Steel Works, Inc.

OM 783
Supply Chain Strategy and
Analysis
Background of Steel Works, Inc.
Annual sales of $400 Million?
Can this be possible given information in case?
Conflicting data? What do we do about it?

5 Locations

Custom division
Develop products for single customer

Specialty division
Sell custom products to other companies at higher
price
Inventory
What is the objective?
Stay in business!
Grow business?
Improve customer satisfaction? How?

Minimize inventory cost
What are components of cost?
How measured?

Provide high level of customer service
How high?
How measured?
Consultant Recommendations
1. Discontinue products that have low sales.

2. Use statistical forecasting to predict demand.

3. Reduce number of warehouses.

Staff Reaction:
Wont work! Why?
What do data in case tell us?
Exhibit 2: 80% of products have high volatility?
Maybe, but








What about Exhibit 1?
5 large customers (> $25 mill)
107 small customers (< $1 mill)
Is this a potential problem?

LABEL MEAN STD. DEV. C.V. % of Sales
DURABEND R10 15.583 13.187 0.846 0.4%
DURABEND R12 1008.000 255.917 0.254 27.3%
DURABEND R15 2463.583 494.209 0.201 66.7%
DURAFLEX R10 97.250 92.524 0.951 2.6%
DURAFLEX R12 18.583 11.429 0.615 0.5%
DURAFLEX R15 54.833 80.054 1.460 1.5%
DURAFLEX R23 35.583 45.862 1.289 1.0%
What is proper model for this scenario?
Are we in a continuous review or a periodic
review inventory setting?
Why? How do we know?
What are proper parameters for model?
Why?
How measure in reality?

Can we validate our choice of model and
assumptions?
How?
Look at production batch sizes given in case
How to analyze case?
Model suggestions?

Assume we use Periodic Review with r = 1 month and L = 1
week




Calculate expected inventory and compare to Steel Works,
Inc. actual inventory.
What do we find?

L r z
r
Inventory E

2
] [
Recommendations?
Why do divisions operate separately?
Any economies to be gained by combining?

How can Steel Works better manage their
customer relationship process?

How can Steel Works make sure that they are
continuing to use right model, right parameters,
etc.?

Should we adjust production parameters by
product? How?
Questionable Assumptions?
How confident are you that demand is normally
distributed?
How can you test?

Are data accurate?
How can you test?