Daghriri, Talal SCMFinal Essays 81) Discuss theapproaches that can be used to manage capacity to meet predictable variabilityof demand.
Accordingto (Chopra & Meindl,2016, p. 264) firms and companiesuse a combination of the approaches to reduce and decrease the cost of capacityrequired to meet predictable variability. The approaches are; A-Time flexibility from workforce:Inthis approach, the firm uses flexible work hours by the workforce to varycapacity with demand.
For instances, plants do not operate continuously and areleft idle during portions of the day or week. Thus, spare plant capacity existsin the form of hours when the plant is not operational. For example, manyplants do not run three shifts so that the existing workforce could workovertime during peak periods to produce more to meet demand. The overtime isvaried to match the fluctuations in the demand. In such settings, use of apart-time workforce can further increase capacity flexibility by enabling the firmor company to put more people to work during peak periods. This system allowsproduction from the plant to match demand from customers more closely. B- Use of seasonal workforce:This approach means that the firm uses a temporaryworkforce during the peak season to increase capacity to match the demand.
Thetourism industries often use seasonal workers. A base of full-time employeesexists, and more are hired only for the peak season. For example, Toyotaregularly 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 istight. C- Use of subcontracting: With this approach, a firm subcontracts peakproduction so that the internal production remains level and stable, and can bedone cheaply. For such an approach to work, the subcontractor must haveflexible capacity and the ability to lower cost by pooling the fluctuations in thedemand across the different manufacturers. Therefore, the flexible subcontractorcapacity should have both volume (fluctuating demand from a manufacturer) aswell as variety (demand from several manufacturers) flexibility to besustainable.
For example, most power firms and companies do not have thecapacity to supply their customers with all the electricity demanded during thepeak days. They rely instead on being able to purchase power from suppliers andsubcontractors that have excess electricity. So, this helps and allows thepower companies to maintain a level supply and, consequently, a lower cost. D-Use ofdual facilities–specialized and flexible: This approach meansthat a firm builds both dedicated and flexible facilities. Dedicated facilitiesproduce a relatively stable output of products over time in a very efficientand good manner. Flexible facilities produce a widely varying volume andvariety of products and items but at a higher unit cost.
Each dedicatedfacility could produce at a relatively steady rate, with fluctuations beingabsorbed by the flexible facility. E-Designingproduct flexibility into the production processes: Under this approach, a firm or company has flexibleproduction lines whose production rate can be varied easily. Production is thenchanged to match demand. In japan, Hino Trucks has several and many productionlines for different product families in the same plant. Also, the productionlines are designed so that changing the number of workers on a line can varythe production rate. As long as variation of demand across different productlines is complementary. For instance, when one goes up, the other tends to godown), the capacity on each line can be varied by moving the workforce from oneline to another. Actually, this requires that the workforce be multi skilledand able to adapt easily to being moved from line to line.
Productionflexibility can also be achieved if the production machinery is flexible andcan be changed easily from producing one product to producing another. Thisapproach is effective and useful only if the overall demand across all theproducts is relatively stable. Many firms that produce products with seasonaldemand try to exploit this approach by carrying a portfolio of products thathave peak demand seasons distributed over the year. A classic example is thatof a lawn mower manufacturer that also manufactures snow blowers to maintain asteady demand on its plant during the year.
82) Explain the basicstrategies that an aggregate planner has available to balance the various costsand meet demand.According to (Chopra & Meindl, 2016, p.242), there are basicallythree distinct aggregate planning strategies for achieving balance among thecosts. These strategies include trade-offs between capital investments,workforce size, work hours, inventory, and backlogs/lost sales. Actually, mostof strategies that a planner actually uses are a combination of these three andare referred to as mixed strategies. The three strategies are as following:1.
Chase strategy—using capacity as thelever: Inthis strategy, the production rate is synchronized with the demand rate byvarying machine capacity or hiring and laying off employees or workers as thedemand rate varies. Actually, achieving this synchronization can make someproblems because of the difficulty in varying capacity and workforce on shortnotice. This strategy can be so expensive to implement if the cost of varyingmachine or labor capacity over time is high.
It can also have a significantnegative impact on the morale of the workforce. The chase strategy results inlow levels of inventory in the supply chain and high levels of change incapacity and workforce. It supposed to be used when the cost of carryinginventory is very expensive and costs to change levels of machine and laborcapacity are low.
2. Time flexibility strategy—usingutilization as the lever: This strategy may beused if there is excess machine capacity. For example, if machines are not usedtwenty-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 inan effort to synchronize production with demand. A planner can use variableamounts of overtime or a flexible schedule to achieve this synchronization.Although this strategy does require that the workforce be flexible, it avoidssome of the problems that are associated with the chase strategy, most notablychanging the size of the workforce. This strategy results in low levels ofinventory but with lower average utilization. It should be used when inventorycarrying costs are relatively high and machine capacity is relativelyinexpensive. 3. Level strategy—usinginventory as the lever: With this strategy, astable machine capacity and workforce are maintained with a constant outputrate.
