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Management of Uncertainty in
the Supply Chainmanagement
Submitted by :
VIPIN VPMBA(IB)
ROLL NO :58
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Outline of the Presentation Introduction
Push-Pull Systems
Case Studies High Tech Automotive
Electrical Components
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Today’s Supply Chain Pitfalls• Long Lead Time
• !n"e#tain $emand
• %om&'e P#odu"t Oe#ing
• %om&onent A*ai'abi'ity
• Sytem Va#iation O*e# Time
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©Copyright 2003 D. Simchi-Levi
The Dynamics of the Supply Chain
O r d e r S
i z e
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Cutomer !emand
"etailer Order
"etailer Order
!itri#utor Order
!itri#utor Order
$roduction $lan
$roduction $lan
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©Copyright 2003 D. Simchi-Levi
The Dynamics of the Supply Chain
O r d e r S
i z e
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Cutomer !emand
$roduction $lan
$roduction $lan
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©Copyright 2003 D. Simchi-Levi
What are the Causes….
• P#omotiona' a'e
• Vo'ume and T#an&o#tation$i"ount
• In+ated o#de#
• $emand ,o#e"at• Long "y"'e time
• La"- o. In.o#mation
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Example: Automotive Supply Chain• %utom o#de# ta-e /0120 day
• Many die#ent &#odu"t
3 4ig 'e*e' o. demand un"e#tainty
• $ea'e#6 in*ento#y doe not"a&tu#e demand a""u#ate'y3 7M etimate: Research shows we lose 10%
to 11% of sales because the car is not available”
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Supply Chain Strategies• A"ie*ing 7'oba' O&timi9ation
• Managing !n"e#tainty
3 Ri- Poo'ing
3 Ri- Sa#ing
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$rocurement$lanning
Manufacturing$lanning
!itri#ution$lanning
!emand
$lanning
Sequential Optimization
Su%%ly Contract&Colla#oration&'ntegration&!SS
$rocurement$lanning
Manufacturing$lanning
!itri#ution$lanning
!emand$lanning
Global Optimization
rom Se!uential "ptimi#ation to
$lo%al "ptimi#ation
Sou#"e: $un"an M",a#'ane
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A ne& Supply Chain Paradigm• A i.t .#om a Pu Sytem
3 P#odu"tion de"iion a#e baed on
.o#e"at
• ;to a Pu1Pu'' Sytem
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rom Ma'e(to(Stoc' Model)*ConfigurationAssemblySuppliers
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Demand Forecast • The three principles of all forecasting
techniques:
3 ,o#e"at a#e a'<ay <#ong
3 Te 'onge# te .o#e"at o#i9on te <o#t i
te .o#e"at
3 Agg#egate .o#e"at a#e mo#e a""u#ate• Ri- Poo'ing
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A ne& Supply Chain Paradigm• A i.t .#om a Pu Sytem
3 P#odu"tion de"iion a#e baed on
.o#e"at
• ;to a Pu1Pu'' Sytem
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©Copyright 2003 D. Simchi-Levi
Push-Pull Supply ChainsThe Supply Chain Time Line
Low Uncertainty High Uncertainty
CutomerSu%%lier
PUSH STRATEGY PULL STRATEGY
ush-ull !oun"ary
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A ne& Supply Chain Paradigm• A i.t .#om a Pu Sytem
3 P#odu"tion de"iion a#e baed on
.o#e"at
• ;to a Pu1Pu'' Sytem
3 Pa#t in*ento#y i #e&'enied baed
on .o#e"at3 Aemb'y i baed on a""u#ate
"utome# demand
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)*to Assem%le(to("rder Model ConfigurationAssemblySuppliers
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©Copyright 2003 D. Simchi-Levi
Outline of the Presentation Introduction
Push-Pull Systems
Case Studies High Tech Automotive
Electrical Components
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©Copyright 2003 D. Simchi-Levi
Shifting the Push(Pull +oundary:
A Case Study • Manu.a"tu#e# o. "i#"uit boa#d and ote# ig1
te" &#odu"t
• Se'' "utomi9ed &#odu"t <it ig *a'ue ando#t 'i.e "y"'e
• Mu'ti1tage BOM3 eg= "o&&e# > ?be#g'a ⇒ "i#"uit boa#d ⇒
en"'ou#e ⇒ &#o"eo#
• %ae tudy "on"e#n a numbe# o. @2=000 S!
