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MGT 301 Cheat Sheets and Homeworks

by: Gabby Greenberg

MGT 301 Cheat Sheets and Homeworks MGT 301

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Gabby Greenberg
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These cheat sheets are used on each exam for Supply Chain and the homeworks are usually the same. These will help a lot!
Supply Chain Managment
Paul Vanderspeck
MGT301, Vanderspeck, SupplyChain
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This 20 page Bundle was uploaded by Gabby Greenberg on Sunday August 7, 2016. The Bundle belongs to MGT 301 at Colorado State University taught by Paul Vanderspeck in Spring 2016. Since its upload, it has received 55 views. For similar materials see Supply Chain Managment in Management at Colorado State University.


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Date Created: 08/07/16
1a – Supply Chain: An interrelated series of processes within and across firms that produce a service or product to the satisfaction of customers. Consists of: Raw material manufacturers, component and intermediate manufacturers, final product manufacturers, wholesalers and distributors, retails  customers. Connected by transportation, storage activities. Money flows upstream, products flow downstream to customers. Tier 1 supplier: Selling directly to focal (main firm). Tier 1 customer: Buying from company directly, if sold again, the buyer would be 2 ndtier. Tier 2 supplier  Tier 1 supplier  Focal  Tier 1 customer  tier 2 customer  end customer. 1b – Supply Chain Management: The synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand. Extremely important and beneficial for large inventory, many suppliers, complex products, customers with large purchasing budgets. 1c –Vertical: owning your own part of the supply chain. Pros: Protect proprietary technology, no competent supplier, better quality control, use existing idle capacity, control of logistics – lead time transportation, are warehousing costs, lower cost. Horizontal: outsourcing from suppliers. Pros: Help share risk throughout the supply chain – especially with naturally grown crops that run risks that are inconsistent (such as weather), ensuring supply at lowest costs and highest quality, modern focus on specialization – helps build a strong quality assurance, boundaries between firms are blurry. Reasons to Buy or Outsource: Cost advantage, insufficient capacity, lack of expertise, quality. 1d – Sourcing: Ensure supply at lowest costs and highest quality. Operations: A group of resources performing all or part of one or more processes. The effective and efficient transformation of these materials and services into products. Process: Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. Every process and every person in the organization has customers and relies on suppliers – external and internal. Logistics: Transportation management, customer relationship management, distribution network, perfect order fulfillment, global supply chains, service response logistics. Reverse logistics: Sending something back farther in the chain. End customer is what is financing entire supply chain. Goal: The effective and efficient flow and storage of these goods and services. 1e - Benefits of a good supply chain: Less holding costs, less inventory, faster movement to market, more perfect orders than their competitors. Increasing supply chain responsiveness – firms increasingly are getting more flexible and responsive to customer needs. Effective and faster product and service delivery systems. Cost reductions are achieved through reducing purchasing costs, waste, excess inventory, and non-value added activities. Improvement is through benchmarking, trial and error, and increasing knowledge of processes. 1f – Cash to Cash Cycle: Time between creating product, selling it, and getting paid. Most companies yield positively (more financing (accounts payable) the lower yield). Negative yield is ideal because customers would then be financing the production. 1g – Old SCM Paradigm: Vertically integrated companies, focal firm owned/controlled most activities in the SC, mass production, short-term focus, poor quality, limited customer choice. New SCM Paradigm: Horizontal integrated, focus on areas of specialization – core competencies, voluntary, trust-based relationships with partners, all participants in the supply chain benefit, boundaries between firms are blurry, global, high quality, customer options. 5a Manufacturing process: Physical, durable output, can be inventoried, low customer contact, long response time, capital intensive, quality easily measured. Service process: Intangible, perishable output, cannot be inventoried, high customer contact, short response time, labor intensive, quality easily measured. Differences between goods and services: Services cannot be inventoried; services are often unique. Insurance policies, legal services. Services have high customer- service interaction. Services today are finding ways to automate and standardize services. Services are decentralized because their inability to inventory and transport service products. 5b Challenges of improving productivity/quality of services: high labor content, individual customized services, difficulty of automating services, problem of assessing service quality. Productivity: How much can be produced in a certain amount of time. Output/Input. Services: Difficult to measure or provide lots of productivity. Very labor intensive making it hard to automate. 5c Process Strategy: physical presence, what is processed, contact intensity, personal attention, delivery method. Cost Leadership Strategy: Requires large capital investment in automated equipment to control and reduce costs. Differentiation Strategy: Considered unique, created as companies listen to customers. 5d Managing Service Capacity: the number of customers per day the firm’s service system is designed to serve. When demand exceeds capacity they lose customers, customers wait, and they hire more employees. To minimize the cost of hiring and firing: cross train, part-time employees, technology, employee scheduling policies, using forecasting techniques. 5e Managing Perceived Wait Times: Customer arrival (or demand source) is either infinite or finite, arrive in patterns, poisson distribution often used to model customer arrival, most queuing models assume customers do not exhibit balking – refusing to join the queue, or reneging – leaving the line prior to completing the service. Keep customers occupied, start service quickly, relieve customer anxiety, group customers together, design a fair waiting system. 5f Service Quality: Reliability, empathy, responsiveness, assurance, tangibles. 5g Recover from poor service: firms develop recover procedures, empower employees to remedy customer problems. 