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Final Essays

 

81) Discuss the
approaches that can be used to manage capacity to meet predictable variability
of demand.

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According
to (Chopra & Meindl,
2016, p. 264) firms and companies
use a combination of the approaches to reduce and decrease the cost of capacity
required to meet predictable variability. The approaches are;

 

A-Time flexibility from workforce:

In
this approach, the firm uses flexible work hours by the workforce to vary
capacity with demand. For instances, plants do not operate continuously and are
left idle during portions of the day or week. Thus, spare plant capacity exists
in the form of hours when the plant is not operational. For example, many
plants do not run three shifts so that the existing workforce could work
overtime during peak periods to produce more to meet demand. The overtime is
varied to match the fluctuations in the demand. In such settings, use of a
part-time workforce can further increase capacity flexibility by enabling the firm
or company to put more people to work during peak periods. This system allows
production from the plant to match demand from customers more closely.

 

B- Use of seasonal workforce:

This approach means that the firm uses a temporary
workforce during the peak season to increase capacity to match the demand. The
tourism industries often use seasonal workers. A base of full-time employees
exists, and more are hired only for the peak season. For example, Toyota
regularly uses a seasonal workforce in Japan to match the supply and demand better.
Actually, this approach may be hard to sustain, however, if the labor market is
tight.

 

C- Use of subcontracting:

With this approach, a firm subcontracts peak
production so that the internal production remains level and stable, and can be
done cheaply. For such an approach to work, the subcontractor must have
flexible capacity and the ability to lower cost by pooling the fluctuations in the
demand across the different manufacturers. Therefore, the flexible subcontractor
capacity should have both volume (fluctuating demand from a manufacturer) as
well as variety (demand from several manufacturers) flexibility to be
sustainable. For example, most power firms and companies do not have the
capacity to supply their customers with all the electricity demanded during the
peak days. They rely instead on being able to purchase power from suppliers and
subcontractors that have excess electricity. So, this helps and allows the
power companies to maintain a level supply and, consequently, a lower cost.

 

D-Use of
dual facilities–specialized and flexible:

 This approach means
that a firm builds both dedicated and flexible facilities. Dedicated facilities
produce a relatively stable output of products over time in a very efficient
and good manner. Flexible facilities produce a widely varying volume and
variety of products and items but at a higher unit cost. Each dedicated
facility could produce at a relatively steady rate, with fluctuations being
absorbed by the flexible facility.

 

 

 

E-Designing
product flexibility into the production processes:

Under this approach, a firm or company has flexible
production lines whose production rate can be varied easily. Production is then
changed to match demand. In japan, Hino Trucks has several and many production
lines for different product families in the same plant. Also, the production
lines are designed so that changing the number of workers on a line can vary
the production rate. As long as variation of demand across different product
lines is complementary. For instance, when one goes up, the other tends to go
down), the capacity on each line can be varied by moving the workforce from one
line to another. Actually, this requires that the workforce be multi skilled
and able to adapt easily to being moved from line to line. Production
flexibility can also be achieved if the production machinery is flexible and
can be changed easily from producing one product to producing another. This
approach is effective and useful only if the overall demand across all the
products is relatively stable. Many firms that produce products with seasonal
demand try to exploit this approach by carrying a portfolio of products that
have peak demand seasons distributed over the year. A classic example is that
of a lawn mower manufacturer that also manufactures snow blowers to maintain a
steady demand on its plant during the year.

 

 

 

 

 

82) Explain the basic
strategies that an aggregate planner has available to balance the various costs
and meet demand.

According to (Chopra & Meindl, 2016, p.242), there are basically
three distinct aggregate planning strategies for achieving balance among the
costs. These strategies include trade-offs between capital investments,
workforce size, work hours, inventory, and backlogs/lost sales. Actually, most
of strategies that a planner actually uses are a combination of these three and
are referred to as mixed strategies. The three strategies are as following:

1.   
Chase strategy—using capacity as the
lever:

 In
this strategy, the production rate is synchronized with the demand rate by
varying machine capacity or hiring and laying off employees or workers as the
demand rate varies. Actually, achieving this synchronization can make some
problems because of the difficulty in varying capacity and workforce on short
notice. This strategy can be so expensive to implement if the cost of varying
machine or labor capacity over time is high. It can also have a significant
negative impact on the morale of the workforce. The chase strategy results in
low levels of inventory in the supply chain and high levels of change in
capacity and workforce. It supposed to be used when the cost of carrying
inventory is very expensive and costs to change levels of machine and labor
capacity are low.

