Technology and information management

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Shridhik John

CSE 171B

S. Desa

Final Examination

PROBLEM 1: PLANNING

Activity Matrix:

A B C D E F G A A B X B C X X C D X X D E X X E F X X F X G

*Waterfall Method

Key

A – Problem 2: SCM Design/Analysis Framework

B – Problem 3: Optimal Lot Size and Cycle Inventory for SPC

C – Problem 4: Safety Inventory for Polystyrene Resin at SPC

D – Problem 5: Sourcing for SPC

E – Problem 6: Transportation Design for SPC

F – Problem7: Execution of your plan

G – Extra Credit

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GANTT Chart:

PERT Chart:

CPM:

A à B à C à D à E à F à G

PROBLEM 2: SCM DESIGN/ANALYSIS FRAMEWORK

Step One: Define the Problem

You have been hired as a consultant by Poly (formerly Plantronics), a medium-sized company “headquartered” in Santa Cruz, which is the world leader in communication head-sets. You have been asked to design their supply chain all the way from “high-level” concerns (e.g., competitive strategy, “alignment”), through analysis/procedures (e.g., inventory management models) to the actual integrated software that will be used to manage their Supply Chain.

Describe the high-level framework (process) for performing supply chain management from strategy to planning to operations for a typical high-tech product.

A

B

C

D

E

F

G

Ta sk

1 2 3 4 5

Days

A B C D E F G

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Create appropriate diagrams to help them visualize the structure of your framework and associated procedures.

Step Two: Treatment Plan

Information Available:

Ø Lecture Notes Ø SCM, C&M Ø Online Resources

Assumptions:

Ø I will be assuming the role of a supply chain analyst for Plantronics.

Plan:

1) Assess the high-level framework for performing SCM 2) Draw diagrams that explain this framework

Step Three: Execute the Plan

There are many key features and functions of the high-level framework for performing supply chain management. We can split this framework up into three key parts: strategy, planning, and operations, in which we will assess the SC strategy, the four key drivers (inventory, facilities, transportation, and information) and demand forecasting.

Strategy: To develop a SC strategy, we must follow a 3-step process. The first step includes understanding the customer’s needs, determining where the product lies in its market life cycle, and determining the product’s IDU and placing it on the IDU spectrum. IDU, or implied demand uncertainty, refers to the uncertainty in demand for the product implied by the customer need for the product during its life-cycle. Poly, being a medium-sized communication head-set company, will have a somewhat high IDU since it creates new models of existing products.

The second step is to establish the corresponding competitive strategy for the given product and to determine and map the trade-off between responsiveness and efficiency for the product based on the competitive strategy. Responsiveness refers to the ability of the SC to respond rapidly to a variety of customer demands and efficiency refers to the cost of making, storing, and delivering

Low IDU Somewhat Low IDU

Somewhat High IDU

High IDU

Plantronics IDU Spectrum

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the product to the customer. In any supply chain, increasing responsiveness decreased efficiency and vice versa. We must map this trade-off with a responsiveness/efficiency spectrum.

The third and final step of developing a SC strategy is to create a 2-D space where the IDU spectrum is the x-axis and the responsiveness/efficiency spectrum is the y-axis where we define a zone of strategic fit and position the SC strategy for the product at the appropriate location in the zone of strategic fit. It is important to expand the zone of strategic fit to include all of the organizational functions in the company for all stages in the supply chain.

Highly Efficient

Somewhat Efficient

Somewhat Responsive

Highly Responsive

Plantronics Responsiveness/Efficiency Spectrum

High Resp/ Low Eff

Plantronics

Low Resp/ High Eff

Resp/Eff

IDU Low IDU High IDU

Zone of Strategic Fit

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Planning: / number. Cycle inventory management refers the calculating the optimal value of the lot size (amount of good in each order between two adjacent stages of the supply chain), given the annual demand, in order to minimize the sum of the annual material, shipping, and inventory holding costs. There are many metrics that are important to calculate such as the flow time, the average amount of time that one unit of supply is held in inventory, shipment frequency, and more.

