GOPE 2015/2016 - Group Assignment

Group Assignment

Assignment Guidelines
1.

Do a written report (10 pages max) with the following structure:

a.

Cover (photos, names and student ids of the team);

b.

Executive summary (1 page);

c.

Table of contents (optional);

d.

Introduction (1/2 page to each case);

e.

Answers to the questions (4 pages to each case);

f.

Conclusions (1/2 page to each case);

g.

Attachment (only the excel file with the calculations mandatory);

h.

The report should be written in Times New Rome 10, line spacing 1.25.

1. Supply Chain and Inventory Case

Consider the following case from a multinational company that produces printers:
Sales have grown steadily, reaching a level of over 600,000 units this year. Unfortunately, the inventory
has grown as well. The distribution centers are filled with pallets of the printers and the organization in
Europe claims that inventory levels there need to be raised even further to maintain satisfactory product
availability. The network of suppliers, manufacturing sites, distribution centers (DCs), dealers, and
customers for the Printer model under analysis is show in Figure 1.

Figure 1. - Printer Supply Chain.

There are two key stages in the manufacturing process: (1) printed circuit assembly and test (PCAT) and
(2) final assembly and test (FAT). PCAT involves the assembly and testing of electronic components (like
integrated circuits, read-only memories, and raw printed circuit boards) to make logic boards used in the

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printer. FAT involves the assembly of other subassemblies (like motors, cables, keypads, plastic chassis,
gears, and the printed circuit assemblies from PCAT) to produce a working printer, as well as the final
testing of the printer. The components needed for PCAT and FAT are sourced from other divisions of the
company as well as from external suppliers worldwide.
Selling the Printer in Europe requires customizing the printer to meet the language and power supply
requirements of the local countries, a process known as "localization." Specifically, the localization of the
Printer of different countries involves assembling the appropriate power supply module, which reflects the
correct voltage requirements (110 or 220) and power cord plug, and packaging it with the working printer
and a manual written in the appropriate language. Currently, the final test is done with the actual power
supply module included with the printer. Hence, the finished products of the factory are "localized" versions
of the printer destined for all the different countries. For the European Market six different versions are
currently produced. These are designated A, AA, AB, AQ, AU, and AY as indicated in the Bills of Materials
shown in Figure 2.

Figure 2. - Printer Bill of Materials.

The total factory throughput time through the PCAT and FAT stages is about one week. The transportation
time from the manufacturing site to the European DC is five weeks. The long shipment time to Europe is
due to ocean transit and the time to clear customs and duties at port of entry. The plant sends a weekly
shipment of printers to the DC in Europe. This industry is highly competitive. Resellers want to carry as
little inventory as possible. Consequently there has been increasing pressure for the company as a
manufacturer to provide high levels of availability at the DC. In response, management has decided to stock
the DCs so that a high level of availability is maintained.

1.1 The Inventory Service Crisis

To limit the amount of inventory throughout the Printer supply chain and at the same time provide the high
level of service needed has been quite a challenge. The manufacturing group has been very successful in
reducing the uncertainties caused by delivery to the European DC. Forecasting demand in Europe, though,
is a significant problem. It has become common to have product shortages for model demands from some
countries, while inventory of other models keeps piling up. In the past, the target inventory levels at the
DCs were based on safety stocks that were a result of some judgmental rule of thumb. Specifically, target

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inventory levels, equal to one-month average sales, were set for each model carried in the DC. Now,
however, it seems that the increasing difficulty of getting accurate forecasts means the safety stock rules
should be revisited.
The company has hired your team to help implement a scientifically based safety stock system that will be
responsive to forecast errors and replenishment lead times. Your team must recommend a method for
calculating appropriate safety stock levels for the various Printer models carried in the European DC. You
have a good sample of demand data that can be used for developing the safety stock methodology (see
Table 1). The company hopes this new methodology will solve the inventory and service problem.
Table 1. Printer Demand Data from Europe.
Europe
Options
A
AB
AU
AA
AQ
AY
Total