 

2.   
Time flexibility strategy—using
utilization as the lever:

 This strategy may be
used if there is excess machine capacity. For example, if machines are not used
twenty-four hours a day, seven days a week). In this case, the workforce
(capacity) is kept stable but the number of hours worked is varied over time in
an effort to synchronize production with demand. A planner can use variable
amounts of overtime or a flexible schedule to achieve this synchronization.
Although this strategy does require that the workforce be flexible, it avoids
some of the problems that are associated with the chase strategy, most notably
changing the size of the workforce. This strategy results in low levels of
inventory but with lower average utilization. It should be used when inventory
carrying costs are relatively high and machine capacity is relatively
inexpensive.

 

 

3.   
Level strategy—using
inventory as the lever:

 With this strategy, a
stable machine capacity and workforce are maintained with a constant output
rate. Shortages and surpluses result in inventory levels fluctuating over time.
Here production is not synchronized with demand. Either inventories are built up
in anticipation of future demand or backlogs are carried over from high- to
low-demand periods. Employees benefit from stable working conditions. A
drawback associated with this strategy is that large inventories may accumulate
and customer orders may be delayed. This strategy keeps capacity and costs of
changing capacity relatively low. It should be used when inventory carrying and
backlog costs are relatively low.

 

 

83)What is the impact
of lack of coordination on the performance of the supply chain?

According to (Chopra & Meindl, 2016, p. 281), the lack of coordination happens and occurs
either because different stages of the supply chain have objectives and goals
that conflict or because information moving between stages gets delayed and
distorted. The different stages of a supply chain may have objectives that
conflict if each stage has a different owner. So, everyone may just think about
his stage and his profit. So, each stage tries to maximize its own profits,
resulting in actions that often diminish and reduce the total supply chain
profits. Information is distorted as it moves within the supply chain because
complete information is not shared between stages. This distortion is
exaggerated by the fact that supply chains today produce a large amount of
product variety. The lack of supply chain coordination leads to increased inventories, poorer product
availability, poorer quality and a drop-in profit. For example, Ford Motor
Company has several thousand suppliers, and those suppliers have suppliers. With
each state focused on its own objective, information often gets distorted as it
moves across these stages, which is enhanced by the vast amount of supply
chains producing so many products. When a company, like Ford, makes one model
with different added options, it increases the likelihood of incomplete or
false information to be distributed to its suppliers. This is what’s causing
the biggest challenge today: for supply chains to get full coordination and
information as both ownership and products continue to increase. One
consequence due to this lack of efficiency is the bullwhip effect. This is when
fluctuations in orders increase as they move up the supply chain from retailers
to wholesalers to manufacturers to suppliers. This misrepresents what demand
looks like at each state and therefore it appears there is a difference in
demand at each stage.

Therefore, the lack of coordination on the performance results in;

Manufacturing
cost: manufacturing costs increase as misinformation is
spread along the supply chain. Due to the bullwhip effect, P and its
suppliers must ready more orders than what is actually demanded.

 

Inventory
cost: inventory costs also increase as P carries a more
inventory than it has to. Consequently, inventory costs increase in the supply chain. The
extra inventory requires more warehousing space and so warehousing costs end up
rising.

 

-Replenishment
Lead Time: replenishment lead times rise as well. The bullwhip effect
makes scheduling with suppliers much more hectic and therefore costly. At
times, the inventory cannot supply the orders that are coming in.

 

-Transportation
cost: Transportation happens more frequently as orders are being
filled at various times while the supply chains lack coordination to determine
a set schedule for transport and delivery.

