供应链设计与管理课后答案

DesigningandManagingtheSupplyChain

DavidSimchi-LeviPhilipKaminskyEdithSimchi-Levi

SolutionsforDiscussionQuestionsl

KeremB"ulb"ul

1WewouldliketothankShimingDengforhisvaluable

contributionstothepreparationofthismanual.

Chapter1

IntroductiontoSupplyChain

Management

DiscussionQuestions

Question1

Pickanycarmodelmanufacturedbyadomesticautomaker.Forexample,

considerthe

2002FordThunderbird.

a.Thesupplychainforacartypicallyincludesthefollowing

components:

1.Suppliersforrawmaterials

2.Suppliersforpartsandsubsystems

3.Automobilemanufacturer(Ford,inthisexample).Withinacompany,

therearealso

differentdepartments,whichconstitutetheinternalsupplychain:

i.Purchasingandmaterialhanding

ii.Manufacturing

iii.Marketing,etc.

4.Transportationproviders

5.Automobiledealers

b.ManyPrmsareinvolvedinthesupplychain.

1.Rawmaterialsuppliers.Forinstance,suppliersforsteel,rubber,

plastics,etc.

2.Partssuppliers.Forinstance,suppliersforengines,steeringwheels,

seats,andelec­

troniccomponents,etc.

3.Automobilemanufacturer.Forinstance,Ford.

4.Transportationproviders.Forinstance,shippers,truckingcompanies,

railroads,etc.

5.Automobiledealers.Forexample,HaywardFord.

c.Allcompaniesinvolvedinthesupplychainwanttomaximizetheir

respectiveproPts

byincreasingrevenueanddecreasingcost.However,companiesmay

employdifferent

2

strategiesinordertoachievethisgoal.Someofthemfocusoncustomer

satisfaction

andquickdelivery,whileothersmaybemoreconcernedabout

minimizinginventory

holdingcosts.

d.Ingeneral,differentpartsofthesupplychainhaveobjectivesthatare

notalignedwith

eachother.

1.Purchasing:Stableorderquantities,Bexibledeliveryleadtimesand

littlevariation

inmix.

2.Manufacturing:Longproductionruns,highquality,highproductivity

andlowpro­

ductioncosts.

3.Warehousing:Lowinventory,reducedtransportationcostsandquick

replenishment

capability.

4.Customers:Shortorderleadtimes,alargevarietyofproductsandlow

prices.

Typically,theautomobiledealerwouldliketoofferavarietyofcar

colorsandconPg-

urationstoaccommodatedifferentcustomerpreferences,andmeanwhile

haveashort

deliveryleadtimefromthemanufacturer.However,inordertomaximize

thelengthof

productionruns,andutilizeresourcesmoreefficiently,themanufacturer

wouldliketo

aggregateordersfromdifferentdealersandofferlessvarietyincar

conPgurations.This

isaclearexampleofconBictingmarketingandmanufacturinggoals.

Question2

a.Thesupplychainforaconsumermortgageofferedbyabankmay

involvevariouscom­

ponents:

1.Marketingcompaniesthathandlesolicitationtopotentialcustomers.

2.Creditreportingagenciesthatevaluatepotentialcustomers.

3.Thebankthatextendsthemortgageloans.

4.Mortgagebrokersthroughwhichtheloansaredistributed.

b.Themarketingcompaniesstrivetoincreasetheresponseratefrom

homebuyersinorder

tomaximizetheirreturns.Banksaimatacustomerportfoliowitha

relativelylowrisk,

healthyBowofpaymentsandlowaverageloanmaturitydate.The

brokerswouldlike

tomaximizetheirsalescommissions.

c.Similartoproductsupplychains,theobjectiveofaservicesupply

chainistoprovide

whatisneeded(inthiscaseaparticulartypeofservice,ratherthana

physicalproduct)

attherightlocation,attherighttime,andinaformthatconformsto

customerrequire­

mentswhileminimizingsystemwidecosts.However,thereareanumber

ofdifferences

betweenthetwotypesofsupplychains.Forinstance:

1.Inaproductsupplychain,thereisbothaBowofinformationand

physicalproducts.

