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BE THE SOULTION Option #1: Paper Assignment.This option is for those of you that like to write and self-reflect. This formal written assignment requires a minimum of 3 pages double-spaced. In this formal paper you will focus on the following question: “Discuss how you are applying at least 5 concepts learned in SWU349 and how you are applying or using them in your personal life”. The expectation is for you to reference and cite specific examples that demonstrate how you are applying the concept(s) of choice to your life. Use research (class readings, and or research articles) to cite and underscore your examples reflecting how and why these concepts are important and support personal wellness.It needs 5 concepts from the book and 5 referencesAll the work must be originalTurnitin report is required
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NBA 6420 Supply Chain Analytics
Individual Assignment
Due: Beginning of Session 11
Cosmo sells a wide range of electronic products to retailers, primarily through third-party
distributors, in the US. The company produces its leading product, the HD3040 TV set, at its
major factory in Kansas City, ships the product to its regional distribution centers (RDCs), from
which orders from the distributors’ distribution centers (DCs) are filled. The current system
involves lengthy delays in processing orders at the RDCs and long lead times to the DCs.
This assignment requires you to analyze a series of questions concerning a single SKU. The
assignment will allow you to explore the drivers of inventory and tune your management intuition.
Daily demand for HD3040 at the DCs of three New York state distributors, have means and
standard deviations given below. All three DCs are supplied by the RDC of Cosmo, located in
Brooklyn, NY.
DC Location
Albany
Brooklyn
Syracuse
Daily Mean
120
180
80
Daily Standard Deviation
60
80
60
You may assume the following facts in your analysis:



The DC and RDC operate 7 days a week, 52 weeks per year.
The DCs place orders to the RDC once a week, and have a service level target of 98%.
The lead time from the RDC to the DCs have means and standard deviations given below.
This lead time includes the time to process orders, retrieve stock form the warehouse of the
RDC, some handling and packaging the shipment, loading, waiting for the trucks to
consolidate a full truckload of shipments (possibly of other products to other customers), the
actual transit time, making some drop-offs of other products to some locations along the way,
unloading and the final receipt and put away by the DC.
1