5h Calculate the Staffing Levels: Assess total number of employees needed each day. Determine number of FT employees, then determine fewest number of part time employees by assigning the first PT employee the max number of workdays, then the 2 nd employee the max remaining, and so on. 8a Risk Pooling: Describes the relationship between the number of warehouses, inventory & customer service. As the number of warehouses increase, the system becomes more decentralized. Responsiveness & delivery service increase. However, warehousing operating & inventory costs also increase. Trade-off between costs & customer service must be considered. 8b Square Root Rule: to calculate the inventory impact of changing the number of warehouses. s2=√n2/√n1*s1. S1 = total system stock for n1 warehouses. S2 = Total system stock for the n2 warehouses. N1 = # of warehouses in the existing system. N2 = # of warehouses in the proposed system. 4a Facility Location: Important to supply chain because it has a long-term impact and must be part of the firm’s strategy. Can locate anywhere due to increase globalization, technology, transportation, and open markets. Location still matters because industry clusters show that innovation and competition are geographically concentrated. Global location decision involves location of the facility, defining its strategic role and identifying the markets it serves. 4c Business Cluster: network of connected businesses, suppliers, and associates in a specific field that are in the same geographic location. Thought to provide increased efficiency and productivity so businesses can be competitive on a national and global scale. 4d Six types of factories: Offshore Factory: low cost investment & labor costs. Source Factory: plant management involved in supplier selection & production planning. Server Factory: firm uses government inventives & low exchange risk & tariff barriers to reduce taxes and logistics costs. Contributor Factory: firm involved in product development, production planning, procurement decisions & development suppliers. Outpost factory: Embedded network of suppliers, competitors, research facilities for materials, components & products. Lead Factory: firm is source of product and process innovations & competitive advantage of the entire organization. 4e Factors Affecting Location: Competitiveness of nations: degree to which a country produces goods and services which meet the needs of international markets, while maintaining or expanding personal real income over time. Countries are ranked by: Economic performance, government efficiency, business efficiency, infrastructure. Taxes/tariffs: play a big role in choosing where to conduct business. High tariffs discourage companies from importing goods into the country. High tariffs encourage multinational corporations to set up factories to produce locally. Many countries have set up foreign trade zones where materials are imported duty- free as long as important are used as inputs to production of goods. Sometimes used to hold of on paying tariffs. Currency: money has to have a store of value. You don’t not want to go to a country with a weak currency or it will not be profitable when converted back to your currency. Access to markets: the trend in manufacturing is to be within delivery proximity of your customers. Logistics timelines and costs are concerns, so that reinforces a clustering effect on suppliers and producers to places that offer lower cost labor and real estate. Environment: global warming, air pollution, acid rain, availability to resources, trade liberalization creates need for environmental cooperation. Labor issues: low rate of unemployment means there may not be anyone available to work. Turnover rate is important because if a firm open next to you and pay a bit higher, all your employees will relocate. Labor laws are impactful. Utility costs: supply of electricity, cost of energy and availability are important to consider. Telecommunication costs have dropped dramatically. Many organizations now have back office operations and call centers internationally to serve the US market. Quality of life and Land costs: (also 4f): good schools, recreational facilities, cultural events, attractive lifestyle. Bad qualities would be high cost of living, high crime rates, and general decline in quality of life. Bottom line of company – social, environment, and financial. Strategy (a)– Engineered to Order: ETO, expensive, long, customized, activities/decisions completely based on orders. Made to Order: MTO, have materials and build once ordered, some customization, 75% based on orders and 25% based on forecasts. Assemble to Order: ATO, mostly based on forecasts, design products and buy things to put them together, no final assembly until ordered. Made to Stock: MTO uncertainty, 90% based off forecasts, sell to retail, no customization, cheap/quick. Mass Customization: MC, very difficult, achieving both economy of scale and economy of scope, postponement – delaying differentiation, have lead time and cost of MTS with customization of MTO. A strategy whereby a firm’s highly divergent processes generate a wide variety of customized services or products at reasonably low costs. Competitive advantages: managing customer relationships, increasing finished goods inventory, increasing perceived value of services or products. Integration: effective coordination of supply chain processes through the seamless flow of information up and down the chain. Internal Causes: Internally generated shortages, engineering changes, order batching, new service or product introductions, services or product promotions, information error. External Causes: Volume changes, service and product mix changes, late deliveries, under filled shipments. Supplier Relationship Management: selects the suppliers of services, materials, and information and facilitates the timely and efficient flow of these items into the firm. Order Fulfillment: includes the activities required to produce and deliver the service or product to the external customer. Steps in New Product Development: integral element that defines the nature of the materials, services, and information flows the supply chain must support. Six Sigma Improvement Model. Design: links the creation of new services or products to the corporate strategy of the firm and defines the requirements for the firm’s supply chain. Analysis: how it will be produced to make sure it fits the strategy and is compatible with regulatory standards, market risk, and satisfies the need of the intended customer. Development: more specificity, required competitive priorities are used as inputs to the design or redesign of the processes that will be involved in delivering the new offering. Full Launch: coordination of many internal processes as well as both up and downstream supply chains. Bullwhip Effect: Forecasts & their corresponding orders along the supply chain can become amplified and accumulate. Factors of Bullwhip: Demand signal processing, lead time, order batching, marketing activity: price discounting and advertising & promotional activity, and capacity constraints. Reducing the Bullwhip effect: make actual demand available to suppliers, vendor managed inventory, reduce the length of supply chain, reduce lead times for order to delivery. Various Process Measures: Customer Relationship: percent of orders taken accurately, time to complete order placement process, customer satisfaction with order placement process, customer’s evaluation of firm’s environmental stewardship. 