Team 5 : Snow (M10101802)Jason (M10101826)Richard (M10101829)Hendry (M10101830)Omar (M10121803)Stephen (M10121819)

CASES

INVENTORY POSITIONING and LOGISTIC COORDINATION

ElecComp Inc.Contract manufacturer of circuit boards and other

high tech parts.

Sells around 27,000 products with short life cycles.

Competition forces to:Lower lead time to its customers

High inventory of SKUs based on long-term forecasts [Push Strategy]High shortages

Huge risk

Pull Strategy not feasible because of long lead times.2

Supply Chain Strategy(The Comparison)

3

Push Based

• Based on long term forecast

• High inventory• Long lead time• Objective:

minimize cost• Resources

allocation focus

Pull Based

• Production-distribution are demand-driven (based on customer demand not forecast)

• Low inventory• Short lead time• Objective:

maximize service level

• Responsiveness focus

New Supply Chain StrategyObjectives:• Reduce inventory and financial risks

• Provide customers with competitive response times.

Achieve the following:

• Determining the optimal location of inventory across the various stages

• Calculating the optimal quantity of safety stock for each component at each stage

Hybrid strategy of Push and Pull• Push Stages produce to stock where the company keeps safety

stock

• Pull stages keep no stock at all.

Challenge:• Identify the location where the strategy switched from Push-based

to Pull-based

• Identify the Push-Pull boundary.

Benefits:• For same lead times, safety stock reduced by 40 to 60%

• Company could cut lead times to customers by 50% and still reduce safety stocks by 30% 4

Notations Used

5

FIGURE 3-11: How to read the diagrams

6

Notations Used

7

FIGURE 3-11: How to read the diagrams

Trade-Offs• If Montgomery facility reduces committed lead time

to 13 days• assembly facility does not need any inventory of

finished goods

• Any customer order will trigger an order for parts 2 and 3.

• Part 2 will be available immediately, since it is held in inventory

• Part 3 will be available in 15 days

• 13 days committed response time by the manufacturing facility

• 2 days transportation lead time.

• Another 15 days to process the order at the assembly facility

• Order is delivered within the committed service time.

• Assembly facility produces to order, i.e., a Pull based strategy

• Montgomery facility keeps inventory and hence is managed with a Push or Make-to-Stock strategy

8

Current Safety Stock

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FIGURE 3-12: Current safety stock location

Reduce system-wide inventory cost

Reduce Lead Time

Strategy AOptimized Safety Stock

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FIGURE 3-13: Optimized safety stock

Strategy BOptimized Safety Stock + Reduced Lead

Time

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FIGURE 3-14: Optimized safety stock with reduced lead time

Improvement Strategy A

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Improvement Strategy B

13

14

Supply Chain in More Complex Product Structure

Safety stock cost:

$95,000/year

15

Optimized Supply Chain in More Complex Product Structure

Safety stock cost:

$36,000/year(62% savings)

ElecComp Actions

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• Which stages should make-to-stock and which ones should make-to order

• Pushing inventory to less costly locations

Identifying the push-pull

boundary

• Demand for a component has smaller variability and uncertainty than finished products

Taking advanta

ge of the risk pooling concept

• Replacing sequential (local) optimization strategy by global optimization supply chain strategy

Replacing

traditional

supply chain

strategies

Significantly reduce inventory

cost

Maintaining/

decreasing service

time to the customer

Local vs. Global Optimization

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Each stage tries to optimized its profit with little regard to the impact of its decision on other stage

Local Optimization

Global Optimization

The entire strategy is integrated

maximize supply chain

performance

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Another Example

HOTEL BREAKFAST

Omelette Fried Rice

OmeletteFried Rice

Pre Manufacture

15 minutes

3 minutes

70% 30%

100% Lead Time

Conclusions

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• Several factors in choosing the appropriate supply chain strategies• Demand uncertainty • Product Category

• High-variability-low-volume products > Pull Strategy

• Low-variability-high-volume products > Push Strategy

• Low-variability-low-volume products • Cost• Safety stock• Lead time• Competition

• Push-Pull Hybrid Strategy / Globally optimized supply chain strategy :• Customer satisfaction• Competitive pricing

Conclusions

24

FIGURE 3-18: Sample plot of each SKU by volume and demand

Conclusions

25

• Several factors in choosing the appropriate supply chain strategies• Demand uncertainty • Product Category

• High-variability-low-volume products > Pull Strategy

• Low-variability-high-volume products > Push Strategy

• Low-variability-low-volume products • Cost• Safety stock• Lead time• Competition

• Push-Pull Hybrid Strategy / Globally optimized supply chain strategy :• Customer satisfaction• Competitive pricing

THANK YOUFor your attention