Irving Tisuue - Team PK

Submitted To: Professor Benny Mantin
Date Submitted: December 6, 2009
MSCI 432: Applied Term

Project
A case study on Irving Tissue
Team PK
Prepared By: Team PK

Matt Li - 20215251
Jung-Youn Moon - 20242261
Winnie Phung – 20203794
Martin Taylor - 2010111
MSCI 432: Applied Term Project Team PK
Table of Contents
1. Executive Summary ............................................................................................................... 1
2. Goals and Objectives ............................................................................................................. 2
3. Project Scope ......................................................................................................................... 2
4. Company Overview ............................................................................................................... 2
5. Industry Analysis ................................................................................................................... 2
6. Customer Analysis ................................................................................................................. 3
7. Competitive Analysis ............................................................................................................. 3
8. Manufacturing Process........................................................................................................... 4
9. Process-Product Type ............................................................................................................ 5
10. Production Workflow Analysis............................................................................................ 6
11. Bottleneck Analysis ............................................................................................................. 7
12. Demand Forecasting ............................................................................................................ 9
13. Optimal Inventory .............................................................................................................. 16
14. Safety Stock ....................................................................................................................... 17
15. Overall Conclusions and Recommendations ..................................................................... 19
16. Appendix A – Workflow Diagram .................................................................................... 21
17. Appendix B – Forecasting Calculations ............................................................................ 22
18. Appendix C – Optimal Inventory Calculations ................................................................. 23
19. Works Cited ....................................................................................................................... 24
Executive Summary
Throughout this report, we intend to address management’s concerns regarding demand
forecasting and the possibility of reducing inventory levels. By focusing on a tight project scope
of select Royale bathroom tissue products produced by the Toronto plant, we are able to apply
concepts from MSCI432 to provide recommendations for Irving Tissue going forward.
Given feedback that production lines in the Toronto plant are currently operating at around 95%
capacity, a bottleneck analysis was conducted using limited data and found that a superior
winding machine in a production line could better facilitate the production of SKUs with higher
sheet counts. By implementing this upgrade on one line and focusing all such productions there,
resources could be freed up in the other lines.
Since Irving Tissue produces to next month’s forecasted demand, statistical forecasting would
fit. By analyzing simple moving averages (SMA), exponential smoothing (ES), Holt’s and
Winter’s methods of forecasting, we recommend that 6 month SMA be used for forecasting
medium-low level demand SKUs, and ES with an alpha of 0.8 be used for forecasting high
demand SKUs. While these methods outperformed the current method of sales force composite,
they fared worse in aggregate forecasting across multiple SKUs, suggesting that sales force
composite is still more accurate at the higher level and for longer term planning.
Calculations of optimal Economic Order Quantity (EOQ) and Safety Stock (SS) showed that
existing inventory levels are not far from optimal, and thus that there could be costs associated
with forcibly reducing inventory levels in the future.
Goals and Objectives

Background analyses concerning the company, the industry, its customers, and its production
process are included within the report, along with a brief production bottleneck analysis. The
goal of this project, however, is to address the specific issues of Irving Tissue regarding their
demand forecasting and inventory management.
Irving Tissue is currently in the process of substantially revamping their production and supply
chain management systems, with the hopes of improving inventory turnover from its current
levels of 12 turns per year to a target of 18 turns. As part of this initiative, management has
identified demand forecasting as a key area for improvement.
Contrary to intuition, it has been historically proven to be very tricky to accurately forecast
demand for bathroom tissue products, despite it being a very staple consumer product. Under the
current method of sales force composites, forecast accuracy tends to be around 60%, with
substantial difference in accuracy levels between SKUs.
As part of the improvement process, management is considering implementing a complex

