Determining Optimal Level of Product Availability

1
Determining Optimal Level of Product Availability
???? Determining Optimal Level of Product
Availability

• Optimal Matching of Supply and Demand (III)

?????
??????????,????CC?????-????-?????????3.0??????
1
2
Pull PostponementEX.2
Flickr_kennethkonica
Wikipedia
2
3
Pull Postponement

• Basic Elements
• The process steps must be sequenced so that the
  less differentiating steps are performed at prior
  to the decoupling point.
• After the decoupling point, the process steps can
  be performed flexible and fast.
• Accurate order capture for BTO.
• Example National Bicycle, Benetton.

3
4
?????

• ?????(Postponement Differentiation)???

• ?????????????????????,????????????????,???????????
  ?????????,????????

4
5
????????

• ????????(Resequencing)

• ?? Benetton, postpone dyeing until after
  assembled. Cost 10 more expensive, new machine
  purchased and employee retrained.

• ?? US disk drive manufacturing. Insert generic
  circuit board into assembly, complete much of the
  testing, remove the generic circuit board, and
  add customer-specific boards later.

5
6
????????

• ??????(Commonality)

• ?????????????????

• ?? Printer manufacturing, redesign the new and
  old products to share a common circuit board and
  printhead such that final process can be delayed.

??????hp (http//h10010.www1.hp.com/wwpc/au/en/sm/
WF06c/A1-12771-64209-64548-64548-26997-14820.html)
,???????46?52?65??????
6
7
????????

• ???(Modularity)

• ??????????????,????????????????????????? HP
  Laser Jet

• ?????????????
• ????????,?????
• ??????????????print-and-
• pigment mixture, Levis jeans

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
7
8
????????

• ???(Standardization)
• ?????????????????.

• ?????????(Agile Supply Networks)
• ?????????????, ???????????????????.

8
9
Concurrent and Parallel Processing

• Concurrent and parallel processing involves
  modifying the manufacturing process so that steps
  that were previously performed in a sequence can
  be completed at the same time.

• reduce lead time
• reduce inventory cost

• A key is the concept of modularity or decoupling

9
10
??????????

• ??????????????????
• ???????????????????
• ???????????????
• ????????,?????????,?????????????

10
11
Logistics Postponement

• Meaning
• Redesign the tasks in the SC so that some of the
  customization steps can be performed downstream
  closer to the customers.

WIKIPEDIA
??????CoolCLIPS??(http//dir.coolclips.com/Food/Ve
getables/Vegetable_groups/bamboo,_woodcut_style_vc
001509.html), Free 150 pixel Jpeg
Image,????2012/03/16???????52?65??????
??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
11
12
Requirements for logistics postponement

• can not lead to quality degradation.
• downstream sites have capability to perform the
  task without excessive cost and time.
• potentially to procure the necessary components
  or modules for the customization.
• the engineering team is able and willing to
  design products and processes to defer the steps
  effectively.

12
13
Form Postponement

• Meaning
• postponement is achieved through the change in
  the form of the product structure by
  standardizing some of the process steps or
  components.
• Example HP Laser Printer.

??????hp (http//h10010.www1.hp.com/wwpc/au/en/sm/
WF06c/A1-12771-64209-64548-64548-26997-14820.html)
,???????46?52?65??????
13
14
Postponement Enablers

• Products or processes should be modular in
  structure.
• Design engineer should be aware of the importance
  of SCM to pursuit design for postponement
  opportunity.
• Must involve multiple functions or organization
  in collaboration.
• Quantify the costs and benefits to determine the
  best point for postponement

14
15
The Value of Postponement

• Improve matching of supply and demand need to
  qualify the benefit with additional cost
• Increase profitability differentiate after
  receiving customer order so that inventories can
  be reduced
• Valuable for selling a large variety of products
  with demand that is independent and comparable in
  size

15
16
Value of Postponement Benetton
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????

• For each color
• Mean demand 1,000 SD 500
• For each garment
• Sale price 50
• Salvage value 10
• Production cost using option 1 (thread are dyed
  and the garment was knitted) with long lead time
  20
• Production cost using option 2 (dying was
  postponed until after the garment was knitted)
  22

• What is the value of postponement?

16
17
Value of Postponement Benetton
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????

