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Phase 3 Structured Problem Solving Process

Step 1: Define the Problem

1. Develop/Implement Cycle Inventory

2. Develop software automation

a. Demand Forecasting

b. Cycle Inventory

c. Simulation

3. Create Benchmark of SCM

a. Plantronics

Step 2: Create a Plan

1. Develop/Implement Cycle Inventory

a. Reasons for Cycle Inventory

b. Context of SC Network and SC Stages

c. Best forecasted demand

d. Calculate Cycle Inventory and other values (Enter Formulas for each into Spreadsheet)

e. Graphically show Theia’s Cycle Inventory

2. Develop Software Automation

a. Automate Demand Forecasting in Visual Basic

b. Automate Cycle Inventory in Visual Basic

c. Show simulation of Software Module of Theia Vision’s Cycle Inventory/Demand Forecasting

3. Develop a Benchmark of SCM against Plantronics

Step 3: Execute the Plan

Following contents are the plan in execution.

[1] - Cycle Inventory

Advantages/Reasons for Theia Having a Cycle Inventory

· Average amount inventory used to satisfy demand between shipments → allows Theia to take advantage of economies of scale

· Allows Theia to minimize total inventory costs

· Theia should keep the cycle inventory as low as possible to save money on shipping and storage of inventory costs. → key aspect to maximize profit

· Facilitates the balance of supply and demand for Theia’s products by allowing SPC to satisfy customer demand based on forecasts

· Implementing optimal quantity of inventory to receive from suppliers per each shipment/order allows Theia to minimize holding cost of inventory and transportation cost

· Overall, having a cycle inventory will allow SPC to reduce costs, therefore maximizing their profits

Context of Theia’s Supply Chain

Theia’s Supply Chain Network

Theia Vision’s Best Forecasted Demand for Year 4 (Winter’s Method)

Chart

Year	Annual Demand	Period	Forecast
1	578,166	1	15099
		2	96110
		3	182443
		4	284514
2	1,492,695	5	219828
		6	330269
		7	416538
		8	526060
3	2,365,871	9	359812
		10	535437
		11	659850
		12	810772
4	2,504,131	13	499278
		14	616411
		15	662682
		16	725260

Cycle inventory is the average inventory needed to meet customer demand between the order time and when the supply arrives.

Costs are part of the equation due to inventory storage expenses.

⇒ Therefore, we need to know the annual demand of our product as well as the material cost, shipping cost, and holding cost:

Demand (D) = Annual demand (obtained through forecasting) Year 4	2,504,131 Smart Glasses
Cost (C) = Price paid by the manufacturer to the supplier for 1 unit of supply	$300
Inventory holding cost (h%) = cost of holding $1 of inventory for 1 year.	0.1
Fixed Ordering Cost (S) = cost of placing the order and labor for receiving.	$3000
Lot Size (Q) = Number of units in 1 lot of shipment (quantity per shipment)	QL= √* QL = √* QL =12920.6* The amount Theia should load onto each truck is about 12,920.6 Smart Glasses per shipment to minimize total cost based on forecasted demand for year 4. (Efficiency)
Cycle Inventory	QL = QL/2 QL = 12920.6/2* QL = 6,460.3* The cycle inventory is about 6,460.3 smart glasses at Theia based on annual forecasted demand for year 4.
Explanation ⇒ · Annual Demand obtained from forecasting ⇒ 2,504,131 Smart Glasses · The Unit production cost in financial modeling was based on Google Glasses prices, and other competitors. Our product is projected to be sold for $300 based on the competitors costs and the components pricing. · Various other products were evaluated to come to the conclusion of 10% holding cost. Our product is sold for $300 per unit and costs $30 per unit to hold. (30/300=.10 · Based on trucks shipment costs in general and for other small electronic accessories, it was concluded that the ordering cost would be $3000 per trip.

Formulas from textbook/lecture placed into spreadsheet to calculate values below

Theia Vision: Cycle Inventory

Year

Period

Demand

Annual Demand

Unit Cost

Holding Cost(%)