forecasting system, and wishes to evaluate the effectiveness of general statistical forecasting
methods as a test of viability. This will be the focus of our applied project, along with other
analyses related to the overall goal of increasing inventory turns.
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Inventory levels can be thought of as a combination of production cycle stock and safety stock.
In order to reduce inventory and therefore increase inventory turns, this report will calculate the
appropriate safety stock levels, as well as the optimal production size, which affects cycle stock.
Project Scope
The project will be limited to the activities directly involved in production of Royale bathroom
tissue at the Toronto plant of Irving Tissue Canada. Furthermore, given more than 100 separate
Royale bathroom tissue SKUs and 5 complete lines of production in the Toronto plant, the
analysis will only cover a selection of SKUs, chosen primarily for having sufficient data and are
representative of different volume level products.
Company Overview
Irving Tissue began in 1988 and since then has grown to become one of North America's leading
tissue manufacturers, with facilities in Dieppe, New Brunswick, Toronto, Ontario and Fort
Edward, New York. The company manufactures various paper tissue products such as bathroom
tissue, facial tissue, paper towels and paper napkins, with all products made from 100% virgin
wood fibre. In addition, the company manufactures products under the Majesta and Royale brand
in Canada. Irving Tissue has ample export experience, through various geographic markets,
including Japan, Norway, Sweden, and Hong Kong.
The company’s vision is “To be the leading premium private label tissue supplier in North
America, the #1 consumer tissue company in Canada and have the #2 facial tissue brand in the
U.S.” (Irving Tissue) Irving Tissue is extremely proud of their safety record and has been
recognized both nationally and internationally for their practices and performance. As well, the
company is committed to producing quality tissue products through responsible forest
management.
Industry Analysis
In general, toilet paper manufacturing is categorized under the Sanitary Paper Product
Manufacturing national industry. The three most important categories for manufacturing costs
include the cost of materials and supplies, the cost of energy, water and vehicle fuel, and
production worker wages. Manufacturing costs in the Sanitary Paper Product Manufacturing
national industry were dominated in 2007 by the costs of materials and supplies. When taking
into account that these costs are the major factor in its manufacturing activities, this industry is
vulnerable to any fluctuation in the prices of materials and supplies. (Industry Canada) To this
end, Irving Tissue has achieved extensive vertical integration, from owning timberland to
producing pulp to synergizing with sister company Midland for logistics, which shields them
from fluctuations in sourcing costs.
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In addition, demand is driven by general commercial activity and population growth. The
profitability of individual companies depends on efficient operations, as products are sold
primarily based on price. (Hoover's) Big corporations have advantages in distribution and can
supply large customers. There are few economies of scale in manufacturing in this industry, as
large and small producers operate the same type of plants. Small corporations can compete
successfully by making specialty products or from serving a smaller geographic segment. The
industry is capital-intensive, with the average annual revenue per worker close to $300,000,
although this number differs by product segment. (Hoover's)
Customer Analysis
Bathroom tissue is sold both directly to retail consumers as well as to commercial/industrial
consumers. Due to these two target segments, a consumer package is offered as well as a larger
and usually lower quality is offered to industrial consumers. The consumer segment makes up
the majority of the market with the average Canadian using over 100 single rolls of bathroom
tissue each year. (Greenpeace)
Consumer products are produced based on consumer demands and preferences. This can include
softness, moisture absorbing resistance, liquid coating such as aloe and scent. For instance, in the
United States, which is the largest market worldwide for toilet paper, bathroom tissue from 100%
recycled fibers makes up less than 2% of sales for at-home use. (Kaufman) However, other
countries are less selective about bathroom tissue. In many European nations, a rough sheet of
paper is considered satisfactory. Other countries are also more willing to use bathroom tissue
made in part or exclusively from recycled paper. According to analysts at Kimberly Clark
Corporation, in Europe and Latin America, products with recycled content make up about 20%
of the at-home market, on average. (Kaufman)
Competitive Analysis
Competitive dimension consists of price, product quality and reliability, time and flexibility.
Price: Irving Tissue owns and manages 6 million acre of timberland in New Brunswick, Nova
Scotia and Maine. They harvest the trees to make pulp and then produce paper. The conversion
of paper into tissue products is the last step. Since Irving Tissue has a very long and complicated
process of manufacturing their products, high costs are incurred during the process.
Product Quality: They are committed to provide high quality tissue products by managing the
entire manufacturing process. They grow superior seeding carefully tested and bred from the
sturdiest and most vigorous trees growing in the forest. Since 1957, they have planted over 650
million trees. As a result, they have been able to consistently manufacture quality tissue
products.
Time: Using an assembly line allows them to have a high speed conversion process, so they
have been able to deliver products when needed.
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Flexibility: As a result of the standardization of products, they have less variety and
customization of products. Instead, they have the organizational capability of adjusting to
unexpected changes in the demand of the product because they have control over the process
from beginning to end.
Competitors in Canada
Cascades Inc - Located in Montreal, Quebec
(Cascades - Premium and Enviro Brands) - Known for its environmental practices, providing a green
(Horizon and North River) friendly manufacturing process using recycled materials
- Serve the industrial market with jumbo and standard
bathroom tissue as well as the consumer market
http://www.cascades.com/_home
Kimberly Clark/Scott Tissue - Located in Dallas Texas

(Cottonelle and Scott Household Tissue) - No Canadian Operations
- The world's largest paper tissue producer
- Purchased Scott Tissue Brands
http://www.kimberly-clark.com/
- Offer both a beauty sensitivity brand as well as a
household brand
- Largely virgin producer, using the highest concentration
of non-recycled products
Kruger Products - Located in Montreal, Quebec
(Cashmere, Purex, Swan, Soft & Pure Premium) - Manufacturing capability of 250 000 Metric Tons of
Bathroom Tissue
- The Tissue Products business unit includes the four
http://www.kruger.com/index_en.html
Kruger Products mills in Canada and one mill and three
converting plants in the United Kingdom. The Kruger
Family interests include tissue mills in Venezuela and
Colombia.
- Purchased Scott Paper Limited in 1997 through
acquisition
Proctor and Gamble - Head office located in Toronto, Ontario

(Charmin) - Produce one brand of toilet paper at different quality and
selling points eg. ultra and basic
- Manufacturing mainly in United States but have
http://www.pgpro.com/Default.aspx?tabid=139
distributing operations in Canada
Grocery Stores - Own proprietary brands
- Usually value product offering
Manufacturing Process
Raw Materials
Toilet paper is generally made from new or "virgin" paper, using a combination of softwood and
hardwood trees. Softwood trees such as Southern pines and Douglas firs have long fibers that
wrap around each other; this gives paper strength. Hardwood trees like gum, maple and oak have
shorter fibers that make a softer paper. Toilet paper is generally a combination of approximately
70% hardwood and 30% softwood.
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Process-Product Type
While Irving Tissue converts the paper into various tissue products, they use assembly line or
flow shop to meet high volume demands of few major products, such as paper towels and
bathroom tissue. Therefore, Irving Tissue is currently operating in the appropriate portion of the
matrix.
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Production Workflow Analysis

