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SMC InternationalGlobal Case Study #646747
Presented By:Phanthira Rojwattanasiri - Thammasat University
Varrick Chambers - Auburn UniversityCassy Smart - University of North Texas
Jonathan Seal - University of North Texas
April 17, 2015
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SMC International Global Case Study #646747Ca
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Case Summary
Number of Units per Case 15.00
Cost to Place an Order () 48.00
Inventory Carrying Cost () 0.32
Unit Price () 112.00
Annual Demand (Units) 73,646.00
SMC International Global Case Study #646747
Total Annual Cost of Ferguson's Proposal
Order Quantity (Units) 90.00
Number of Units per Case 6.00
Orders Per Year 818.29
Annual Ordering Cost 39,277.87
Annual ICC 1,612.80
Annual Total Cost () 40,890.67
Rounded
90.00
6.00
819.00
39,312.00
1,612.80
40,924.80 1
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APa
rt B
4
Q#1: What is the total annual cost of Ferguson's proposal?
SMC International Global Case Study #646747
Total Annual Cost of Patrachalski's Proposal
Order Quantity (Units) 270.00
Number of Units per Case 18.00
Orders Per Year 272.76
Annual Ordering Cost 13,092.62
Annual ICC 4,838.40
Annual Total Cost () 17,931.02
Rounded
270.00
18.00
273.00
13,104.00
4,838.40
17,942.40 2
Part
APa
rt B
5
Q#2: What is the total annual cost of Patrachalski's proposal?
SMC International Global Case Study #646747
Rounded
445.00
29.67
166.00
7,968.00
7,974.40
15,942.40 4
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APa
rt B
The Lowest Total Annual Cost
Order Quantity (Units) = EOQ or Q* 444.15
Number of Units per Case 29.61
Orders Per Year 165.81
Annual Ordering Cost 7,959.10
Annual ICC 7,959.10
Annual Total Cost () 15,918.21
3
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Q#3: Based on the lowest total annual cost, what order quantity (in units) should Martin recommend?Q#4: What is the total annual cost of Martins recommendation?
SMC International Global Case Study #646747Rounded
435.0000
29.0000
170.0000
8,160.0000
7,795.2000
15,955.2000
0.0803%5
Total Annual Cost - the Order Quantity is Decreased to the Nearest Whole Case
Order Quantity (Units) 435.0000
Number of Units per Case 29.0000
Orders Per Year 169.3011
Annual Ordering Cost 8,126.4552
Annual ICC 7,795.2000
Annual Total Cost () 15,921.6552
Percent Total Annual Cost Change 0.0217%
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Q#5: Let's explore the concept of "robustness." Lewins proposal to use Economic Order Quantity may be unrealistic since SMC would like to place orders in whole cases. If the order quantity is decreased to the nearest whole case what percent would your total annual cost change?
Part
APa
rt B
SMC International Global Case Study #646747Rounded
450.0000
30.0000
164.0000
7,872.0000
8,064.0000
15,936.0000
-0.0401%6
Total Annual Cost - the Order Quantity is Increased to the Nearest Whole Case
Order Quantity (Units) 435.0000
Number of Units per Case 30.0000
Orders Per Year 163.6578
Annual Ordering Cost 7,855.5733
Annual ICC 8,064.0000
Annual Total Cost () 15,919.5733
Percent Total Annual Cost Change 0.0086%
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Q#6: What percent would your annual total cost change if the order quantity is increased to the nearest whole case?