DC Location
Mean Lead Time in Days
Albany
Brooklyn
Syracuse
10
2
10
Standard Deviation of Lead
time in Days
2
0
3
The Brooklyn RDC orders the SKU weekly from the Kansas City plant. These orders are filled
from finished goods inventory at the plant.
The lead time from the plant to the Brooklyn RDC is 10 days, with a standard deviation of 2
days. Again, this lead time is composed of similar waiting, handling and transit time as the
lead time from the RDC to the DC. The RDC has a service level target of 98%.
The unit cost of HD3040 is estimated to be $800 at the RDC, and $850 at the DCs. Both
Cosmo and its distributors use 25% as its annual inventory holding cost rate.
In answering the following questions 1-5, you may want to develop an Excel Spreadsheet to
facilitate the computations (Hint: try to apply the formulas from the Inventory Analysis lecture to
obtain the answers). Please limit your report to three typed pages and attach your Spreadsheet
printouts as an appendix.
1. (15 points) For the RDC, plot the safety stock inventory-service tradeoff curve for service
target ranging from 80% to 99%. A recent audit of the Brooklyn RDC over the past year’s
performance revealed that the RDC’s average safety stock had been at 7 days of supply, while
an average service level of 96% was achieved. Do you think that the RDC’s inventory
management has been efficient? What is the magnitude of improvement that you think can be
made as a result of using scientific inventory methods (e.g., what service improvement could
be achieved with the same inventory levels, or how much inventory could be reduced without
any service degradation)?
2. (15 points) Suppose that both the RDC and the DCs have been introduced to scientific
inventory management practices. How much are cycle stock (at both the RDC and DCs),
pipeline stock (from the plant to the RDC, and from the RDC to the DCs), and safety stock (at
both the RDC and the DCs)? What is the “expected” total inventory in the supply chain of the
Brooklyn RDC and the three DCs (including all pipeline stock)?
3. (20 points) Consider a 10% reduction in demand uncertainty, i.e., a 10% reduction in the
standard deviation of daily demand at each DC, which would naturally result in reduction in
total inventory. Alternatively, consider a 10% reduction in lead time uncertainty, i.e., a 10%
reduction in the standard deviation of all the lead times (from Kansas to RDC, and from RDC
to the DCs), which would also result in inventory reduction. What are the total annual system
2
safety stock inventory costs in these two scenarios? Which is better, a 10% demand
uncertainty reduction, or a 10% supply (lead time) uncertainty reduction?
To improve performance, one proposal is that Cosmo should pay premium transportation providers
who could be much more efficient in providing transportation services from the plant to the
Brooklyn RDC, and from the RDC to the DCs. The improvements come from better coordination
with other products so that the waiting time for consolidation can be significantly shortened, as
well as the use of smaller trucks so that the time it takes to fill up the full truck would be shorter.
The transportation rate (per unit) will be higher, though. The current and new transportation rate,
and corresponding improvements, are as shown below:
Transportation Segment
Plant to Brooklyn RDC
RDC to Albany DC
RDC to Brooklyn DC
RDC to Syracuse DC
Current Rate Per Unit
$3.00
$2.00
$0.25
$2.25
New Rate Per Unit
$3.50
$2.25
$0.28
$2.55
Transportation Segment
New Mean Lead Time in
Days
7
7
1
7
New Standard Deviation of
Lead time in Days
1
1
0
1
Plant to Brooklyn RDC
RDC to Albany DC
RDC to Brooklyn DC
RDC to Syracuse DC
4. (20 points) What are the annual total inventory and transportation costs at each of the locations
under the premium transportation provider? Which transportation segment(s) would you
recommend that the HD3040 supply chain should switch to the new transportation provider?
5. (30 points) Suppose Cosmo has invested in an ordering system that would link the RDC with
the DCs electronically. As a result, the setup cost to place an order is significantly lower, so
that the DCs can now order from the RDC once a day (instead of once a week). Please
quantify the additional benefits you can gain from the base case (2) and the premium
transportation case (4).
3
Supply Chain Analysis
Supply Chain Analytics
Li Chen
Session 9
Li Chen ©
1
A Poetic Definition
Knowing what you’ve got,
Knowing what you need,
Knowing what you can do without –
That’s inventory control.
Frank (Leonardo DiCaprio)
Revolutionary Road (2008)
Li Chen ©
2
1
Scientific Inventory Analysis
• Cycle Stock
– Inventory ordered periodically to meet demand
• Pipeline Stock
– Inventory in transit due the lead time delays
• Safety Stock
– Inventory used to buffer demand/supply
uncertainties
Li Chen ©
3
Cycle Stock and Pipeline Stock
• Average cycle stock = λR/2
– λ = average demand rate
– R = fixed re-order period
• Average pipeline stock = λL
– λ = average demand rate
– L = average lead time
Li Chen ©
4
2
Measuring Safety Stock
• Safety stock covers additional demand
uncertainty given a specified target fill rate (TFR)
• Safety stock = NORMSINV(TFR) * σR+L
– σR+L is the standard deviation of demand over the
risk exposure period
Li Chen ©
5
Demand Standard Deviation
 R  L  s 2  2  ( R  L) 2
λ = mean demand per unit time
R = re-order period in time units
L = mean lead time in time units
s = standard deviation of lead time in time units
σ =standard deviation of demand per unit time
Li Chen ©
6
3
Computing Fill Rate from Safety Stock
• Given safety stock amount: SS
• Fill Rate = NORMSDIST(SS/σR+L)
– σR+L is given in the previous slide
Li Chen ©
7
A Practice Example
Suppose that you are hired to assess the supply chain performance of a furniture
company. Your first task is to estimate the total system inventory at its distribution
center (DC). The DC orders inventory from a factory every week. The
transportation lead time from the factory to the DC is two weeks on average, with
a standard deviation of 3 days. The daily DC demand is 10 units on average, with
a standard deviation of 2 units. The DC aims to achieve 95% fill rate for fulfilling
orders coming from downstream.
1.
2.
3.
4.
5.
How much is the average cycle stock at the DC?
How much is the pipeline stock to the DC?
What is the theoretical safety stock required at the DC?
What is the total system inventory that the DC is responsible for?
If you are told to set safety stock at 40 units, what is the best achievable fill rate
at the DC?
Li Chen ©
8
4
Inventory Service Tradeoff
Inventory-Service Tradeoff
2500
Current
Inventory
2000
1500
1000
500
0
80%
85%
90%
95%
Service
Li Chen ©
9
Improve Supply Chain Efficiency
Inventory-Service Tradeoff
2500
Inventory
2000
1500
1000
500
0
80%
85%
90%
95%
Service
Li Chen ©
10
5
Summary
• Supply side: Reduce lead time and variability
– Redesign processes, parallel processing
– Employ faster/more reliable transportation mode
– Co-locate with suppliers
• Demand side: Improve demand forecast
– Extract early demand signal
– Share information across supply chain
– More sophisticated forecasting methods
Li Chen ©
11
6

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