See Appendix A for the workflow diagram.
Inputs needed for the production of bathroom tissue include

the tissue itself, as well as cardboard tubes for the inner core
of each roll, and glue in the production of said cardboard
tubes, attaching the tissue to the tubes as well as sealing the
end to prevent unraveling.
The process begins when parent rolls (see right) arrive from
the lumber and pulp processing mill in Dieppe, NB, and are
stored on-site to be used in the production of bathroom
tissue.
Being large single ply rolls of tissue at this stage, it is often the case that some of these delicate
rolls become damaged during transit. Prior to production, a visual inspection is made, and where
there are tearing or otherwise damage to parent rolls, the superficial layers are peeled off until
only undamaged sheets remain, and the damaged sheets are reprocessed onsite into pulp.
The pulp is then used to create cardboard strips, which are fed into a machine that glues and
winds them into continuous tubes later to be cut into 65” logs. These logs in turn will be used as
the core of the toilet paper rolls.
When the time comes for production, parent rolls are loaded in preparation for the beginning of
the automated process via forklifts and special machinery. The machines are set up to handle the
production of at least 2 ply (2 parent rolls loaded concurrently) bathroom tissue, with some lines
capable of producing 3 ply SKUs.
Once properly set up, the winder feeds both parent rolls into an embossing machine which
presses the 2 layers together while setting the Royale imprint pattern onto the paper. This is then
directly fed to a winding machine which glues the paper onto the cardboard tubes and then
rapidly spins these “logs” until the specified size of the roll has been reached. A cutter then cuts
the roll off from the winder, and moves the log through a conveyer system which also seals the
end of the roll with glue before delivering it to the log saw.
There, a circular saw cuts up the logs of toilet paper into the standard 4” rolls, and then passes
them through a filter where the ends of the logs, or any rolls thinner than 4” are rejected and
collected to be turned back into pulp, which would then be used to create additional cardboard
tubes. It is estimated that around 5% of each log would be rejected at this stage.
Now in the standard sizes, the rolls are collected into predetermined sizes depending on the
SKU, and are automatically packaged with the corresponding transparent plastic packaging. If
applicable, they are then further packaged into cases before exiting this stage.
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Finally, the conveyer system drops them off to be manually loaded onto shipping pallets, and the
products are then ready for delivery. The only manual steps in the process are the loading of the
parent rolls and the final pallet packing.
Bottleneck Analysis
Analysis Methodology
Unfortunately, we are unable to obtain the capacity of each stage of production, which makes
accurate analysis of bottleneck capacity difficult, but we were able to obtain the throughput
speed of each SKU on each production line. Thanks to the homogenous nature of bathroom
tissue as well as the highly mechanized process, we can analyze the difference in throughput
speeds between producing different SKUs on the same machine line. The 2 variables that we can
analyze are sheet count (how thick the rolls are) and roll count (how many rolls are in a SKU
package). For the sake of comparability and simplicity, only the throughput rates of line 156 will
be examined here.
Roll Count
Since the roll count per SKU package only becomes a factor at the packaging stage, it’s a good
identifier for whether the packaging stage is a potential bottleneck. Our analysis assumes that
packaging throughput speed is directly related to the number of rolls per SKU, and the smaller
the number of rolls, the more SKUs that have to be packed for one case of the same size to be
filled. To clarify: the number of rolls inside a case does not actually change, but the number of
packaging per case increases with smaller package SKU size (more small packages versus fewer
large packages), thus theoretically leading to slower throughput speeds per case.
Data Analysis
Table 1
LINE SPEEDS (CPHr)
Product # Description 155 Line 156 line 143 Line
60383-81727 PRE BRT 140 12R 2PLY 8/CS 179 180
60383-81728 PRE BRT 140 24R 2PLY 4/CS 179 180
55742-33957 COM BRT 198 24R 2PLY 4/CS 180
55742-33958 COM BRT 198 32R 2PLY 3/CS 180
As shown in the relevant data in Table 1, a change in SKU roll count (from 12 to 24 in the first
pair, from 24 to 32 in the second) does not actually have any impact upon the throughput speed
(180 cases/hr). We can therefore conclude that for line 156, the packaging stage is not a
bottleneck in the selected range of 12-32 rolls, or put in another way, requiring 3-8 separate
packagings per case.
Sheet Count
All other variables kept equal, a change in sheet count (resulting in a thicker roll) would indicate
that it takes longer on the winding stage. If the winding stage is a bottleneck, throughput rates
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should drop as sheet count doubled, possibly by as much as 2 times if the lower sheet count was
already presenting a bottleneck.
Data Analysis
Unfortunately, there are not many SKUs which keep the roll count the same while changing
sheet count (same number of thicker rolls would increase case size), but an example can be
found in Table 2 below:
Table 2
LINE SPEEDS (CPHr)
63435-64048 GRE BRT 140 24R DRP 2PLY 179 180
63435-64052 GRE BRT 280 24R DRP 2PLY 108
Here it seems that from a 140 sheet count SKU to a 280 sheet count SKU, there appears to be a
drop in throughput rate consistent with our hypothesis of slower speed for higher sheet count.
Note that in Table 1, throughput rate remained at 180 even for SKUs having 198 sheets. This
would lead us to conclude that given our data, somewhere between 198 sheets and 280 sheets,
the winding stage has become the bottleneck of the process for line 156, with a capacity rate of
108 cases per hour at 280 sheets per roll.
Higher Sheet Count Offset by Smaller Case