4h Break-Even Model: useful location analysis technique when fixed & variable costs can be determined. Identify locations, determine fixed cost of land, property taxes, insurance, equip&building, determine unit variable cost, materials, utilities, and transportation costs, construct total cost lines. Set equations equal and solve for Q. The range over which each location has the lower cost is best. LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS Site A $6000 $10 Site B $1000 $30 Site C $5000 $20 Cost B C A: 6000+10x Volumes: B: 1000+30x A: Q > 250 A C: 5000+20x B: Q < 250 C: Never Preferred AB: 6000+10x=1000+30x X=250 AC: 6000+10x=5000+20x X=100 Quantity BC: 1000+30x=5000+20x 100 250 400 X=400 Learning Curve – 5 Units Avg. labor 4i Center of Gravity Model: mapping all of the market locations on an x,y ioordinate and finding a central location that is closest to the markets with highest demands. 4g Weighted Factor Rating Model: a method used to compare the attractiveness of several locations along a number of quantitative & qualitative dimensions. Identify factors, assign weights, determine score for each, multiple by weight then sum weighted score. Location with highest total weighted score is recommended location. next 14 units: average labor per unit = 16 * .729 = Customer Location 2 * 1 = 2 so 11.66 - 2 = $9.66 incremental labor cost Sales 9.66 * 10 =A$ 96.60 / 14 = $6.90 per uni(3,4) overhead cost per unit = $10 $13.80 B (7,2) $60 So $6.90 + $13.80 + $10 = $30.70 per unit Labor -1 hour at $10/hour $6.90 Overhead (200% of Labor) $13.80 Materials $10 Total cost $30.70 C (1,-6) $30 Profit (25% of cost) $7.68 10/10 .1 0 X: 3(.1)+7(.6)+1(.3) .3+4.2+.3 =4.8 60/10 .6 Y: 4(.1)+2(.6)-6(.3) 0 .4+1.2-1.8 =-.2 You should locate your firm at (4.8,-.2) 30/10 .3 0 1a Inventory: The stock of any item/resources used in an organization. Important to manage b/c one of the most expensive assets (10% of revenue, 20% of total assets). Inventory thru out the supply chain: abs value of inventory found on the balance sheet. 1b Categories: Raw Materials: unprocessed purchase inputs. Work-in-process (WIP): partially processed materials not yet ready for sales. Finished Goods: Products ready for shipment. Maintenance, Repair,&Operating (MRO): Materials used when producing (ex. Cleaners&brooms). 1c Types: Cycle (Average): portion of total inventory that varies with lot (or order) size. Average, physical inventory counted on Periodic basis to ensure inventory matches current inventory records, frequent & regular, count certain items at different rates to absorb uneven rates of demand/supply. Safety Stock: Surplus held to protect against uncertainties (demand, lead time, supply). Anticipation: Surplus used to absorb uneven rates of demand/supply. Pipeline: Inventory moving from point to point in the supply chain. AKA as open orders or scheduled receipts. 1d Reasons to HOLD inv: decouple : to maintain independence of operations in a process .hedge against uncertainty: to meet variation in product demand or to provide a safeguard for variation in raw material delivery time. flexibility: to allow flexibility in production scheduling costs: to take advantage of economic purchase-order size&economies of scale. speculative: to take advantage of price fluctuations. Reasons to AVOID holding inv: requires additional space ,opportunity cost of capital, spoilage&shrink, obsolescence, inventory can hide problems, insurance, taxes, etc. 1e.Inventory Turnover = COGS/avg. inventory or Cost of revenue/avg. inventory. 1f EOQ: how much to order. If is goes up, the EOQ increases b/c its in the numerator.√(2RS)/KC) D: annual demand=R/360. S: order cost K: holding rate C: cost purchase cost. ROP: when to order.demand during lead time+(StvDev)(zscore)=ddlt+safety stock=ROP=(R/360)*LT. TAIC: total annual inventory cost (R*C)+(Q/2)(KC + (R/Q)(S)). AHC: annual holding cost (carrying costs) (Q/2)*(k*C). AOC: annual ordering cost (R/Q)(S). APC: annual purchase cost (R*C). 1g Seen as a robust model because it seeks to find an optimal order size that minimizes the sum of two annual costs. When the AHC&AOC are equal, the EOQ model is robust. 1k (Quantity Discount Model) Optimal Order Quantity when price-breaks: Trade off between price&inventory holding costs. 2 Steps: 1. Find which price breaks are feasible starting with lowest using EOQ. 2.Calculate TAIC for each feasible EOQ&at all price break points. Q with lowest TAIC is optimal. 1l EMQ. Economic Manufacturing Quantity Model: √ EMQ = ((2RS)/KC)(P-(P-D)). slowly building inventory over time. Produce part over time. vertically integrated. usually solving for quantity. 2a Forecasting: Provides an estimate of future demand. Must accurately forecast demand to: produce&deliver the right quantities, to satisfy customers, to optimize costs. Goal: Minimize forecast errors. Better matching of supply&demand to: optimize levels of cost, quality, customer service. Problems that affect product&delivery will have ramifications throughout the chain. 2b Benefits of improving: Lower inventory, reduced stock-outs, smoother production plans, reduced costs, improved customer service. Better forecasts result in better customer service&lower costs, as well as better relationships with suppliers&customers. Best way to improve is by focusing on reducing forecast error. Bias is the worst kind of forecast error – strive for zero. 2c Qualitative: based on opinion&intuition. Quantitative: mathematical models&historical data. Time series models are the most frequently used. Associative: cause&effect. 2d Time Series (Quant): historical data is used to predict future demand, assumes that future is an extension of the past. Hard to determine which time series is the best fit. Associative (Cause&Effect)(Quant): Regression analysis, one or more factors (independent variables) predict future demand. 2f Trend: either increasing or decreasing. Seasonality: Show peaks&valleys that repeat over a consistent interval such as hours, days, weeks. Months, or seasons. Cyclicality: wavelike movements that are longer than a year. Random: due to unexpected or unpredictable events. 2g Simple Moving Avg: uses historical data to generate a forecast. Works well when demand is fairly stable over time. Take average of n months of data (sales) to predict next months’ average. Moving because moves forward one month&drops first to calculate next. F =(A +A 5A +A1)/n2 2h3Weig4ted Moving Avg: Based on an n-period weighted moving average. F = A W +A5W +A 1 +1 W 2 2 3 3 4 4 F5=.1(1600)+.2(2200)+.3(2000)+.4(1600). 2i Exponential Smoothing: forecast for next period’s demand is the current period’s forecast adjusted by a fraction of the difference between the current period’s actual demand&its forecast. Only two data points are needed. F =F +α(A -F 3=1620+.3(2202- 1600)=1780. =smoothing constant (0 ≤  ≤1). 2j Limitations of Smoothing Models: Consistently low, bias, under forecasting. Don’t do well when sales are different each month due to trends. Lags behind trends in data, not best in trend application. 