• Option 1
• CSL (p - c) /(p - s) 30/40 0.75
• O NORMINV(0.75, 1000, 500) 1,337 units of
  each color
• Expected profits from each color 23,644
• Expected overstock for each color 412
• Expected understock for each color 75
• 5348 sweaters are produced, expected profit of
  94,576 with an average of 1,648 sweaters sold on
  clearance and 300 customers turns away for lack
  of sweaters

1,337X45348
23,644X494,576
17
18
Value of Postponement Benetton
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????

• Option 2 c 22 instead of 20
• CSL (p - c) /(p - s) 28/40 0.70
• .
• Expected profits 98,092
• Expected overstock for each color 715
• Expected understock for each color 190
• Expected profit increases from 94,576 to 98,092
• Expected overstock declines from 1,648 to 715
• Expected understock declines from 300 to 190

18
19
Value of Postponement with Dominant Product
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????

• Color with dominant demand (red) Mean 3,100,
  SD 800
• Other three colors Mean 300, SD 200
• Option 1
• CSL 0.75
• Optimal production of red sweaters O
  NORMINV(0.75, 3100, 800) 3,640 expected profit
  82,831, expected overstock 659, expected
  understock 119
• Optimal production of each other color sweater
  435 expected profit 6,458, expected overstock
  165, expected understock 30
• Total production 4,945, expected profit
  102,205, expected overstock 1,154, expected
  understock 209

36404,35X34,945
82,831 6,458 4,945
19
20
Value of Postponement with Dominant Product

• Option 2
• ?A 3100 3?300 4,000 ?A
• Total production 4,457 expected profit
  99,872,
• expected overstock 623, expected understock
  166
• Expected profit without postponement 102,205
• Expected profit with postponement 99,872

20
21
Meaning of Pure Postponement

• Postponement may reduce overall profit for a firm
  if a single product contributes the majority of
  the demand, since the increased manufacturing
  expense due to postponement outweighs the small
  benefit from aggregation

21
22
Tailored Postponement Benetton
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????

• On the portion of the certain demand,
  postponement provides little value, thus, company
  needs to use lower cost method.
• On the portion of the uncertain demand,
  postponement significantly improves forecast
  accuracy, thus, company is willing to incur
  higher cost to achieve the benefit.
• Produce Q1 units for each color using Option 1
  and QA units (aggregate) using Option 2

22
23
Tailored Postponement Benetton
Manufacturing Policy Manufacturing Policy Average Profit Average Overstock Average Understock
Q1 QA Average Profit Average Overstock Average Understock
0 4524 97847 510 210
1337 0 94377 1369 282
700 1850 102730 308 168
800 1550 104603 427 170
900 950 101326 607 266
900 1050 101647 664 230
1000 850 100312 815 195
1000 950 100951 803 149
1100 550 99180 1026 211
1100 650 100510 1008 185
23
24
The Benefit of Tailored Postponement

• Tailored postponement allows a firm to increase
  its profitability by postponing only the
  uncertain part of the demand and producing the
  predictable part at a lower cost without
  postponement

24
25
The Meaning of Tailored Sourcing

• A combination of two supply sources one focusing
  on cost but unable to handle uncertainty well,
  and the other focusing on flexibility to handle
  uncertainty but a higher cost
• A backup policy
• Disadvantage increasing complexity of
  implementation

25
26
Tailored Sourcing

• Sourcing alternatives
• Low cost, long lead time supplier
• Cost 245, Lead time 9 weeks
• High cost, short lead time supplier
• Cost 250, Lead time 1 week

26
27
Tailored Sourcing Strategies
Fraction of demand from overseas supplier Annual Profit
0 37,250
50 51,613
60 53,027
100 48,875
27
28
Tailored Sourcing Multiple Sourcing Sites
Characteristic Primary Site Secondary Site
Manufacturing Cost High Low
Flexibility (Volume/Mix) High Low
Responsiveness High Low
Engineering Support High Low
28
29
Dual Sourcing Strategies
??????Benetton Group (http//www.benettongroup.com
/),???????46?52?65??????
Strategy Primary Site Secondary Site
Volume based dual sourcing (Benetton) Fluctuation Stable demand
Product based dual sourcing(Levi Strauss) Unpredictable products, Small batch Predictable, large batch products
Model based dual sourcing Newer products Older stable products
29
30
Contracts for Product Availability and Supply
Chain Profits