Through the course of our data analyses, we were able to find a circumstance where from one
related SKU to another, a doubling of sheet count was combined with only half of the roll count
per SKU. This would lead to a case where, assuming the winder operated at the same efficiency,
the twice as long time to wind a log would be offset by the case only containing half as many
rolls, therefore theoretically taking the same time for both SKU cases. Since we’ve established
that the packaging stage is not a bottleneck between the ranges of 3-8 packages per case, the only
stage affected is the sawing stage, which only has to saw half as many “logs” with the higher
sheet count SKU.
Data Analysis
Table 3
LINE SPEEDS (CPHr)
57316-13531 COO BRT 176 24R 2PLY 4/CS 179 180
57316-13532 COO BRT 352 12R 2PLY 4/CS 208 225
As the pair of SKU data point out in Table 3, what was previously perceived to be the fastest
throughput rate of 180 increased to 225 cases per hour when the number of saw cuts were
reduced. As shown in Product # 60383-81727 in Table 1, there are other SKUs with 12 rolls per
SKU, but for that SKU there was 8 SKUs per case, a case required a cutting up of a total of 96
rolls (12*8). For Product # 57315-13532, a case requires only a cutting up of 48 rolls. From this,
we can conclude that at 96 rolls per case the sawing stage becomes a bottleneck with a maximum
capacity of 180 cases per hour.
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Implications of our Findings

With our limited data, we can ascertain that of the four key stages of embossing, winding,
sawing, and packaging, depending on the SKU being produced, different stages can become
bottlenecks. The embossing and winding stages have to go at the same speed due to one feeding
directly into the other, so it is hard to determine if the maximum capacity of SKUs coming out of
these two stages is due to the maximum capacity of the embossing section or the winding
section.
Nevertheless, it appears that due to constraints either in the embossing or winding machine, the
winding stage for line 156 has a bottleneck capacity of 108 cases per hour when producing SKUs
with sheet counts of 280. If this bottleneck is “increased” by producing SKUs with lower sheet
counts, the throughput speed increases to 180 cases per hour, which appears to be the bottleneck
speed of the sawing section. If this is further lifted to reduce the number of sawing needed, it
could go up to 234 cases per hour. Due to limitations in data, we cannot ascertain whether
sawing is still a bottleneck at 96 rolls per case and 234 cases per hour, or another stage has
become the new bottleneck.
In terms of recommendations, if there are considerable demand for SKUs with high sheet counts
(so called “double roll” SKUs), upgrade a line with superior embossing and winding machinery,
and produce all high sheet count SKUs on that line to best free up time elsewhere. Similarly,
more advanced sawing equipment could be procured if the cost-benefit analysis is favorable to
raise capacity at that stage.
Demand Forecasting
Current Forecasting Method

In talking with managers at Irving Tissue, they indicated that the primarily means of production
forecasting was done by their sales department. This forecasting method primarily relies of
qualitative sales information and experience, or more specifically a sales force composite method
of forecasting. This method did an adequate job tracking the trend, but had a tendency to
misestimate some months drastically. The month of May 2009 demonstrates this effect.
Purpose of Improving Method

The purpose of forecasting is to minimize both holding and setup costs. When demand is
carefully matched to production the greatest level of profitability can occur as the optimum
ordering size is realized. In our proposal, we indicated that we would attempt more objective
forecast methods to determine if we could improve on their subjective methods. Management has
indicated in the past that they are now looking into alternative ways to forecast but are wary of
the actual results when compared to the costs that are involved.
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Data Available
Data that is available for this project includes actual monthly production quantities between the
periods of January 2007 and June 2009. We have also obtained sales forecasts for the year 2009
up to July. Going forward, we will calculate how accurate their forecasts have been in the year
2009, and compare them against a number of measures to see if any seasonal or objective
methods perform better. We will also test these forecasting methods against 2008 data (where
possible) to further assess the viability of these methods. Furthermore, we will be testing both a
high demand product (24 rolls) and a low demand product (16 rolls), as well as performing
aggregate forecasting on the entire Royale line to get a truer sense of the viability of our
methods.
The following forecasting methods will be employed:

1. Moving Average (3 month, 6 month, 12 month)
2. Exponential smoother (Moving Average (3 month, 6 month, 12 month)
3. Exponential smoother (α adjusted)
4. Holt’s Method (initialized through linear aggression)
5. Winter’s Method (using seasonal data from 2007 and 2008 to predict 2009)
Measuring Error
Since our goal is to minimize the amount of additional units produced, we will use Mean
Absolute Difference (MAD) as our primary basis of measuring error. We will also consider
Mean Absolute Percentage Error (MAPE) to get a sense if some methods lend themselves better
to low and high demand products. The results of our methods can be found below:
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Low Demand (Royale 16 Rolls):
Royale (16 Rolls)

Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09
Actual 17,790 17,318 18,135 26,876 16,276 13,315
Sales Force Composites

