Issue/Problem Identification

A new digital telephone is being introduced on March 1, 2015. The issue that exists is on whether the
current supply chain processes, in particular the warehousing process can support all of the demands
that have been indentified in line with this product release.

Analysis
Quantitative:
Current SCM Process
- Total available space in the warehouse is 50,000 square feet. This is made up of raw material
storage, finished goods storage, shipping, receiving and putaway functions.
Warehouse
- The warehouse space required to support the average 1500 telephones produced each week is
20,000 sq. ft.
- Finished goods storage space in support of 1500 telephones produced each week is 25,000 sq.
ft.
- Shipping, receiving and putaway consume 5,000 sq. ft.
- If nothing changes the total space required to support the new telephone set at 3,000 sets per
week is 120,000 sq. ft. This is broken down as follows: raw material storage - 60,000 sq. ft.,
finished goods storage - 50,000 sq. ft., shipping, receiving and putaway - 10,000 sq. ft.
Raw Material/Plastics and Packaging
- Plastics and packaging inventory accounts for 65% or 40,300 sq. ft. in support of 3000 sets per
week. Given the 3 week lead time for the products within this category, there is an average of
1.5 weeks inventory on hand at any given time.
Finished Goods
- The 1500 sets per week production plan for the old telephone set translates into 21 days of
finished goods inventory and 25,000 sq. ft. of finished goods warehouse storage space.
- 21 days of finished goods inventory given the 3000 sets per week production rate translates into
50,000 sq. ft.
- The new product introduction involves 9 different models, 3 colours times 3 different physical
models.
- Gray models represent 71.3% of the total planned output, black models 24.6% and red models
5%
- The model distribution in percentage is 60% Model A, 35% Model B and 5% Model C
- Manufacturing
- The new product introduction provides manufacturing with the opportunity to rearrange the
manufacturing process. The net outcome that can be realized is to reduce the manufacturing
cycle time from 3 weeks to 5 days.
Qualitative Analysis
- Failure to meet customer order commitments will pose a serious problem to the long term
success of this new product introduction. Although aggressive, the 98% customer order fill rate
is appropriate for this market.
- The financial position of XYZ is tight. There is no budgetary space for warehousing to be
increase – facility and / or people.
-

Alternatives
1, Do nothing – continue to manage the current supply chain, including warehousing, processes
in support of the new digital product – 3,000 sets per week.

Pros
 1. No changes are required, everyone within the supply chain – internal and external (suppliers) will
continue to function the same

Cons
1. The analysis shows that this alternative will require an 120,000 sq. ft. warehouse, 70,000 growth.
There are no numbers but it is safe to assume that there will be a proportionate increase in
people, systems and warehouse equipment needed to support this increased space and volume
of product. There is no money to pay for this type of expansion

Risks
1. Management will not accept – threat of losing job
2. Major impact on new product introduction – in short without any changes to the overall supply
chain process, there will not be enough product produced to meet customer demands.

2, Work with plastic and packaging suppliers to move to a just-in-time, demand pull process that
is driven by actual customer orders.
- The current purchase order pull system requires 3 weeks from purchase order release to
purchase order receipt, averaging 8 days of plastics and packaging raw material being stored in
the warehouse.
- Moving to a demand pull interface where the suppliers manage their inventory in the XYZ
warehouse through 3 to 4 deliveries per day, it is determined that the process can run on 3 days
of inventory. This recognizing there will always be a need for some inventory in stock to account
for variations in demand and supply. Using the figures from the analysis, this demand pull
approach will required 15,112 sq. ft. of raw material storage as compared to the 40,300 sq. ft.
projected in the do nothing alternative

Pros
1. Will reduce the required warehouse space to satisfy the financial and existing physical
constraints
2. The move to demand pull will add value to the suppliers as well as XYZ ensuring the end to end
pipeline inventory is more aligned to actual customer orders, not just forecasts
3. The new product design team already includes the supplier engineering staff, this move is in line
with existing discussion

Cons
1. There will be a cost to this process change. How the raw material is packaged will need to be
revisited; the purchase order process, receiving and accounts payable processes will all require
review with probable modifications; ensuring suppliers have secure and safe access to the XYZ
facility

Risks
1. Functional management of the involved department not accepting – why should they change, it
doesn’t directly affect them
2. Suppliers balking at the change, same argument – why should they change, the current process
is tested and works.

3. Change XYZ production to accommodate a push/pull manufacturing process

- The changes that will take the manufacturing cycle from 21 days to 3 days will allow the
production schedule to be driven by actual customer demand for those items with the majority of
demand, gray Model A and B. Finished goods for these items can be reduced to less than 7
days. The models and colours with the smallest demand can be converted to make to order.
Given the 3 day manufacturing cycle, this is will satisfy the 5 day turnaround time on customer
 orders. This also allows for additional safety stock to be carried to provide enhanced customer
service
- The warehouse space required for this alternative is 16,700 sq. ft.

Pros
1. Will reduce the required warehouse space to satisfy the financial and existing physical
constraints
2. The proposed manufacturing process is already in discussion and is covered by existing budgets

Cons
1. All change can be risky. Moving to a push/pull process that includes some items being made to
stock and others being made to order will required a very detailed execution plan.

Risks
1. This change will occur at the same time as the new product is being rolled out into
manufacturing.
2. Assuming this change will run concurrent with the change to the plastics and packaging change,
alternative 2, the amount of change being managed at the same time will require serious
attention. Senior management support with respect to the possibility of additional resources will
need to be considered.

Decision / Recommendations

Implement alternative 2 and 3 – change the sourcing of plastics and packaging from the traditional
forecast driven purchase order system to a vendor managed demand pull process; - convert the XYZ
manufacturing process from 21 day cycle time to 3 day cycle time.

Implementation Plan

Alternative 2

RACI
XYZ XYZ XYZ XYZ Sr. Plastic Packaging
Procurement Engineering Accounting Mgmt. Supplier Supplier
Contact R I C C R R
Suppliers
Rearrange R A I C I I
Warehouse
Adapt invoice R C A C A A
Interface with R A I C I I
Production

Detailed Implementation Plan

Date Person Group Activity / Deliverable
Week 1 Procurement - Meeting with all
 responsible
people/functions
- Develop detailed project
plan
- Develop operational
metrics to allow for
monitoring of process
Week 2 All responsible, consulted and - Present plan and gain
informed parties approval
March 1, 2015 – week -6, to – All responsible - Pilot test
week -2
March 1, 2015 – week 1 All responsible - Cut over to new process
March 1, 2015 + week 1 to n - Monitor and report
results

Alternative 3

RACI
XYZ XYZ XYZ XYZ Sr. XYZ XYZ
Manufacturing Engineering Accounting Mgmt. Procurement Warehousing
Contact A A C C R A
Suppliers
Rearrange R A C C I C
Production
Adapt R C C I C C
Schedule
Interface with C C C C R C
Suppliers

Detailed Implementation Plan

Date Person Group Activity / Deliverable
Week 1 XYZ Manufacturing - Meeting with all
responsible
people/functions
- Develop detailed project
plan
- Develop operational
metrics to allow for
monitoring of process
Week 2 All responsible, consulted and - Present plan and gain
informed parties approval
March 1, 2015 – week -6, to All responsible - Pilot test
week - 2
March 1, 2015 – week -1 All responsible - Cut over to new process
March 1, 2015 +week 1 to week - Monitor and report
n results