!!BA#244:#Supply#Chain#Management#

Next#Class#

! CASE STUDIES: 1. McDonald's India 2. Union Carbide Bhopal

! 20 minutes + 10 minutes ONLY

! Ask questions!

! You will grade the group ! 40% - Content and SCM Analysis ! 30% - Visual Ease and Presentation Flow ! 30% - Interaction with Audience

Midterms#Stats#

! Max: !45!(90%)!

! Min: !39!(78%)!

! Mean: !41!(82%)!

Culture#in#Negotiation#

! Gelfand, M., et. al. 2013. Toward a Culture-by-Context Perspective on Negotiation: Negotiating Teams in the United States and Taiwan. Journal of Applied Psychology. 98 (3): 504-513.!

Culture#in#Negotiation#

! Results!! Taiwanese!teams!nego?ated!lessAop?mal!outcomes!

than!Taiwanese!solos!

Culture#in#Negotiation#

! Prac?cal!Implica?ons!! Team!or!Solo!! Consider!own!and!counterparts!cultures!! Culture!influences!nego?a?on!outcomes,!but!

depending!on!context!

Internal#Supply#Chain#

Procurement! Produc?on! Storage! Distribu?on! Sales!and!Marke?ng!

Inventory#System#

! Specifies!! How!much!stocks!should!be!maintained!! Replenishment!Schedule!! Replenishment!Order!Size!

Inventory#Cost#

! Includes:!! Carrying!! Order!Processing!! StockAout!! SetAup!

Inventory#

! Is!a!stock!of!item!or!asset!in!the!organiza?on!

Inventory#Systems#

! QAmodel!! Fixed!order!quan?ty!model!or!EOQ!model!

! PAmodel!! Fixed!period!model,!periodic!review!system,!fixed!

order!interval!system!

Q?Model#

Idle!State,!wai?ng!for!demand!

Demand!occurs,!items!taken!from!inventory!or!backAordered!

Compute!inventory!Posi?on! Posi?on!=!OnAhand!+!OnAorder!

!BackAorder!

Posi?on!

Q?Model#

! Defines!an!inventory!posi?on!R!(reAorder!point),!when!an!order!Q!is!placed!

! Q!is!called!the!Economic!Order!Quan?ty!or!EOQ!

! Q!is!always!the!same!quan?ty!in!each!order!

Q?Model#/#Fixed#Order#Quantity#

Reorder!level!

Safety!stock!level!

Maximum!stock!

Lead!?me!for!delivery!

Reorder!point!

Fixed!order!quan?ty!

Time%

Stock%level%

Assumptions#of#Q?Model#

! Demand!is!constant!and!uniform!at!all!?mes!

! Replenishment!lead!?me!is!constant!

! Product!Unit!Cost!is!constant!

! Inventory!Holding!Cost!based!on!average!inventory!

! Ordering!and!SetAup!Cost!are!constant!

! No!back!orders!allowed!

! No!returns!or!rejec?ons!in!delivery!

Formulas#

! Q!=!EOQ!=!sqrt!(2DS!/!H)!! D!=!Annual!Demand!! S!=!SetAup!cost!or!order!processing!cost!! H!=!Annual!holding!and!storage!cost!per!unit!or!

average!inventory!

! R!=!d!x!L!! d!=!Average!daily!demand!! L!=!Replenishment!lead!?me!

P?Model#

Idle!State,!wai?ng!for!demand! Demand!occurs,!items!taken!from!inventory!or!backAordered!

Compute!inventory!Posi?on! Posi?on!=!OnAhand!+!OnAorder!

!BackAorder!

Has!review!period,!T!arrived?!

Yes!

No!

Compute!order!quan?ty,!q,!to!bring!inventory!to!needed!level! Issue!order!for!computed!quan?ty!

Formulas#

! q!=!d!(T!+!L)!!I!! q!=!quan?ty!to!be!ordered!! T!=!Period!between!reviews!! L!=!Replenishment!lead!?me!! d!=!Forecasted!average!demand!! I!=!Inventory!onAhand!including!those!on!order!

P?Model#

! Inventory!is!checked!only!aher!a!fixed!period!

! ReAorders!are!placed!aher!a!period!T!to!bring!stocks!to!desired!level!

! The!quan?ty!ordered!each!period!T!may!vary!depending!on!stock!posi?on!

P?Model#/#Periodic#Review#System#

Safety!stock!level!

Review!Period!

Reorder!point!Reorder!quan?ty!

Time%

Stock%level%

Suppliers!lead!?me!

P?Model#

! Length!of!review!period!! The!shorter,!the!more!effort!and!cost!is!involved!

Differences#

Parameter' Q)Model' P)Model'

Order!Volume! Constant! Variable!

When!to!Order! When!we!reach!reAorder!point!

Aher!a!fixed!?me,!T!

Stock!Level!Upda?ng! Each!?me!product!is!drawn!from!or!replenished!in!the!inventory!

Only!during!stock!review!at!end!of!T!

Inventory!Size! Less!than!PAModel! Larger!than!QAModel!

Effort!required! More!than!PAModel!due!to!constant!monitoring!

Less!than!QAModel!

Category!Type! High!value!and!Cri?cal!Products!

Low!value,!rou?ne,!and!nonAcri?cal!products!

