Technology and information management

Dan Vo TIM 125

HW 5 2/22/18

02/17 Do problem 1 and 2

02/18 Do problem 3

02/19 Do problem 4

02/20 Do problem 5

02/21 Do problem 6

1. D11.1, D11.2 a. Define:

i. What is the role of safety inventory in the supply chain ii. Explain how a reduction in lead time can help a supply chain reduce

safety inventory without hurting product availability b. Plan:

i. Read chapter 11 on safety inventory ii. Answer questions

c. Execute: What is the role of safety inventory in the supply chain?

- Safety inventory is inventory carried to satisfy demand that exceeds the amount forecast. Safety inventory is required because demand is uncertain, and a product shortage may result if actual demand exceeds the forecast demand. Safety inventory helps a supply chain provide customers with a high level of product availability in spite of supply and demand uncertainty. It is carried just in case demand exceeds the amount forecasted or supply arrives later than expected. The policy ensures that when the last product or service is given, the new lot or replenishment arrives just in time

Explain how a reduction in lead time can help a supply chain reduce safety inventory without hurting product availability?

- Lead time is dependent on the supplier because it is the time the supplier takes to replenish an order and have it delivered. The less lead time, the less safety inventory the company or firm needs to have because it can replenish its inventory fast enough

without products running low for consumers. It doesn’t change product availability because as long as the business has the products available, it doesn’t matter how much or whether it is the new lot or the safety inventory it still is product for customers. For example, if the lead time decreases from a week to about two days, then the safety inventory decreases within enough time for the replenishment to arrive—as long as the lead time does not exceed the quantity on hand when the firm places an order.

d. Check:

My reading from the chapter has led me to produce these answers.

e. Learn and Generalize: Lead time plays a major role in the amount of safety inventory a firm needs because safety inventory is part of the supply chain and thus it depends on the supplier. Depending on how fast a supplier can fill an order and deliver that is how much safety inventory will need to be because it needs to be able to cover the time before the replenishment order arrives.

2. D11.6, D11.7 a. Define

i. Why can a Home Depot with a few large stores provide a higher level of product availability with lower inventories than a hardware store chain such as Tru-Value, with many small stores?

ii. Why is Amazon.com able to provide a large variety of book and music with less safety inventory than a bookstore chain selling through retail stores?

b. Plan i. Continue reading chapter 11 ii. Answer questions

c. Execute Why can a Home Depot with a few large stores provide a higher level of product availability with lower inventories than a hardware store chain such as Tru-Value, with many small stores? Home Depot provides a higher level of product availability with lower inventories because it uses substitution and aggregation. Home Depot carries a wide variety of products and they do not emphasize brand names. The retail stores carry fast-moving items (items that are low value, low cost), and the customer is able to order slow-moving variants online (items that are

high value and the consumer is willing to pay premium). The fast moving items are those that are higher in demand, therefore Home Depot stocks these items at their stores close to the customer and in turn reduces safety inventory. Tru-Value stores carry specific product from specific brands, therefore someone would go there if Home Depot did not carry the certain item. Tru-value must carry higher safety inventories because first, their consumer base and demand is usually uncertain, second, their products are extremely specific and usually apply to one certain thing whereas the products at Home Depot target a wider audience, and third, Tru-Value store products tend to be more expensive thus contributing to a more uncertain demand. Why is Amazon.com able to provide a large variety of book and music with less safety inventory than a bookstore chain selling through retail stores? Amazon is able to provide a large variety of books and music with less safety inventory because Amazon geographically dispersed their warehouses all across and thus they can hold less inventory and still meet customer demand because although they have one central warehouse, they still have numerous small ones that can hold other books. Therefore, if one warehouse runs low the other one can just fill in the order. Small retail stores would need to have a safety inventory for each of their customer base because the book has to be physically present when the customer makes an order for it whereas for Amazon.com, it can be shipped from anywhere. Amazon’s book department and a bookstore share a very similar customer base therefore customers can turn to Amazon if the bookstore does not have the book they’re looking for.

d. Check I have checked my work

e. Learn and Generalize Certain businesses do not need to have a high safety inventory because of the wide variety of products they sell. Although safety inventory is generally associated with lower supply chain profitability, it does increase responsiveness. Every company/firm should have a safety inventory because demand is uncertain.