 

-As a result of the bullwhip effect, transportation
requirements change drastically at any given time. Extra transportation
capacity needs to be maintained to cover high-demand periods, which ultimately raises
transportation costs.

 

-Labor
cost for shipping and receiving: Labor costs
increase due to the amount of fluctuation which results in varying labor
requirements.

 

 

-The
level of product availability: 

Lack of coordination negatively
affects the amount of product availability. This in turn increases the
likelihood that retailers will run out of stock, which means they’ll lose
money.

 

 

 

 

84) Discuss the role
of cycle inventory in the supply chain.

In the beginning, the primary role of cycle
inventory is to allow different stages in the supply chain to purchase product
in lot sizes that minimize the sum of the material, ordering, and holding cost.
If a manager were considering the holding cost alone, he or she would reduce
the lot size and cycle inventory. Economies of scale in purchasing and
ordering, however, lead a manager to increase the lot size and cycle inventory.
A manager must make the trade-off that minimizes the total cost when making the
lot sizing decision. Ideally, cycle inventory decisions must be made
considering the total cost across the entire supply chain. In practice,
however, each stage often makes its cycle inventory decisions independently. Actually,
this practice increases the level of cycle inventory as well as the total cost
in the supply chain.

Also,
any stage of the supply chain exploits economies of scale in its replenishment
decisions in the following three typical situations:

1.  A
fixed cost is incurred each time an order is placed or produced.

2.  The supplier offers
price discounts based on the quantity purchased per lot.

3.  The supplier offers
short-term discounts or holds trade promotions.

In
addition, Cycle inventory exists in a supply chain because different stages
exploit economies of scale to lower total cost. The costs considered involve
material cost, fixed ordering cost, and holding cost. The supply chain
operation phase operates on a weekly or daily time horizon and deals with
decisions concerning individual customer orders.

 (Chopra & Meindl, 2016)

 

 

 

 

85) Describe the two
types of ordering policies and the impact each has on safety inventory.

According to (Chopra & Meindl, 2016, p. 354), replenishment policy consists of decisions
regarding when to reorder and how much to reorder. These decisions determine
the cycle and safety inventories along with the fr and the CSL. There
are several forms that replenishment policies may take. We restrict attention
to two instances:

1.  Continuous review: Inventory is
continuously tracked and an order for a lot size Q is placed when the
inventory declines to the reorder point (ROP). The time between orders may
fluctuate given variable demand. When using a continuous review policy, a
manager has to account only for the uncertainty of demand during the lead time
(L). For example, consider the store manager at B&M who continuously tracks
the inventory of phones. She orders 600 phones when the inventory drops below
ROP = 400. In this case, the size of the order does not change from one order
to the next. The time between orders may fluctuate, given variable demand.

2.  Periodic review: Inventory status is
checked at regular periodic intervals, and an order is placed to raise the
inventory level to a specified threshold. For example, consider the purchase of
flash drives at B&M. The store manager does not track flash drive inventory
continuously. Every Thursday, employees check flash drive inventory, and the manager
orders enough so that the total of the available inventory and the size of the
order equals 1,000 flash drives. In this case, the time between orders is
fixed. The size of each order, however, can fluctuate given variable demand.
These inventory policies are not comprehensive, but they suffice to illustrate
the key managerial issues concerning safety inventories.

 

 

 

 

 

87) What trade-offs do
managers need to consider when making transportation decisions?

The cost of coordinating operations is
generally hard to quantify. Shippers should evaluate the different
transportation options in terms of various costs as well as revenues and then
rank them according to coordination complexity. Therefore, A manager will be
able to make the appropriate transportation decision. Managers should consider
the following trade-offs when making transportation decisions:

A- Transportation
and inventory cost trade-off.

B-Transportation cost and customer
responsiveness trade-off.

The trade-off between transportation and
inventory costs is significant when designing a supply chain network. Two
fundamental supply chain decisions involving this trade-off are:

A- Choice
of transportation mode.

B-Inventory aggregation.

