Strategic Supply Chain Assessment

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OMGT2229 Assignment 3 Individual Quantitative and Qualitative Case Study

Instructions:

 This assessment task assesses your understanding of some quantitative

techniques and problem-solving skills you learned from the course.

 This assessment task is worth 40 marks and contains two tasks (Task 1

and Task 2). Task 1 carries 20 marks while Task 2 carries another 20

marks.

 For this assessment task, you are required to prepare an Excel

workbook and a simple Word report.

 The Excel workbook should comprise multiple worksheets showing the

models, the regression analysis summary, the comparison of model

performance, the decision tree, and the calculations you used to answer

the task questions that require you to complete in Excel.

 The simple Word report should be mainly for the economic order quantity

(EOQ) analysis and the answers to the qualitative questions. There is no

recommended format for the report. You can answer the case questions

directly without giving a summary of the case or introduction.

Nevertheless, a proper report cover is expected. Answer to each question

should start on a new page. The analysis should be in-depth and

comprehensive. Up-to-date references should be used to support

arguments.

 There is no recommendation for word length of the report, but you would

need to write concisely yet comprehensively. Brevity can impact on the

depth of the analysis and longwindedness can diminish clarity.

 For Task 1, there should be FOUR worksheets in the Excel workbook.

The first two show the following two demand forecasting methods that you

are required to use to forecast the demand of one of the popular products

- GeForce RTX 4090 graphic card - that the case company NVIDIA sells

in the North and the South America markets.

• Moving average; and

• Static method.

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 You need to label the tabs of the two spreadsheets clearly to make them

self-explanatory.

 A worksheet showing the summary of the regression analysis for the static

method should be included in the workbook. Again, label the tap clearly.

 Furthermore, another worksheet comparing the performance of the two

forecasting methods using the key performance indicators (KPIs)

mentioned in Task 1 Question (c) should be provided. The suggested

table format in Task 1 Question (c) should be used. Again, label the tab

clearly.

 Answer Task 1 Question (d) in the performance comparison table as well.

 The Word report should address Task 1 Question (e) and (f). To answer

Question (e), some EOQ and total cost calculations are needed. To

answer Question (f), it requires your own research and analysis.

 For Task 2, there should be FOUR worksheets in the Excel workbook

showing the following:

• A decision tree showing the possible outcomes of the two

sourcing alternatives in the periods.

• Calculation of total net present value of one alternative.

• Calculation of total net present value of another alternative.

• Answer to Task 2 Question (c) in a comparison spreadsheet. The

suggested table format in Task 2 Question (c) should be used.

 Label the tab of each spreadsheet clearly.

 Again, the Word report should address Task 2 Question (d) through your

own research and analysis.

 Please note that for both the quantitative and the qualitative tasks,

the marks received depends on full completion of the required steps

and the accuracy of the results. In addition, clarity and details of the

demand forecasting models, the decision tree, the calculations, and

the comprehensiveness of the analysis for the qualitative questions

are also important.

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Task 1: Demand Forecasting for NVIDIA GeForce RTX 4090 graphic card and procurement planning for Amazon.com

Description:

Demand for GeForce RTX 4090 graphic card at NVIDIA from its North and South America markets for the last 4 years are as follows:

Year  Quarter  Demand  2019  Q1  51,300 

Q2  93,200  Q3  150,900  Q4  190,200 

2020  Q1  69,300  Q2  116,300  Q3  185,700  Q4  246,900 

2021  Q1  84,600  Q2  143,900  Q3  227,100  Q4  307,900 

2022  Q1  107,000  Q2  175,100  Q3  278,500  Q4  361,300 

Task Questions to be done in Excel:

a) Estimate the demand for 2023 (from Q1 to Q4) using a 4-quarter moving

average method. (1 mark)

b) Estimate the demand for 2023 (from Q1 to Q4) using the static method. (3

marks)

c) Evaluate the MAD, MAPE and TS (i.e., the KPIs) in each case and compare

them in the format as shown below. (2 marks)

TS Range Forecasting Method MAD MAPE(%) Min. Max. Moving average method Static method Which method do you prefer? Why?

d) Based on the findings from (b), which of the two methods do you prefer? Why?

(1 mark) (Note: You can give your answer in the table of Question (c).)

