Jason Kim

SCM 265

Extra Credit Long Assignment:

Write a short paper (2500 words) on how each part (2 to 7) of the Mambo packet can be applied to real world business practice and how it may benefits you in your future career. (10 points) NOTE: Please reference all relevant information.

This Extra Credit paper, though I’m writing it for just additional credit initially, is mainly designed to enhance my insights toward the supply chain management. Since your class somehow wasn’t productive to me, I thought this long assignment might help me out learning more about supply chain management and its impact. I didn’t understand everything I learned in this class so examples and applications you see here might not be of satisfactory, but I did my best to apply things I have learned in class.

Part II Forecasting: Mambo Packet Part II Forecasting deals with following forecasting methods: Moving Averages, Simple Exponential Smoothing Method, and Linear Regression/Trend Model. In the real world business, forecasting its inventory level is extremely important as it is one of key revenue and net income determinants. Yet, it is also extremely difficult to forecast exact amount of products needed in the market. That’s why these three methods were introduced to forecast the market need in a foreseeable future. In my paper, I’ll take Nike’s futures ordering system as an example of how, hypothetically, methods in the Mambo Packet can be applied.

As many of us realize one of the key success factors in Nike’s huge success is its successful forecast in its future inventory level. Nike’s futures ordering system can be defined as follows: “Under this program, Nike's retailers placed orders with the company six months before the required delivery date with the guarantee that 90 percent of their orders would be delivered within a set time period at a fixed price. These orders were then forwarded to the manufacturing units around the world.”(Ref. 1) According to this definition, Nike should forecast the future trend in six-month prior. In this system, Trend Model can be applied. The advantage of Trend Model is its capability to factor in multiple variables. Although it might be hard for a new company to come up with its sales forecast, Nike has been operating for decades and it has capacity to forecast its future demand with use of Trend Model. The way Nike can apply Trend Model to its futures order program is first to define multiple candidate variables that may account for its future demand. Then it accrues data in which might be obtained through its own database. With extensive usage of data analysis the company will be able to identify relevant variables. Based on such variables, Nike can come up with its future demands and such forecast can always be adjusted through constant comparison with actual result.

Neither Moving Average nor Simple Exponential Smoothing Method can successfully applied in the case of Nike’s futures program. Moving Average lacks the

capacity to factor multiple variables and the industry Nike is involved in is strongly affected multiple variables that are highly fluctuating. Hence, moving average can’t capture the expected future demand. The main drawback to Simple Exponential Smoothing Method is that it can’t forecast long term future demand and the futures ordering program requires a long term demand projection of six-months prior.

Part III Inventory Management: In this part, we have learned: Economic Order Quantity (EOQ), Economic Production Quantity (EOP), Continuous Review Policy, Periodic Review Policy, and Single-Period Inventory Management Method. In this set of part, I will particularly pick Periodic Review Policy to apply in the real world business. This real world business application comes from one of the guest speakers’ speech hosted by Whitman Management School. Few months ago in Whitman there were guest speakers from J.C. Penney that were particularly specialized in Inventory Management. I believe this speech was hosted by Professor LaPoint as one of his classes attended the speech. If you have question on this speech, you may ask him details about this speech.

In this speech, the guest speakers specifically mentioned the case about their store in New York City Manhattan area. Somehow, given its long term success and history, J.C. Penney did not own a store at Manhattan area until recent years. Fortunately, the company was able to secure a competitive spot in Manhattan. The problem, however, since then had begun. The building they had secured did not have enough space to hold appropriate inventory level. Soon, the company had formed the taskforce to resolve such difficulty. Given various kinds of technical difficulties, in which I did not understand fully, they finally came up with Periodic Review Policy in which to be done every 24 hours. The mechanism is this. Since the store at Manhattan cannot maintain appropriate inventory level, the retail manager at the store reviews the inventory every night. If any of products inventory goes down certain level required or the manager feels there must be more products in the store inventory, the manager places orders to the distribution center. The products arrive within 24 hours and being stored between 12am and 7am. All of these processes are done electronically. So for instance, when inventory level of, let’s say, necktie goes down below 5 and its appropriate inventory is 10. The order is automatically sent to the distribution center and within 24 hours the inventory level recovers to 10. If manager at the store thinks that she needs 15 neckties, all she has to do is type 15 on her computer.