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SMC International Global Case Study #646747
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Part
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rt A
The Lowest Total Annual Cost Old Change New
EOQ 444.146453 -9.50% 401.952540
Rounded EOQ 445.000000 -9.50% 402.725000
Sales (Demand) 73,646.000000 9.60% 80,716.016000
Cost to Place an Order () 48.000000 -25.271442% 35.869708
Rounded Cost to Place an Order 48.000000 -24.983943% 36.007707
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Q#7: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if only Vice President of Sales Steve Smith achieves his goal to increase sales by 9.6%
SMC International Global Case Study #646747
8Part B
Part
A
The Lowest Total Annual Cost Old Change New
EOQ 444.146453 -9.50% 401.952540
Rounded EOQ 445.000000 -9.50% 402.725000
Sales (Demand) 73,646.000000 9.60% 80,716.016000
Inventory Carrying Cost 0.320000 -0.026 0.294000
Cost to Place an Order () 48.000000 31.343137% 32.955294
Rounded Cost to Place an Order 48.000000 31.078998% 33.082081
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Q#8: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if Vice President of Sales Steve Smith achieves his goal to increase sales by 9.6% AND Financial Comptroller Fred Ferguson achieves his goal of reducing the cost to carry inventory from 32.0% to 29.4%. Your answer must be accurate to 6 decimal places
SMC International Global Case Study #646747
9
Part
BPa
rt A
The Lowest Total Annual Cost Old Change New
EOQ 444.146453 -9.50% 401.952540
Rounded EOQ 445.000000 -9.50% 402.725000
Sales (Demand) 73,646.000000 9.60% 80,716.016000
Inventory Carrying Cost 0.320000 -0.026 0.294000
Unit Price () 112.000000 -5.20% 106.176000
Cost to Place an Order () 48.000000 34.913294% 31.241619
Rounded Cost to Place an Order 48.000000 34.662890% 31.361813
11Q#9: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if Vice President of Sales Steve Smith achieves his goal to increase sales by 9.6% AND Financial Comptroller Fred Ferguson achieves his goal of reducing the cost to carry inventory from 32.0% to 29.4% AND Purchasing Director Peter Patrachalski achieves his goal of reducing the average cost per unit by 5.2%
SMC International Global Case Study #646747
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Part
BPa
rt A
The Lowest Total Annual Cost Old Change New
EOQ 444.146453 JIT 1.000000
Rounded EOQ 445.000000 JIT 1.000000
Sales (Demand) 73,646.000000 9.60% 80,716.016000
Cost to Place an Order () 48.000000 99.999537% 0.000222
Rounded Cost to Place an Order 48.000000 99.999537% 0.000222
12
Q#10: What would the cost to place an order need to be if Davis implemented a Just-In-Time approach so ordering 1 unit at a time is the optimal ordering quantity? Use the original variables for the part number. Your answer must be accurate to 6 decimal places (e.g.47.123456)
SMC International Global Case Study #646747
11 - Four viable recommendations which would result in a lower COST TO PLACE AN ORDER
Implement an EDI SystemImplement a VMI SystemImplement Assumed ReceiptsImplement Supply-Chain Technology
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SMC International Global Case Study #646747
11: Implement an EDI System
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EDI Benefits: (1) Lowers costs by at least 35%
Cost to Place an Order decreased from 48 to 31.20 Improves data quality, delivering at least a 30% - 40% reduction
in transactions with errors Speeds up business cycles by 61% Enhanced trading Partner Relationships
Implementation Cost: (2) In-house model: about 77,000 Hosted model: about 2,800 and about 70 per month
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------------------------------Sources: (1) The Benefits of EDI. (2013). A GXS White Paper.
Available at: http://www.gxs.com/wp-content/uploads/wp_benefits_edi_gxs.pdf(2) Simmons, J. (2007). ERP / EDI Integration Methodologies - In-House versus Hosted.Available at: http://www.dicentral.com/downloads/EDI%20Integration%20Methods%20White%20Paper.pdf
SMC International Global Case Study #646747
11: Implement an EDI System
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The Total Annual Cost (New Order Cost)
Order Quantity (Units) 444.146453
Number of Units per Case 29.609764
Orders Per Year 165.814676
Annual Ordering Cost 5,173.417881
Annual ICC 7,959.104432
NEW Annual Total Cost () 13,132.522313
% Change 17.500000%
OLD Annual Ordering Cost 7,959.104432
OLD Annual Total Cost () 15,918.208864
SMC International Global Case Study #646747
11: Implement an EDI System
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The NEW Lowest Total Annual Cost (Changing Q*)
Order Quantity (Units) = EOQ or Q* 358.082318
Number of Units per Case 13.711186
Orders Per Year 205.667793
Annual Ordering Cost 6,416.835138
Annual ICC 6,416.835138
NEW Annual Total Cost () 12,833.670275
% Change 19.377423%
OLD Annual Ordering Cost 7,959.104432
OLD Annual Total Cost () 15,918.208864
SMC International Global Case Study #646747
11: Implement a VMI System
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VMI Benefits: By implementing VMI systems, SMC will be able to manage the inventory of its product
(and possibly related products) at the retailers warehouse(s) and reorder as appropriate for consumer fulfillment.