Shortages and surpluses result in inventory levels fluctuating over time.Here production is not synchronized with demand. Either inventories are built upin anticipation of future demand or backlogs are carried over from high- tolow-demand periods. Employees benefit from stable working conditions.
Adrawback associated with this strategy is that large inventories may accumulateand customer orders may be delayed. This strategy keeps capacity and costs ofchanging capacity relatively low. It should be used when inventory carrying andbacklog costs are relatively low. 83)What is the impactof lack of coordination on the performance of the supply chain?According to (Chopra & Meindl, 2016, p. 281), the lack of coordination happens and occurseither because different stages of the supply chain have objectives and goalsthat conflict or because information moving between stages gets delayed anddistorted. The different stages of a supply chain may have objectives thatconflict if each stage has a different owner. So, everyone may just think abouthis stage and his profit.
So, each stage tries to maximize its own profits,resulting in actions that often diminish and reduce the total supply chainprofits. Information is distorted as it moves within the supply chain becausecomplete information is not shared between stages. This distortion isexaggerated by the fact that supply chains today produce a large amount ofproduct variety. The lack of supply chain coordination leads to increased inventories, poorer productavailability, poorer quality and a drop-in profit. For example, Ford MotorCompany has several thousand suppliers, and those suppliers have suppliers. Witheach state focused on its own objective, information often gets distorted as itmoves across these stages, which is enhanced by the vast amount of supplychains producing so many products. When a company, like Ford, makes one modelwith different added options, it increases the likelihood of incomplete orfalse information to be distributed to its suppliers.
This is what’s causingthe biggest challenge today: for supply chains to get full coordination andinformation as both ownership and products continue to increase. Oneconsequence due to this lack of efficiency is the bullwhip effect. This is whenfluctuations in orders increase as they move up the supply chain from retailersto wholesalers to manufacturers to suppliers. This misrepresents what demandlooks like at each state and therefore it appears there is a difference indemand at each stage.
Therefore, the lack of coordination on the performance results in;Manufacturingcost: manufacturing costs increase as misinformation isspread along the supply chain. Due to the bullwhip effect, P and itssuppliers must ready more orders than what is actually demanded. Inventorycost: inventory costs also increase as P carries a moreinventory than it has to. Consequently, inventory costs increase in the supply chain. Theextra inventory requires more warehousing space and so warehousing costs end uprising.
-ReplenishmentLead Time: replenishment lead times rise as well. The bullwhip effectmakes scheduling with suppliers much more hectic and therefore costly. Attimes, the inventory cannot supply the orders that are coming in. -Transportationcost: Transportation happens more frequently as orders are beingfilled at various times while the supply chains lack coordination to determinea set schedule for transport and delivery. -As a result of the bullwhip effect, transportationrequirements change drastically at any given time. Extra transportationcapacity needs to be maintained to cover high-demand periods, which ultimately raisestransportation costs. -Laborcost for shipping and receiving: Labor costsincrease due to the amount of fluctuation which results in varying laborrequirements.
-Thelevel of product availability: Lack of coordination negativelyaffects the amount of product availability. This in turn increases thelikelihood that retailers will run out of stock, which means they’ll losemoney. 84) Discuss the roleof cycle inventory in the supply chain.In the beginning, the primary role of cycleinventory is to allow different stages in the supply chain to purchase productin 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 reducethe lot size and cycle inventory.
Economies of scale in purchasing andordering, 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 thelot sizing decision. Ideally, cycle inventory decisions must be madeconsidering 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 costin the supply chain.
Also,any stage of the supply chain exploits economies of scale in its replenishmentdecisions in the following three typical situations:1. Afixed cost is incurred each time an order is placed or produced.2.
The supplier offersprice discounts based on the quantity purchased per lot.3. The supplier offersshort-term discounts or holds trade promotions.Inaddition, Cycle inventory exists in a supply chain because different stagesexploit economies of scale to lower total cost.
The costs considered involvematerial cost, fixed ordering cost, and holding cost. The supply chainoperation phase operates on a weekly or daily time horizon and deals withdecisions concerning individual customer orders. (Chopra & Meindl, 2016) 85) Describe the twotypes of ordering policies and the impact each has on safety inventory.
According to (Chopra & Meindl, 2016, p. 354), replenishment policy consists of decisionsregarding when to reorder and how much to reorder. These decisions determinethe cycle and safety inventories along with the fr and the CSL. Thereare several forms that replenishment policies may take. We restrict attentionto two instances:1. Continuous review: Inventory iscontinuously tracked and an order for a lot size Q is placed when theinventory declines to the reorder point (ROP).
The time between orders mayfluctuate given variable demand. When using a continuous review policy, amanager 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 tracksthe inventory of phones. She orders 600 phones when the inventory drops belowROP = 400. In this case, the size of the order does not change from one orderto the next.
The time between orders may fluctuate, given variable demand.2. Periodic review: Inventory status ischecked at regular periodic intervals, and an order is placed to raise theinventory level to a specified threshold.
