Birla Institute of Technology and Science, Pilani

Comprehensive Examination
First Semester 2007-08
Supply Chain Management (ITEB G621)
Closed Book Date: 10/12/2007 (AN)
Max Mark: 40 Max. Time: 3 Hours

Q1. a) Explain the three decision phases (categories) that must be made in a successful supply
chain.
b) List and explain the three basic steps to achieve strategic fit. [2+3]
Q2. a) Mention and explain the issues that should be considered while implementing
aggregate planning in practice.
b) Why has e-business been more successful in the PC industry compared to the grocery
industry? In the future, how valuable is e-business likely to be in the PC industry? [2+3]

Q3. a) Why is it important to consider uncertainty when evaluating supply chain design
decisions?
b) An auto manufacturer sources both office supplies and subsystems such as seats.
What, if any, difference in sourcing strategy would you recommend for the two types of
products?
c) Explain the characteristics information must have to be useful for decision making in a
supply chain. [1+2+1]
Q4. a) Explain Buyback Contract, Revenue sharing Contract and Quantity flexibility
Contract. Specify clearly the design parameters of each Contract.
b) What is the bullwhip effect and how does it relate to lack of coordination in a supply
chain?
c) How do trade promotions and price fluctuations affect coordination in the supply
chain? What pricing and promotion policies can facilitate the coordination? [3+2+2]
Q5. Motorola obtains cell phones from its contract manufacturer located in China to serve
U.S. market. The U.S. is served from a warehouse located in Memphis, Tennessee. Daily
Demand at the Memphis warehouse is normally distributed with a mean of 5,000 and a
standard deviation of 4,000.The warehouse aims for a CSL of 99 percent. The company
is debating whether to use sea or air transportation from china. Sea transportation results
lead time of 36 days and costs $0.50 per phone. The air transportation results in a lead
time of 4 days and costs $1.50 per phone. Each phone costs $100 and Motorola uses a
holding cost of 20 percent. Given the minimum lot sizes, Motorola would order 100,000
phones at a time (on average, once every 20 days) if using sea transport and 5,000 phones
at a time (on average, daily) if using air transport. To begin with, assume that Motorola
takes ownership of the inventory on delivery.
a) Assuming that Motorola follows a continuous review policy, what reorder point and
safety inventory should the warehouse aim for when using sea or air transportation?
b) How many of safety and cycle inventory will Motorola carry under each policy?
c) Under a continuous review policy, do you recommend sea or air transportation if
Motorola does not own the inventory while it is in transit? Does your answer change if
Motorola has ownership of inventory while it is in-transit? [6]

Q6. Books-On-Line, an On-Line bookseller, charges its customers a shipping charge of $4

from the first book and $1 for each additional book. The average customer order contains
4 books. Books-On-Line currently has one warehouse in Seattle and ships all orders from

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 there. For shipping purposes, Books-On-Line divides the US in to three zones-western,
central and eastern. Shipping cost incurred by Books-On-line per customer order (average
4 books is $2 within the same Zone, $3 between adjacent Zones and $4 between non-
adjacent zones. Weekly demand from each zone is independent and normally distributed
with a mean of 50,000 and standard deviation of 25,000. Each book costs on average $10
and the holding cost incurred by Books-On-Line is 25 percent. Books-on-line replenishes
inventory every week and aims for a 99.7 percent CSL. Assume a replenishment lead
time of one week. A warehouse is designed to carry 50 percent more than the
replenishment order plus safety stock. The fixed cost of ware house is $200,000+x, where
is x is the capacity in books. The weekly operating cot of a ware house is $0.1y, where y
is the number of books shipped. Books-On-Line is planning its network strategy. Detail
the minimum cost involved for the following cases:
 One warehouse is built in the central zone
 One warehouse is built in each zone [6]

Q7. Crunchy a cereal manufacturer has dedicated a plant for one major retail chain. The sales
at the retail chain average about 20,000 boxes a month and production at the plant keeps
pace with this average demand. Each box of cereal costs crunchy $3 and is sold to the
retailer at a whole sale price of $5. Crunchy and the retailer use holding cost of 20
percent. For each order placed, the retailer incurs an ordering cost of $200 per order
placed and crunchy incurs the cost of transportation a loading that totals $1000 per order
shipped.
a) Given that it is trying to minimize its ordering and holding cost, what lot size will the
retailer ask for in each order? What is the annual ordering and holding cost for the retailer
as a result of this policy? What is the annual ordering the holding cost for Crunchy as a
result of this policy? What is the total inventory cost across both parties as a result of this
policy?
b) What lot size minimizes the costs (ordering and delivery and holding) across both
Crunchy and retailer? How much reduction in cost relative to (a) results from this
policy? [2+2]
Q8. The Highland Company (THC) is planning orders for its winter catalog. One order is to
be placed at the beginning of the season. The demand forecast for one of its jackets is
normally distributed with a mean of 5,000 and standard deviation of 2,000.Each jacket is
purchased for $100 and any unsold jackets at the end of the season will be discounted and
sold through the outlet store for $75. At this price, virtually all jackets are expected to
sell. It costs another $15 to store an unsold jacket for season and then move it to the
outlet store. There is basic disagreement within the buying committee on the effect of
stocking out and the number of jackets to be ordered. One of the members feels that
6,000 jackets should be ordered, whereas another feels that 8,000 jackets should be
ordered. At what cost of stocking out would each member’s order size be justified? [3]

[F (0.5) =0.691; F (1.5) =0.933; F-1 (0.997) =2.75; F-1 (0.99) =2.33]

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