• Te "ae tudy em&'oyedInventoryAnalystT .#om Logi"Too'(<<<'ogi"1too'"om)
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#o$ to %ea" the Diagrams
PART 2
DALLAS ($0.50)
PART 1
DALLAS ($260) 30
PART 3
MONTGOMERY ($220)
15
0
88
2
0
15
5
A &ray !o' is a processing stage
(umber un"er the bo'
is the processing time
Cost in the bo' is the
value of the pro"uct
(umber on the lane is
the transit time (umber in the $hite
bo' is the commitment
time to the ne't stage
!ins in"icate safety
stoc) levels- more %e"
means more safety
stoc)* empty means no
safety stoc)
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PART 2
DALLAS ($0.50)0
PART 1
DALLAS ($260)30
PART 6
RALEIGH ($3)
PART 4MALAYSIA ($180)
PART 5
CHARLESTON ($12)
PART 3
MONTGOMERY ($220)
8
15
5
15
x2
88
7
37
70PART 7
DENVER ($2.50)58
4
3
3
28 2
0
PART 2
DALLAS ($0.50)5
PART 1
DALLAS ($260) 30
PART 6
RALEIGH ($3)
PART 4
MALAYSIA ($180)
PART 5
CHARLESTON ($12)
PART 3
MONTGOMERY ($220)
8
15
5
15
x2
13
7
37
324
3
3
28 2
0
Safety Stoc' Cost , -./01223yr
Safety Stoc' Cost , -/40/223yr5678 savings9
PART 7
DENVER ($2.50)58
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Safety Stoc' Cost , -460.223yr5;8 savings0 428 reduction in <T9
PART 2
DALLAS ($0.50)0
PART 1
DALLAS ($260)15
PART 6
RALEIGH ($3)
PART 4MALAYSIA ($180)
PART 5
CHARLESTON ($12)
PART 3
MONTGOMERY ($220)
8
15
5
15
50
7
37
324
3
3
28 2
0
PART 7
DENVER ($2.50)58
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©Copyright 2003 D. Simchi-Levi
Comparison of Performance Measures
Scenario
Safety Stoc(
)olding Cot
*+&yr
-ead Time
to Cutomer
*day
Cycle
Time
*day
'n.entory
Turn
*turn&yr
1: Baseline $74,100 30 105 12
2: Optimization $45,400 30 105 14
3: S!o"ten #ea %ime $53,700 15 105 13
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PART 1
DAL ($535)30
PART 2
DAL ($55)55
PART 3
DAL ($6)50
PART 8
DAL ($65) 56
PART 10
DAL ($35)
38
PART 4
DAL ($285)65
PART 5
DAL ($3)4
PART 6
DAL ($18)46
PART 7
DAL ($9)21
PART 9
DAL ($30)82
PART 23
DAL ($30)50
PART 18
DAL ($35)51
PART 11
DAL ($40)54
PART 38
N ($8)8
PART 22
DAL ($28)
23PART 17
DAL ($30)
26
PART 21
N! ($18)41
PART 16
DAL ($21)81
PART 30
"HI ($6)4
PART 20
#AS ($42) 18PART 15
DAL ($60) 26PART 29#AS ($40) 12
PART 19
DAL ($210)61
PART 12
DAL ($260)62
PART 24
N ($30)16
PART 25
#AS ($75)52
PART 26
DAL ($80)25
PART 27
N ($4)1
PART 28
DAL ($12)17
PART 32
N ($22)10
PART 33
#AS ($30)42
PART 34
#AS ($25)49
PART 35
N ($35)3
PART 36
N ($40)20
PART 37
DAL ($8) 10
PART 39
TAI ($15)5
PART 40
N! ($22)12
PART 41
"HI ($32)6
PART 42"HI ($2) 3
PART 13
ME ($11)24
PART 14
ME ($4)10
PART 31
SEA ($20)40
4
1314
&
50
31&3'
28 3
35
32
&28
2
3
2
2
1
13
1
2
3
7
4
4
14
3
8
8
3
305&12
35
15
1231&
3
Safety Stoc' Cost , -7402223yr
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PART 1
DAL ($535)30
PART 2
DAL ($55)26
PART 3
DAL ($6)26
PART 8
DAL ($65) 26
PART 10