Operations: In a supply chain, the operations refer to safety inventory management and transportation between facilities. Safety inventory is the additional inventory held in order to meet excess demand in the case that actual demand exceeds the forecasted demand. In analyzing safety inventory, it is important to set up a re-order point, or the time to place another order when a certain level of inventory is reached. Other important metrics include the cycle service level (CSL) which denotes the fraction of replenishment cycles for which the item is expected to be in stock and the fill rate (fr), which is the fraction of customer demand that can be fulfilled from available inventory during each replenishment cycle. In terms of facilities, a company must determine the role, location, and capacity of the facility in order to minimize total cost, or in other words, maximize SC efficiency. For transportation, the mode of transportation to minimize total cost and the level of aggregation must be determined. It is also crucial that the company has a strong IT Infrastructure that allows for simple and efficient communication.

Overall, we can demonstrate this framework with the following diagram:

Step Four: Check your Work

The work I have conducted is correct in every detail, as I have successfully answered the question using information about the high-level framework for

Determine Competitive Strategy and Customer Needs

Determine SC Performance

(responsiveness/ efficiency) and IDU

Demand Forecasting

Optimization of Four Key Drivers

Inventory Management

Facilities

Transportation

IT Infrastructure

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performing supply chain management using information from the lectures and the textbook. My assumptions are reasonable, and in terms of what I know the results make sense.

Step Five: Learn and Generalize

I have solidified my understanding of the process for performing supply chain management. I have recognized that there are three main parts: strategy, planning, and operations, as well as the importance of demand forecasting and the four key drivers. My assumptions have not affected my results and I believe my results are good enough the act on.

PROBLEM 3: Optimal Lot Size and Cycle Inventory for SPC

Step One: Define the Problem

Specialty Packaging Corporation (SPC) buys polystyrene resin from a supplier in 1000-pound units, and each unit costs $20.00, and the percent holding cost is 12% (changed from 10%). The fixed shipping cost per order is $300 and we can assume that 1000 pounds of resin yields 1000 pounds of clear plastic. Calculate the optimal lot size and the required cycle inventory for polystyrene resin.

Step Two: Treatment Plan

Information Available:

Ø Lecture Notes Ø SCM, C&M Ø SPC Cast Study (from the midterm)

Assumptions:

Ø I will be assuming the role of a supply chain analyst for SPC. Ø I will be using my forecasted demand for 2007 (36,594) from the Midterm as the annual

demand for polystyrene resin

Plan:

1) Review lecture notes/textbook for information on optimal lot size/cycle inventory 2) Use appropriate equations to calculate optimal lot size and cycle inventory

Step Three: Execute the Plan

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D (Annual Demand) = 28770

S(Set up cost) = $300


d1 = 1000 pound units


h (holding cost per year) = 20%

C(unit cost) = $25

Optimal Lot Size:

Plugging in our values for each variable, we then get:

𝑄"∗ = 2 28770 300

0.20 25 = 1858.06 = 1859 𝑢𝑛𝑖𝑡𝑠

Now that we have calculated our optimal lot size, we can calculate safety inventory using the following equation:

𝐶𝑦𝑐𝑙𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 1859 2

= 929.5 = 930 𝑢𝑛𝑖𝑡𝑠

Percent Holding Cost of 10% (Midterm)

Percent Holding Cost of 12% (Final)

Optimal Lot Size, 𝑄"∗ 2,164 units 1859 units

Cycle Inventory 1,082 units 930 units

Step Four: Check your Work

The work I have conducted is correct in every detail since I have used the correct data and the formulas shown in class and in the textbook. My assumptions are reasonable, and in terms of what I know the results make sense.

Step Five: Learn and Generalize

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By increasing the percent holding cost, we can see that the optimal lot size and cycle inventory decrease. This makes sense because in our equation for determining optimal lot size, the percent holding cost is on the denominator, so dividing by a larger number will lead to a smaller result. Cycle inventory is simply half of the optimal lot size, so obviously this will follow the same pattern. My assumption to use my forecasted demand form the Midterm has affected the quantities calculated, and I believe my results are good enough to act on.

