Cycle inventory in supply chain management

Technology And Information Management

Problem

Estimated Time

Actual Time

Problem 1

1 Hour

1 Hour

Problem 2

1.5 Hours

1 Hour

Problem 3

2 Hours

2 Hours

Problem 4

2 Hours

1.5 Hours

Problem 5

2 Hours

1 Hour

Problem 6

2 Hours

2 Hours

Qualitative Problems

1. Chapter 11 Discussion Question 1 & 2

Step 1: Define the Problem

1. What is the role of safety inventory in the supply chain? 2. Explain how a reduction in lead time can help a supply chain reduce safety inventory without hurting product availability?

Step 2: Create a Plan

1. Explain the role of safety inventory in the supply chain 2. Explain how reducing lead time helps reduce safety inventory without hurting product availability

Step 3: Execute the Plan

1. Explain the role of safety inventory in the supply chain Safety inventory is the average product that is remaining when the replenishment order is received. It prevents product shortage when consumers’ present demand exceeds the forecasted demand. The success of the supply chain depends on the ability of a firm to satisfy a consumer’s order out of available inventory despite uncertainties in supply and demand.

2. Explain how reducing lead time helps reduce safety inventory without hurting product availability Lead times refer to the gap between placing and receiving an order in the supply chain. Safety inventory decreases as lead time decreases without hurting product availability. A reduction in lead time can help a firm manage uncertainties in supply and demand by narrowing the time needed to place and receive the order. A firm can also maintain a desired level of safety inventory while satisfying a consumer’s order at a time.

Step 4: Check your Work

1. Using the book as my reference and carefully reading through Chapter 11 and using what we learned in lecture. I can say that the definitions I have answered for these discussion questions are correct.

2. Chapter 11 Discussion Questions 6 & 7

Step 1: Define the Problem

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

Step 2: Create a Plan

1. Explain how Home Depot can have a higher level of product availability compared to other hardware store chains 2. Describes Amazon’s strategy that allows them to have less safety inventory for books and music compared to a bookstore chain

Step 3: Execute the Plan

1. Explain how Home Depot can have a higher level of product availability compared to other hardware store chains 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. This is because Home Depot can hold a reduced level of safety inventory at a lower inventory cost without hurting product availability in its supply chain.

2. Describes Amazon’s strategy that allows them to have less safety inventory for books and music compared to a bookstore chain Amazon can provide a large variety of books and music with less safety inventory than a bookstore chain selling through retail stores. This is because all inventories in one warehouse or distribution center are aggregated. This enables Amazon to match demand uncertainty with maintaining a higher level of product availability.

Step 4: Check your Work

1. Reading through Chapter 11 in the textbook and learning the key objectives. As well as using lecture notes, I can assume that the answers for the discussion questions are correct.

Quantitative Problems

3. Chapter 10 Exercise 3

Step 1: Define the Problem

1. Harley purchases components from three suppliers. Components purchased from supplier A are priced at $5 each and used at the rate of 20,000 units per month. Components purchased from Supplier B are priced at $4 each and used at the rate of 2,500 units per month. Components purchased from Supplier C are priced at $5 each and used at the rate of 900 units per month. Currently, Harley purchases a separate truckload from each supplier. As part of its JIT drive, Harley has decided to aggregate purchases from the three suppliers. The trucking company charges a fixed cost of $400 for the truck with an additional charge of $100 for each stop. Thus, if Harley asks for a pickup from only one supplier, the trucking company charges $500; from two suppliers, it charges $600; and from three suppliers, it charges $700. Suggest a replenishment strategy for Harley that minimizes annual cost. Compare the cost of your strategy with Harley’s current strategy of ordering separately from each supplier. What is the cycle inventory of each component at Harley?