DAL ($35)
26
PART 4
DAL ($285)26
PART 5
DAL ($3)4
PART 6
DAL ($18)26
PART 7
DAL ($9)21
PART 9
DAL ($30)26
PART 23
DAL ($30)21
PART 18
DAL ($35)22
PART 11
DAL ($40)25
PART 38
N ($8)6
PART 22
DAL ($28)
11PART 17
DAL ($30)
14
PART 21
N! ($18)41
PART 16
DAL ($21)25
PART 30
"HI ($6)
4
PART 20
#AS ($42) 18PART 15
DAL ($60) 26PART 29
#AS ($40) 12
PART 19
DAL ($210)22
PART 12
DAL ($260)23
PART 24
N ($30)14
PART 25
#AS ($75)13
PART 26
DAL ($80)16
PART 27
N ($4)1
PART 28
DAL ($12)16
PART 32
N ($22)8
PART 33
#AS ($30)10
PART 34
#AS ($25)10
PART 35
N ($35)3
PART 36
N ($40)11
PART 37
DAL ($8) 9
PART 39
TAI ($15)5
PART 40
N! ($22)12
PART 41
"HI ($32)6
PART 42
"HI ($2) 3
PART 13
ME ($11)24
PART 14
ME ($4)10
PART 31
SEA ($20)40
4
1314
&
50
31&3'
283
35
32
&28
2
3
2
2
1
13
1
2
3
7
4
4
14
3
8
8
3
305&12
35
15
1231&
3
Safety Stoc' Cost , -6=0=223yr 5=8 savings9
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©Copyright 2003 D. Simchi-Levi
Comparison of Performance Measures
Scenario
Safety Stoc(
)olding Cot
*+&yr,
-ead Time
to Cutomer
*day,
Cycle
Time
*day,
'n.entory
Turn
*turn&yr,1: Baseline $'5,000 30 8& 15
2: Optimization $3&,&00 30 8& 18
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©Copyright 2003 D. Simchi-Levi
Safety Stoc' vs* >uoted <ead TimeSafety Stoc( Cot ./ 0uoted -ead Time
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$&0,000
$70,000
$80,000
$'0,000
$100,000
0 20 40 &0 80 100-ead Time 0uoted to Cutomer *day
S a f e t y S t o c ( C o t * + & y e a r ,
Baseline (ost
Optimize (ost
+or a given lea"-time* the
optimi,e" supply chain provi"es re"uce" costs
+or a given cost* the
optimi,e" supply chain
provi"es better lea"-times
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©Copyright 2003 D. Simchi-Levi
Outline of the Presentation Introduction
Push-Pull Systems
Case Studies High Tech Automotive Electrical Components
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©Copyright 2003 D. Simchi-Levi
Case Study: Spare Part ?nventory
"ptimi#ation• INVNTORC STRAT7C
3 O&tima' Sa.ety Sto"- and Bae Sto"- 'e*e' at ea" 'o"ation
3 O&tima' %ommitted Se#*i"e Time
• NTDOR $CNAMI%S3 !nde#tanding In*ento#y $#i*e#
3 Seniti*ity Ana'yi
3 Dat1i. ana'yiEP#io#iti9ing O&&o#tunitie
• SO!R%IN7 > PRI%IN73 %ot im&'i"ation <it die#ent u&&'ie#
3 Su&&'ie# %ont#a"t Negotiation
3 $ie#entia' P#i"ing
Source: Analysis is done using InventoryAnalyst
from Logicools !www"logic#tools"com$
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( ) * l e S t o * +
S S
, - # % . / a " 0
S S , 1
p s t " e a m S 2 0
3 n t " a n s i t S t o * + Pa#t 5
Pa#t G
Pa#t H
P a#t @
Pa#t F
$000
$1,00000
$2,00000
$3,00000
$4,00000
$5,00000
?nventory Brivers
oot (ause nal)sisn6ento") b) #o*ation
Item Holding Cost
Pa#t F JFH2
Pa#t @ J00@
Pa#t H J00
Pa#t G J0G2
Pa#t 5 J00@
3 n t " a n s i t t o 7 l a n t s
7 l a n t 4 8
7 l a n t 2 G