Forecast 28,000 40,000 18,000 31,000 22,000 25,000
Error 10,210 22,682 135 4,124 5,724 11,685
MAD 9,093
MAPE 54.6%
MA Method
MA (6 month) 17,442 18,252 17,045 20,532 19,069 20,113
Error 349 934 1,090 6,344 2,793 6,798
MAD 3,051
MAPE 17.5%
ES Method
ES (0.4) 18,686 19,597 20,572 16,370 16,433 18,511
Error 896 2,279 2,437 10,506 157 5,196
MAD 3,578
MAPE 18.5%
Holts Method
(α=0.2, β=0.2) 17,136 17,496 15,794 16,870 18,925 21,360
Error 654 178 2,341 10,006 2,649 8,045
MAD 3,979
MAPE 21.9%
Winters Method
(α=0.2, β=0.2, γ=0.1) 22,255 25,331 28,862 23,838 32,174 21,410
Error 4,465 8,013 10,727 3,038 15,898 8,095
MAD 8,372
MAPE 50.0%
*For a detailed explanation of method calculation, please see Appendix B
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High Demand (Royale 24 Rolls):
Royale (24 Rolls)

Actual 132,774 120,313 63,379 70,071 46,502 37,040

Forecast 75,000 95,000 80,000 85,000 82,000 83,000
Error 57,774 25,313 16,621 14,929 35,498 45,960
MAD 32,683
MAPE 52.1%
MA Method
MA (12 month) 74,407 69,742 70,824 69,937 73,255 77,135
Error 58,367 50,571 7,445 134 26,753 40,095
MAD 30,561
MAPE 44.0%
ES Method
ES (0.8) 109,005 63,775 65,360 46,517 46,576 84,718
Error 23,769 56,538 1,981 23,554 74 47,678
MAD 25,599
MAPE 38.4%
Holts Method
(α=0.1, β=0.1) 86,256 87,368 87,595 90,271 93,809 91,269
Error 46,518 32,945 24,216 20,200 47,307 54,229
MAD 37,569
MAPE 62.9%
Winters Method
(α=0.2, β=0.2, γ=0.1) 100,695 66,005 65,449 62,397 77,534 67,869
Error 32,079 54,308 2,070 7,674 31,032 30,829
MAD 26,332
MAPE 38.9%
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Evaluation of Sales Force Method

Low Demand - As mentioned above, this method does an adequate job tracing the trend of low
demand tissue paper. Results in May, however have severely skewed the measure of error. In
talking with managers, what happened in the month of May was a promotional price offering
estimated to drive sales. However, actual results did not perform as well as expected. We believe
that this may be due to lurking variables involved in the tissue industry. In particular, we have
determined that this underperformance was due to a similar lower price offering which caused
the sales to fall below expectation.
Lower Demand: 16 Roll Royale

45,000
40,000
35,000
30,000
25,000
Actual
20,000 MA (6 month)
Sales Force
15,000
10,000
5,000
0
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09
High Demand - In the month of May, it appears the opposite has happened in the high demand
market compared to the low demand. During May, the sales department has underestimated the
effect of the promotional price. This also suggests that other lurking variables are influencing
their accuracy. In addition, salespeople may be unable to accurately quantify the relationship
between sales and promotions. Finally, they give a static forecast indicated potential laziness.
Higher Demand: 24 Roll Royale

140,000
120,000
100,000
80,000
Actual
ES (0.8)
60,000
Sales Force
40,000
20,000
0
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09
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Results of Forecast Methods for Low Demand

As you can see from above, the 6-month moving average method gives the lowest error for the
low demand product. This suggests that there is no prevalent trend in this product. This may be
because the product is usually bought by a niche market who does not buy in bulk for cost
savings or in low amounts for storage convenience or to control for perceived ware.
Interestingly, as we expanded the measure to include forecasting for 2008, we found expanding
the forecast to the 12-month moving average generated more accurate results. In addition to our
findings, we found that this product is less subject to seasonal forecasts methods like winters.
This further suggests that there is no seasonal trend and demand is relatively static, with the
exception of shock promotional pricing. Holt’s method performed particularly bad, indicating no
general linear trend.
The end result was a reduction in MAD of 6,042 units simply by applying this low cost method.
Results of Forecast Methods for High Demand

In forecasting for high demand products like the 24-roll, we found that the ES method with a
smoother of 0.8 performed the best. In discussion with management and through personal
observations, we believe that this may be due to the high demand for the 24-roll products. The
promotional effects of the sales are likely to last longer as consumers demand greater amounts
and stock up over the promotional time period. This means that the ES method is able to catch up
to the high demand for the product as it is one-step behind and captures the increase in demand.
Interestingly, seasonal forecasting did perform better than in the low demand market. This is
likely because of seasonal bulk buyers who are focused on cost savings. Consumers who often
switch based on price are more likely to buy this product during promotional spikes creating
some seasonal trend if promotional periods are similar during the year.
The end result was a reduction in MAD of 7,083 units simply by applying this low cost method.
Solving Lurking Variables and Offering an Alternative

The main problem with our results is that our selected methods are one-step behind. The sales
force method has some benefits in tracking the trend and spikes. However, because it is based on
subjective judgment, we believe that it can be refined by quantifying relationships between
demand and lurking variables. One such lurking variable above is the price of competing brands.
Advanced statistical software is one option, but is more expensive than our low cost alternatives.
Our low cost alternatives do however reduce the amount of error in estimating demand therefore
improving plant efficiencies. A true forecast statistical software could be employed, but at a
higher cost. Other variables that could be measured could include unemployment, inflation,
overall supply and marketing.
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Aggregate Findings
One of the main difficulties in forecasting for the aggregate quantity is that SKU’s change
annually and are not measured in some years. As such, we have decided to isolate a number of
SKU’s from the Royale line that are comparable across years. Our result demonstrated that the
sales force method is currently the best method of estimating demand. In talking with
management, the difference between the results of the aggregate and individual forecasting is
likely because they first estimate the aggregate then make random adjustments to make it fit
among the individual SKUs. This suggests that the sale department does have relevant
knowledge of the aggregate demand. The results of our findings are posted below:
Royale (Aggregate)
Actual 430,386 354,206 222,801 458,393 237,005 160,671