For example, consider the purchase offlash drives at B&M. The store manager does not track flash drive inventorycontinuously. Every Thursday, employees check flash drive inventory, and the managerorders enough so that the total of the available inventory and the size of theorder equals 1,000 flash drives.
In this case, the time between orders isfixed. The size of each order, however, can fluctuate given variable demand.These inventory policies are not comprehensive, but they suffice to illustratethe key managerial issues concerning safety inventories. 87) What trade-offs domanagers need to consider when making transportation decisions?The cost of coordinating operations isgenerally hard to quantify. Shippers should evaluate the differenttransportation options in terms of various costs as well as revenues and thenrank them according to coordination complexity.
Therefore, A manager will beable to make the appropriate transportation decision. Managers should considerthe following trade-offs when making transportation decisions:A- Transportationand inventory cost trade-off.B-Transportation cost and customerresponsiveness trade-off.
The trade-off between transportation andinventory costs is significant when designing a supply chain network. Twofundamental supply chain decisions involving this trade-off are:A- Choiceof transportation mode.B-Inventory aggregation.So, managers have toconsider inventory costs when choosing transportation. Transportation options thatrequire higher costs can be justified as long as they end up with considerablyless inventories.
Firms can drastically cut the safety inventory they need byphysically aggregating inventories in one spot but this results in an increaseof transportation costs. The transportation cost a supply chain incurs is coupledwith the degree of responsiveness between supply chains. If a firm has highresponsiveness and grants that all orders be shipped within one day of theirplacement, transportation will be happening more and more frequently to fulfillthat promise and so, transportation costs will increase. If they go the otherdirection and decrease responsiveness, they can take more time to aggregateorders, which will result in a lower transportation cost.
(Chopra & Meindl, 2016) 88) What are some ofthe benefits of effective sourcing decisions?According to (Chopra & Meindl, 2016, p. 484) Effective sourcingprocesses within a firm or company can increase and improve the profits for thefirm or company and total supply chain surplus in a variety of ways. It isimportant that the drivers of improved profits be clearly identified whenmaking sourcing decisions. In addition, there are Some of the benefits fromeffective sourcing decisions are the following:A-Identifying the right source can result in an activity performed at highquality and lower cost.B- Better economies of scale can beachieved if orders within a firm are aggregated.
C- More efficient procurementtransactions can significantly reduce the overall cost of purchasing. This ismost important for items where a large number of low-value transactions occur.D- Design collaboration can result inproducts that are easier to manufacture and distribute, resulting in loweroverall costs. This factor is most important for supplier products thatcontribute a significant amount to product cost and value.E- Good procurement processes canfacilitate coordination with the supplier and improve forecasting and planning.Better coordination lowers inventories and improves the matching of supply anddemand.F- Appropriate supplier contracts canallow for the sharing of risk, resulting in higher profits for both thesupplier and the buyer.G- Firms can achieve a lower purchaseprice by increasing competition through the use of auctions.
89) Explain howrevenue management is beneficial.To begin, revenue management adjusts andcontrol the pricing and available supply of assets to increase and maximize theprofits. Revenue management has a significant impact on the supply chainprofitability when one or more of the following four conditions exist:1. The value of theproduct varies in different market segments.2. The product is highlyperishable, or product wastage occurs.3.
Demandhas seasonal and other peaks.4. Theproduct is sold both in bulk and the spot market. Moreover,one useful and powerfultool for every asset owner is revenue management because owners can use revenuemanagement during seasonal demands or if buyers are willing to pay extra atdifferent points in time. Revenue management can be effective a segment iswilling to pay to use a capacity at the last minute, and if there is anothersegment that wants a lower price commits ahead of time. Revenue management is alsocrucial when perishable inventory is a factor. For example, airline seats havea variable value by market segment.
A business traveler might pay more for aflight that best fits their schedule. A leisure traveler will most likelychange their schedule in order to pay less. Revenue Management in a supplychain will attain more money from the business traveler than the leisuretraveler. As a result, they will always make more money than an airline whichcharges the same price.
Comparable strategies can be used in car rentals andhotel rooms because of the differences between leisure and business travelers. (Chopra & Meindl, 2016) 90) Discuss thefactors driving an increased focus on sustainability.The factors can be divided into threedistinct categories as the following, 1. Reducingrisk and improving the financial performance of the supply chain.
2. Attractingcustomers that value sustainability.3. Community pressureand governments mandates, and making the world more sustainable.
Furthermore, the biggest achievementoccurs with a focus on sustainability. This decreases the risk for a supplychain and increases finances. When driven by customer demand or the desire to makethe world more sustainable, costs increase, and the companies lose money. It isinteresting to note that there is significant opportunity even if supply chainsonly focus on the areas that reduce risk and improve financial performance.
Customers to this point have not been willing to pay extra for sustainableproducts even though many customers are environmentally sensitive. As such,macro policies may be one of the best options for improving the sustainabilityof all supply chains.(Chopra & Meindl, 2016) References Chopra, S.,& Meindl, P. (2016).
Supply chain management: Strategy,planning, and operation. Boston: Pearson.