Inaservicesupplychain,itisprimarilyinformation.

2.Contrarytoaservicesupplychain,transportationandinventoryare

majorcost

componentsinaproductsupplychain.

3

3.Servicestypicallycannotbeheldininventory,somatchingcapacity

withdemandis

frequentlymoreimportantinaservicesupplychain.

4.Inaservicesupplychain,the(explicit)costofinformationishigher

thaninaproduct

supplychain.Notethatinthemortgageexampleabove,thebankhasto

compensate

thecreditreportingagencyforeachcreditreportitobtains.

Question3

Manysupplychainsevolveovertime.Forexample,consideramemory

chipsupplychain.

Productionstrategiesmaychangeduringdifferentstagesoftheproduct

lifecycle.When

anewmemorychipisintroduced,priceishigh,yieldislow,and

productioncapacity

istight,andtheavailabilityoftheproductisimportant.Consequently,

productionis

usuallydoneatplantsclosetomarkets,andthemanagementfocuseson

increasingyield,

reducingthenumberofproductiondisruptions,andfullyutilizing

capacity.Whenthe

productmatures,however,itspricedropsanddemandisstabilizedfora

periodoftime,

sominimizingproductioncostmovestocenterstage.Toreducecosts,

productionmaybe

outsourcedtooverseasfoundries,wherelaborandmaterialsaremuch

cheaper.

Question4

Averticallyintegratedcompanyaimsattighterinteractionamongvarious

businesscom-

ponents,andfrequentlymanagesthemcentrally.Suchastructurehelpsto

achievesys­

temwidegoalsmoreeasilybyremovingconBictsamongdifferentparts

ofthesupplychain

throughcentraldecisionmaking.Inahorizontallyintegratedcompany,

thereisfrequently

nobenePtincoordinatingthesupplychainsofeachbusinesswithinthe

company.Indeed,

ifeverybusinessspecializesinitscorefunction,andoperatesoptimally,

anoverallglobal

optimummaybeapproached.

Question5

Effectivesupplychainmanagementisalsoimportantforvertically

integratedcompanies.

Insuchanorganizationalstructure,variousbusinessfunctionsare

handledbydifferent

departmentsofthecompanythatusuallyhavedifferentinternal

objectives,andthese

objectivesarenotnecessarilyalignedwitheachother.Thismaybedueto

lackofcom­

municationamongdepartmentsortheincentivesprovidedbytheupper

management.For

instance,ifthesalesdepartmentisevaluatedbasedonrevenueonly,and

themanufacturing

departmentisevaluatedbasedoncostonly,thecompany.sproPtmaynot

bemaximized

globally.Effectivesupplychainmanagementisstillnecessarytoachieve

globallyoptimal

operations.

Question6

Thesourcesofuncertaintyinthisexampleinclude:

1.Factorssuchasweatherconditions,diseases,naturaldisasterscause

uncertaintyin

availabilityofrawmaterials,i.e.,peachcrop.

2.UncertainleadtimesduringtransportationofcropfromthePeldtothe

processing

facilitymayaffectthequalityofpeaches,e.g.,theymaygetspoiled.

4

3.Processingtimesintheplant,aswellasthesubsequentwarehousing

andtransportation

timesaresubjecttouncertainty.

4.Demandisnotknowninadvance.

Question7

AsmallnumberofcentrallylocatedwarehousesallowsaPrmtotake

advantageofrisk

poolinginordertoincreaseservicelevelsanddecreaseinventorylevels

andcosts.However,

outboundtransportationcostistypicallyhigher,anddeliveryleadtimes

arelonger.On

theotherhand,bybuildingalargernumberofwarehousesclosertothe

endcustomers,a

Prmcandecreaseoutboundtransportationcostsanddeliveryleadtimes.

However,this

typeofsystemwillhaveincreasedtotalinventorylevelsandcosts,

decreasedeconomiesof

scale,increaseswarehousingexpenses,andpotentiallyincreasedinbound

transportation

expenses.