Part IV Materials Requirement Planning: We have learned both Material Requirement Planning (MRP) and Lot Sizing in this part of Mambo packet. In this section, I specifically chosen Material Requirement Planning (MRP). Since I was not able to clearly define MRP in Mambo Packet I did some quick-n-dirty research and found a definition. Reference 2 defines Material Requirements Planning “calculates and maintains an optimum manufacturing plan based on master production schedules, sales forecasts, inventory status, open orders and bills of material.  If properly implemented, it will reduce cash flow and increase profitability.  MRP will provide you with the ability to be pro-active rather than re-active in the management of your inventory levels and material flow.” According to this definition, adoption of MRP would legitimately impact the performance of a company. This may be the reason why the cause of MRP adoption

in the real world business as it affects company’s profitability. For the Part IV, I have decided to use real world example in aviation industry as I believed the industry would require highly legitimate production planning.

I have found an example regarding the adoption of MRP system by an aviation company name, Alenia Aircraft. (Reference 3) In this particular example, the paper states the impact of MRP adoption by the company. The research states MRP has two implications for the supply chain; that is, it imposes more stress in the supply chain. Alenia Aircraft has applied MRP by contract with subcontractors that would provide sub-product materials. In subcontractors’ perspective, they are being forced to reduce costs while meeting customers’ requirements. Hence, MRP forces both the company and the subcontractors to work closely together in which results in the greater integration between both parties. By the same token, managerial and organizational skills are becoming extremely important for sub-contractors, as they have to achieve two important goals, at which customers like Alenia Aircraft become selective on choosing its subcontractors.

Part V Operations Scheduling we learned Shortest Processing Time, Earliest Due Date, Critical Ratio, Slack Time Remaining and Johnson’s rule. In this section, I’ll specifically choose Shortest Processing Time and Johnson’s Rule to assess how these methodologies can be applied in the real world business.

Generally, Shortest Processing Time (SPT) tends to reduce work-in-process inventory, average throughput time and average job lateness. (Reference 4) Because of given these advantages, this method can be used in companies that make watches and clock. There are numerous watch/clock designs one company can produce in order for the company to produce these multiples of watches and clocks, it needs efficient operation scheduling. Assuming all of the products are produced at only one manufacturing facility, the company first figures out each products processing and due date, such as this:

Watch Design Estimated Machine time(hr) Due Date (hr from now) V 3 12 F 7 8 D 9 18 A 10 20 E 15 21

In this way, the company can achieve its optimum operation schedule. Nevertheless it is imperative that the company must first evaluate and compare with other methods, such as Earliest Due Date, Critical Ratio and Slack Time Remaining. By comparison with those methods, the company may able to figure out which method offers best solution to its operation schedule. While comparing with other methods, the company should keep in mind that each method has different purpose or usage. For instance, according to Reference 4, Earliest Due Date is especially suitable for the company in which its performance is primarily judged by job lateness. If this is not the case for the watch company it may drop the EDD option on its first hand.

Johnson’s rule on the hand is a bit different. This method is associated with jobs on two successive work centers. Real life business application would be a winery companies. Firstly, winery produces wine then it needs to package the wine. It is apparent that each job has pretty constant time schedule and wine production is required to process through packaging. Hence, since one winery usually produces multiple kinds of wine, it needs different packaging for each kind. Winery first starts with listing jobs and their times at each work center. Then select the job with shortest time, if job is shortest among wine production facility, then it must be the first wine to produce. But if the job is shortest among packaging facility, then that must be the last job to finish. It keeps goes on eliminating the job from previous consideration and finally settles in job order sequence. At the end, the winery should be able to find an optimal sequence of jobs to reduce the total amount of time it takes to complete all jobs.

