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.
2

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 3 .

safety stock reduced by 40 to 60% Company could cut lead times to customers by 50% and still reduce safety stocks by 30% 4 . For same lead times.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.

Notations Used FIGURE 3-11: How to read the diagrams 5 .

6 .

Notations Used FIGURE 3-11: How to read the diagrams 7 .

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. since it is held in inventory Part 3 will be available in 15 days • Assembly facility produces to order..e. Another 15 days to process the order at the assembly facility Order is delivered within the committed service time. i. a Pull based • • • • 13 days committed response time by the manufacturing facility • 2 days transportation lead time. • • Part 2 will be available immediately. strategy Montgomery facility keeps inventory and hence is managed with a Push or Make-to-Stock strategy 8 .

Current Safety Stock FIGURE 3-12: Current safety stock location Reduce system-wide inventory cost Reduce Lead Time 9 .

Strategy A Optimized Safety Stock FIGURE 3-13: Optimized safety stock 10 .

Strategy B Optimized Safety Stock + Reduced Lead Time FIGURE 3-14: Optimized safety stock with reduced lead time 11 .

Improvement Strategy A 12 .

Improvement Strategy B 13 .

Supply Chain in More Complex Product Structure Safety stock cost: 14 $95.000/year .

000/year 15 (62% savings) .Optimized Supply Chain in More Complex Product Structure Safety stock cost: $36.

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 16 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 .

Global Optimization 17 .Local vs.

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 18 .

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 23 .

Conclusions FIGURE 3-18: Sample plot of each SKU by volume and demand 24 .

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 25 .

THANK YOU For your attention .

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