Question8

Thechoiceoftheparticulartransportationservicedependslargelyonthe

typesandsizes

ofproductsthecompanywantstotransport,theinventoryanddelivery

strategiesandthe

needforBexibility:

1.Atruckloadcarrierisbetterifdeliveringbulkyitemsorsmallitemsin

largeandstable

quantitiesfromwarehousestodemandpoints(stores).Agoodexampleis

thedelivery

ofgroceriesfromwarehousestosupermarkets.Notethatinthiscasewe

wouldlikethe

demandtobeinincrementsoffulltruckloads.

2.ApackagedeliveryPrmismoreappropriateifrelativelysmallitems

aredeliveredfrom

themanufacturer/warehousedirectlytothecustomers.Additionally,a

packagecarrier

companyoffersmoreBexibilitybydifferentmodesoftransportation

dependingonthe

needsoftheindividualcustomers.

Question9

1.Highinventorylevels

i.Advantages:HighDllrate(servicelevel)andquickorderfulfilment.

ii.Disadvantages:Highopportunitycostofcapitaltiedininventory,

dangerofprice

declinesovertimeandobsolescence,needformorewarehousespace.

2.Lowinventorylevels

i.Advantages:Lowinventoryholdingandwarehousingcosts.

ii.Disadvantages:Higherriskofshortagesandlowerservicelevels.

5

CaseDiscussionQuestions—MeditechSurgical

Question1

Meditechexperiencespoorservicelevelsfornewproducts,andinventory

levelshigherthan

necessaryforallproducts.

Question2

Therearemanycausesfortheseproblems:

1.Demandisnotstudiedindetail.

2.Informationsystemsthatrecordandmonitordemandandinventoryare

poorlydesigned.

3.Forecastingerrorsarenottracked.

4.Thereisatendencytoshifttheblametothecustomers,e.g.,panic

ordering.

5.Therearebuilt-indelaysandmonthlybucketsintheplanningsystem.

6.TheplanningsystemampliPessmallvariationsindemand.

7.Poorcommunicationwithcustomers;Meditechdoesn.ttypicallysee

end-customerde­

mand.

Question3

Thecustomerservicemanagerisdirectlyexposedtothecomplaintsfrom

thecustomers.

Hence,heisinagoodpositiontogaugethescopeoftheproblems.Other

managersdo

notfacethecustomers,andtheydonotnecessarilyfocusontheir

satisfaction.

Question4

1.Recognizethatdemandispredictable,andestablishbetterforecasting

systemsand

accountabilityforforecasts.

2.Institutebetterplanningsystemstoeliminateplanningdelays;reduce

thesizeofsystem

timebuckets.

3.Alternatively,putassemblywithinthepullsystemandeliminatebulk

inventorycom­

pletely.

4.Developandimplementbetterinformationsystems.

5.Improvecommunicationswithcustomers.

6

Chapter2

LogisticsNetworkConfiguration

DiscussionQuestions

Question1

Thefactorsthataffecttheperformanceofthelogisticsnetworkarenot

Static,i.e.,they

changeovertime.Thesefactorsincludedemand,productdesign,various

costsinthe

logisticsnetwork,regulations,contracts,etc.Theeffectsofthese

dynamicsneedtobe

evaluatedperiodicallyinordertodeterminewhethertheexisting

conPgurationisstill

satisfactorygiventhenewoperatingenvironment.

Forinstance,servicelevelrequirementsmaychangeduetoincreased

competitionwhich

typicallymeansthattheleadtimetofulPllcustomerordersneedstobe

shortened.This

mayrequirethePrmtoredesignitslogisticnetworkandbuildnew

warehousesthatare

closertotheendcustomers.

Question2

Thedesignofthelogisticsnetworkisastrategicdecisionthathaslong

lastingeffectsand

impactsallfunctionswithinthecompany.Forthesuccessofsucha

project,manylevels

oftheorganizationmustbeinvolved:

1.UpperManagement:Thenewdesignmustbealignedwiththevision

andstrategicgoals

ofthecompany.Additionally,suchaprojectmaybecostly,so

managementbuy-inis

essentialtoensurethatsufficientresourcesaredevotedtotheproject.