• Many shortcomings in supply chain performance
  occur because the buyer and supplier are separate
  organizations and each tries to optimize its own
  profit
• Total supply chain profits might therefore be
  lower than if the supply chain coordinated
  actions to have a common objective of maximizing
  total supply chain profits
• Double marginalization results in suboptimal
  order quantity
• An approach to dealing with this problem is to
  design a contract that encourages a buyer to
  purchase more and increase the level of product
  availability
• The supplier must share in some of the buyers
  demand uncertainty

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
30
31
Contracts for Product Availability and Supply
Chain Profits

• Many shortcomings in supply chain performance
  occur because the buyer and supplier are separate
  organizations and each tries to optimize its own
  profit
• Total supply chain profits might therefore be
  lower than if the supply chain coordinated
  actions to have a common objective of maximizing
  total supply chain profits
• Double marginalization results in suboptimal
  order quantity
• An approach to dealing with this problem is to
  design a contract that encourages a buyer to
  purchase more and increase the level of product
  availability
• The supplier must share in some of the buyers
  demand uncertainty

• Buybacks by publishers
• Tech Fiber produces jacket at v 10 and charges
  a wholesale price of c 100. Ski Adventure
  sells jacket for p 200. Demand is normal
  distributed with ?1,000 and ?300. Unsold
  jackets have no salvage value.

• Should TF be willing to buy back unsold
  jackets? Why?

• CSLSA 0.5, SA orders 1,000, expected profit
  76,063
• TF sells 1,000 for a total profit of
  90,000. Total expected
• SC profit 166,063

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
31
32
Contracts for Product Availability and Supply
Chain Profits

• Many shortcomings in supply chain performance
  occur because the buyer and supplier are separate
  organizations and each tries to optimize its own
  profit
• Total supply chain profits might therefore be
  lower than if the supply chain coordinated
  actions to have a common objective of maximizing
  total supply chain profits
• Double marginalization results in suboptimal
  order quantity
• An approach to dealing with this problem is to
  design a contract that encourages a buyer to
  purchase more and increase the level of product
  availability
• The supplier must share in some of the buyers
  demand uncertainty

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
32
33
The Categories of Supply Contract

• Horizon Length
• Pricing linear (proportional) or non-linear
  (two-part tariff) buyback, holding cost
  subsidies, payment for inability to supply
• Periodicity of ordering fixed or random
• Quantity commitment
• Total minimum commitment quantity or dollar
  value
• Periodical commitment
• Demand commitment
• Capacity commitment

33
34
The Categories of Supply Contract

• Flexibility
• Magnitude or frequency of adjustments
• Delivery commitment
• Lead time
• Shipment policy
• Quality defect rates, specifications
• Information sharing

34
35
Supplier Selection and Contracts

• Contracts for Product Availability and Supply
  Chain Profits
• Buyback Contracts
• Revenue-Sharing Contracts
• Quantity Flexibility Contracts
• Contracts to Coordinate Supply Chain Costs
• Contracts to Increase Agent Effort
• Contracts to Induce Performance Improvement

35
36
Impact of Supply Chain Contracts on
Profitability Buyback Contracts
Supplier Selection and Contracts

• Contracts for Product Availability and Supply
  Chain Profits
• Buyback Contracts
• Revenue-Sharing Contracts
• Quantity Flexibility Contracts
• Contracts to Coordinate Supply Chain Costs
• Contracts to Increase Agent Effort
• Contracts to Induce Performance Improvement

• Buybacks by publishers
• Tech Fiber produces jacket at v 10 and charges
  a wholesale price of c 100. Ski Adventure
  sells jacket for p 200. Demand is normal
  distributed with ?1,000 and ?300. Unsold
  jackets have no salvage value.

• Should TF be willing to buy back unsold
  jackets? Why?

• CSLSA 0.5, SA orders 1,000, expected profit
  76,063
• TF sells 1,000 for a total profit of
  90,000. Total expected
• SC profit 166,063

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
36
37
Impact of Supply Chain Contracts on
Profitability Buyback Contracts
Supplier Selection and Contracts

• Contracts for Product Availability and Supply
  Chain Profits
• Buyback Contracts
• Revenue-Sharing Contracts
• Quantity Flexibility Contracts
• Contracts to Coordinate Supply Chain Costs
• Contracts to Increase Agent Effort
• Contracts to Induce Performance Improvement

• For entire SC, SC makes 190 for each jacket
  sold, and
• only loses 10. Thus, the cost of
  understocking is 190, and
• the cost of overstock is 10.