2k Linear Trend Forecasting: Ŷ=b + b x. Where:0 1 Ŷ=forecast or dependent variable. X=time variable. B 0 =intercept of the line. b 1slope of the line. Dependent Variable: related to one or more independent variables by a linear equation. Independent: assumed to “cause” the results observed in the past. Simple Linear Regression is straight line (y=a+bx where a=yint b=slope x=ind y=dep). 2l Associative Forecasting: trend can be estimated w/ Simple Regression (Only one explanatory variable is used&is similar to the previous trend model. The difference is that the x variable is no longer a time but an explanatory variable). Ŷ=b + b x. b0t X=e1planatory ind var. or use Multiple Regression (several explanatory variables are used to make forecast): Ŷ=b + b x + b x +0 1 1 2 2 … b x Where: Ŷ = forecast or dependent variable. x =kth explanatory or independent variable. k k k b0=intercept of the line. b kregression coefficient of the independent variable x 2m Fork.ast Error: the difference between actual quantity&the forecast. e = A -tF Whtre: t = forecast error for Period t. A = t actual demand for Period t. F = torecast for Period t. 2n Mean Absolute Deviation (MAD): MAD of 0 indicates forecast exactly predicted demand. mean/average deviation. Forecast Error for Period T / Number of Pairs of Forecasts&Actuals or # of errors. 2o Mean Squared Error (MSE): Comparable to variance, large forecasting errors are heavily penalized. (et1^2)+(et2^2)/n. square error in every time period, then add, divide by n. 2p Mean Absolute Percentage Error (MAPE): Provides a perspective of the true magnitude of the forecast error. (Actual error/actual demand or sales)(100). 2q Running Sum of Forecast Error (RFSE): Indicates bias in the forecast or the tendency of a forecast to be consistently higher or lower than actual demand. Simply add all errors. 2r Tracking Signal (TS): determines if the forecast is within acceptable control limits. If the tracking signal falls outside the pre-set control limits, there is a bias problem with the forecasting method&an evaluation of the way forecasts are generated is warranted. Is this a good fit, acceptable? RSFE/MAD = +- 4 is usually an acceptable amount of bias for a model to be good fit. 2t CPFR: Collaborative Planning, Forecasting,&Replenishment: 9 step process for supply chain integration that allows a supplier&its customers to collaborate on making the forecasts by using the Internet. A business practice that combines the intelligence of multiple trading partners in their planning&fulfillment of customer demand. Links sales&marketing best practices, such as category management, to supply chain planning processes to increase availability while reducing inventory, transportation&logistics costs. The real value comes from sharing of forecasts among firms rather than sophisticated algorithms from only one firm. Does away with the shifting of inventories among trading partners that sub-optimize the supply chain. CPFR provides the supply chain with a plethora of benefits but requires a fundamental change in the way that buyers&sellers work together. CPFR Model Step 1: Collaboration Arrangement Step 2: Joint Business Plan Step 3: Sales Forecasting Step 4: Order Planning/Forecasting Step 5: Order Generation Step 6: Order Fulfillment Step 7: Exception Management Step 8: Performance Assessment. 2v Naive forecast: last period’s actual demand is used as this period’s forecast. F 5 A 34.Lean: a systematic approach to identifying&eliminating waste or non-value added activity in business processes. Value Added: an activity that increases market form or function of the product. Operational Benefits of Lean: reduce space requirements, reduce inventory investment, reduce lead times, increase labor productivity, increase equipment utilization, reduce paperwork with sample planning systems, valid priorities for scheduling, workforce participation, increase product quality. 3c Continuous Improvement: stable methods to maintain predictability, regular timing, foundating for flow&pull, always improving. All can be achieved by Toyota way. 3d Six Sigma: Define,Measure,Analyze,Improve,Control. Six Sigma=TWM+SPC+aggressive goals. Six Sigma Quality: 3.4 defects per million.Typical processes generate about 35k defects (3.5 sigma) per million.Focuses on reducing spread&centers process (leaning). Quality management leads to better lean. 3e Deming: Lead Japanese quality resolution after being ignored by US companies. Focused on reduction of variability through tools&techniques - Statistical Process Control. 14 points (what managers need to do to be successful) were a message to management. 85/15 rule = 15% of workers’ success is based on knowledge, skills,&ability&85% is based on systems&management. Quality as a management responsibility that required fundamental change&a long term (3 to 5 years) time horizon. Quality as an organization-wide activity, rather than technical task for quality specialists. Quality: Common variation is an inherent part of any process. Managers are responsible for the common variation in a system; they set the policies&procedures. Workers are not responsible for the problems of the system, that is, common causes of variation. The system primarily determines the performance of workers. Only management can change the system. Thus, Deming assumes that lack of competitiveness is a result of ‘failure of top management to manage.’ Juran: Focused his arguments on the cost of quality&used data to shock management into action. Quality: Not just conformance to specifications, but “fitness of use”–something could fit all specifications but not meet customer’s needs, then it is not fit. Categorized the Cost of Quality: Detection/appraisal costs–lean, maybe wasteful–ideally pay more in prevention. Prevention Costs-costs to prevent problems. Internal Failure costs-finding a problem while making it. External failure costs-when problems occur after product is in consumer hands. Highest costs, hope to avoid with prevention costs. The farther you are from where the problem occurs, the more it costs. Crosby: First to focus on zero defects being the goal. Before him, people thought of an optimum level of defects, but he said work towards zero. Quality: conformance to requirements, not goodness or elegance. “Quality is Free” because quality management leads to saving which pays for itself. There is no such thing as a quality problem. Poor quality results from a design, manufacturing, or other type of problem. 3h Statistical Process Control (SPC): understand&control unavoidable defects. Build quality in at the source. Process capability: is our process capable of meeting our expectations? Use process capability ratio or index to measures to determines this.Type I error (Producer’s Risk) occurs when the employee concludes that the process is out of control based on a sample result that falls outside the control limits, when in fact it was due to pure randomness. Type II error (Consumer’s Risk) occurs when the employee concludes that the process is in control&only randomness is present, when actually the process is out of statistical control. 