2.SalesandMarketing:Demandforecastsandanticipatedchangesin

productdesignand

offeringsaffectthenetworkandneedtheinvolvementofsalesand

marketingteams.

3.ManufacturingandOperations:Thelogisticsnetworkdesignhas

obviousimpactonday-

to-dayoperationofthePrm.Inorderfortheimplementationtosucceed,it

isessential

thatthepeopleinvolvedwithoperatingthesystemonadailybasisare

involvedinits

design.

Question3

Thedecisionthatasinglewarehousewillbebuilthasbeenmade

up-front.Therefore,we

onlyneedtofocusonthelocationandcapacityofthewarehouse,and

determinehowmuch

7

spaceshouldbeallocatedtoeachproductinthewarehouse.Themain

stepsoftheanalysis

areoutlinebelow.

1.Datacollection

i.Locationofretailstores,existingwarehouses(5warehouseslocatedin

Atlanta,

Boston,Chicago,DallasandLosAngeles),manufacturingfacilities(a

singleman­

ufacturingfacilityinSanJose),andsuppliers.

ii.Candidatelocationsforthenewwarehouse.

iii.Informationaboutproducts,i.e.,theirsizes,shapesandvolumes.

iv.Annualdemand(pastactualsandfutureestimates)andservicelevel

requirements

oftheretailstores.

v.Transportationratesbyavailablemodes.

vi.Transportationdistancesfromcandidatewarehouselocationstoretail

stores.

vii.Handling,storageandPxedcostsassociatedwithwarehousing.Fixed

costsshould

beexpressedasafunctionofwarehousecapacity.

viii.Fixedorderingcosts,orderfrequenciesandsizesbyproductor

productfamily.

2.Dataaggregation.Demandneedstobeaggregatedbasedon

distributionpatterns

and/orproducttypes.Replaceaggregateddemanddatapointsbyasingle

customer.

3.Mathematicalmodelbuilding.

4.Modelvalidationbasedonexistingnetworkstructure.

5.Selectionofafewlowcostalternativesbasedonthemathematical

model.

i.ForthePnaldecision,incorporatequalitativefactorsthatwere

disregardedinthe

mathematicalmodel,e.g.,speciPcregulations,environmentalfactors,etc.

ii.Optionally,buildadetailedsimulationmodeltoevaluatetheselow

costcandidate

solutions.

6.Decidewheretolocatethecentralizedwarehouse.

Withthecentralizedwarehouse,servicelevelwillincrease(less

stock-outs)andinven­

toryholdingcostswilldecreaseduetoriskpooling.Also,Dxedcosts

associatedwithware­

housingwilltypicallydecrease,andinboundtransportationcostsfromthe

manufacturing

facilitytothewarehouseshouldbelessthanthesumoftheprevious

inboundtransporta­

tioncosts.However,wewillincurincreasedoutboundtransportation

costsfromthecentral

warehousetotheretailers.Insummary,theessentialdesigntrade-offis

betweentrans­

portationcostsononehand,andinventoryholdingcostsandservicelevel

requirementson

theother.

Question4

a.Inautomobilemanufacturing,carsareusuallydeliveredoverland,and

demandiscon­

centratedaroundmajorcities.Therefore,wewouldexpectwarehousesin

thisindustry

tobelocatednearlargecitieswitheasyaccesstofreewaysandrailroads.

Thiswould

helptoreducethedeliveryleadtimetodealershipsinthecities.

8

b.Inthepharmaceuticalindustry,overnightdeliveryiscommon.

Therefore,proximity

toamajorairportisafactorthatshouldbeconsideredwhenchoosinga

warehouse

location.Additionally,forrawmaterialwarehousesitisimportantthat

theseareclose

tonaturalresources.

c.Inthebookindustry,supplierwarehouselocationswouldbeaffected

bytheavailability

ofnearbynaturalresources.

d.Intheaircraftmanufacturingindustry,sub-assembliesandpartsare

deliveredbythou­

sandsofsuppliersscatteredallovertheglobetothemanufacturing

facilities.Therefore,

forthesesupplierwarehouses,byfarthemostsigniPcantconsiderationis

theabilityto

shippartseasilyandon-time,i.e.,theproximitytorailroads,freeways,

harbors,etc.