PROBLEM 4: SAFETY INVENTORY FOR POLYSTYRENE RESIN AT SPC

Step One: Define the Problem

Subproblem 1: Why should SPC have a safety inventory? What is the average weekly demand for black plastic (and therefore polystyrene resin) for 2007? If the coefficient of variation (cv) for black plastic is 0.25, what is the standard deviation in the weekly demand?

Subproblem 2: The polystyrene supplier has a lead-time of 2 weeks. SPC would like its Cycle Service Level (CSL) to be 0.95. Determine the necessary safety inventory (safety stock) level for polystyrene resin for a continuous replenishment policy? What is the re-order point (ROP)? What is the fill rate? What is the average inventory? What is the average flow time?

Subproblem 3: Create a diagram that shows all the relevant quantities from part (b).

Subproblem 4: In general, is the demand during the lead-time greater than or less than the lot size? Explain your answer with the help of the diagram from part (c).

Step Two: Treatment Plan

Information Available:

Ø Lecture Notes Ø SCM, C&M Ø SPC Cast Study (from the midterm)

Assumptions:

Ø I will be assuming the role of a supply chain analyst for SPC. Ø I will be using my forecasted demand for 2007 (36,594) from the Midterm as the annual

demand for polystyrene resin Ø I will be using my results from Problem 3 for all calculations

Plan:

1) Review lecture notes and the textbook for information on safety inventory 2) Determine why SPC should have a safety inventory 3) Use the given information and appropriate equations to calculate the desired quantities 4) Create a diagram to show all relevant quantities

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Step Three: Execute the Plan

Subproblem 1: Safety Inventory, Weekly Demand, Coefficient Variation

SPC should have a safety inventory in the event that the actual demand exceeds the predicted/forecasted demand. It is crucial that SPC hold additional inventory to meet this potential excess in demand so that they do not forego any sales and maximize revenue.

The average weekly demand for clear plastic for 2007 can be found by dividing the annual demand (which was found using Winter’s Model on the Midterm) by the number of weeks in a year, 52.

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑊𝑒𝑒𝑘𝑙𝑦 𝐷𝑒𝑚𝑎𝑛𝑑, 𝐷G = 𝐷 52

= 28770 52

= 553.269 𝑢𝑛𝑖𝑡𝑠/𝑤𝑒𝑒𝑘

Now that we have found our average weekly demand, we can calculate the standard deviation in the weekly demand. Since we know that the cv for clear plastic is 0.20, we can use the following equation:

𝑐𝑣 = 𝜎G 𝐷G

0.25 = 𝜎G

553.269

𝜎G = 553 ∗ 0.25 = 138.317.8 = 139 𝑢𝑛𝑖𝑡𝑠

Subproblem 2: Safety Stock Quantities:

We are given the following information:

Lead-Time (L) 2 weeks CSL 0.95

Average Weekly Demand (Dw) 553 units Standard Deviation in Weekly Demand (𝜎G) 139 units

Safety Stock (ss):

The first step is to calculate the standard deviation of the average weekly demand in terms of the lead-time.

Optimal Lot Size:

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= L∗LM,NLO PQRST∗$NOO (.LO)LW

= 1,875 units

Next, we will use the following equation, in which we use the standard deviation found above, desired CSL, and the NORMSINV function to determine the necessary level of safety stock.

𝑠𝑠 = 𝐹TYZ 𝐶𝑆𝐿 ∗ 𝜎"

𝑠𝑠 = 𝐹TYZ 0.95 ∗ 197

𝑠𝑠 = 1.65 ∗ 197 = 325.05 = 325 𝑢𝑛𝑖𝑡𝑠

Re-Order Point (ROP):

Now that we have calculated the necessary level of safety stock, we can calculate the ROP. The first step is to calculate the average demand based on the lead-time.