3 n t " a n s i t t o 9 ! s e
9 ! s e
P a#t F
P a#t @
P a#t H
P a#t G
P a#t
$000
$50000
$1,00000
$1,50000
$2,00000
$2,50000
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?A ?mpact of relaxing PBCCST
• %ST .#om P'anti ?ed
• A te %ST todea'e#in"#eae mo#ein*ento#y i e'dat te P'ant and'e at te R$%
0
10002000
3000
4000
5000
&000
7000
8000
'000
10000
7 l a n t 0 ,
7 : (
0
7 l a n t 0 ,
7 : ( 1
$ a )
7 l a n t 0 ,
7 : ( 2
$ a ) s
7 l a n t 0 ,
7 : (
3
$ a ) s
7 l a n t 0 ,
7 : ( 1
9 e e +
7 l a n t 0 ,
7 : ( 2
9 e e + s
7 l a n t 0 ,
7 : (
4
; e e + s
Total )olding Cot
lant %o 9 a"e!ouse <olin= (os t
lant %o lant <olin= ( ost
9 a"e!ouse <olin= (os t
lant Outboun <olin= ( ost
lant nboun <olin= (ost
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?A ?mpact of changes inCST to Bealers
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?A ?mpact of Supplier CST
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0
2000
4000
&000
8000
10000
12000
14000
(u""ent Bas eline lant
0, ( 0 (S%
Onl) (s
!ol n6ento")
eu*e
Supplie" #%
eu*e
/a"iabilit)
n*"ease (
(S%
18/ 12/334/3 34/5 31/3
16/9
n6ento") %u"ns
$2&5 $172 $345 $3&5 $383 "ee (as! lo;
Prioriti#ing Savings"pportunities
7lant nboun <olin= (ost 7lant Outboun <olin= (ost
9a"e!ouse <olin= (ost 7lant %o 7lant <olin= (ost
7lant %o 9a"e!ouse <olin= (ost
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e&er Stoc'(outs ?mproved
?nventory Turns
S!PPLIR PLANT
Ra< Mate#ia'
,inied 7ood
Safety Stoc!Savings: ""# %ANA$A
MI%4I7AN
BOSTON
NVA$A
MINNSOTA
D VIR7INA
$NVR
LOS AN7LS
ILLINOIS
$"%&'(
$)"&*%
$"%&+'
$,+&%
$""&%
$"%&."
$'")&'(
$()&'
$"&"'
$%+&*'
$''.&%(J5H00
JG@
J5HF
JH02/
J/HFG
JHG/8
JG8/@
JGH82
JF50G
J//8
%u##ent 4o'ding %ot
O&tima' 4o'ding %ot
Optimize n6ento") ositionin= leas to bette" Se"6i*e #e6els ;it! lo;e" n6ento") #e6els
All num/ers in 0+++1+++s
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?A Supplier Choice
• Su&&'ie# F:3 G <ee- %ST
3 5K Se#*i"e Le*e'
3 Lead Time to P#o"
P'ant: $ay
• Su&&'ie# @:3 @5 <ee- %ST
3 8K Se#*i"e Le*e'
3 Lead Time to P#o"
P'ant: F <ee-
$0
$2,000
$4,000
$&,000
$8,000
$10,000
$12,000
$14,000
Supplie" 1 Supplie" 2
Su%%lier Com%arion
lant %o 9a"e!ouse <olin= (ost
lant %o lant <olin= (ost
9a"e!ouse <olin= (ost
lant Outboun <olin= (ost
lant nboun <olin= (ost
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©Copyright 2003 D. Simchi-Levi
Outline of the Presentation Introduction
Push-Pull Systems
Case Studies High Tech Automotive Electrical Components
S l Ch i St t
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!SPLANTS
Supply Chain Structure
ASIAN
PLANTS
!ROPANPLANTS
LATIN AMRI%ANPLANTS
%A PORT
P4IL PORT
MIAMI PORT
PA $%
%A $%
7A $%
IL $%
T $%
M,7 F%utome#In*ento#y A''o<ed
In*ento#y Not A''o<ed
(G=F)
(H5=G)
(F5=H)
(F0=@)
(G=F)
(F=0)
(H=F)
(G=F)
(G=F)
(H=F)
(@=0)
(H=F)
(H=F)
%R M,7
(H=F)
(G=F)
(G=F)
(G=F)
