strength lay in one main product line, “Lorenz’s Best” that had sales
in 2021 of $4,350,000. Sales estimates for 2022 indicate a 15 percent increase over the 2021
level.
Hams are supplied by Clermont Blue Farm, who clean and smoke the hams using the patented
process and provides the necessary industrial packaging for safe shipment to the retail outlets.
Lorenz’s Best is sold to retail outlets for $4.00 per pound and due to some planned promotions
and better positioning in advertising, a 30 percent sales increase in 2023 is expected for the
Lorenz’s Best line.
The smoking process employed by The Happy Ham has some unique characteristics that clearly
differentiate the company’s products from those of its competitors. The smoked hams can be
refrigerated for up to 14 days without spoiling and remain fresh and edible for another seven
days even without refrigeration. These features, however, do not permit the company to engage
in forward buying since freezer costs are relatively high. Consequently, the company purchases
hams from the Clermont, Kentucky supplier in simple economic order quantities (EOQ), which
represent 1800 cases per order for 2023.
The Happy Ham coordinates the remaining distribution functions. The cured and packaged
hams are purchased from the supplier on an FOB origin basis and sold to the retail outlets and
franchisees on an FOB destination basis. Approximately 40 percent of sales revenue in 2021
can be attributed to direct variable costs and 60 percent of these direct variable costs are
estimated to be actual ham costs. These costing percentages are expected to hold for the next
few years.
It takes an estimated eight days for railroad freezer cars to bring the smoked hams from the
supplier’s factory near Louisville, Kentucky to Trenton, New Jersey (The Happy Ham’s East
Coast distribution point), and another two days on average for commercial trucks to deliver
them to the various retail outlets on the East Coast. Lorenz’s Best is shipped in a case pack size
of 25 pounds and inventory carrying costs expressed as a proportion of the cost of the hams is
20 percent per annum. Order processing costs are estimated to be $25 per order. Heartland
Farms pays $10 per hundred pounds shipped for the refrigerated railcars and another $12 per
hundred pounds for the commercial truck shipments to stores on a daily basis.
From a logistical standpoint, management wanted to examine evaluate alternative modes of
transportation with respect to Lorenz’s Best for the planning year of 2023. Two alternatives are
available: (1) the company could discontinue the use of railroad freezer cars for delivery up to
Trenton and use company-owned private trucks and trailers; or (2) the company could bypass
all transportation and use an air carrier service that would pick up the cases in Louisville and
deliver them directly to the retail outlets served by the Trenton distribution center.
This re-evaluation of transport modes was triggered by an offer from a new small aircraft
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company providing cargo shipping at very attractive rates: $3.00 for the first 10 pounds per
case for a guaranteed two-day delivery service anywhere in the continental United States; each
extra pound over 10 pounds per case was to be billed at the rate of 50 cents per pound. The
company-owned truck was expected to cost $2,750 per round-trip and had a maximum capacity
of 1,290 cases of Lorenz’s Best. Each trip leg was expected to take four days. Since the
shipments from the distribution center to the individual retail outlets were relatively small, it
was recognized that even if the firm chose the company-owned truck option, the delivery to
retailers would still involve the use of commercial trucks.
Do any analysis necessary for the questions below and consider how The Happy Ham might
improve its inventory management and transportation system. What do you recommend based
on expected 2023 sales?
Assumptions
 Total costs include average inventory carrying costs, inventory order processing costs
and transportation costs;
 Average cycle stock equals 1/2 of EOQ plus safety stock; and
 The number of order cycles equals annual demand in cases divided by the EOQ.
1. What is the total annual logistics cost of inventory and transportation associated with the
current practice of shipping product by railroad freezer cars to Trenton, NJ and then by
commercial trucks to retail outlets? Safety stocks under this scenario are 550 cases. Base your
calculations on expected 2023 sales. Show your calculations. (6 points)
2. What would the total annual logistics cost be if the company uses the private fleet option?
Safety stocks under this scenario are reduced to 279 cases. Show your calculations. (6 points)
3. What would the total annual logistics cost be if the company uses the option of shipping
product by air to the retail outlets? You will need to estimate safety stocks for this
scenario. To keep it simple, use the safety stock numbers for the above questions to
estimate your number based on lead time, since we do not have standard deviation figures
for sales. Show your calculations. (6 points)
4. The above scenarios all use the EOQ model to calculate their costs. Would you
consider this the most appropriate inventory model to use, and if not, what alternative
would you suggest, and why? If you conclude that the EOQ model is the best, explain why
as well. (6 points)
5. What other advice would you provide to The Happy Ham executives that could further
improve their supply chain? This advice could include risk reduction, cost reduction,
service improvement or any other advice that could improve their operations and supply
chain. (6 points)
In all questions requiring calculations, show your work. A final answer with no calculations
is not enough to get full credit for the question.
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Questions 1, 2 & 3 require calculations. Questions 4 & 5 are essay/short answer and require some insight. Use
references to support your argument when relevant.
In all questions requiring calculations, show your work.
A final answer with no calculations is not enough to get full credit for the question.