𝐷" = 𝐿 ∗ 𝐷G

𝐷" = 2 ∗ 553 = 1106 𝑢𝑛𝑖𝑡𝑠

Then, we can use the following equation to calculate ROP:

𝑅𝑂𝑃 = 𝐷" + 𝑠𝑠

𝑅𝑂𝑃 = 1106 + 325 = 1431 𝑢𝑛𝑖𝑡𝑠

Fill Rate (fr):

To calculate fill rate, we must first calculate the expected shortage per replenishment cycle (ESC) using the following equation:

𝐸𝑆𝐶 = −𝑠𝑠 1 − 𝐹T 𝑠𝑠 𝜎"

+ 𝜎"𝑓T 𝑠𝑠 𝜎"

𝐸𝑆𝐶 = −325 1 − 𝐹T 325 197

+ 197 ∗ 𝑓T 325 197

𝐸𝑆𝐶 = −325 1 − 0.96 + 197 ∗ 0.086

𝐸𝑆𝐶 = −325 ∗ 0.04 + 197 ∗ 0.086

𝐸𝑆𝐶 = 3.942

Now that we have our ESC and we know QL = 1875 from the Midterm, we can calculate fill rate.

𝑓𝑟 = 𝑄" − 𝐸𝑆𝐶

𝑄"

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𝑓𝑟 = 197 − 3.942

197 = 0.979 = 97.9%

Average Inventory:

The average inventory is simply the sum of the cycle inventory and safety stock. We know the cycle inventory is 938 units from the Midterm and the safety stock is 325 units, we get:

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐶𝑦𝑐𝑙𝑒 𝐼𝑛𝑣𝑒𝑛𝑜𝑡𝑟𝑦 + 𝑠𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 938 + 325 = 1263 𝑢𝑛𝑖𝑡𝑠

Average Flow Time:

To calculate the average flow time, we must first calculate the average flow rate which is equal to the daily demand:

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑙𝑜𝑤 𝑅𝑎𝑡𝑒 𝐷𝑎𝑖𝑙𝑦 𝐷𝑒𝑚𝑎𝑛𝑑 = 𝐷G 7 = 553 7

= 79 = 79

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑙𝑜𝑤 𝑇𝑖𝑚𝑒 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑙𝑜𝑤 𝑅𝑎𝑡𝑒

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑙𝑜𝑤 𝑇𝑖𝑚𝑒 = 1263 79

= 15.9 = 16 𝑑𝑎𝑦𝑠

Subproblem 3: Diagram of Quantities

Lot Size (Q) 1875 units

Cycle Inventory 938 units

Weekly Demand (Dw) 553 units

Daily Demand (DD) 79 units

Standard Deviation in Weekly Demand (𝝈𝒘)

139 units

Lead-Time (L) 2 weeks

Demand During Lead-Time (DL) 1,408 units

Standard Deviation During Lead Time (σL) 197 units

Expected Shortage per Replenishment Cycle (ESC)

3.942

Safety Stock (ss) 325 units

Re-Order Point (ROP) 1431 units

Fill Rate (fr) 97.9%

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Average Inventory 1,263 units

Average Flow Time 16 days

Subproblem 4: Demand during Lead-Time vs. Lot Size

According to the table above, we can see that the demand during the lead-time (DL), at 1,408 units, is much smaller than the lot size of 1,875 units. This makes sense since SPC will not be able to get more product for about 2 weeks, so it is important that they order more than the expected demand for those 2 weeks at a time. In other words, the lot size must be able to meet expected demand.

Step Four: Check your Work

I have checked my work by double checking all calculations with Excel and by ensuring that I used the correct formulas for each quantity. My assumptions are reasonable, and in terms of what I know the results make sense.

Step Five: Learn and Generalize

I have furthered my understanding of calculating safety stock, ROP, fill rate, average inventory, and average flow time. I have also learned how to use Excel to help with these calculations. Since I have used data from my Midterm, my results might vary from other students due to differing previous calculations. However, I believe that my results are correct and good enough to act on.