3. Exercise 10.3 a. Define

i. Suggest a replenishment strategy for Harley that minimizes annual cost. Compare the cost of my strategy with Harley’s current strategy of ordering separately from each supplier. Find the cycle inventory of each component at Harley.

b. Plan i. Review cycle inventory

c. Execute Individual Orders: Supplier A: ​$5/each & 20,000units/ month Supplier B:​ $4/each & 2,500 units/month Supplier C: ​$5/each & 900 units/month Fixed Cost: ​$400 for truck and $100 for each stop

Optimal Lot Size: D=annual demand (units/yr) S=transportation or shipment cost C= cost of 1 unit of supply h= % holding cost = cost of holding $1 of inventory

Now we can calculate the total cost with this formula:

Combined cost = $6835.03 Now we calculate the joint order delivery lot size Total shipping cost = $700

Now we calculate the orders that correspond to each supplier

Now we calculate Cycle inventory for each supplier

Next we can calculate the holding cost

Total holding cost = $2831.07 Total Order Cost = 4.044*700 = $2830.80 Total Cost = 2831.07 + 2830.80 = $5661.87 Difference in cost = $6835.03 - $5661.87 = $1173.16 Harley ​saves ​$1173.16 if he decides to combine his orders rather than order separately. This is because by ordering all together saves transportation costs.

d. Check I have checked my calculations

e. Learn and Generalize Combining order makes the cost cheaper than single orders. There is a big cost difference and this is largely due to the discount on transporting in a larger lot size and a reduction in transportation costs due to fewer trips.

4. Exercise 11.1 a. Define

i. Find out how much safety inventory of cell phones should Best Buy carry. Find out the ROP.

b. Plan: i. Read Chapter 11 to review safety inventory and ROP

c. Execute: Mean (D) = 300 Standard Deviation = 200 CSL=95% L=2 weeks Assume σ=0 Demand during Lead time: D*L=300*2=600 phones

Area under a normal curve at .95 = 1.64

Best buy should have a safety stock of 464 phones. The reorder point is at 1064 phones. The Reorder Point is at 1064 phones and the demand for the lead time for the period is about 283 phones.

d. Check I have checked my work and my calculations.

e. Learn and Generalize A company needs to normalize the data in order to better determine the product availability and the safety stock needed before for replenishment. After finding the demand during lead time everything was easier to solve such as finding the safety inventory and the Reorder Point.

5. Walmart a. Define:

i. Estimate Wal-mart’s daily, weekly, monthly, and annual cycle inventory for toilet paper.

b. Plan: i. Make appropriate assumptions on the toilet paper inventory Wal-mart

would have. c. Execute

Assumption: 15,000 rolls per unit and Walmart orders 3 units a month Annual Demand = 15,000 x 3 x 12 = 540,000 Order Cost per lot = $400 Unit Cost = $350 Holding Cost = 0.3% = 0.3

d. Check e. Learn and Generalize

This problem taught me how to calculate cycle inventory annually, monthly, weekly, and on a daily basis.

6. Case Study a. Define

i. What is Plantronics core product line? What is Plantronics competitive strategy?

ii. Explain Plantronics’ traditional approach to supply-chain management (“the past”)? Explain Plantronics’ current global supply-chain management (“the present”)? Describe Plantronics’ “dream” SCM scenario for the future? Is this “dream” realizable?

iii. Explain the role of software and information technology in the management of Plantronics global product development effort and its global supply chain network

iv. Summarize 5-10 key lessons learned from studying Kai Hypko’s 2009 “SCM” presentation.

b. Plan i. Review plantronics presentation ii. Do some research on plantronics iii. Answer questions and summarize 5-10 key lessons

c. Execute: Plantronics’ core product line is called Unified Communications. UC is a new set of tools that significantly has higher headset attach rates, doubles addressable office headset opportunities, and shorter replacement cycle. Some products that are part of the United Communications line

include the Voyaer, Savi, Calisto, and Blackwire. By using these tools, businesses can save money, collaborate better, lower their travel and real estate expenses and enhance business processes. Plantronics’ Porter Model Analysis:

Force Key Determinants Strength of Force

Rivalry Between Competitors

Number and Size of competitors (concentration)