So, managers have to
consider inventory costs when choosing transportation. Transportation options that
require higher costs can be justified as long as they end up with considerably
less inventories. Firms can drastically cut the safety inventory they need by
physically aggregating inventories in one spot but this results in an increase
of transportation costs. The transportation cost a supply chain incurs is coupled
with the degree of responsiveness between supply chains. If a firm has high
responsiveness and grants that all orders be shipped within one day of their
placement, transportation will be happening more and more frequently to fulfill
that promise and so, transportation costs will increase. If they go the other
direction and decrease responsiveness, they can take more time to aggregate
orders, which will result in a lower transportation cost.

(Chopra & Meindl, 2016)

 

 

88) What are some of
the benefits of effective sourcing decisions?

According to (Chopra & Meindl, 2016, p. 484) Effective sourcing
processes within a firm or company can increase and improve the profits for the
firm or company and total supply chain surplus in a variety of ways. It is
important that the drivers of improved profits be clearly identified when
making sourcing decisions. In addition, there are Some of the benefits from
effective sourcing decisions are the following:

A-
Identifying the right source can result in an activity performed at high
quality and lower cost.

B- Better economies of scale can be
achieved if orders within a firm are aggregated.

C- More efficient procurement
transactions can significantly reduce the overall cost of purchasing. This is
most important for items where a large number of low-value transactions occur.

D- Design collaboration can result in
products that are easier to manufacture and distribute, resulting in lower
overall costs. This factor is most important for supplier products that
contribute a significant amount to product cost and value.

E- Good procurement processes can
facilitate coordination with the supplier and improve forecasting and planning.
Better coordination lowers inventories and improves the matching of supply and
demand.

F- Appropriate supplier contracts can
allow for the sharing of risk, resulting in higher profits for both the
supplier and the buyer.

G- Firms can achieve a lower purchase
price by increasing competition through the use of auctions.

 

 

 

89) Explain how
revenue management is beneficial.

To begin, revenue management adjusts and
control the pricing and available supply of assets to increase and maximize the
profits. Revenue management has a significant impact on the supply chain
profitability when one or more of the following four conditions exist:

1.  The value of the
product varies in different market segments.

2.  The product is highly
perishable, or product wastage occurs.

3.  Demand
has seasonal and other peaks.

4.  The
product is sold both in bulk and the spot market.

 Moreover,
one useful and powerful
tool for every asset owner is revenue management because owners can use revenue
management during seasonal demands or if buyers are willing to pay extra at
different points in time. Revenue management can be effective a segment is
willing to pay to use a capacity at the last minute, and if there is another
segment that wants a lower price commits ahead of time. Revenue management is also
crucial when perishable inventory is a factor. For example, airline seats have
a variable value by market segment. A business traveler might pay more for a
flight that best fits their schedule. A leisure traveler will most likely
change their schedule in order to pay less. Revenue Management in a supply
chain will attain more money from the business traveler than the leisure
traveler. As a result, they will always make more money than an airline which
charges the same price. Comparable strategies can be used in car rentals and
hotel rooms because of the differences between leisure and business travelers.

 (Chopra & Meindl, 2016)

 

 

 

90) Discuss the
factors driving an increased focus on sustainability.

The factors can be divided into three
distinct categories as the following,

 

1.  Reducing
risk and improving the financial performance of the supply chain.

2.  Attracting
customers that value sustainability.

3.  Community pressure
and governments mandates, and making the world more sustainable.

 

Furthermore, the biggest achievement
occurs with a focus on sustainability. This decreases the risk for a supply
chain and increases finances. When driven by customer demand or the desire to make
the world more sustainable, costs increase, and the companies lose money. It is
interesting to note that there is significant opportunity even if supply chains
only focus on the areas that reduce risk and improve financial performance.
Customers to this point have not been willing to pay extra for sustainable
products even though many customers are environmentally sensitive. As such,
macro policies may be one of the best options for improving the sustainability
of all supply chains.
(Chopra & Meindl, 2016)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

 

Chopra, S.,
& Meindl, P. (2016). Supply chain management: Strategy,
planning, and operation. Boston: Pearson.