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Task Question to be done in Word:

e) Amazon.com sells GeForce RTX 4090 graphic card ordered from NVIDIA in North

and South America. The average demand is 5,000 units each month.

Amazon.com incurs a fixed order placement, transportation, and receiving cost of

$4,500 each time an order is placed with NVIDIA. It also incurs a holding cost of

10 per cent of the unit cost of the product. The normal wholesale price is $600 per

unit. Recently, NVIDIA offers all-unit quantity discount to its retailers to promote

sales. The price schedule is as follows:

Order Quantity Per Lot   Price Per Unit  1 – 2,500 

2,501 – 5,000  $600  $540 

Over 5,000  $510 

1) What is the economic order quantity (EOQ) of GeForce RTX 4090 graphic card per lot for Amazon.com if there is no volume discount? (1 mark)

2) What is the total annual cost for Amazon.com assuming there is no volume discount from NVIDIA and the price per unit is $600? (1 mark)

3) What is the optimal order quantity if Amazon.com decides to take the volume discount? (2 marks)

4) What is the new total annual cost for Amazon.com upon taking the volume discount? (2 marks)

5) What is the annual saving for Amazon.com upon taking the quantity discount in comparison with the normal situation when there is no volume discount? (1 mark)

f) Conduct your own research and find out what the high-end graphics processing

unit manufacturing (or computer gaming) industry usually does in forecasting

demand. You may wish to analyse and discuss based on product value, product

volume, and product flow as different product characteristics may require

different methods to forecast the demand accurately. Give examples and use

up-to-date references to support your arguments. (6 marks)

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Task 2: Sourcing Decision for NVIDIA

Description:

NVIDIA is headquartered in Santa Clara, California, and became a major force in the

computer gaming industry with the launch of the RIVA series of graphics processors

in 1997. To date, the company has become the world’s leading graphic card

manufacturer with a wide product range. In 2022, the production plant of NVIDIA’s

major supplier in Delaware producing the graphic processing units (a type of

specialised integrated circuit chip) was damaged by a big fire which would negatively

impact on the production capability of the plant in the immediate future. The

management of NVIDIA must decide to either stay with the supplier at Delaware or

source from an alternative supplier in Mexico for the coming three years. In both

options, NVIDIA will incur an initial cost (at present value) but expects to get some

savings every year (in future value).

The expected cost of sourcing a new supplier in Mexico, upgrading its production

equipment, and implementing the necessary quality assurance procedures is

estimated at $5 million. Once in place, this partnership is expected to yield the savings

in the next three years as shown in Table 1. The discount rate for this alternative is

3%.

Table 1 Expected savings from sourcing an alternative supplier in Mexico

2023 2024 2025 Expected savings $1,000,000 $1,500,000 $1,200,000 $1,700,000 $1,500,000 $2,000,000 Probability 50% 50% 60% 40% 70% 30%

The other alternative is to stay with the current supplier at Delaware for the next three

years. The cost to undertake a temporary urgent repair of the damage caused by the

fire is estimated at $3 million. Production engineers and risk assessors have

estimated the savings of this alternative as shown in Table 2. The discount rate for

this alternative is 5%.

Table 2 Expected savings from staying with the supplier at Delaware

2023 2024 2025 Expected savings $0 $500,000 $500,000 $1,000,000 $1,000,000 $1,500,000 Probability 70% 30% 50% 50% 30% 70%

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Task Questions to be done in Excel:

a) Draw a decision tree in the Excel file to represent the two alternatives being

considered. Show all the nodes and the branches with proper labels,

probabilities and expected returns clearly. (5 marks)

b) Show clearly how the total present value of each alternative is calculated in

separate spreadsheets, one for one alternative. (8 marks)

c) Create a comparison sheet using the following format. Based on the findings

from (b), which alternative should NVIDIA pursue? Why? (1 mark)

Option NPV of Total Investment Sourcing from a new supplier in Mexico Staying with existing supplier in Delaware Which sourcing option would you recommend? Why?

Task Question to be done in Word:

d) Conduct your own research and find out how the decision tree methodology can

be applied to the risk analysis in the integrated circuit chip manufacturing

industry. As the type of risks in the upstream, midstream, and downstream of an

integrated circuit chip supply chain can vary, the tools for risk analysis (decision

tree methodology can be one of them) may be different. You may wish to discuss

the application in the different aspects of the supply chain operation based on

the uncertainties involved. (6 marks)