3k Muda: muda waste. Poka-yoke: mistake proofing. Makes it very difficult to make a mistake. Contingent on employee who is processing. Waste: excess inventory, over productions, defects, waiting, over-processing, unnecessary movement, unnecessary transportation, underutilized people. 3l Kanban: helps control inventory 3m 5S’s: Sort, Set-In-Order, Shine, Standardize: make up rules for first 3 S’s. make them easy to follow. Sustain: Enforce&follow the standardizations. Takes discipline to implement into everyday life. Following 5 S’s can reduce space required as well. This is done so work is done efficiently&mistakes/extra costs can be avoided.3n Small Batch: creating a few products of each in small batches as opposed to traditionally producing one of each product, then next, then the next. One piece flow requires the ability to change from one part/SKU to another quickly (minimal setup time) Long set ups are bottlenecks. Small batch goal is batch size of one, single piece flow, uniform process times.3o DMAIC improvement cycle: Define: the problem or project based on customer needs&priorities. Measure: the process, output,&defects (SPC). Analyze: the data collected to discover&verify causes of the problem (hypothesis testing, correlation, other statistical tools). Improve: the process using quality tools. Control: the process going forward to maintain progress 4a Bottleneck: constrained resource where demand on it exceeds its capacity. Typically, the bottleneck determines the system capacity. 4c Capacity: the maximum average rate of output of a process or system. the rate of output from an operations management system, a variable in the long term, a constraint in the short term. Capacity must be managed because it is a major determinant of cost&customer service. 4b Capacity&Bottleneck: Bottleneck determines capacity. product change-overs, preventative maintenance, machine/tool breakdowns, quality problems, machine starvation&blockage. 4e Theory of Constraints: Constraint: any factor that limits process or system performance&restricts its output. 1.Identify system bottleneck. 2.Exploit bottleneck. 3.Subordinate all other decisions to Step 2. 4.Elevate the bottleneck(s) long term. 5.Do not let inertia set in. Focus is on balancing flow, not balancing capacity. maximizing output&efficiency of every resource will not maximize the throughput of the entire system. an hour lost at a bottleneck or constrained resources is an hour lost for the whole system. An hour saved at a non-constrained resource does not necessarily make the whole system more productive. inventory is needed only in front of the bottlenecks to prevent them from sitting idle,&in front of assembly&shipping points to protect customer schedules. Building inventory elsewhere should be avoided. work should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to market demand. Pacing everything to the slowest resource minimizes inventory&operating expenses. Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures. . Freight Cost: 1.determine freight rate(Rt). Order Quantity*Weight=QW. Answer is above or below truck load which determines Rt. 2.determine freight cost = Distance*Weight in Tons * Rate. W=(annual requirements*weight)/2000. Average Inventory Costs (AHC): determine average inventory then carrying. (Q/2)kc. K:Inventory Carry Rate R:Annual Requirements Q:Order size W:weight S:Order Processing Cost WC:cost of working capital C:cost Terms: benefit to company b/c decreases costs. 2%10net30 says if paid in 10 days, 2% discount OR pay in 20. Working Capital Savings=annual purchase $*(rate*payment days/360+discount) EX: Net 30 = $6M * (10%*(30/360)+0%) = $50,000&2% net 10 = $6M * (10%*(10/360)+2%). Choose higher option b/c means more savings. Expenditures Price&Annual Usage: made up of all cost associated w/ acquisition, use,&maintenance of a G/S= APC+AHC+AOC+Freight-Highest Payment Term. Annual Purchase Cost (APC): Annual Require*Cost. Annual Order Costs (AOC): (R/Q)S TCO evaluating suppliers: calculate TCO for each supplier&pick lowest cost, convince suppliers to increase order quantity to make cheaper, etc. Purchasing Goals: ensure uninterrupted flow of raw mats&services at lowest cost (assurance of supply), improve quality of goods/services, optimize customer satisfaction. actively seeking better materials, work closely w/ strategic/reliable suppliers to improve quality, involve suppliers&purchasing personnel in new product, process, service, design&development. Successful Purch. Dept: interpersonal communication, ability to make decisions, ability to work in teams, analytical skills, negotiation skills, customer focus, ability to manage change, influencing&persuasion skills strategic skills, understanding business conditions Procurement Process: 1.Material Requisition, search for suppliers 2.Request Quote(RFQ), evaluate&pick. 3.Purchase Order (PO), buyers offer becomes binding. Managing Small Dollar Purchases: processing/transaction costs can be substantial so important to keep low. Buy: Horizontal integration. trend has moved towards outsourcing. cost advantage, insufficient capacity, lack of expertise, quality. Make: Vertical Integration. protect proprietary technology, no competent suppliers, better quality control, control of logistics, low cost. Insourcing: Producing items in house. Single Supplier: good relationship, less quality variability, low cost, transportation economies, proprietary product or process, volume too small to split. Riskier to only have one. Supplier Selection: product&process tech, willingness to share tech&info, quality, cost, reliability, order system&cycle time, capacity, communication capability, location, service. Relationship Management: Building Trust: partners more willing to work together, find compromise solutions to problems, work toward long-term benefits for both parties/go to extra mile; Shared vision/objectives: both partners must share same vision&have obj. that are clear/mutually agreeable, focus must move beyond tactical issues&toward a more strategic path to corporate success; Personal relationships: it is people who comm./make things happen; Mutual Benefits/needs: partnership should result in a win-win can if both comp. have compatible needs; Commitment/Top Management support: commitment must start at highest management level, partnerships successful when top execs actively support partnership; Info sharing&lines of communication: both formal&informal lines of comm. should be set up to facilitate free flow of info/high trust, info. systems serve more effectively, confidentiality of sensitive financial, product,&process info. must be maintained; Capabilities: suppliers right tech.