• The optimal CSL for entire SC is 0.95 and produce
  1,493
• jackets. Total SC profit is 183,812.

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
37
38
Return Policy Buyback contracts

• Issue of Double Marginalization
• Wholesale price c
• Buyback price b
• Manufacturing salvage value sM
• The salvage value for retailer is sb
• Optimal order quantity O
• Expected manufacturing profit
• O(c-v) b ? expected overstock at retailer

O(c-v) b ? expected overstock at retailer
38
39
Buyback Contracts
Wholesale Price c Buy-back price b Optimal Order Size for SA Expected Profit for SA Expected Returns to TF Expected Profit for TF Expected Supply Chain Profit
100 0 1000 76063 120 90000 166063
100 30 1067 80154 156 91338 171492
100 60 1170 85724 223 91886 177610
110 0 962 66252 102 96230 162482
110 78 1191 78074 239 100480 178555
110 105 1486 86938 493 96872 183810
120 0 924 56819 80 101640 158459
120 96 1221 70508 261 109225 179733
120 116 1501 77500 506 106310 183810
39
40
Buyback Contracts

• Manufactures can use buyback contracts to
  increase their own profit as well as total supply
  chain profits. Buyback contract also encourage
  retailers increase product availability
• Manufactures need to consider the cost associated
  with a return
• As the cost associated with a return increases,
  buyback contracts become less attractive.
• Applications (1) bookstores return the cover of
  the book to reduce the cost of return (2)
  manufactures use holding cost subsidies.

??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
??????Microsoft Office 2007?????,??Microsoft??????
????46?52?65??????
40
41
Contracts for Product Availability and Supply
Chain Profits Buyback Contracts

• Allows a retailer to return unsold inventory up
  to a specified amount at an agreed upon price
• Increases the optimal order quantity for the
  retailer, resulting in higher product
  availability and higher profits for both the
  retailer and the supplier
• Most effective for products with low variable
  cost, such as music, software, books, magazines,
  and newspapers
• High tech industry provides price support for
  retailers due to price drop rapidly

41
42
Contracts for Product Availability and Supply
Chain Profits Buyback Contracts

• Downside
• Results in surplus inventory that must be
  disposed of, which increases supply chain costs
• Lead the retailer to exert less effort to sell
• May increase information distortion through the
  supply chain because the supply chain reacts to
  retail orders, not actual customer demand

42
43
Revenue Sharing Contracts

• Manufacture charges the retailer a low wholesale
  price and shares a fraction of the revenue
  generated by the retailer.
• The retailer cost will be decreased due to lower
  overstock cost, thus, retailer will increase the
  level of product availability resulting higher
  profits for both manufacturer and retailer.

43
44
EXBLOCKBUSTER
Basher Eyre _Geograph
44
45
????
?? ?? ???? ??/??
2 Flickr,??kennethkonica?(http//www.flickr.com/photos/littlebiglens/6878901153/sizes/l/in/pool-60201846_at_N00/) , ????2012/02/20????????CC?????-?????3.0??????
2 ??????WIKIPEDIA (http//en.wikipedia.org/wiki/FileMcDonald27s_Golden_Arches.svg),????2012/03/23 ?
6, 13 ??????hp (http//h10010.www1.hp.com/wwpc/au/en/sm/WF06c/A1-12771-64209-64548-64548-26997-14820.html),???????46?52?65??????
7 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
7 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
7 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
16-19, 22, 29 ??????Benetton Group (http//www.benettongroup.com/),???????46?52?65??????
45
46
????
?? ?? ???? ??/??
11 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
11 ??????CoolCLIPS??(http//dir.coolclips.com/Food/Vegetables/Vegetable_groups/bamboo,_woodcut_style_vc001509.html), Free 150 pixel Jpeg Image,????2012/03/16???????52?65??????
11 ??????WIKIPEDIA (http//en.wikipedia.org/wiki/FileCoca-Cola_logo.svg),????2012/02/24 ?
30, 32 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
31, 36, 37 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
40 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
40 ??????Microsoft Office 2007?????,??Microsoft??????????46?52?65??????
46
47
????
?? ?? ???? ??/??
44 Geograph,??Basher Eyre?(http//www.geograph.org.uk/photo/834743) ,????2012/02/24????????CC?????-???????2.0??????




47