Step 2: Create a Plan

1. List Given Data 2. Calculate EOQ and Total Cost 3. Calculate combined setup cost 4. Calculate the number of orders 5. Calculate the total cost of ordering aggregately 6. Calculate Cycle Inventory for each supplier

Step 3: Execute the Plan

1. List Given Data

Supplier A

Supplier B

Supplier C

DA = 240,000

DB = 30,000

DC = 10,800

S = $500

S = $500

S = $500

CA = $5

CB = $4

CC = $5

h = 0.2

h = 0.2

h = 0.2

2. Calculate EOQ and Total Cost EOQ = Supplier A EOQ = = 15,491 Suppler B EOQ = = 6,123 Supplier C EOQ = = 3,286

Total Cost = Supplier A Total Cost = = 15,491 Supplier B Total Cost = = 4,899 Supplier C Total Cost = = 3,286 Total cost of ordering separately = 15,491 + 4,899 + 3,286 = $23,676

3. Calculate combined setup cost S = 400 + 100 + 100 + 100 = $700

4. Calculate the number of orders n = = = 14.01 orders

5. Calculate the total cost of ordering aggregately Annual Inventory Cost = = = $19,614 Here we can see that the total cost of ordering individually is $23,676 and ordering aggregately is $19,614. Since the cost of ordering aggregately is less this would be the better strategy for Harley.

6. Calculate Cycle Inventory for each supplier Cycle Inventory = Supplier A Cycle Inventory = = $7,746 Supplier B Cycle Inventory = = $3,061 Supplier C Cycle Inventory = = $1,643

Step 4: Check your Work

1. Using the given information from the book and using the equations from the book and lecture notes. I can say that my calculations for this question are correct and the strategy I chose for Harley is the more cost efficient strategy.

4. Chapter 11 Exercise 1

Step 1: Define the Problem

1. Weekly demand for Motorola cell phones at a Best Buy store is normally distributed, with a mean of 300 and a standard deviation of 200. Motorola takes two weeks to supply a Best Buy order. Best Buy is targeting a CSL of 95 percent and monitors its inventory continuously. How much safety inventory of cell phones should Best Buy carry? What should its ROP be?

Step 2: Create a Plan

1. Calculate the safety inventory of cell phones 2. Calculate Best Buy’s ROP

Step 3: Execute the Plan

1. Calculate the safety inventory of cell phones Average demand per period, D = 300 Standard deviation of demand per period, = 200 Lead-time, L = 2 weeks CSL = 0.95 The formula to calculate ss = ss = From the sheet we got in class we know = 1.65 ss = = 466.69 Best Buy should have a safety inventory of 466 cell phones

2. Calculate Best Buy’s ROP Average demand per period, D = 300 Standard deviation of demand per period, = 200 Lead-time, L = 2 weeks CSL = 0.95 The formula to calculate ROP = DL + ss DL = D x L DL = 300 x 2 = 600 ROP = 600 + 466 = 1066 So the re-order point should be when there are 1066 cell phones left

Step 4: Check your Work

1. Using the book and lecture notes for formulas and using the given data from the exercise. The calculations I have made should be accurate and correct.

5. Walmart

Step 1: Define the Problem

1. Estimate Walmart’s daily, weekly, monthly and annual cycle inventory for toilet paper. (This is an open-ended problem for which you have to develop a creative method, starting with appropriate assumptions, for determining the estimate.)

Step 2: Create a Plan

1. Research Walmart’s average cost for toilet paper 2. Research annual demand for toilet paper 3. Estimate data with the data researched 4. Calculate optimal lot size and cycle inventory

Step 3: Execute the Plan

1. Research Walmart’s average cost for toilet paper Looking at the prices on Walmart’s website for toilet paper. With so many brands, there were a lot of different average cost for toilet paper. However, it seemed like most toilet paper brand averaged to around $0.50 per roll.