Insuchacapitalintensiveindustry,wewouldalsoexpectthatregulations

suchastax

breakshaveanimpactonpotentialwarehouselocations.

e.Withalargecustomerbaseshoppingforbookson-line,shortdelivery

leadtimesare

crucial.Therefore,inbookdistribution,wewouldexpecttoPndlarge

centralizedware­

housesonreasonablypricedlandandwherequicktransportationmodes

areavailable.

f.Furnituremanufacturinganddistributiondependsheavilyonmanual

labor.Therefore,

warehousesinthisindustryshouldbelocatedclosetocitieswith

sufficientlaborsupply.

g.InPCmanufacturing,outsourcingfromallaroundtheworldis

commonwherelaboris

cheaperandregulationsfavorthehugeinvestmentsassociatedwith

high-techmanufac­

turing.Theseconsiderationsshouldbefactoredinwhenchoosing

candidatewarehouse

locations.

Question5

Inthepharmaceuticalindustry,wewouldexpectmorewarehousescloser

totheendcus­

tomersforshortdeliveryleadtimes.Ontheotherhand,inthechemical

industrythere

wouldbefewercentralizedwarehousesinordertoconsolidateordersand

decreaseoutbound

transportationcosts.

Question6

Ifweexpectthatthetruckwouldtravelemptyonitsreturnroute,then

TLratewould

behigher.ConsideringtheexampleinSection2.2.2,theprobabilitythat

thetruckcomes

backemptyfromIllinois(industrialheartland)toNewYorkislowerthan

thecorresponding

probabilityfromNewYorktoIllinoiswhichexplainstheasymmetriccost

structurebetween

thesetwocities.

Question7

1.HandlingCosts

i.Laborcostofworkersinmaterialhandling.

9

ii.Costsofconveyors,forklifts,automatedguidedvehicles(AGVs),etc.,

usedtocarry

thegoodsinthewarehouse.Notethatthesecostshavetwocomponents:

variable

coststhatarelinearlyproportionaltothedistancesthegoodsare

transportedover;

andpurchasingcostsofequipmentthatareproportionaltothedaily

outputrequired

fromthematerialhandlingsystem,butinanon-linearwaybecause

equipmentis

purchasedindiscretequantities.

2.FixedCosts

i.Purchasingorrentalcostofland.

ii.Costofmaintainingandoperatingthewarehousebuildingwhich

includesannual

depreciationandutilitycosts.

iii.Costofracksthatdependonthecapacityofthewarehouse.

iv.Thecostofinsuranceforthefacility.

3.StorageCosts

i.Opportunitycostofcapitaltiedupininventory.

ii.Costofpricedeclineswhileinventoryissittinginthewarehouse.Note

thatthis

includestheriskofobsoleteinventorythatneedstobesalvaged.

Question8

Anexactoptimizationtechniqueisguaranteedtoprovideanoptimal

solution(ifoneexists)

evenifittakesalongtime.Ontheotherhand,aheuristicalgorithmisa

methodthat

willPndgoodsolutionstotheprobleminareasonableamountoftime

wheretheterms

.good,and.reasonable,dependontheheuristicandtheparticularproblem

instance.(See

BramelandSimchi-Levi(1997).)Thechoicebetweenanexact

optimizationtechniqueand

aheuristicalgorithmforagivenproblemfrequentlydependsonthe

trade-offbetween

solutionqualityandsolutiontime.Notethatevenifaheuristicalgorithm

(bychance)

Pndstheoptimalsolutiontoaproblem,itcannotconPrmtheoptimality

ofthesolution.

Ontheotherhand,formanyproblemstherearenoknownoptimal

algorithms,soheuristics

mustbeused.

