Beruflich Dokumente
Kultur Dokumente
Example
Key Questions
How much should Toys R Us order
given demand uncertainty?
How much should Mattel order?
Will Mattels action help or hurt
profitability?
What actions can improve supply chain
profitability?
12-6
Cost of overstocking
Cost of understocking
Possible scenarios
Seasonal items with a single order in a season
One-time orders in the presence of quantity
discounts
Continuously stocked items
Demand during stockout is backlogged
Demand during stockout is lost
Cost
of overstocking = C0
Is the loss incurred by a firm for each unsold
unit at the end of selling season.
of understocking = Cu
Is the margin lost by a firm for each lost sale
from current and future sales if customer does
not return.
Example
Demand distribution for jackets
Demand Di (*100)
Probability
Cumulative probability of
demand being Di or less
probability of demand
being greater then Di
0.01
0.01
0.99
0.02
0.03
0.97
0.04
0.07
0.93
0.08
0.15
0.85
0.09
0.24
0.76
0.11
0.35
0.65
10
0.16
0.51
0.49
11
0.20
0.71
0.29
12
0.11
0.82
0.18
13
0. 10
0.92
0.08
14
0.04
0.96
0.04
15
0.02
0.98
0.02
16
0.01
0.99
0.01
17
0.01
1.00
0.00
Example
=$49,900
Potential outcome to buy 100 more jackets
If extra 100 are sold, then profit=$5,500
If 100 units are send to outlet, then loss=$500
Expected profit=$5,500Xprob[Demand1,100]
-$500Xprob[Demand<1,100]
=$5,500*0.49-500*0.51=$2,440
Expected profit from ordering 1,100 is 5% greater than that of
ordering 1,000.
Example
Input
Q=400 gallons, ROP= 300 gallons, D=100
gallons, D=20, unit cost=$3, holding cost
as a fraction of cost h=0.2, cost of holding
one unit for one year=0.6 Lead time =2
weeks
Cost of stocking out?? If all unfilled
demand is backlogged and carried over to
next cycle.
Solution
Mean demand over lead time DL=DL=200
gallons
Standard
deviation
of demand in lead time
L D L
20 2 28.3
Strategies to
1. Increase to salvage value include selling outlet
stores so that left units are not merely discarded.
2. To decrease the margin lost in a stockout include
arranging the backup sourcing so that customers
are not lost forever.
Another lever
Is to reduction of demand uncertainty.
By this, better supply and demand can
be matched by reducing over and
understocking.
Means to reduce demand uncertainty.
Improved forecasting
Quick response
Postponement
Tailored sourcing
Improving forecast
Helps the demand planning information
systems.
Can help a firm to increase its
profitability while decreasing excess
inventory overstock and sales lost due
to understocking.
Improved Forecasts
Improved forecasts result in reduced
uncertainty
Less uncertainty (lower R) results in
either:
O*
150
526
120
491
149.3
6.9
$48,476
90
456
112.0
5.2
$49,482
60
420
74.7
3.5
$50,488
30
385
37.3
1.7
$51,494
350
$52,500
Quick response
Is the set of actions a supply chain takes that
leads in the reduction of lead time.
Decrease in lead time results in increase in
forecast accuracy.
This allows them to better match with the
demand and increase in profitability.
Typically, buyers are able to make accurate
forecasts once they have observed demand
in first or second week in season.
Quick Response
Set of actions taken by managers to reduce lead time
Reduced lead time results in improved forecasts
Benefits:
Lower order quantities less inventory, same product availability
Less overstock
Higher profits
Example
Expected profit
Expected understock
1.
2.
3.
Comparison
Single order: consists of a quantity ordered at
the beginning of season.
Two orders: consists of initial order quantity for
first seven weeks followed by an order upto
level for the second week.
Second round quantity should account for sales
during the first week and inventory remaining.
The quantity ordered in second round it the
difference between order up-to-level and
inventory remaining after first week.
Consequences
1.
2.
3.
0.94
367
86
$24,034 201
201
342
60
$27,085
0.91
355
73
$24,617 193
193
332
52
$27,154
0.87
343
66
$24,386 184
184
319
43
$26,944
0.81
329
55
$24,609 174
174
313
36
$27,413
0.75
317
41
$25,205 166
166
302
32
$26,916
0.94
367
84
$24,303 201
152
293
18
$27,371
0.91
355
76
$24,154 193
150
288
17
$26,946
0.87
343
63
$24,807 184
148
288
14
$27,583
0.81
329
52
$24,998 174
146
283
14
$27,162
0.75
317
44
$24,887 166
145
282
14
$27,268
Postponement
Postponement allows a firm to increase profits and better match supply and
demand if the firm produces a large variety of products whose demand is not
positively correlated and is of about the same size.
Postponement
Refers to the delay of product
differentiation until closer to the sale of
product.
Aggregate forecasts are more accurate
then individual product forecasts.
Individual forecasts are required close to
the time of sale when demand is known
with greater accuracy.
Allows a SC to better match SC demand.
Postponement
A powerful managerial tool to increase
profitability.
However, while using it production cost
would be higher than the case where
there is no postponement.
Is valuable to for a firm that sells a
large variety of products with demand.
Value of Postponement:
Benetton
Value of Postponement
with Dominant Product
Color with dominant demand: Mean =
3,100, SD = 800
Other three colors: Mean = 300, SD = 200
Expected profit without postponement =
$102,205
Expected profit with postponement =
$99,872
Tailored postponement
Tailored Postponement:
Benetton
Tailored Sourcing
A firm uses a combination of two supply
sources
One is lower cost but is unable to deal with
uncertainty well
The other is more flexible, and can therefore
deal with uncertainty, but is higher cost
The two sources must focus on different
capabilities
Depends on being able to have one source
that faces very low uncertainty and can
therefore reduce costs
Increase profits, better match supply and
demand
Tailored sourcing
Firms uses a combination of two supply sources
1.
2.
Tailored sourcing
Volume based
Product based
Tailored Sourcing
Sourcing alternatives
Low cost, long lead time supplier
Cost = $245, Lead time = 9 weeks
Annual Profit
$37,250
50%
$51,613
60%
$53,027
100%
$48,875
Primary Site
Secondary Site
Manufacturing High
Cost
Flexibility
High
(Volume/Mix)
Responsiveness High
Low
Engineering
Support
Low
High
Low
Low
Primary Site
Secondary Site
Stable demand
Predictable,
large batch
products
Older stable
products