Other#Inventory#Systems#

! There!is!difficulty!in!obtaining!actual!order!setAup,!carrying,!and!stockAout!costs!

! Assump?ons!governing!use!of!these!models!may!not!hold!true!! Demand!is!ohen!not!constant!or!uniform!! Replenishment!lead!?me!is!usually!not!constant!

! As!a!result!! Modified!PAModel!!Op?onal!Replenishment!System;!1!

Bin!System!! Modified!Q!Model!!2!Bin!System!

Modified#P?Model:#Optional#Replenishment#System##

! Check!inventory!aher!every!fixed!period,!T!

! Order!is!placed!only!if!the!level!is!below!a!set!amount!

! Systems!defines!a!minimum!order!size!Q,!a!maximum!inventory!of!M,!and!an!inventory!posi?on!I!

! q!=!M!!I!! if!q>=Q,!order!q,!otherwise!dont!order!any!

Modified#P?Model:#One#Bin#System#

! Periodic!replenishment!of!the!bin,!at!T!

! Aher!T,!the!bin!is!checked!for!stock!level!

! The!level!is!brought!to!a!set!maximum!level!at!each!examina?on!

Modified#P?Model:#One#Bin#System#

Modified#Q?Model:#Two#Bin#System#

! Items!are!drawn!from!one!bin!

! When!first!bin!is!depleted,!it!signals!reordering!of!replenishment!

! A!second!bin!serves!requirements!while!replenishment!is!underway!

! Second!bin!serves!as!replenishment!lead!?me!stock!

Modified#Q?Model:#Two#Bin#System#

!!

What#inventory#system#does#your#company#use?#

Economic#Production#Quantity#

! EOQ!/!QAmodel!

! EPQ!model!is!beper!suited!to!being!used!by!a!company!manufacturing!end!items!!

! Uses!setAup!cost!for!the!year!(rather!than!the!annual!order!cost!in!the!EOQ!model)!!

Economic#Production#Quantity#

! Used!to!determine!the!op?mal!order!quan?ty!that!an!organiza?on!should!place!with!a!supplier!to!minimize!inventory!costs,!while!balancing!inventory!holding!and!average!fixed!order!costs!(Dolgui!et!al.,!2010)!

! ohen!associated!with!items!produced!inhouse!!

!

Tips#

! There!are!several!variants!on!the!EPQ;!Evaluate!which!version!to!use!in!the!organiza?on!and!check!periodically!to!see!if!there!have!been!noteworthy!advancements!on!the!model!!

! Consider!inves?ng!in!some!quality!sohware!to!handle!inventory!management!with!builtAin!EPQ!func?ons,!or!alterna?vely!use!one!of!the!many!free!EPQ!calculators!available!online!

Disadvantages#

! Assumes!that!all!units!produced!are!of!perfect!quality!and!shortage!is!not!allowed.!In!prac?ce,!however,!this!could!underes?mate!the!actual!number!required!because!nonAconforming!product!or!scrap!items!are!possible!!

! In!tradi?onal!EPQ!models,!setAup!(or!ordering)!cost!is!treated!as!a!constant.!In!reality!setAup!cost!can!be!controlled,!for!example,!through!worker!training,!procedural!changes,!as!well!as!specialized!equipment!acquisi?on!!

Case#Studies#

! HewlepAPackard!(HP)!! Cut!printer!supply!costs!by!25%!using!inventory!

models!! Realized!net!savings!of!USD!80M!through!moving!

transAocean!freight!lanes!from!air!to!sea!!

Vendor#Managed#Inventory#

! Is!a!supply!chain!agreement!where!an!upstream!agent!(e.g.!supplier!or!manufacturer)!takes!control!of!the!inventory!management!decisions!for!one!or!more!downstream!agents!(e.g.!retailers)!(Fry,!2011)!

! Also!known!as!supplier!managed!inventory,!con?nuous!replenishment!program,!or!supplierAassisted!inventory!replenishment!

Benefits#

1. Mi?gates!the!bullwhip!effect!by!reducing!the!number!of!agents!making!inventoryArelated!decisions!in!the!supply!chain!

2. Because!vendors!do!not!need!to!wait!for!retailer!delivery!requests,!they!can!more!appropriately!handle!upcoming!orders!and!schedule!mul?ple!deliveries!on!a!single!route!! more!regular!deliveries,!thus!reducing!lead!?mes!

and!safety!stock!levels!!

Successful#Application#

! requires!the!customer!to!send!informa?on!on!items!sold!to!the!distributor!

! usually!captured!by!barcoding!and!scanning!technologies!and!is!passed!to!the!distributor!via!EDI!or!the!Internet!on!a!daily!basis!!

! distributor!then!processes!it!and!provides!acknowledgement!to!the!customer!with!details!of!the!quan??es!and!product!descrip?ons,!delivery!dates!and!des?na?ons!and!the!release!of!goods!

Case#Studies#

! Campbell's!Soups!! In!their!con?nuous!replenishment!program,!VMI!

resulted!in!a!50%!reduc?on!in!inventories!in!retailer!distribu?on!centers!and!a!0.8%!increase!in!service!levels!!

Case#Studies#

! WalAMart!! Has!established!a!Retail!Link!program!that!provides!

its!suppliers,!Johnson!&!Johnson!and!Lever!Brothers,!with!an!online!summary!and!direct!satellite!transmission!of!pointAofAsale!data!

!!End#