Question9

Simulationisapopularperformanceevaluationandmodelingtoolfor

complexstochastic

systemsthatcannotbeevaluatedanalytically.Asimulationmodelcan

closelyreBecta

realsystemandmimicitsbehavior,butithassomedrawbacks:

simulationisadescriptive

tool,i.e.,itcannotprovideoptimalvaluesforsysteminputs.Itgenerates,

foragivenset

ofinputs,sampleoutputsfromthesystemthatareusedtocompute

statisticalestimates

oftheperformancemeasures.Also,accuratesimulationmodelsoflarge

systemsrequire

extensivedevelopmenteffort,andtypicallytakealongtimetorun.Thus,

weadvocatea

two-phaseapproachtosolvedifficultlogisticsproblems:

1.Useamathematicaloptimizationmodeltogenerateanumberofgood

candidate

solutions,takingintoaccountthemostimportantcostcomponents.

10

2.Useadetailedsimulationmodeltoevaluatethecandidatesolutions

generatedinthe

Prstphase.

11

Chapter3

InventoryManagementandRisk

Pooling

DiscussionQuestions

Question1

Companiescancopewithuncertaintyby

1.keepingsafetystock,

2.shorteningproductionandorderleadtimes,

3.usingriskpoolingstrategies,

4.delayingproductdifferentiationinthesupplychainasmuchas

possible,i.e.,aggre­

gatingdemandforpartiesupstreamofthesupplychain,and

5.byinstallingsystemstoachieveinformationsharingbetweensuppliers

andbuyers,

thusenablingcollaborativedemandforecasting.

Question2

Ingeneral,higherinventorylevelsmakeiteasiertomaintainhigher

servicelevels.However,

moderninventorymanagementtechniquesmaymakeitpossibleto

increaseservicelevels

withoutincreasinginventorylevelsasmuchasinthepast.

Question3

Thevariabilityindemandincreasesastheaverageandthevarianceof

leadtimeincrease.

Therefore,foragivenservicelevel,inventorylevelsincreasewithlonger

leadtimesand

higherleadtimevariance.

Question4

Thetargetserviceleveldependsonthemission-criticalityoftheproduct.

Forinstance,

consideraservicepartsvendorforequipmentforwhicheveryhourof

downtimeisvery

12

expensive.(SeeExample6-5.)Inthiscase,wewouldexpectthe

managementofthevendor

companytospecifyaservicelevelcloseto100%.

Marketconditionsalsoplayanimportantroleindeterminingtarget

servicelevels.For

commodities,wewouldexpectrelativelyhighservicelevelssince

customerscanswitch

productseasilyiftheydonotPndtheparticularproducttheylookfor.

However,alower

servicelevelmaybeacceptableiftheproducthasaclearvalue

differentiationcompared

toitscompetitors.Forinstance,customersofahigh-endserverthatis

clearlydeemed

superiortotherestofthemarketmaybewillingtowaitfor1-2weeksif

themanufacturer

isout-of-stock.

Question5

Thereorderlevels=L*AVG+z*STD*VLhastwocomponents.The

Prstcomponent

L*AVGcoverstheexpecteddemandduringleadtime,andthesecond

componentz*

STD*VListhesafetystockthatprotectsagainstdeviationsfromthe

expecteddemand

duringleadtime.Therefore,immediatelybeforetheorderarrives,we

expectthatthePrst

componentisdepletedcompletelyandtheinventorylevelisz*STD*

VL.Then,when

anorderofQunitsarrives,theexpectedlevelofinventoryisQ+z*

STD*VL.

Question6

Inthebase-stockpolicy,atthetimethewarehouseplacesanorder,this

orderraisesthe

inventorypositiontothebase-stocklevel(r+L)*AVG+z*STD*

Vr+L.Similar

tothereorderlevelsinthecontinuousreviewpolicydiscussedin

Question5,thisbase-

stockincludestwocomponents:theaveragedemand(r+L)*AVGuntil

theorderarrives

afterr+Lperiods,andthesafetystockz*STD*Vr+Lthatprotects

againstdemand

uncertaintyduringleadtime.Thus,justbeforeanorderarrives,the

expectedinventory

onhandisequaltothesafetystockz*STD*Vr+L.

Inordertodeterminetheexpectedinventorylevelrightafteranorder

arrivesattime

t+L,notethatwheninventoryisreviewedattimet,theinventory

positionisraisedto

thebase-stocklevel,andanorderthatwasplacedattimet-rarrivesat

timet+L.(See

Figure3-12.)Therefore,whenanorderarrives,theexpectedinventory

levelisL*AVG

unitslessthanthebase-stocklevel,i.e.,isequaltor*AVG+z*STD

*Vr+L.