Although the supplier takes on the responsibility for replenishment in a VMI relationship, the savings in operating costs alone can easily offset the costs of doing VMI.
Reduced Operating Costs Include: Fewer order problems caused by bad data Fewer emergency orders due to poor customer habits Fewer orders overall. A more consistent order process where the supplier regularly
evaluates the complete requirements for its customer typically lowers total order count by 4-6%. Fewer orders results in downstream savings in warehouse pick time, transportation scheduling, accounts receivable, and invoice reconciliation.
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------------------------------Source: Coyle, J., Langley Jr., C., Novac, R., & Gibson, B. (2012). Supply Chain TechnologyManaging Information Flows.
In Supply Chain Management: A Logistics Perspective (9e [ed.]. ed., pp. 202-203). Mason, OH: South-Western Cengage Learning.
SMC International Global Case Study #646747
11: Implement a VMI System
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The Total Annual Cost (New Order Cost)
Order Quantity (Units) 444.146453
Number of Units per Case 29.609764
Orders Per Year 165.814676
Annual Ordering Cost (4%-6%) 3,183.64 - 4,775.46
Annual ICC 7,959.104432
NEW Annual Total Cost () (4%-6%)
11142.744432 - 12734.564432
% Change 30.000011 - 20.000017 %
OLD Annual Ordering Cost 7,959.104432
OLD Annual Total Cost () 15,918.208864
SMC International Global Case Study #646747
11: Implement Assumed Receipts Labor represents 10% of the total cost
associated with receiving orders Receiving is the variable overhead
in order cost Reducing inspection and eliminating
counting of received orders decreases labor costs associated with receipt to almost zero
The EOQ model is a fixed order quantity model which lends itself well to an Assumed Receipt process
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------------------------------Source: EXTREME LEAN MANUFACTURING. (n.d.). Retrieved April 18, 2015,
from http://www.technicalchange.com/extreme-lean.html
Cost of Goods Sold
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SMC International Global Case Study #646747Pa
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Part
A
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The Total Annual Cost (New Order Cost)
Order Quantity (Units) 444.146453
Number of Units per Case 29.609764
Orders Per Year 165.814676
Annual Ordering Cost 7,401.967122
Annual ICC 7,959.104432
NEW Annual Total Cost () 15361.071554
% Change 3.50000%
OLD Annual Total Cost () 15,918.208864
11: Implement Assumed ReceiptsLabor cost - 3.360000
Order cost w/ reduced Labor 44.640000
OLD Annual Ordering Cost 7,959.104432
SMC International Global Case Study #646747
RFID (Radio-frequency Identification): Allows for product visibility, tracing and tracking,
as well as automation of processes Microchips used to store product identification and universally interpreted as an
Electronic Product Code (EPC) Can lead to a reduction in labor costs and product theft Easy access to information regarding current inventory levels.
Cloud Computing: Easy access to networks with computational resources No long-term contracts; pay as you go
Avoid initial costs for investment of infrastructure Creates opportunities for management to prioritize
decision-making strategies by shifting technical responsibilityto a third-party expert for a cost-efficient price
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------------------------------Source: Coyle, J., Langley Jr., C., Novac, R., & Gibson, B. (2012). Supply Chain TechnologyManaging Information Flows.
In Supply Chain Management: A Logistics Perspective (9e [ed.]. ed., pp. 202-203). Mason, OH: South-Western Cengage Learning.
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11: Implement Supply-Chain Technology
SMC International Global Case Study #646747Pa
rt B
Part
A
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The Total Annual Cost (New Order Cost)
Order Quantity (Units) 444.146453
Number of Units per Case 29.609764
Orders Per Year 165.814676
Annual Ordering Cost 7,680.535777
Annual ICC 7,959.104432
NEW Annual Total Cost () 15,639.640209
% Change 1.75000%
11: Implement Supply-Chain TechnologyLabor cost - 1.680000
Order cost w/ reduced Labor 46.320000
OLD Annual Ordering Cost 7,959.104432
OLD Annual Total Cost () 15,918.208864
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