PROBLEM 5: SOURCING FOR SPC

Step One: Define the Problem

Subproblem 1: Which supplier should Julie choose, based on minimizing total cost, if her inventory holding cost h=0.12 and her desired target CSL = 96%.

Subproblem 2: Create a supplier scorecard that Julie can use to compare different suppliers.

Step Two: Treatment Plan

Information Available:

Ø Lecture Notes Ø SCM, C&M Ø SPC Cast Study (from the Midterm)

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Assumptions:

Ø I will be assuming the role of a supply chain analyst for SPC. Ø I will be using my forecasted demand for 2007 (36,594) from the Midterm as the annual

demand for polystyrene resin

Plan:

1) Read the first four sections on “Sourcing Decision in a Supply Chain” from the textbook 2) Calculate the total costs for each supplier 3) Determine which supplier Julie should choose 4) Create a supplier scorecard that Julie can use to compare different suppliers

Step Three: Execute the Plan

Supplier Information:

Supplier 1 Supplier 2

Unit Cost (C) $20/unit $15/unit

Average Lead Time (L) 1 week 2 weeks

Standard Deviation of Lead Time (σL)

0.5 week 1 week

Lot Size (QL) 3,000 units 5,000 units

We also know the following:

Annual Demand (D) 28770 units Weekly Demand (Dw) 553 Standard Deviation of Weekly Demand (σw) 139 Holding Cost (h) 0.20 CSL 0.96

Subproblem 1: Determine Cheapest Supplier

Now, we will calculate the total costs of each supplier to determine which one Julie should choose.

Supplier 1 Supplier 2

Annual Material Cost = D*C 28770 *20 = $575,400 28770 *15 = $431,550

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Cycle Inventory = ij L

3000 2

= 1,500 5000 2

= 2,500

Annual Cost of Holding Inventory = hC*ij

L

0.20*20*1000 = $4,000 0.12*15*2000 = $6000

Std. Dev. of Demand during Lead Time = σw*σL

139*0.5 = 69.5 units 139*1 = 139 units

Safety Inventory = 𝐿𝜎kL + 𝐷GL𝜎"L ∗ 1.75

(CSL = 96%)

1 ∗ 139L + 553L 0.5L ∗

1.75 = 540.79 units

2 ∗ 139L + 553L 1L ∗

1.75 = 1,026 units Annual Cost of Holding Safety Inventory = ss*hC

325*0.20*20 = $1300

325*0.20*15 = $975

Annual Supplier Cost = CM+CI

575,400+4000+1300 = $580700

431550+6000+1026 = $438576

Final Decision: Upon completing these calculations, we can see that Supplier 1 has an annual supplier cost of $580700 and Supplier 2 has an annual supplier cost of $438576, so we can conclude that Julie should choose Supplier 2.

Subproblem 2: Supplier Scorecard

Julie can use the following scorecard to compare different suppliers.

Category Weight (1-5) Metric

Unit Cost 4 USD

Average Lead Time 4 Weeks

Lot Size 3 Units

Shipping Cost 3 USD

Quality 4 N/A

Step Four: Check Your Work

I have checked my work and ensured that all of my calculations and answers are correct in every detail. I have computed all calculations twice to ensure the right numbers were used. My assumptions are reasonable, and in terms of what I know the results make sense.

Step Five: Learn and Generalize

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I have learned how to compare different suppliers to determine which one will minimize total cost. I also learned what a supplier scorecard is and how it can be used to help with sourcing. My results have not been affected by my assumptions, and I believe my results are good enough to act on.

PROBLEM 6: TRANSPORTATION DESIGN FOR SPC

Step One: Define the Problem

Subproblem 1: Create the appropriate table in Excel for comparing rail versus truck delivery options for modes of transportation for transporting polystyrene resin from the PR supplier to SPC.

Subproblem 2: Use the table from (a) to select the optimal mode of transportation. Provide quantitative evidence to support your selection. (Make the appropriate assumptions about transportation and other costs.)