Forecast 407,500 305,200 275,400 348,300 320,300 277,000
Error 22,886 49,006 52,599 110,093 83,295 116,329
MAD 72,368
MAPE 29.1%
MA Method
MA (12 month) 244,129 237,663 244,496 224,607 226,474 229,532
Error 186,257 116,543 21,695 233,786 10,531 68,861
MAD 106,279
MAPE 30.7%
ES Method
ES (0.8) 335,452 260,434 410,964 221,249 158,227 148,450
Error 94,934 93,772 188,163 237,144 78,778 12,221
MAD 117,502
MAPE 37.6%
Holts Method
(α=0.1, β=0.1) 204,581 204,142 177,684 176,004 183,297 192,204
Error 225,805 150,064 45,117 282,389 53,708 31,533
MAD 131,436
MAPE 36.5%
Winters Method
(α=0.2, β=0.2, γ=0.1) 295,851 240,877 294,631 235,656 273,139 215,568
Error 134,535 113,329 71,830 222,737 36,134 54,897
MAD 105,577
MAPE 32.2%

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As you can see from our results, the sales department is successful in estimating the aggregate
level of production. Since the production process requires similar materials across SKU's, this
indicates that this is a sufficient measure. However, there is some difference in materials with
levels of premium materials added to premium brands. In this case, at a minimum, it would be
better to utilize the methods proposed above. The MAD through their method is still significant
at 72,368 units of a total of 430,386 units sold. This indicates that the process has room to be
improved. The suggestion above employing a combination of sales knowledge of variables and
statistical analysis, can improve the demand numbers. This would mostly affect holding and
ordering costs as with a fill rate of 99%, it is only the additional holding and order costs that
would be saved, but shortages can still occur.
Therefore, we recommend a statistical software method be used in collaboration with the sales
force. For product level forecasting, we recommend switching to the ES and MA methods if the
software is incapable of scaling down as it is a more affordable option and is more accurate in
estimating individual demand.
Limitations with Forecasting

- Small amount of data from 2007 on increases error
- Only sales force forecasts for 2009 (Jan – June) available, could have been a biased year
- Aggregate limited as difficult to isolate every SKU as they change over time
- Only Royale line measured
Optimal Inventory
Each company has an optimal level of inventory they wish to keep on hand to face uncertain
situations. Having an inventory level below the optimum is dangerous because the company will
result in lost revenues and damaged reputation. However, having an inventory that is too high is
a waste, and it incurs large storage costs. In this project, we’ve estimated the optimal inventory
level using the Economic Order Quantity (EOQ) method. Economic order quantity is the level of
inventory that minimizes the total cost associated with the purchase, delivery and storage of the
product.
Basic assumptions to compute EOQ for 24-Rolls product:

Arrivals per year = Cases per month x number of months in a year
= 78,347 x 12
= 940,164 cases per year
Interest Rate: Assuming 10% annual
Unit Cost: $10/case
Setup Cost: $200
Q*√ (2CD/H)
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= [(78,347 *2*2000)/(.10*10)]
Q* = 19,392
Please see Appendix C for complete optimal inventory calculations for the 24-Rolls product and
16-Rolls product.
Optimal Cycle Time for 24-Rolls product:

Cycle time=Q*/D
Optimal Cycle Time Calculation
In Years 0.02
In Months 0.25
In Days 7.53
Comparison of Data
Optimal Quantity Irving Tissue’s Actual
Product Description
(Calculated) Quantity
16-Rolls (Royale) 9,368 10,721
24-Rolls (Royale) 19,392 15,268

Thus, the results of the optimal quantity (calculated) and the Irving Tissue’s actual quantity for
the 16-Rolls product is fairly close. However, for the 24-Rolls product, there is a bit of a
discrepancy, as the optimal quantity is implied to be 19,392 cases and the company is only
currently producing 15,268 cases. However, there are a few drawbacks when using this
simplified EOQ model. It is important to note that although this value of Q minimizes the yearly
holding and setup costs, it could be infeasible for the company, as they may not have sufficient
space to store these cases and hence could result in additional storage costs.
Therefore, management should be aware that modifying inventory levels could incur extra costs.
Safety Stock
Irving Tissue is highly adamant on maintaining a service level of 99%, which would lead to
carrying safety stock equivalent to 2.33 standard deviations of historical demand for the product.
As part of our analysis regarding inventory, we’ve selected 2 SKUs to check their current target
safety stock levels against our calculated levels using the method learned in class.
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Key Information Needed

