CASES

INVENTORY POSITIONING and LOGISTIC COORDINATION

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

ElecComp Inc.
Contract manufacturer of circuit boards and other high tech
parts.

Sells around 27,000 products with short life cycles.

Competition forces to:

Strategy]

Lower lead time to its customers

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

High shortages Huge risk

Pull Strategy not feasible because of long lead times.

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Supply Chain Strategy (The Comparison)

Push Based Based on long term forecast High inventory Long lead time Objective: minimize cost Resources allocation focus Pull Based Productiondistribution are demand-driven (based on customer demand not forecast) Low inventory Short lead time Objective: maximize service level Responsiveness focus

Objectives:

New Supply Chain Strategy

Hybrid strategy of Push and Pull Challenge: Benefits:

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

Push Stages produce to stock where the company keeps safety stock Pull stages keep no stock at all.
Identify the location where the strategy switched from Push-based to Pull-based Identify the Push-Pull boundary. 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%
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Notations Used

FIGURE 3-11: How to read the diagrams

Notations Used

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

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

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.

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

FIGURE 3-12: Current safety stock location

Reduce system-wide inventory cost

Reduce Lead Time

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Strategy A Optimized Safety Stock

FIGURE 3-13: Optimized safety stock

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Strategy B
Optimized Safety Stock + Reduced Lead Time

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

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Improvement Strategy A

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Improvement Strategy B

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Supply Chain
in More Complex Product Structure

Safety stock cost: 14 $95,000/year

Optimized Supply Chain in More Complex Product Structure

Safety stock cost: $36,000/year 15 (62% savings)

ElecComp Actions
Identifying Which stages should make-to-stock and the pushwhich ones should make-to order pull Pushing inventory to less costly locations boundary

Significantly reduce inventory cost Maintaining/ decreasing service time to the customer
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Taking advantage Demand for a component has smaller of the risk variability and uncertainty than finished products pooling concept Replacing traditional Replacing sequential (local) optimization strategy by global optimization supply supply chain strategy chain strategies

Local vs. Global Optimization

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Local Optimization

Global Optimization

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

The entire strategy is integrated

maximize supply chain performance

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Another Example

HOTEL BREAKFAST

Omelette Fried Rice

100% Lead Time

Fried Rice Pre Manufacture Omelette

70%

30%

15 minutes 3 minutes

Conclusions
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
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Conclusions

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

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Conclusions
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
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THANK YOU
For your attention