&capabilities to meet cost, quality,&delivery requirements; in addition, suppliers must respond quickly to changing cust.requirements; Can’t improve what you can’t measure (metrics): measures related to quality, cost, delivery,&flexibility used to evaluate suppliers; Metrics should be 1) understandable 2) easy to measure 3) focused on real value added results; a multi criteria approach is best to measure performance; Total cost of ownership, made up of all costs associated w/ acquisition, use, &maintenance of a G/S; ex: cost/price, quality, delivery, responsiveness & flexibility, env., tech., business metrics, TCO; Continuous improvement: process of eval. suppliers based on a set of mutually agreed performance measures provides opp. for continuous improvement making a series of small improvements over time results in elimination of waste in a system; buyers/suppliers must be willing to improve capabilities in meeting cust. requirements of cost, quality, deliver,&tech. Weighted avg scorecard to evaluate supplier perform: select key dimensions of performance mutually acceptable to both customer&suppler; monitor&collect performance data; assign weights to dimensions; evaluate performance measures between 0-100; multiply dimension rating by weight&sum overall score; classify vendors based on their overall score: unacceptable, conditional, certified, &preferred; audit&perform ongoing certification review (Rating X Weight) Supplier Certification: refers to an organizations process for evaluating quality systems of key suppliers in an effort to eliminate incoming inspections; Supplier eval: a process to identify best&most reliable suppliers, sourcing decisions are made based on facts&not merely on perception, providing frequent feedback on supplier performance can help avoid surprises&maintain good relationships, suppliers should be allowed to provide constructive feedback to customer; ISO 9000: developed by international organization for standardization- series of management&quality standards in design, development, production, installation,&service, U.S. companies wanting to sell in global market seek ISO 9000 certification; ISO 14000: family of standards for environmental management; benefits include reduced energy consumption, environmental liability, waste&pollution,&improved community goodwill Supplier Development/Benefits: refers to buyer’s activities undertakes to improve a suppliers performance and/or capabilities based on following approach: identify critical products&services, identify critical suppliers, form a cross functional team, meet w/ top management of supplier, identify key projects, define details of agreement, monitor status&modify strategies; benefits: less incoming defects, more on time deliveries, shorter cycle times, more orders received complete; allows firms to focus more on core competencies, while outsourcing noncore activities to suppliers Reverse Auction: Pre-qualified suppliers enter website&at pre-designated time&date, try to underbid competitors, monitoring bid prices until session is over; A type of auction in which sellers bid for prices at which they are willing to sell their goods&services. In a regular auction, a seller puts up an item&buyers place bids until close of auction, item goes to highest bidder. Reverse auction works only when there are many sellers who offer similar goods&services. poor way to build long term supplier relationships; useful tool for buying non critical&leveraged commodities. Corporate Strategy: strategic commodity management is a process that links purchase strategy to corporate strategy; commodity mgt answers questions like which suppliers to use&how many; what are past expenditures by commodity&supplier, insource or outsource, local or global, single dual or multiple source Functional product: low profit margins w/ relatively stable demands&high levels of competition; concentrate on finding a dependable supplier selling at low price, low cost, low PM, long life cycle, lower forecast variability, staple items, limited product options&variety, stable demand, usually mass produced w/ little variety; EFFICIENT SC Innovative product: short product life cycles, volatile demand, high profit margins,&relatively less competition; Amazon Kindle&GM’s Volt, might be new types of products; sourcing criteria for these products may be more closely aligned w/ suppliers quality reputation, deliver speed&flexibility, high cost, high PM, short life cycle, high forecast variability, fashion items, many product options&variety, seasonal demand, hard to predict demand, cell phones, RESPONSIVE SC Green sourcing: making environmentally conscious decisions throughout purchasing process, beginning w/ product&process design,&through product disposal; Vendor managed inventory (VMI): suppliers manage buyer inventories to reduce inventory carrying costs&avoid stock outs for buyer. Sourcing Strategy: managing firm’s external resources to support firm’s long term goals. Reduce costs & delivery cycle times, improve quality, long-term financial position, increase # of global competitors, reduce high cost of globalization, deliver more innovative products frequent&cheap. How an org. can be good cust: pay on time, benefit is having repeat customers, model behavior, do what you say you’re going to do Supply Base Optimization: improve supplier quality. get rid of poorly performing suppliers, often initial SC management effort, buyer supplier partnerships are easier w/ rationalized supply base&result in reduced purchase prices, fewer supplier management problems, closer&more frequent interaction between buyer&supplier, greater levels of quality&delivery reliability Measurement/rewards: rewarding suppliers provides incentive to surpass performance goals, punishment is negative reward&may reduce future business or a bill back amount equal to incremental costs resulting from a late deliver or poor quality, you can reward suppliers by: a share of cost reduction, more business and/or longer contracts, access to in house training seminars&other resources, company&public recognition; benchmarking: copying what other business do best, an effective way to improve SC performance, benchmarking data regarding sourcing practices can be obtained in any number of ways both formal&informal Early supplier involvement: a process involving key suppliers during product design&development stage to take advantage of their knowledge&technologies; highly effective supply chain integrative techniques; key suppliers become more involved in internal operations of firm, particularly w/ respect to new product&process design, concurrent engineering&design for manufacturability techniques; value engineering activities help firm to reduce cost, improve quality&reduce new product development time. Time&Place Utility: trying to get things to right place at right time. products have little value to customer until moved to customer’s point of consumption; transportation is what creates efficient flow of goods between supply chain partners; time utility is created when customers get products delivered at precisely right time, not earlier&not later; logistics function creates time utility by determining how deliveries can be made in a timely manner&where items should be held prior to delivery; place utility is created when customers get things delivered to their desired locations. Trucking is most important (80% of transport in US). 