Nov

Dec

Jan

Feb

80
20,572
4,564
400
4,008
248
29,872

0
20895
3207
255
2196
450
27,003

60
19252
7485
408
4761
378
32,344

90
11052
4908
645
1953
306
18,954

Mar
21
19,864
5,295
210
1,008
219
26,617

Apr

May

Jun

Jul

48
20,316
90
87
2,358
204
23,103

0
13,336
0
432
1,676
248
15,692

9
10,578
5004
816
540
484
17,431

20
6,096
4385
430
2,310
164
13,405

Aug
54
14,496
5,103
630
2,046
363
22,692

Sep

Oct

84
23,712
4,302
456
1,797
384
30,735

42
9,792
6,153
273
2,961
234
19,455

One issue that continually comes up is the choice of inventory holding cost to be used in safety stock
analyses. Estimates within the company range from 12 percent (Company's cost of debt plus some
warehousing expenses) to 60 percent (based on the ROI expected of new product development projects).
Management has decided to use 25 percent for this study. Assume that all printers cost an average of
approximately $250 each to produce and ship to Europe. Another issue is the choice of safety stock
probability for the model. The company has decided to use a probability of 98 percent, a number that
marketing feels is appropriate.

1.2 The Distribution Process

The DCs have traditionally envisioned their process as a simple, straight-line, standardized process. There
are four process stops:
1.

Receive (complete) products from various suppliers and stock them;

2.

Pick the various products needed to fill a customer order;

3.

Shrink-wrap the complete order and label it;

4.

Ship the order via the appropriate carrier.

The Printer fits well into the standard process. In contrast, other products, such as personal computers and
monitors, require special processing called "integration," which includes addition of an appropriate
keyboard and manual for the destination country. Although this extra processing does not require much
extra labor, it is difficult to accommodate in the standard process and disrupts the material flow. There is
considerable frustration within DC management regarding the support of assembly processes. In general,
DC management stresses the DCs' role as warehouses and the need to continue to do what they are best

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atdistribution. Top management, though, feels that integration of the product at the warehouse is
extremely valuable because it allows generic products to be sent to the DC with final configuration of the
product done just prior to shipment to the customer. Rather than the factory making products specific to a
country, generic products could be produced and shipped to Europe. Management is very interested in
studying the value of this approach as it could be applied to the other Printer models.

1.3 Questions
1.

Develop an inventory model for managing the Printers in Europe assuming that the Vancouver
plant continues to produce the six models sold in Europe. Using the data in Table 1, apply your
model and calculate the expected yearly investment in the Printer inventory in the Europe DC.

2.

Compare your results from question 1 to the current policy of carrying one month's average
inventory at the DC.

3.

Evaluate the idea of supplying generic printers to the Europe DC and integrating the product by
packaging the power supply and the instruction manual at the DC just prior to delivery to the
European resellers. Focus on the impact on DC inventory investment in this analysis.

4.

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What is your recommendation to the company?

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2. Manufacturing Case
For the past several months, operations in the manufacturing site have been unsteady. Inventory levels have
been high, while at the same time, there have been stockouts. This has resulted in late deliveries, complaints,
and cancellations. To compound the problem, overtime has been excessive.
The Meeting
The director of the manufacturing site called a meeting the next day to get input on the problems and to lay
the groundwork for some solutions. Attending the meeting, besides himself, were the responsible of the
production and inventory control, Trevor Hansen of purchasing, and Margaret Wu of accounting.
The meeting lasted all morning. Participation was vocal and intense. The responsible of the production and
inventory control department said, The forecasts that marketing sends us are always way off. We are
constantly having to expedite one product or another to meet current demand. This runs up our overtime."
The director of marketing said, "Production tries to run too lean. We need a large inventory of finished
goods. If I had the merchandise, my salespeople could sell 20 percent more product."
The accounting department responsible said, "No way! Our inventory is already uncomfortably high. We
can't afford the holding costs, not to mention how fast technology changes around here causing even more
inventory, much of it obsolete. The only way I can meet our stringent cost requirement is to buy in volume."
At the end of the meeting, Williams had lots of input but no specific plan. Again your team has been hired
to propose solutions. What do you think he should do? Use the data provided next to answer the specific
questions at the end of the case.