Shipment Cost

Optimal Lot Size

Number of Shipments

Cycle Inventory

Cycle Inventory Holding Cost

Replenishment Cycle Time

Annual Ordering Cost

Material Cost

Annual Total Cost

15099

578,166.00

$300.00

10.00%

$3,000.00

1738

8.7

869

$26,066.36

10.358179

$295,590.32

$57,816,600.00

$58,112,190.32

96110

$300.00

10.00%

$3,000.00

4384

21.9

2192

$65,764.35

4.105568

182443

$300.00

10.00%

$3,000.00

6041

30.2

3020

$90,608.69

2.979847

284514

$300.00

10.00%

$3,000.00

7543

37.7

3772

$113,150.92

2.386194

219828

1,492,695.00

$300.00

10.00%

$3,000.00

6631

33.2

3315

$99,459.84

2.714663

$512,138.92

$149,269,500.00

$149,781,638.92

330269

$300.00

10.00%

$3,000.00

8127

40.6

4064

$121,910.23

2.214744

416538

$300.00

10.00%

$3,000.00

9127

45.6

4564

$136,909.50

1.972106

526060

$300.00

10.00%

$3,000.00

10257

51.3

5129

$153,859.35

1.754849

359812

2,365,871.00

$300.00

10.00%

$3,000.00

8483

42.4

4242

$127,245.98

2.121874

$645,797.63

$236,587,100.00

$237,232,897.63

535437

$300.00

10.00%

$3,000.00

10348

51.7

5174

$155,224.56

1.739415

659850

$300.00

10.00%

$3,000.00

11488

57.4

5744

$172,317.29

1.566877

810772

$300.00

10.00%

$3,000.00

12734

63.7

6367

$191,009.79

1.413540

499278

2,503,631.00

$300.00

10.00%

$3,000.00

9993

50.0

4996

$149,891.66

1.801301

$669,783.42

$250,363,100.00

$251,032,883.42

616411

$300.00

10.00%

$3,000.00

11103

55.5

5552

$166,548.78

1.621147

662682

$300.00

10.00%

$3,000.00

11512

57.6

5756

$172,686.68

1.563525

725260

$300.00

10.00%

$3,000.00

12044

60.2

6022

$180,656.30

1.494551

CSE 171B Cycle Inventory Spreadsheet

· Each time the inventory reaches ROP, ideally there will be a new shipment of Theia’s Smart Glasses ordered.

· Inventory needs to be replenished approximately every ~1.5 days for Theia’s smart glasses based on forecasted demand in a year 4.

· The average inventory (cycle inventory) is (rounded) approximately 6460.3 units of Smart Glasses in year 4 based on forecasted demand.

· To satisfy annual demand in year 4 of smart glasses Theia needs about (rounded) 193.81 orders or shipments per year.

Conclusion:

· From our demand forecasting results, the annual demand for year 4 is estimated to be 2,503,631.0 units.

· We should have 193.81 shipments per year with a cycle inventory of 12920.6 units (Year 4)

· Costs totaling around $251,032,883.42 (Year 4)

[2] - Software Automation - Demand Forecasting - Product Cycle Inventory Model - Simulation

1. User enters demand for product

2. User clicks buttons “Choose Module”

3. User selects either demand forecasting or inventory

a. If User Selects Demand Forecasting

i. If user selects:

1. Static Forecasting

2. Moving Average (4 Point, 4 Periods into future)

3. Simple Exponential Smoothing

4. Holt’s Method(Not completed)

5. Winter’s Method (Not Completed)

b. If User Selects Inventory (Not completed)

[3] - Benchmarking

Calibrating/Comparing/Contrasting of Theia’s SCM approach and implementation against Plantronics

Competitive Strategy Comparison (Theia VS. Plantronics)

Context:

		Source of Competitive Advantage
		Low Cost	Differentiation
Strategic Target	Broad	Cost Leadership	Differentiation (Theia)
	Narrow	Focused

Theia’s Competitive Strategy

· Theia Vision has a broad audience of consumers that are primarily focused towards technology savvy individuals and those with visual/hearing impairments.

· Customers can purchase Theia Vision from common retailers (Amazon, Walmart, Bestbuy, Target, etc.) and, of course, from our website.

· At Theia our business process is focused towards innovation and marketing of our products and features. With customer satisfaction in mind, we are able to offer features that our competitors can’t.

· Key business partners include battery suppliers, parts wholesalers, and logistics companies

Force	Strength	Explanation
Competitors	HIGH	Intra-Industry Competition Level is High: Companies are working hard to capitalize on this rapidly growing market. So far, Vuzix’s AR Glasses are considered the top performing AR Glasses. However, their pricing is very steep so we will see how they hold up when the New Entrants come in.
New Entrants	HIGH	Threat Level for New Entrants is High: The barrier to entry is extremely low as we see big companies such as Amazon, Facebook, Microsoft, and most alarmingly, Apple trying to enter this market. Apple and Microsoft are currently in its production stage for AR Glasses with Microsoft’s HoloLens already available for preorder.
Suppliers	MED	Suppliers have Medium Power: as there are only a few businesses in the world that specialize in lens crafting and frame crafting. Luxottica makes glasses frames for virtually, most of the frame industry so if we were to use them as our supplier, it would be hard to be in control of the pricing as they are a monopoly within their industry.
Buyers	Low	Consumer Power is Very Low: Since There is insubstantial price differentiation between products, the bargaining power of consumers is low. There are no low-cost providers within this industry and it is unknown if this can even be a possibility at this time, given the technology needed for AR Glasses and our modern environment.
Complementors	LOW	Potential Complements Include: services/features such as the Amazon Alexa, Weather Channel App, and Google/Google Maps. These are three add-ons that could prove to be quite useful in conjunction with AR Glasses.
Substitutes	LOW	Few substitutes including, other smart accessories, (apple watch, etc.)

