Essay Topic about Supply Chain Management

1. Consider the solution alternative - placing scientifically based inventory system, (say Periodic review system) - to solve inventory-service crisis. Estimate cycle inventory, safety inventory and pipeline inventory, for all desk jet printer models, to achieve 95% cycle service level (under the option of sea shipment mode).

Estimate the annual average supply chain inventory cost (do not forget to include the cost of pipeline inventory in the annual average supply chain inventory cost).(3 points) All the frameworks that we have drawn in this group work show as well the formulas that are used as the explanation in text.All the figures that concern demand data (like the average monthly demand of AB printers of 15.830 units) are taken from the demand table in Appendix 1.

Also we have rounded all number to whole numbers in between the calculations to keep the explanation in text aligned with the results of the calculations. The table below shows that the cycle inventory is 1.828 units, the pipeline inventory is 18.280 units and the safety inventory is 2.

703 units, all to achieve a 95% cycle service level (under the option of sea shipment mode). The annual average supply chain inventory cost are $4.654.950.2. Consider the solution alternative - using Air Transport - to solve inventory-service crisis.

Assess the economic impact of air transport solution to provide 95% cycle service level. Which mode of transport would you choose when you tradeoff inventory cost savings and transportation cost increase?(5 points) The table on the next page shows that the annual average supply chain inventory cost under the option of air transport are $1.768.650. Question 1 has shown that the annual average supply chain inventory cost under the option of sea shipment mode are $4.

654.950. Hence this shows $2.886.

300 of possible inventory cost savings when switching from sea to air transport. However, the transportation cost of switching from sea to air transport would raise by $3.799.220. Hence overall, switching from sea to air transport would result in an increase of cost of $912.

920. Therefore we would choose for the option of sea shipment mode.3. The Marketing Department is concerned about increasing competition from other manufacturers and has proposed that the cycle service level for all products be raised to 99%. What is the annual average cost of achieving 99% service level for option AB, assuming all products are shipped by sea?(3 points) The table below shows that the annual average cost of achieving 99% service level for option AB, assuming all products are shipped by sea, are $5.

327.400.4. A detailed market study shows that only a small segment of the European market, representing 30% of sales, requires the 99% cycle service level. HP can maintain its competitive position in the rest of the European market with its current 95% service level. The Logistics Department has proposed a differentiated service policy whereby inventory is physically separated and allocated to each of the two market segments in order to achieve the 99% and 95% cycle service level, respectively.

What is the cost impact of such a policy, compared with the practice of providing the higher service level to all customers (as addressed in Question 3)? Should this practice be adopted? (Assume that all products are shipped by sea; Assume that demand between the two segments is uncorrelated; Hence the mean and variance of demand is split in the same percentage level (70 / 30 ) across two segments). (6 points)Question 3 shows that to improve the service level from 95% to 99% for all customers, the cost will raise with $5.327.400 - $4.654.

950 = $672.450. When you would do this for only 30% of the customers you would expect this extra cost to be 30% times $672.450 = $201.

735. The framework below shows that the differentiated service policy results in a total inventory cost of $4.856.550. Compared to the total inventory cost of Question 1, the cost in this situation will raise to $4.

856.550 - $4.654.950 = $201.600.

This means that choosing for the differentiated option will be relatively cheaper than choosing for a service improvement for all customer. Hence, yes this practice should be adopted. Finally, the absolute difference in total inventory cost, assuming switching from the undifferentiated option to the differentiated option, is $5.327.

400 - $4.856.550 = $470.850.5. Consider the current method of differentiating all printer models at Vancouver plant.

Calculate the cycle inventory and safety inventory in European DC and SC pipeline inventory, for all deskjet printer options, to achieve 95% cycle service level (under both sea and air shipment mode). Estimate the annual average supply chain inventory cost. (10 points) The table below shows all the different cycle inventories for all deskjet printer options, to achieve 95% cycle service level (under both sea and air shipment mode). The annual average supply chain inventory cost by sea are $7.123.

910 and by air are $2.771.664. Air shipment also has extra transportation cost of $5.546.480 and will come at a total cost of $8.

318.144.6. One of the HP’s stakeholders recommended the idea of full postponement strategy so that all printer options could be localized/customized at the DC. This meant that the power supply module would have to be added to the “universal printer part” at the last minute as a simple plug-in operation.

This would be followed by simple testing and then adding the other localization materials, such as manuals and final packaging, to the product.Assess the economic impact of this option through the following steps.a) Estimate cycle inventory, safety inventory and pipeline inventory, to achieve 95% cycle service level (under both sea and air shipment mode). Estimate the annual average supply chain inventory cost.

The table below shows all the cycle inventories for all deskjet printer options, to achieve 95% cycle service level, in the full postponement strategy (under both sea and air shipment mode). The annual average supply chain inventory cost by sea are $6.222.300 and by air are $2.251.350.

Air shipment also has extra transportation cost of $5.546.480 and will come at a total cost of $7.797.830.

b) Estimate the inventory savings due to full postponement strategy compared to current method. The table below shows that the inventory savings due to the full postponement strategy would be $901.564 for the option by sea and $520.314 for the option by air.c) If final assembly in the European DC adds $2 to the production cost / unit, would you recommend option 2? (9 points) The table below shows extra costs of $554.

648. Hence, yes, we would recommend the full postponement strategy for the option by sea because it would save $901.564-$ 554.648 = $346.

916. We would not recommend this for air transportation because it would add extra costs of $554.648-$520.314=$34.334.(7) Another solution alternative is tailored postponement strategy, in which only printer options AB, AQ and AU will be localized /customized at the DC and other printer options in Vancouver manufacturing plant.

Assess the economic impact of this option through the following steps. a) Estimate cycle inventory, safety inventory and pipeline inventory, to achieve 95% cycle service level (under both sea and air shipment mode). Estimate the annual average supply chain inventory cost.The table below shows all the different cycle inventories for all deskjet printer options, to achieve 95% cycle service level (under both sea and air shipment mode).

The annual average supply chain inventory cost by sea are $6.327.769 and by air are $2.312.

250. Air shipment also has extra transportation cost of $5.546.480 and will come at a total cost of $7.858.

730.b) Estimate the inventory savings due to tailored postponement strategy The inventory savings due to tailored postponement strategy are $796.141 for the sea option and $459.414 for the option by air.

If final assembly in the European DC adds $2 to the production cost / unit in this option as well, then the table below shows extra costs of $536.142. In that case the tailored postponement strategy by sea shipment would save $796.141-$536.142=$259.

999 and the option by air transportation would add extra costs of $536.142-$459.414=$76.728.c) Do you recommend full postponement strategy or tailored postponement strategy? Why? (9 points) We recommend the full postponement strategy by sea because as the table below shows, this options saves $346.916 and is therefore the most profitable option.

(8)If you were Brent Cartier, which of the solutions proposed by the different stakeholders would you consider to implement? How would you sell your recommendation to the many different organizations involved? What other factors would you consider in making this decision? (5 points) Considering Question 1 – Question 4, the table below shows that for only printer AB the sea shipment is better than the transportation by air. When Brent considers to improve the service level to 99% this will be most costly efficient (extra added cost per percentage of customers) when he chooses to do this for only 30% of the customers.