Silo Manufacturing Corporation

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


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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Q#1: What is the total annual cost of Ferguson's proposal?


Total Annual Cost of Patrachalski's Proposal





Annual ICC 4,838.40


Rounded

270.00

18.00

273.00

13,104.00

4,838.40

17,942.40 2

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Q#2: What is the total annual cost of Patrachalski's proposal?


Rounded

445.00

29.67

166.00

7,968.00

7,974.40

15,942.40 4

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The Lowest Total Annual Cost

Order Quantity (Units) = EOQ or Q* 444.15




Annual ICC 7,959.10


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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





Annual ICC 7,795.2000


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?

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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





Annual ICC 8,064.0000


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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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%


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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


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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



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%


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EOQ 444.146453 JIT 1.000000

Rounded EOQ 445.000000 JIT 1.000000

Sales (Demand) 73,646.000000 9.60% 80,716.016000



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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)


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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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



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The Total Annual Cost (New Order Cost)





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



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The NEW Lowest Total Annual Cost (Changing Q*)

Order Quantity (Units) = EOQ or Q* 358.082318




Annual ICC 6,416.835138


% Change 19.377423%




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.


11: Implement a VMI System

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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 %




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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Annual ICC 7,959.104432

NEW Annual Total Cost () 15361.071554

% Change 3.50000%


11: Implement Assumed ReceiptsLabor cost - 3.360000

Order cost w/ reduced Labor 44.640000



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

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Annual ICC 7,959.104432


% Change 1.75000%

11: Implement Supply-Chain TechnologyLabor cost - 1.680000

Order cost w/ reduced Labor 46.320000



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