Step Two: Treatment Plan

Information Available:

Ø Lecture Notes Ø SCM, C&M

Assumptions:

Ø I will be assuming the role of a supply chain analyst for SPC

Plan:

1) Read the section on “Trade-offs in Transportation design” 2) Create a table in Excel that compares rail versus truck delivery options 3) Use the table to select the optimal mode of transportation and provide quantitative

evidence to support your selection

Step Three: Execute the Plan

Subproblem 1: Rail vs. Truck Delivery

The mode of transportation decision affects the cycle inventory, safety inventory, and in-transit inventory for SPC. Therefore, we must evaluate the total transportation and inventory cost for each transportation options. We will now compute all necessary quantities using the following equations in Excel:

Cycle Inventory = i L

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Safety Inventory = " L 𝑑𝑎𝑦𝑠 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑

In-Transit Inventory = 𝐷 ∗ lmnT RQ SomQTRS NpW

Total Average Inventory = Cycle Inventory + Safety Inventory + In-Transit Inventory

Annual holding Cost = Total Average Inventory * hC

Annual Transportation Cost = D * Transportation Cost per unit

Total Annual Cost for Inventory and Transportation = Annual Holding Cost + Annual Transportation Cost

Rail transit time = 5

Rail replenish lead time = supplier lead time + Rail transit time = 14 + 5 = 19

Truck transit time = 3 days

Truck replenish lead time = supplier lead time + Truck transit time = 14 + 3 = 17

Hypothesized Lot Size = 4,000

Using Excel to compute these equations, we get:

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Subproblem 2: Decision

According to the spreadsheet above, we can see that the total transportation cost for rail is $1,882,785.70 while the transportation cost of trucks are $2,169,539.84, so we can conclude that the optimal mode of transportation is rail.

Step Four: Check your Work

I have checked my work to the best of my ability by ensuring that I used the correct equations and by computing all calculations twice. My assumptions are reasonable, and in terms of what I know my results make sense.

Step Five: Learn and Generalize

I have learned how to determine which mode of transportation minimizes the total inventory and transportation cost. In the case of SPC, we can see that their supply chain would be more profitable if they use rail as their mode of transportation as opposed to trucks. My assumptions have not affected my results, and I believe my results are good enough to act on.

PROBLEM 7: EXECUTION OF YOUR PLAN

Step 1: Define the Problem:

Use a table to compare your plan from Problem 1 (column 1) with its execution (column 2). Indicate the reasons for the difference between the plan and its execution (column 3). Add

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additional columns to capture recommendations for improved execution of your plans in the future. Write down three key lessons you learned in this course.

Step 2: Treatment Plan

Make a table, and write three notes

Step 4: Execute

Original Plan Actual Execution Reason for Difference

Ways to Improve

Problem 2: 1 Hour 1.5 Hours Initially misinterpreted the

question

Understand the question completely

before attempting

Problem 3: 0.5 Hours 0.5 Hours N/A N/A

Problem 4: 1 Hour 2 Hours Had to spend time reviewing equations; typing equations into

Word

Memorize the equations throughout

the quarter

Problem 5: 1.5 Hours 1.5 Hours N/A N/A

Problem 6: 1.5 Hours 2 Hours Was unfamiliar with how to compare

transportation costs

Read textbook ahead of time

Problem 8: 2 Hours 2 Hours N/A N/A

Extra Credit: 1 Hour 1 Hour N/A N/A

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THREE KEY LESSONS

1. Supply Chain Management is a long process that is very equation heavy. I should remember to save these formulas for future reference

2. There are multiple ways to go about transportation and setting up a supply chain system. It is always best to look for the most efficient opportunity available.

3. Your company can either be highly responsive, or highly efficient, it’s hard to be both.

Check your work:

Is the work correctly in every detail?
Yes
Are the assumptions/planning reasonable? Yes
Does the result make sense?
Yes

Learn and Generalize:

It’s always important to track of progress. This exam was a really good practice at helping me understand the material, as well as a solid example of how I should pace my work. Despite all the difficulties this quarter threw at us, I hope I will get a solid grades on this.