Part VI Project Management discusses Activity on Arrow and Activity on Node. My quick-n-dirty research implies the usage of Activity on Arrow in real business, also known as Arrow Diagramming Method, has declined due to the adoption of computer-based scheduling tools. Further, Activity on Node, Precedence Diagram Method, is generally favored over the Activity on Arrow. (Reference 5) Reasons for preference of Activity on Node over Activity on Arrow are AON’s capability to: (Reference 6)

help finding the critical path help defining the amount of time required use them to crash projects can use them to flatten resources define dependencies/precedence identify lead and lag times

When it gets into the application in the real life business, my reference 6 makes a valid point. Activity on Node was developed by H.B. Zachry in cooperation with IBM. IBM as computer hardware/software manufacturer needs an optimal path to an end product from initial designing process. By applying Activity on Node, IBM can find the critical path and define the amount of time it takes to end from beginning and achieve optimal ways to do their project.

In Part VII Quality Management, we have learned various charts and upper and lower limits. Although I did not get the full understanding of this part, I’ll try my best to explain how this part can be applied to real world business, based on my homework practice and exams.

It is always important to have competitiveness in the company’s product through various kinds of ways. One of the ways to ensure the company its competitiveness is through the quality management. Charts and other things our class particularly learned in this part of Mambo packet, I believe, are especially suitable for pharmaceutical business. In pharmaceutical industry, ensuring its product quality is extremely important, as its products are strongly associated with consumer’s health. The way pharmaceutical companies can achieve the adoption of the quality management we learned is simple. Firstly they produce number of sample products. Then they find the number of products that are defective. Find and solve for values for below equation. Set the allowance limit,

σ p̂=√ p (1−p )n

=

such as 99.73%. Find Upper Control Limit and Lower Control Limit using following equations:

By determining whether the product is in or out of control, pharmaceutical companies should be able to identify whether they are successfully managing their products quality. This management should be easier as its concept and application highly overlaps with other scientific applications employed in biology and chemistry. Having learned major concepts of theory they will be to apply it.

Possible benefits in my future career: since I’m not a supply chain major nor had I prior knowledge pertains to supply chain management. It’s extremely hard for me to foresee its possible benefits in future. I don’t believe none of things I learned your class would directly impact me. That is because I’m not going to remember any of these after this class. I will probably rely on supply chain experts to handle the issue if I ever had to encounter this issue in a foreseeable future in my career. Nevertheless through your class and writing this extra credit paper I have definitely learned few things. And since I’m almost—99.986237%—sure (I still left some possibilities to pursue career in supply chain for my lack of interest in this subject might be your fault, you simply didn’t make the subject sound interesting to me) that I’m not going to remember any of these things, I believe there might be few possible indirect benefits on my career. Firstly, I will definitely not be an expert on supply chain management. This subject is too hard for me and plus there are tons of experts out there who would help me out. Given the difficulty of this subject, I will highly appreciate those experts’ expertise and their willingness to help me. Second, whether I like it or not, I will unconsciously keep in mind the importance of supply chain management. Hence, when I’m working I’ll continuously show interest in supply chain and colleagues that are involved in the field. Third, having learned Johnson’s rule and operation scheduling/project management, I will be better off arrange my tasks and would be able picture how things should go when I’m responsible for running a project in the company. Forecasting method I learned on the other hand didn’t do anything for me. But the methods I learned here were a good reminder of MAS 362 in which I learned pretty similar things in a different fashion. Lastly, I think it is absolutely possible for me to remember things I’ve learned in this class during my career path as something, such as talking with supply chain experts, might trigger my memory which in that case I would appreciate the class.

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Work Cited:

Reference 1:

http://www.icmrindia.org/casestudies/catalogue/Operations/SCM%20and%20ERP%20Software%20Implementation%20at%20Nike-Operations%20Management.htm

Reference 2:

http://www.inventorysolutions.org/def_mrp.htm

Reference 3:

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGR-3SWV7CH-5&_user=783137&_coverDate=03%2F31%2F1997&_rdoc=1&_fmt=high&_orig=search&_origin=search&_sort=d&_docanchor=&view=c&_searchStrId=1576639073&_rerunOrigin=google&_acct=C000043272&_version=1&_urlVersion=0&_userid=783137&md5=e7b0c9eabdd1e7c17dab139ec8c5ff4e&searchtype=a

Reference 4:

http://www.enotes.com/management-encyclopedia/operations-scheduling

Reference 5:

http://en.wikipedia.org/wiki/Arrow_Diagramming_Method

Reference 6:

http://www.betterprojects.net/2005/10/pdms-precedence-diagram-method.html