 Data of demand
 Mean yearly demand
 Standard deviation of the yearly demand
 Lead time
 Service Level
Data of demand: We gathered the following 3-year data about demands for 16 and 24-Roll
products:
Mean yearly demand: It is computed based on the demands for recent 3 years and the average
is taken.
Mean Demand = Sum of Demands / Number of data of demand
Standard deviation: It is computed based on formula using the computed mean yearly demand
and the actual data of demands.
Lead time: In the multi-echelon structure of Irving Tissue, they view the lead time as the time it
takes for the plant in Toronto to supply the regional warehouses, from which lead time to
customers would not exceed 2-3 days depending on location. We were told that because of the
way production is sequenced, it would be potentially costly to produce a SKU on a short notice
due to the excessive setup costs and time involved, so that we should assume a worst-case
scenario of only producing one run of a SKU every two 14-day production cycles. Therefore, if
demand was greater than expected, it could be up 28 before another run is scheduled, and thus 28
days would be the lead time for this calculation. Due to the excessively conservative parameters
here, the loading & delivery time of 1-2 days from plant to warehouses are left out.
Service Level: It is set as 99% service level by Irving Tissue. Only 1% of failure of meeting the
customers’ demand is accepTable From Table A-1 in the textbook, we know that z value for
99% service level is 2.33
18 | P a g e
Safety Stock: It is computed by using the following formula:
Safety Stock = SQRT (28/365) * Standard Deviation * 2.33
Mean Current
Product
Yearly Std. Dev. Safety Stock Irving Tissue’s
Description
Demand Safety Stock
16 Rolls (Royale) 268,374 7889 5,901 11,029
24 Rolls (Royale) 905,526 60,896 39,299 39,694
Based on the gathered information and calculations, we found that the required safety stock for
99% service level is 5,901 for 16-Roll product and 39,299 for 24-Roll product.

In analyzing our calculated values compared to current data, we conclude that Irving Tissue is
unnecessarily holding too much safety stock for the 16-Roll product. Irving Tissue could
potentially be able to reduce approximately half of current safety stock holding costs by
decreasing the safety stock from 11,029 to 5,901.
It is important to keep in mind here that the safety stock calculation method which was learned in
class may not be the most applicable in this case, as it does not take into account the forecast
accuracy. The wide variation between our calculated value for the 16-Roll product and the
current target could very likely be represented by Irving Tissue’s use of a different calculation
method which accounted for forecast accuracy. For this reason, we would simply recommend
that they check their current safety stock target levels to ensure that they’re intentionally carrying
higher levels than what we expect, due to factors such as inaccurate forecasting.
Overall Conclusions & Recommendations

Production Processes
As a result of our analysis, a possibility exists of having a dedicated line for the production of
high sheet count SKUs. If “double roll” bathroom tissue products become highly demanded in
the future, this option should be more closely examined at that time.
Demand Forecasting
As a result of our analyses, we believe that current forecasting methods could tangibly benefit
from the implementation of statistical forecasting methods for production planning purposes
going forward. While sales force composites outperformed current statistical methods in
aggregate forecasting, because the aggregate is across SKUs it would not be beneficial from a
productions perspective to overproduce one SKU while another is sold out. Therefore, while we
19 | P a g e
believe that sales force composites will retain its uses in longer term aggregate planning, the
next-period production planning process would benefit from statistical forecasting.
Inventory Management
It is our understanding that upper management of Irving Tissue is keen to reduce inventory
holdings in order to increase their inventory turnover metric. This report has shown that given
very limited data selections, the current inventory level looks to be near the optimal point in
terms of EOQ, and the safety stock levels appear to be appropriate for the high volume SKU
analyzed. While the lower volume SKU analyzed showed it is potentially holding too much
safety stock, inaccurate forecasting, which is not factored into our calculations, would justify the
reasoning behind higher safety stock levels for that SKU.
In summary, this means that opportunities to easily reduce inventory are currently limited. Upper
management needs to be educated on the concept of EOQ in particular, and how deviations from
the ideal production size will result in higher costs, so that they are not hurting the health of the
company for the sake of being able to say they met their target metric.
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Appendix A - Workflow Diagram
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Appendix B – Forecasting Calculations

Moving Average
𝒕−𝟏
𝒕=𝒕−𝑵 𝑫𝒕−𝒊
𝑭𝒕 =
𝑵
3-month, 6-month, 12 month for N used in calculation.
ES Method
𝑭𝒊 = 𝜶𝑫𝒊−𝟏 + 𝟏 − 𝜶 𝑭𝒊−𝟏
Smoothers used include 0.8, 0.6 and 0.4.
Holt’s Method
Holt’s method is designed to track time series with a linear trend. It requires the following two
smoothing equations:
𝑆𝑡 = 𝛼𝐷𝑡 + 1 − 𝛼 𝑆𝑡−1 + 𝐺𝑡−1
𝐺𝑡 = 𝛽 𝑆𝑡 − 𝑆𝑡−1 + (1 − 𝛽)𝐺𝑡−1
These are then substituted into the forecast to find the one step ahead:
𝐹𝑡,𝑡+𝜏 = 𝑆𝑡 + 𝜏𝐺𝑡
To initiate the formula, we require both 𝑆0 𝑎𝑛𝑑 𝐺0 using linear regression. We used excel to
generate the statistics. Below is the output for the low demand.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.398735
R Square 0.15899
Adjusted R Square -1.2
Standard Error 23807.1
Observations 1
ANOVA
df SS MS F Significance F
Regression 12 1.07E+09 89289380 1.890462734 #NUM!
Residual 10 5.67E+09 5.67E+08
Total 22 6.74E+09
Coefficients
Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%Upper 95.0%
Intercept -5E-299 4.9E-299
X Variable 1 0 0
X Variable 2 -5E-299 4.9E-299
X Variable 3 0 0
X Variable 4 2.2E-282 2.2E-282
X Variable 5 7923.755 7923.755
X Variable 6 -2E-302 2.1E-302
X Variable 7 -5E-299 4.9E-299
X Variable 8 -5E-299 4.9E-299
X Variable 9 0 0
X Variable 10 -511429 511429.2
X Variable 11 50787.05 14652.26 3.466159 0.006059943 18139.78 83434.31 18139.78 83434.31
X Variable 12 2737.301 1990.85 1.374941 0.199170606 -1698.59 7173.19 -1698.59 7173.19
22 | P a g e
Winter’s Method
Winter’s method is a type of triple exponential smoothing employing the following forecast
formula:
𝐹𝑡,𝑡+𝜏 = (𝑆𝑡 + 𝜏𝐺𝑡 )𝑐𝑡+𝜏−𝑁
Smoothers Include:
𝑆𝑡 = 𝛼(𝐷𝑡 /𝑐𝑡−𝑁 ) + 1 − 𝛼 𝑆𝑡−1 + 𝐺𝑡−1 - Series