5 Modes of Transportation: Motor(truck): most flexible mode of transportation&account for over 80% of U.S. freight. Trucks compete w/ rail&air for short to medium hauls. Weather is primary disadvantage; Less than truckload carriers or truck load carriers- LTL carriers move small shipments&fees are higher; general freight carriers: carry majority of goods shipped&include common carriers; specialized carriers: transport liquid petroleum, household goods, building materials,&other specialized items; Rail: compete most favorably when distance is long&the shipments are heavy or bulky, rail relatively slow&inflexible, rail roads have begun purchasing motor carriers&can thus offer point to point pickup&delivery service known as trailer on flatcar service, rail companies use each other’s rail cars, keeping track of rail cars&getting them where they are needed can be problematic, railroad infrastructure&aging equipment are also problems for railroads; Air Carriers: very expensive relative to other modes but also very fast, Air carriers transport about 5% of U.S. freight bill, airlines cannot carry extremely heavy or bulky cargo, for light, high value goods that need to travel long distances quickly, most small cities&towns do not have airports, half of goods transported by air are carried by freight only airlines, FedEx; Water: Inexpensive, slow&inflexible, include inland waterway, coastal&inter-coastal&deep see, inland waterway transportation is used for heavy, bulky, low value materials (ex: coal, grain), competes w/ rail&pipeline, water carriers are paired w/ trucks to enable door to door delivery, supertankers are +1500 ft. long&200ft wide; Pipeline: limited in variety they can carry, little maintenance once pipeline is running. Materials hauled in a liquid or gaseous state Intermodal Transport: combinations various transportation modes; becoming extremely popular&makes movement of goods much more convenient&efficient. Trailer-on-flatcar (TOFC), Container-on-flatcar (COFC) piggy-back service- same containers can be placed on board containerships&airlines; these combinations attempt to combine flexibility of motor carriers w/ economy of rail and/or water carriers; RORO’s or roll-on-roll-off containerships- truck trailers, automobiles, heavy equipment&specialty cargo&containers directly driven on&off ship, w/out use of cranes; fastest growing mode of transportation; benefits: can go long distances Free on board (FOB): when does ownership of goods transfer from supplier to buyer; transfer of ownership; FOB destination (supplier owns): in transit; for high value shipments, small shipments, or when buyer has little transportation expertise, FOB origin (buyer owns) in transit; it is important for implications for declaring an asset&insurance claims Gov. regulation/deregulation in transportation markets: Pros: free market, competition, entry&exit, market set price; Cons: firmness, market access; note, U.S. transportation industry essentially deregulated today; regulation is argued by many to be good in that it tends to assure adequate transportation service throughout country while protecting consumers in terms of monopoly pricing, safety&liability; Deregulation: argued to be good because it encourages competition&allows prices to adjust as supply, demand&negotiations dictate Manage Transport Commod: effective management transportation includes: creating long term relationships w/ key transportation providers; reviewing modes of transportation that you are using; benchmarking against other shippers that are shipping similar goods; measuring performance of your transportation providers&optimizing supply base. SC integration: Improve existing supplier performance capability which should improve supplier quality (Reactive or proactive), develop a new performance capability (proactive), early involvement recognizes that competent suppliers have more to offer a purchaser than simply producing an item according to buyer provided specifications; At least half of quality problems between customer&supplier are caused by poor specifications Difficulties w/ integration: silo mentality: failing to see big picture&acting only in regard to a single department w/in firm or a single firm w/in supply chain; Lack of supply chain visibility, Lack of trust, lack of knowledge. Good SC integration: identification of key trading partners, development of SC strategies, aligning strategies w/ key process objectives, developing internal process performance measures, internally integrating these key processes, developing external SC performance measures for each process, externally integrating key processes w/ SC partners, extending process integration to second tier SC participants&then, re-evaluating integration model periodically. Performance Measures: measurement is critical during supplier evaluation&during normal course of business; can’t improve what you aren’t measuring; firms need to develop an entire system of meaningful performance measures to become&then remain competitive, particularly when managing SC is one of imperatives. Performance measurements are a critical part of supply chain integration. Metrics help to create common/shared goals for all key trading partners in a supply chain. Metrics help to communicate those shared goals, show progress towards those goals,&serve as a means of evaluating how individual companies&the supply chain as a whole are doing regarding progress towards goals; measurements in your SC must support overall company strategy; diff SC (efficient vs. responsive) may need different measurements of performance; key trading partners need to be involved in developing SC performance measurements as this impacts gaining partner buy in to measurement system Successful measurement system: focus of this system should be on value creation for end customers; performance measurement system s for SC must effectively link SC trading partners to achieve breakthrough performance in satisfying end users; demand-driven networks: idea is to design supply chains w/ enough flexibility to respond quickly to changes in marketplace; good performance measurements will support corporate objectives; good performance measurements help to achieve SC integration; world class performance measurements help drive desired behavior in SC consistent w/ company objectives by creating correct incentives. SC riskier Today: fewer suppliers, lean, JIT, global, lengthy SC, what to do: profile risk, understand likelihood, understand impacts, plans to reduce risk or mitigate impact; Supply chains today are lean which is a positive but it increases risk. Because supply chain is lean there is not much buffer if something goes wrong. Supply chains today are long&global, increasing chances that an event in some distant part of globe will impact you. We’ve reduced number of suppliers, so this increases risk if something should happen to a supplier. Examples: weather, terrorism, fire, natural disaster, a key supplier going bankrupt, a supplier shipping poor quality parts Risk: any event that could disrupt our supply chain Minimize Risk: increase safety stocks&forward buying, identify backup suppliers&logistics services, diversify supply base, utilize a supply chain IT system, develop a formal risk management program; Companies should assess risks they face in their SCs. They