Question7

ObservethatthelongerL1,themoretimethesystemhasbefore

allocationofinventory

totheretailersneedtobemadebythecross-dockfacility.Thus,the

longerL1themore

thesystemcantakeadvantageoftheriskpoolingconcept.Hence,the

totalamountof

inventoryissmallerwhenthecrossdockfacilityisclosertotheretail

outlet.

Question8

Theanswerisnotimmediatelyclearbecausetherequiredsafetystock

dependsbothon

theaverageandthevarianceoftheleadtime.Theretailerwouldhaveto

makeadecision

dependingontherelativeeffectsofthesetwofactors.SeeSection3.2.6.

Also,yourdecision

wouldultimatelydependontherequirementsoftheretailer.scustomers.

13

Question9

Foramatureproduct,itisreasonabletoexpectthatthepriceanddemand

arestable

intheshortterm.However,asthetimehorizongetslonger,andnew

productsarein­

troducedintothemarket,thedemandandpriceforthisparticularproduct

decreaseand

excessiveinventoriesmayhavetobewrittenoff.Thus,inventory

holdingcostsrelatedto

obsolescencemayberegardedasDxedintheshortterm,butnotinthe

longterm.

SomestoragecostsareanotherexampleofinventoryrelatedcostsPxed

intheshort

term,butvariableinthelongterm.Forinstance,duetolargeinventories

acompanymay

havetorentmultiplewarehousesforaDxedleaseterm.However,if

inventorypoliciesare

improvedandturnoverratesareincreasedinthisperiodoftime,thenit

maybepossible

torentfewerwarehouseswhenrenewingtheleasecontracts.Clearly,

similararguments

canbemadeformaterialhandlingequipment,storageracks,insurance,

personnel,etc.

Question10

Suchdeterministicmodelscanbeusedasproxiesforthemorerealistic

stochasticmodels

iftheplanninghorizonisshort,andtheparametersoftheproblemare

expectedtobe

relativelystableoverthistimeframe.However,mostimportantly,simple

modelscan

illustratethebasictrade-offsinagiventypeofproblemwhichalso

translateintomore

realisticandcomplexsituations.Forinstance,theoptimalpolicyforthe

economiclot

sizingmodelbalancesorderingandinventoryholdingcostswhichisa

generalinsightfor

moresophisticatedsystemsaswell.

Question11

Thereareimplicitandexplicitpenaltiesassociatedwithahighlyvariable

demand.For

instance:

1.AsdiscussedinSections3.2.5to3.2.7,thelevelofsafetystockis

proportionaltothe

variabilityindemand,i.e.,thehigherthevariabilityindemandthehigher

theinventory

holdingcosts.

2.Fromamanufacturer.sperspective,highlyvariabledemandmeansthat

utilizationof

equipmentwillgreatlyBuctuate,andequipmentwillsitidlewhen

demandislow.

3.Fromamanagerialperspective,highvariabilitymakesplanningavery

complextask

thatrequiresadditionalresources,sophisticatedmodelsandtools.

Ontheotherhand,ifacompanyissuccessfulatimplementingstrategies

tocopewith

highvariabilityindemand,itmaybepossibletoleverageontheseto

increasemarketshare

and/orrevenueifthecompetitorsarenotassuccessful.

Question12

Thefactorsthataffectthechoiceofthesupplycontracttypeincludethe

following:

1.Businessconvention:Companiestendtochoosethecontractformthat

ismostcommon

intheirtypeofbusiness.

14

2.Informationavailability:Thetypeofinformationavailablemaydictate

whattypeof

contractcanbeimplementedinpractice.Dependingonthecontracttype,

suppliers

andbuyersrequireaccesstodifferenttypesofinformation,andsome

informationmay

bedifficultforthesuppliertoacquirebuteasierfortheretailer,orvice

versa.

3.Decisionmakingandincentives:ToachievetheoptimalproPtforthe

wholesystemand

toallocateitproper