High

Threat of New Entrants

Existence of barriers to entry product differentiation

Medium

Threat of Substitutes Cost of change Substitute performance

Low

Supplier Power Number and size of suppliers Uniqueness of service

Low

Buyer Power Number of customers Differences between competitors Price sensitivity Switching cost

High

Power to Influence Concentration, size None

Threat of Entrants​: Medium, because many competitors can easily enter this market if they have the required capital. There aren’t many barriers to entry, however since a lot of companies already dominate this market, new entrants would have to produce products that surpass the quality of the products that are already in the market. Rivalry Among Competitors:​ High because as technology progresses with time, Bluetooth technology becomes cheaper. This allows other companies to easily manufacture products that meet customer needs. Most competitors already have a strong standing point in the market, therefore they are able to retain their customer base with improved products. Buyer Bargaining Power:​ High, because buyers can easily switch over to different products that are in the similar price range. Threat of Substitutes: ​There aren’t many substitutes to wireless headsets therefore the threat of substitutes are low. Supplier Bargaining Power:​ Low because Plantronics’ has such a global established brand they have numerous suppliers all over the world and also these parts and components are quite abundant and thus Plantronics can easily switch over to supplier with no costs.

Differentiated Strategy

Motorola

Cost Leadership

Logitech

Focus

Plantronics

Plantronics’ competitive strategy is primarily a focus strategy. With Unified Communications as their goal, Plantronics wants to provide innovative products that will perform well in the markets that they compete in. Plantronics’ traditional approach to supply chain management was based off of a “push” system. This was supply-centric, internally focused, vertically integrated, physical asset based, and used mass momentum. With the “push” system, Plantronics would manufacture products beforehand

to match their forecasted demand. Plantronics’ had a low inventory turn level and had high levels of E&O inventory, and their forecasting system accuracy was low. The new Plantronics uses a “pull” system, meaning it is demand driven. They now use integrated networks, virtual supply chains, and follow a decision based strategy. The new Plantronics through the SCORE project aimed to:

1. Improve Forecasting Process & Accuracy 2. Increase Inventory Turns 3. Reduce Excess & Obsolete (E&O) Inventory 4. Provide More Accurate Ship Dates to Customers at point of Order Entry 5. Enable a faster, more effective Sales & Operations Planning process 6. Accurate, Global Inventory Visibility 7. Issue correct PO prices and receive acknowledgements and commits

from suppliers 8. Automate Manual Transactions

Plantronics UC currently runs in a multitude of Fortune 500 companies, making their products very dominant in the market for industries. Their dream is very realizable. Plantronics should focus on having some decentralized locations in order to provide customers with their “fast moving” products and have a centralized market to provide customers that want a specific product from them. IT helps the management of Plantronics global product development effort and global supply chain network by managing:

1. Networks and connectivity 2. Voice communication 3. Email and messaging 4. Servers and storage 5. Desktop, notebooks, mobile devices 6. Business systems and process optimization 7. Service desks and support

By doing so, Plantronics is able to enable reliability, scalability, and security, provide network and server monitoring, asset and systems management, provide intrusion detection, and prevent digital loss. Plantronics does face challenges though with the consumerization of IT, change in management, and meeting high demand for services within their budget. Five Lessons Learned: 1.​ ​SCORE: the supply chain optimization and re-engineering project to help Plantronics establish a worldwide supply chain and help Plantronics improve their competitive advantage. The SCORE project allowed Plantronics to create a global and integrated collaborative system that performs efficiently.

2. Making the operational changes necessary to create value from new insights pays off for top performers. Making changes that are essential to the company from new information gather can always benefit everyone. These changes however may conflict department interests and present challenges for Plantronics to face. 3. Plantronics focuses on having a very strong team environment because they either win as a team or lose as a team. 4. Plantronics has many project risks to manage. Some of these project risks are the resistance to change (consumers and/or businesses are not ready to embrace the new system), competing department interests, scope creep (the scope of the product continuously changes), and availability of resources. 5. Supply Chain Superiority is not achieved with a single project, but with an evolution of focus and continuous improvement. Improvement does not result from one project but many projects especially for a supply chain to be successful.

d. Check I have read the presentations and done research on plantronics.

e. Learn and Generalize I have learned that there are many initiatives a company must take in order for change to occur. Plantronics’ is so successful because they always plan ahead to improve. They expand globally and thus increase their awareness with more suppliers and consumers.