(G=F)
(G=F)
(G=F)
(T#anit Time= Std $e* o. T#anit Time)
S l Ch i Si
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Supply Chain Si#e
•2/ P'ant• F0 Da#eoue
• HF05 %utome#
• 8@2 P#odu"t
• 8@2 P'ant 3 Da#eoue T#anit Lane
• @0@H0 Da#eoue 3 Da#eoue T#anitLane
• /G8GH Da#eoue 3 %utome# T#anitLane
Bi t i% ti f ? t
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Bistri%ution of ?nventory
• La#ge &a#t o.te In*ento#yi In T#anit3 P'ant to
Da#eoue
3 Da#eoue to%utome#
3 Da#eoue toDa#eoue
• Mot o. teIn*ento#y atteDa#eoue i
in R$%1PA
23C-PA23C-CA
23C-4A
23C-I523C-T6
74 8'74 8*
Across the Supply Chain
Across 9arehouses
3/27
4/67
9/47
9/27
12/27
00>
50>
100>
150>
200>
250>
300>
350>
400>
450>
500>
9a"e!ous e (ustome" n %"ansit ? "om lant n %"ansit bet; een
9a"e!ouse
n %"ansit to
(ustome"
S f t St ' d C l St '
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Safety Stoc' and Cycle Stoc'
• To& @0K o. S!a""ount .o#mo#e tan 2K
o. in*ento#y
• Mo#e In*ento#y
i e'd atDa#eouetan at%utome#Lo"ation
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
()*le Sto*+ Sa?et) Sto*+
"E)OSES
%op 20> S@s Bottom 80> S@s
0
2000
4000
&000
8000
10000
12000
()*le Sto*+ Sa?et) Sto*+
CSTOME"S
%op 20> S@s Bottom 80> S@s
? t B i
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?nventory Brivers
In*ento#y by Lo"ation In*ento#y by Reaon
7 l a n t A 9
! s e 3 n % " a n s i t
9 a " e ! o u s e
9 ! s e A
9 ! s
e 3 n % " a n s i t
9 ! s e A
( u s t 3 n % " a n s i t
(
u s t o m e "
3'A1701
3'A2700A1
&'A12000
50
100
150
200
250
300
350
400
n %"ansit
n6ento") ()*le Sto*+Sa?et) Sto*+
3'A1701
3'A2700A1
&'A1200
0
20
40
&0
80
100
120
140
1&0
180
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©Copyright 2003 D. Simchi-Levi
+144 +9;
+81 +54
+4
+34
+4
+24
+84
+144
+134
Current 'n. $ro%er -e.el O%t
$oitioning
Changing
$olicie
' n . e n t o r
i n
+ M
M
?nventory Savings$1' ?"ee *as!?lo; b) =loball)
optimizin= in6ento")
50
50 In* Tu#n
5H /@ 2F
(oul mo6e ?"om t!elo;e" qua"tile to t!emeium qua"tiles
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©Copyright 2003 D. Simchi-Levi
<essons <earned • 7'oba''y o&timi9ing in*ento#y "an
a*e a d#amati" im&a"t3 Ta-e ad*antage o. #i- &oo'ing and in*ento#y
&oitioning
• Identi.ying in*ento#y d#i*e# i noteay3 Many &o'i"ie and &#a"ti"e <e#e "auing &oo#
in*ento#y tu#no*e# #atio3 %an be done <it an in*ento#y mode'3 4ig'igt a#ea .o# im&#o*ement
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<essons <earned
Manu.a"tu#ing "om&any in*ento#y tu#n
4eu#iti"
%a'"u'ation 7'oba' O&timi9ation
• Se#*i"e Le*e' not a'<ay met
• "e In*ento#y at ome
'o"ation
• Sa.ety Sto"- at ea" node
"a'"u'ated inde&endent'y
• ,e< .a"to# "onide#ed
• Se#*i"e Le*e' not a'<ay
met
• Sa.ety Sto"- at ea" node de&end
on att#ibute o. a'' node
• Mot "om&'ete mode' a*ai'ab'e
• Poition a.ety to"- a"#o te
net<o#-
0
1
2
3
4
5
&
7
8