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Supply Chain Management

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Title: Supply Chain Management


1
Supply Chain Management
  • Lecture 15

2
Outline (last week)
  • February 25 (Today)
  • Network design simulation description
  • Chapter 8
  • Homework 4 (short)
  • March 2
  • Chapter 8, 9
  • Network design simulation due before 500pm
  • March 4
  • Simulation results
  • Midterm overview
  • Homework 4 due
  • March 9
  • Midterm

3
Outline
  • March 2 (Today)
  • Network design simulation
  • Chapter 8, 9
  • Chapter 8
  • Sections 1, 2, and 3 only
  • Chapter 9
  • Sections 1, 2, and part of 3 only
  • March 4
  • Simulation results
  • Midterm overview
  • Important sections
  • Formula sheet
  • Practice questions
  • March 9
  • Midterm

4
Simulation Assignment (25)
  • Design the supply chain network for Jacobs
    Industries on the fictional continent of Pangea
  • Jacobs only product is an industrial chemical
    that can be mixed with air to form a foam (used
    in air conditioner retrofit kits)

5
Demand
  • Average demand for Jacobs product in Pangea
  • Existing and new markets

250
6
Assignment
  • Jacobs management would like to design a supply
    chain network for Pangea. Its current network
    consist of a factory in Calopeia with a capacity
    of 20. You have been hired to suggest a network
    design that will maximize profits for Jacobs
    Industry. Designing such a network is complex and
    includes the following decisions
  • Should the factory in Calopeia be expanded?
  • Should factories in other regions be built? If
    so, what should their capacity be?
  • What regions should each factory serve?

7
Questions
  • What to do with Fardo?
  • Service Fardo demand from the mainland
  • Service Fardo demand from local (to be built)
    factory
  • Dont service Fardo demand
  • What to do with Calopeia?
  • Add capacity to existing factory or not
  • Service other regions or not
  • What to do with Sorange, Entworpe, and Tyran?
  • Built new factory or not
  • Service other regions or not

8
From Forecasting to Planning
Capacity
How should a company best utilize the resources
that it has?
9
From Forecasting to Planning
Capacity
How much should be produced and when?
10
Aggregate Planning
  • Aggregate planning
  • A general plan that determines ideal levels of
    capacity, production, subcontracting, inventory,
    stockouts, and even pricing over a specified time
    horizon (i.e. planning horizon)
  • Production rate (number of units to produce)
  • Workforce (number of workers needed)
  • Overtime (number of overtime hours)
  • Machine capacity level (machine capacity needed)
  • Subcontracting (subcontracted capacity)
  • Backlog (total demand carried over to future
    periods)
  • Inventory on hand (total inventory carried over
    to future periods)

11
Aggregate Planning
  • Aggregate planning involves aggregate decisions
    rather than stock-keeping unit (SKU)-level
    decisions for a medium term planning horizon
    (3-18 months)

All-Terrain Vehicle (ATV)
EngineAssembly
Transmission
Model A
Model B
Model C
Automatic
Manual
12
Aggregate Planning Strategies
  • Basic strategies
  • Level strategy (using inventory as lever)
  • Synchronize production rate with long term
    average demand
  • Swim wear
  • Chase (the demand) strategy (using capacity as
    lever)
  • Synchronize production rate with demand
  • Fast food restaurants
  • Time flexibility strategy (using utilization as
    lever)
  • High levels excess (machine and/or workforce)
    capacity
  • Machine shops, army
  • Tailored strategy
  • Combination of the chase, level, and time
    flexibility strategies

13
Case Study Results
  • In general, the chase strategy is used when
  • Products are valuable
  • Products are bulky or hard to store
  • Products are perishable or carry an appreciable
    risk of obsolescence
  • High variety
  • Accurate sales predictions are hard to obtain
    making stockpiling hazardous
  • Fashion items
  • In general, the level strategy is used when
  • Operators take a long time to become proficient
    at critical tasks
  • Products with negligible probability of
    obsolescence
  • Low variety
  • Forecasts are quite good

14
Aggregate Planning in Services
Is aggregate planning useful for the service
industry?
What is the major variable in managing supply for
service industries?
15
Managing Supply
  • Managing capacity
  • Time flexibility from workforce
  • Use of seasonal workforce
  • Use of subcontracting
  • Use of flexible facilities
  • Managing inventory
  • Built inventory for high-demand or predictable
    demand products
  • Use common components across multiple products

16
Managing Demand
  • Pricing and other forms of promotion
  • Timing of promotion is important

17
Timing of Promotion
Why would a firm want to offer pricing promotions
during its low-demand periods?
Why would a firm want to offer pricing promotions
during its peak-demand periods?
18
Why would a firm want to offer pricing promotions
during its low-demand periods?
Market growth new customers Forward buying
existing customers move up purchases
19
Why would a firm want to offer pricing promotions
in its peak-demand periods?
  • Price sensitivity is higher during periods of
    peak demand
  • Brands that are losing market share reduce prices

Stealing share customers substitute the firms
product for a competitor product
20
Managing Demand
  • Pricing and other forms of promotion
  • Timing of promotion is important
  • Demand increases from promotion can result from a
    combination of three factors
  • Market growth (increased sales, increased market
    size)
  • Increase in consumption from both new and
    existing customers
  • Example Toyota Camry attracting buyers who were
    considering lower-end models
  • Stealing share (increased sales, same market
    size)
  • Product substitution (overall demand stays the
    same)
  • Example Toyota Camry attracting buyers who were
    considering Honda Accord
  • Forward buying (same sales, same market size)
  • Customers move up purchases (does not increase
    sales)

21
Factors Affecting Promotion Timing
Favors promotion during low-demand periods
Favors promotion during peak-demand periods
Favors promotion during peak-demand periods
Favors promotion during peak-demand periods
Favors promotion during low-demand periods
Favors promotion during low-demand periods
Favors promotion during low-demand periods
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