2.1 Questions
1.

Identify what is wrong at the Manufacturing site?

2.

Disregarding machine center limitations, develop an MRP schedule and also capacity profiles for
the four machine.

3.

Work center capacities and costs follow. Repeat Question 1 creating a feasible schedule (within
the capacities of the machine centers) and compute the relevant costs. Do this by adjusting the
MPS only. Try to minimize the total cost of operation for the 27 weeks.

4.

Suppose end items had to be ordered in multiples of 100 units, components in multiples of 500
units, and raw materials in multiples of 1,000 units. How would this change your schedule?

5.

What steps should be done to improve the operations?

2.2 Simplifying assumption

To get the program started, some time is needed at the beginning because MRP backloads the system. For
simplicity, assume that the forecasts (and therefore demands) are zero for Periods 1 through 3. Also assume
that the starting inventory specified in Table 3 is available from Week 1. For the master production

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schedule, use only End Items A, B, and C. To modify production quantities, adjust only Products A, B, and
C. Do not adjust the quantities of D, E, F, G, H, and I. These should be linked so that changes in A, B, and
C automatically adjust them.

2.3 Data

Figure 3. - Bills of Materials for Products A, B, and C.

Table 2. Work center routings for products and

Component E

195

components.

Component F

120

Component G

200

Component H

200

Raw Material I

300

Item
Product A
Product B
Product C
Component D
Component E
Component F
Component G
Component H

Work
Center
Number
1
4
2
4

Standard
Time (Hours
per Unit)
0.20
0.10
0.30
0.08

3
4
1
4
2
4

0.10
0.05
0.15
0.10
0.15
0.05

2
3
1
2
1
3

0.15
0.20
0.30
0.10
0.05
0.10

Table 3. - Inventory Levels and Lead Times for Each

Item on the Bill of Materials at the Beginning of Week
1.

Product/
Component
Product A

100

Lead Time
(Weeks)
1

Product B

200

Product C

175

Component D

200

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On Hand
(Units)

Table 4. - Forecast Demand for Weeks 4 to 27.

Product
A
1,500
1,700

Product
B
2,200
2,100

Product
C
1,200
1,400

6
7
8
9
10
11

1,150
1,100
1,000
1,100
1,400
1,400

1,900
1,800
1,800
1,600
1,600
1,700

1,000
1,500
1,400
1,100
1,800
1,700

12
13
14
15
16
17

1,700
1,700
1,800
1,900
2,200
2,000

1,700
1,700
1,700
1,900
2,300
2,300

1,300
1,700
1,700
1,500
2,300
2,300

18
19
20
21

1,700
1,600
1,400
1,100

2,100
1,900
1,800
1,800

2,000
1,700
1,800
2,200

Week
1
2
3
4
5

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22
23
24
25
26

1,000
1,400
1,400
1,500
1,600

1,900
1,700
1,700
1,700
1,800

1,900
2,400
2,400
2,600
2,400

27

1,500

1,900

2,500

Table 5. Capacities and costs.

Capacity
Work Center 1
Work Center 2
Work Center 3

6,000 hours available

4,500 hours available
2,400 hours available

Cost
$20 per hour
$25 per hour
$35 per hour

Work Center 4

1,200 hours available

$65 per hour

Inventory carrying cost

End Items A, B, and C
$2.00 per unit per week
Components D, E, F, G, and H $1.50 per unit per week
Raw Material I
$1.00 per unit per week
Backorder cost
End Items A, B, and C
$20 per unit per week
Components D, E, F, G, and H $14 per unit per week
Raw Material I
$8 per unit per week

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