Force	Strength	Explanation
Competitors	High	Competitors are well established, large players. Consumers trust and go to them for headsets. Large number of competitors
New Entrants	LOW-MED	Few barriers to entry, cost of production is relatively low
Suppliers	LOW	Component suppliers are abundant, and global
Buyers	High	Consumers can easily purchase a new product and move on.
Complementors	LOW	Few complementors to headphone (maybe laptop and phone discount deal)
Substitutes	LOW	Few substitutes in headset industry

		Source of Competitive Advantage
		Low Cost	Differentiation
Strategic Target	Broad	Cost Leadership	Differentiated
	Narrow	Focused Plantronics

Plantronics Competitive Strategy

· Focused Strategy

· Headsets are focused toward consumers using gaming consoles, phones, and computers

· Plantronics product will satisfy customer needs in these areas

· Consumers (entertainment)

· Business sector(sales focus on IT departments, help desk etc.)

· High quality assurance

· Large cost savings on equipment/service fees (Unified Communications)

· Improved collaboration decreases wasted resources/time to maximize efficiency/profits

· Innovative products that perform well

· R&D into new product platforms in their focus area

Responsiveness/Efficiency Spectrum

Highly Efficient SC	Somewhat Efficient SC	Somewhat Responsive SC	Highly Responsive SC
		Plantronics	Theia

In terms of where Theia lies in the Responsiveness/Efficiency Spectrum, we would like to be a company with a highly responsive supply chain. Since a portion of our business involves custom glasses for those with visual impairments, it is necessary for us to be able to build a pair of glasses tailored to individuals as well. Our customers shouldn’t have to wait for weeks just to receive a product they ordered online, so to provide the best experience from end to end, we will develop our supply chain to be highly responsive. In comparison, competitors like Vuzix and Google Glass lie more to the left of the spectrum, where Google Glass is somewhat responsive and builds enterprise level glasses for businesses. Vuzix is yet further down, and instead opts for a somewhat efficient supply chain, since their glasses are more for the general consumer “one type fits all” style.

Plantronics requires a somewhat Responsive SC, in order to address customers because their products are innovative.

Implied Demand Uncertainty

Low Uncertainty	Somewhat Low Uncertainty	Somewhat High Uncertainty	High Uncertainty
		Plantronics	Theia

· High Uncertainty

· Theia Vision is a ground breaking, innovative product (Differentiated product strategy)

· Market may not initially accept the product (High Uncertainty)

· Somewhat High Uncertainty

· Plantronics implements new product lines that are innovative

· Customer trust in their new lines may cause some uncertainty

Theia/Plantronics Supply Chain Strategy

Our product will have a highly responsive SC overall. Meaning that our SC can respond quickly to customer demands with our multiple product lines, large quantities being shipped, short lead times, and high quality of service. Using the Responsiveness vs IDU spectrum allows us to understand our strategic fit and expand the zone to match company goals.

Plantronics fits in at a similar position as Theia, because they have somewhat high responsiveness and somewhat high uncertainty. Both Theia Vision and Plantronics Headsets are innovative and require responsiveness in the Supply Chain.

Conclusions/Comparisons Between Theia and Plantronics SCM
Plantronics’ Global SCM	Theia’s SCM
· Pull Model (Integrated Networks) · Demand Driven · Global inventory visibility (accurate) · Correct PO Prices, receives acknowledgements and commits from suppliers · Virtual Supply Chain · Higher accuracy shipping dates/time to customers at order entry · Faster, more effective, sales, and operations planning process · Decision Based · ‘Lean” Practices · Automate Manual Transactions · Somewhat high uncertainty · Somewhat high responsiveness	· High Uncertainty · Theia Vision is a ground breaking, innovative product (Differentiated product strategy) · Market may not initially accept the product (High Uncertainty) · Highly responsive supply chain. · Since a portion of our business involves custom glasses it is necessary for us to be able to build a pair of glasses tailored to individuals as well. · customers shouldn’t have to wait for weeks just to receive a product they ordered online, · Rapid, effective sales/operations · Tracking of product/materials (increase in responsiveness · Demand Driven → inventory based on demand forecasts

Step 4: Check

The frameworks used are provided in the textbook and in lecture, therefore the information above is correct. The forecasted demand is checked based on calculations by hand and carefully checking the spreadsheet. Our benchmarking comparison takes into account both companies competitive strategies and aligned SC strategy. We provided as much context as possible to complete the assignment. Our software automation modules automates demand forecasting using the moving average method

Step 5: Learn & Generalize

Based upon research conducted on Plantronic’s supply chain, we can create an effective supply chain for Theia. Plantronics fits in at a similar position as Theia, because they have somewhat high responsiveness and somewhat high uncertainty. We decided to create a highly responsive SC overall. Meaning that our SC can respond quickly to customer demands with our multiple product lines. Our cycle inventory above takes into account previous phases financial model and demand forecasting. After completing cycle inventory