2. Research annual demand for toilet paper Using the website https://www.statista.com/statistics/188710/top-toilet-tissue-brands-in-the-united-states/ it shows us the top leading toilet brands and their sales. With top competitors like Private Label, Angel Soft, Charmin, Scott and many others. Walmart carriers all of these different brands of toilet paper. So we sum up all sales of these leading competitors to obtain annual sales of toilet paper in 2016. Which turned out to be $7,807,400,000 and to calculate annual demand = annual sales / average cost = $7,807,400,000 / 0.50 = 15,614,800,000

3. Estimate data with the data researched D = 15,614,800,000 units S = $500 (we assume that cost per order is $500 since toilet paper is cheaper and is transported in bulk) h = 0.20 (assume holding cost is 20% since toilet paper is ordered in bulk) C = $0.50

4. Calculate optimal lot size and cycle inventory Optimal lot size annually = = = 12,495,919.33 Optimal lot size monthly = = = 1,041,326.61 Optimal lot size weekly = = = 240,306.14 Optimal lot size daily = = = 34,235.39

Cycle Inventory annually = = = 6,247,959.66 Cycle Inventory monthly = = = 520,663.30 Cycle Inventory weekly = = = 120,153.07 Cycle Inventory daily = = = 17,117.69

Step 4: Check your Work

1. Since this is an open-ended question and I could only find the annual demand for toilet paper for all retailers and not just Walmart. My calculations might not be accurate but with the information I found. I have to presume that this is close to what Walmart’s cycle inventory would look like.

Case Study

6. Plantronics

Step 1: Define the Problem

1. What is Plantronics core product line? What is Plantronics competitive strategy? 2. 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? 3. Explain the role of the software and information technology in the management of Plantronics global product development effort and its global supply chain network. 4. Summarize 5-10 key lessons learned from studying Kai Hypko’s 2009 “SCM” presentation

Step 2: Create a Plan

1. Describe Plantronics core product line and their competitive strategy 2. Explain Plantronics old approach to supply-chain management. Their current approach and their dream SCM for the future 3. Explain the role of the software and information technology in the management of Plantronics global product development effort and its global supply chain network. 4. Summarize 5-10 key lessons learned from studying Kai Hypko’s 2009 “SCM” presentation

Step 3: Execute the Plan

1. Describe Plantronics core product line and their competitive strategy Plantronics core product line are headsets designed for use with mobile phones, cordless phones, computers and gaming consoles. Plantronics competitive strategy would have to be a focused strategy. They product products that they know will completely satisfy the needs of customers. Their products have a high-quality assurance. Their products are sought out by consumers and business sectors.

2. Explain Plantronics old approach to supply-chain management. Their current approach and their dream SCM for the future Plantronics old approach to supply-chain management was a push model (linear supply chain). They were supply centric, internally focused, vertically integrated, physically asset based, and mass momentum. Now currently they have switched to a pull model (integrated networks). This includes them being demand-driven, global, virtual supply chains, decision based, and lean practices. Their dream SCM would be their Supply Chain Optimization and Re-Engineering (SCORE) project. They want to establish a world-class supply chain by creating a global, integrated, collaborative system and processes which are scalable, without legacy knowledge and added manpower. Some of their project objectives are: improve forecasting process & accuracy, increase inventory turnover, reduce excess & obsolete inventory and etc.

3. Explain the role of the software and information technology in the management of Plantronics global product development effort and its global supply chain network. Software and information technology helps with global product development by taking different roles like business analyst, project manager and many other roles that help lay out the foundation for developing products. It keeps everything on track and all of this can relay back to the supply chain network. To help with forecasting demand, re-ordering inventory and keeping track of the raw materials.

4. Summarize 5-10 key lessons learned from studying Kai Hypko’s 2009 “SCM” presentation SCM delivers the greatest results when SCM is part of the overall business strategy SCM is likely to under deliver when there is a poor connection between functions across a total business World class SC companies collaborate effectively internally to optimize processing, work closely with key suppliers and customers, and effectively apply technology as an enabler SCM can always be improved in some way there are limitless possibilities of improvement Every project has risks and could have a huge effect on the company itself

Step 4: Check your Work

1. Using the presentations from the class website and the internet to research more about Plantronics. I assume that the information I have provided above is correct.