Homework

1 IELSIU17024

Name : Le Dinh Quoc Huy
ID : IELSIU17024
Class : Tuesday Morning

HOMEWORK 1
Logistics Engineering and Supply Chain Design

Question 1.
In many industries, periodic review policy which is “ordering variable quantities at fixed time
interval” seems to be more practical for two reason:
• Simpler to manage.
• Reduce the effort (cost and time) spent for real-time tracking inventory.

Question 2.
a. According to asssumption, if weekly demand in one region is above average, so is the weekly
demand in other regions. To explain in mathematical concept, demand from 5 market is positively
correlated. This leads to the conclusion that the centralized warehouse strategy has low
attractiveness.
b. We do some calculations on Excel
Data input

Product parameters
Ordering cost 5550 $/order
Holding cost 1.25 $/unit/week
Lead time 2 weeks

Decentralized transportation cost

Warehouse Inbound Outbound
France 12 13
Italy 11.5 13
Poland 11 13
UK 9 13
Denmark 7 13

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Centralized outbound cost

Warehouse France Italy Poland UK Denmark
France 13 14 14 15 17
Italy 14 13 8 15 17
Poland 14 8 13 15 16
UK 15 15 15 13 8
Denmark 17 17 16 8 13

Demand Summary
Standard
Average Coefficient
Deviation of
Demand of Variation
Demand

France 39.667 12.759 0.322

Italy 40.833 12.239 0.300
Poland 47.250 21.171 0.448
UK 48.083 13.222 0.275
Denmark 45.917 11.341 0.247
Centralized Warehouse 221.750 37.519 0.169

According to the Demand Summary, Centralized Warehouse get the smallest value in Coefficient
of Variation. It can be predicted that ABC Electronics can get benefit from risk pooling plan.

Cost Calculation

Inventory portfolio
Safety Reorder Average Inventory
Order quantity
Stock Point Inventory Cost
Decentralized France 23.124 102.457 593.498 319.873 $770.778
Decentralized Italy 22.181 103.848 602.163 323.263 $780.430
Decentralized Poland 38.370 132.870 647.750 362.245 $857.650
Decentralized UK 23.963 120.129 653.437 350.681 $846.750
Decentralized Denmark 20.555 112.388 638.545 339.828 $823.875
Centralized Warehouse 67.999 511.499 1403.260 769.629 $1,839.074

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Decentralized transportation cost
Inbound Outbound Transportation
cost cost cost
Decentralized France $476.000 $515.667 $991.667
Decentralized Italy $469.583 $530.833 $1,000.417
Decentralized Poland $519.750 $614.250 $1,134.000
Decentralized UK $432.750 $625.083 $1,057.833
Decentralized Denmark $321.417 $596.917 $918.333

Centralized transportation cost by cases

Inbound Outbound Transportation
Possible location
cost cost cost
Centralized France $2,661.000 $3,250.667 $5,911.667
Centralized Italy $2,550.125 $2,966.000 $5,516.125
Centralized Poland $2,439.250 $2,952.167 $5,391.417
Centralized UK $1,995.750 $2,908.667 $4,904.417
Centralized Denmark $1,552.250 $3,106.083 $4,658.333

Cost comparision and decision making

Cost comparision
Inventory Transportation Weekly total Cost
Possible plan
cost cost cost Ranking
Decentralized Warehouse $4,079.483 $5,102.250 $9,181.733 1
Centralized France $1,839.074 $5,911.667 $7,750.740 2
Centralized Italy $1,839.074 $5,516.125 $7,355.199 3
Centralized Poland $1,839.074 $5,391.417 $7,230.490 4
Centralized UK $1,839.074 $4,904.417 $6,743.490 5
Centralized Denmark $1,839.074 $4,658.333 $6,497.407 6

According to the cost comparision, the “Centralized Denmark” plan has the lowest position in
“Cost Ranking” – means the lowest value ($6,497.407). Thus, ABC Electronics can consider
choose Denmark as Centralized Warehouse for minimizing cost purpose.

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c. There are some changes in input data:

Product parameters
Ordering cost 5550 $/order
Holding cost 1.25 $/unit/week
Lead time 0.5 weeks

Decentralized transportation cost

Warehouse Inbound Outbound
France 18 13
Italy 17.25 13
Poland 16.5 13
UK 13.5 13
Denmark 10.5 13

Prediction: This changes will lead to reduction of Inventory cost while increase Transportation
cost
This leads to some changes in cost calculation:

Inventory portfolio
Safety Reorder Average Inventory
Order quantity
Stock Point Inventory Cost
Decentralized France 11.562 31.395 593.498 308.311 $756.325
Decentralized Italy 11.091 31.507 602.163 312.172 $766.567
Decentralized Poland 19.185 42.810 647.750 343.060 $833.669
Decentralized UK 11.981 36.023 653.437 338.700 $831.773
Decentralized Denmark 10.278 33.236 638.545 329.550 $811.028
Centralized Warehouse 33.999 144.874 1403.260 735.630 $1,796.575

Decentralized transportation cost

Inbound Outbound Transportation
cost cost cost
Decentralized France $714.000 $515.667 $1,229.667
Decentralized Italy $704.375 $530.833 $1,235.208
Decentralized Poland $779.625 $614.250 $1,393.875
Decentralized UK $649.125 $625.083 $1,274.208
Decentralized Denmark $482.125 $596.917 $1,079.042

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Centralized transportation cost by cases

Inbound Outbound Transportation
Possible location
cost cost cost
Centralized France $3,991.500 $3,250.667 $7,242.167
Centralized Italy $3,825.188 $2,966.000 $6,791.188
Centralized Poland $3,658.875 $2,952.167 $6,611.042
Centralized UK $2,993.625 $2,908.667 $5,902.292
Centralized Denmark $2,328.375 $3,106.083 $5,434.458

Cost comparision
Inventory Transportation Weekly total Cost
Possible plan
cost cost cost Ranking
Decentralized
Warehouse $3,999.362 $6,212.000 $10,211.362 1
Centralized France $1,796.575 $7,242.167 $9,038.741 2
Centralized Italy $1,796.575 $6,791.188 $8,587.762 3
Centralized Poland $1,796.575 $6,611.042 $8,407.616 4
Centralized UK $1,796.575 $5,902.292 $7,698.866 5
Centralized Denmark $1,796.575 $5,434.458 $7,231.033 6

Now, the “Centralized Denmark” plan is the cost-optimization option with $7,231.033 of weekly
total cost.
In comparision with plan of question (b), the difference of weekly total cost is:
∆ = $7,231.033 - $6,497.407 = $733.626
From the cost perspective, this plan is less optimal than the previous one without improving the
customers’ satisfaction (the outbound leadtime does not change!). Thus, this strategy is not
recommended.

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