𝐺𝑡 = 𝛽 𝑆𝑡 − 𝑆𝑡−1 + (1 − 𝛽)𝐺𝑡−1 - Trend
Updated Seasonal Factor:
𝐷𝑡
𝑐𝑡 = 𝛾 + 1 − 𝛾 𝑐𝑡−𝑁
𝑆𝑡
Seasonal trends were based off 2 years of data, with each month being its own season.
Appendix C - Optimal Inventory Calculations

SKU# 63435-70085 63435-70086
Description - No. of Rolls 16 Rolls 24 Rolls
Average number of cases/month 18,285 78,347
Number of months a year 12 12
Arrivals a year 219,420 940,164
Unit Cost $10 $10

Interest Rate 10% 10%
Ordering Cost $200 $200
Optimal Quantity 9,368 19,392

Optimal Cycle Time (in years) 0.04 0.02
Optimal Cycle Time (in months) 0.51 0.25
Optimal Cycle Time (in days) 15.58 7.53
23 | P a g e
Works Cited
Greenpeace. Ancient Forest Friendly Tissue Products. 04 Dec 2009
<http://tissue.greenpeace.ca/download/guide_en.pdf>.
Hoover's. Irving Tissue Inc, Company profile from Hoover's. 2009. 03 Dec 2009
<http://www.hoovers.com/company/Irving_Tissue_Inc/rthxcri-1.html>.
Industry Canada. Canadian Industry Statistics. 2009. 01 November 2009

<http://www.ic.gc.ca/cis-sic/cis-sic.nsf/IDE/cis-sic322291defe.html>.
Irving Tissue. Vision & Values. 2003. 01 Dec 2009

<http://www.irvingtissue.com/english/c_v.asp>.
Kaufman, Leslie. "Mr. Whipple Left It Out: Soft Is Rough on Forests." New York Times 25 Feb
2009.
24 | P a g e

Irving Tisuue - Team PK

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Irving Tisuue - Team PK

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Submitted To: Professor Benny Mantin

Date Submitted: December 6, 2009

MSCI 432: Applied Term

Prepared By: Team PK

Goals and Objectives

As part of the improvement process, management is considering implementing a complex

Kimberly Clark/Scott Tissue - Located in Dallas Texas

Proctor and Gamble - Head office located in Toronto, Ontario

Production Workflow Analysis

Inputs needed for the production of bathroom tissue include

Higher Sheet Count Offset by Smaller Case

Implications of our Findings

Current Forecasting Method

Purpose of Improving Method

The following forecasting methods will be employed:

Low Demand (Royale 16 Rolls):

Royale (16 Rolls)

Sales Force Composites

*For a detailed explanation of method calculation, please see Appendix B

High Demand (Royale 24 Rolls):

Royale (24 Rolls)

Sales Force Composites

*For a detailed explanation of method calculation, please see Appendix B

Evaluation of Sales Force Method

Lower Demand: 16 Roll Royale

Higher Demand: 24 Roll Royale

Results of Forecast Methods for Low Demand

Results of Forecast Methods for High Demand

Solving Lurking Variables and Offering an Alternative

Sales Force Composites

*For a detailed explanation of method calculation, please see Appendix B

Implications of our Findings

Limitations with Forecasting

Basic assumptions to compute EOQ for 24-Rolls product:

Optimal Cycle Time for 24-Rolls product:

16-Rolls (Royale) 9,368 10,721

24-Rolls (Royale) 19,392 15,268

Implications of our Findings

Key Information Needed

16 Rolls (Royale) 268,374 7889 5,901 11,029

24 Rolls (Royale) 905,526 60,896 39,299 39,694

Implications of our Findings

Overall Conclusions & Recommendations

Appendix A - Workflow Diagram

Appendix B – Forecasting Calculations

3-month, 6-month, 12 month for N used in calculation.

Smoothers used include 0.8, 0.6 and 0.4.

𝐹𝑡,𝑡+𝜏 = (𝑆𝑡 + 𝜏𝐺𝑡 )𝑐𝑡+𝜏−𝑁

𝑆𝑡 = 𝛼(𝐷𝑡 /𝑐𝑡−𝑁 ) + 1 − 𝛼 𝑆𝑡−1 + 𝐺𝑡−1 - Series

Updated Seasonal Factor:

Appendix C - Optimal Inventory Calculations

Unit Cost $10 $10

Optimal Quantity 9,368 19,392

Industry Canada. Canadian Industry Statistics. 2009. 01 November 2009

Irving Tissue. Vision & Values. 2003. 01 Dec 2009

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