should understand probability of disruption occurring. Also, they need to estimate what impact will be if disruption occurs. Finally, for high risk, high impact issues, company should develop&put in place contingency plans. These may include holding inventory, finding additional suppliers, designing in back up parts, business continuity insurance,&so on. Costs/Risks of Global Sourcing: Requires additional skills&knowledge to deal w/ international suppliers, logistics, communication, politics, etc. Independent Demand: Demand for final products. Has patterns, trends, seasons, general mkt conditions. Dependent: depends on product’s demand. Ex: subassemblies, parts, raw materials. Planning Challenges: Balancing workload&capacity, complicated by uncertainty of environment. Production scheduling drives material requirements. Missed date or stock-out may cascade, magnifying bullwhip. Planning Horizon: cumulative or total lead time. How long you need to plan ahead for a product. Total LT=production time+LT(longest). Safety stock. Master Production Schedule: how much to produce each week. Disaggregating production plan, list exact end items to be produced by specific period. More detailed than AAP. Planning horizon is shorter than APP, but longer lead time. Materials Requirement Planning (MPS): comp-based materials management system. Calculates exact quantities, dates,&planned order releases for subassemblies&materials required. Requires: inputs-independent demand, bill of materials, inventory status of final product. Outputs- Planned order release. Capacity Requirements Planning (CRP): determine available production capacity. Weighs scheduled&actual production capacity to see if schedule is doable. Available to Promise (ATP): sales tool - can we accept new orders? MPS decides if acceptable. To calculate: Period 1=Begin Inventory (BI)+MPS-Committed Customer Orders(CCO). Period 2&on=MPS-CCO. If ATP is negative, must reduce/alter previous weeks ATP to cover shortages. Chart shows how many extra you can sell & when. Bill of Materials: (BOM) shows all parts&subassembly for product like a recipe. All quantities&materials needed. Level 0: finished goods Level 1: Subassembly Level 2: all parts required Level 3: raw materials. Quantity Per: planning factor. Requirements*factor=# of components needed. Parent: item generating demand for lower-level components. Components: parts demanded by parent. Gross requirement: a time-phased requirement prior to netting out on-hand inventory & lead-time. Net Requirement: unsatisfied item requirement for a specific time. Gross req for period minus current on-hand inventory. Scheduled Receipt: committed order awaiting delivery for a period. Projected on-hand Inventory: projected closing inventory at end of period. Begin inv-gross requirements+scheduled receipt+planned receipt+planned receipt for planned order releases. Planned Order Release: specific order to be released to shop or to supplier. Time Bucket: time period used on MRP. Days/weeks. Explosion: process of convertine a parent item planned order release into component gross req. Planning Factor: number of components needed to produce a unit of parent. Firmed Planned Order: planned order that MRP computer logic system does not automatically change when conditions change to prevent system nervousness. Pegging: relates gross requirements to planned order release. Low-Level Coding: assigns lowest level on BOM to all common components to avoid duplicate computations. Lot Size: order size for MRP logic. Safety Stock: protects against uncertainties in demand supply, quality&lead time. Distribution Requirements Planning: time-phased finished good inv replenishment plan in a distribution network. Logical extension of MRP system&ties physical distribution to manufacturing plan/control systems. Module 3 – Sourcing & Logistics Detailed Learning Objectives 1 – Total cost of ownership (TCO) 1a – Compute freight costs based on weight (in tons), distance and freight rate (based on full truck load or partial truck load). 1b – Compute inventory holding costs after determining average inventory. 1c – Compute the cost impact from payment terms and explain in your own language why this represents a cost savings to the buyer. 1d – Calculate total expenditures based on price and annual usage 1e – Explain in your own words how to apply TCO techniques for evaluating supplier quotes 3 – Purchasing 3a – List the primary goals of purchasing and explain how purchasing can contribute to these goals. 3b – List and define the steps in the procurement process 3c – Explain the benefits of electronic purchasing 3d – Explain why companies must effectively manage small dollar purchases 3e - List the reasons why a company chooses to outsource an item and the reasons for making it 3f – Calculate the make-buy break-even point and apply the results 3g – List the reasons for having a single supplier and the reasons for having more than 1 supplier and explain in your own words the benefits that preferred suppliers provide customers 3h – Identify the criteria for selecting suppliers 4 – Supplier relationship management 4a – List the keys to successful supplier partnerships and explain the importance of metrics and continuous improvement for supplier relationship management 4b – Explain in your own words how companies can analyze their commodity portfolio and identify critical strategic commodities 4c – Use the weighted average scorecard to evaluate supplier performance and apply the results 4d – Define supplier evaluation, ISO 9000 and 14000 and supplier certification 4e – Define supplier development and explain the benefits of doing supplier development 4f – Define a reverse auction and list the goals and risks of using reverse auctions 5 – Strategic sourcing 5a – Define a sourcing strategy, how it relates to the corporate strategy, and provide examples of the types of questions you would answer thru your sourcing strategy. 5b – Define a functional product, provide examples of functional products, explain the characteristics of functional products, explain which type of supply chain is most relevant to functional products 5c - Define an innovative product, provide examples of innovative products, explain the characteristics of innovative products, explain which type of supply chain is most relevant to innovative products 5d – Explain the importance of strategic sourcing as a tool to help companies achieve strategic goals and how your sourcing strategy must support the objectives of your product. 5e – list the skills needed today in a successful purchasing department. 5f – define – Green sourcing and VMI 5g – discuss the commodity portfolio. Discuss the differences between non- critical, leverage, bottleneck, and critical commodities. Discuss the differences in strategy for each. 6 – Supplier quality 6a – Identify how an organization can be a good customer and explain the benefits 6b – Explain the importance of supply base optimization to improving supplier quality 6c – Explain the role of measurement and rewards for improving supplier quality 6d – Define early supplier involvement and list the potential benefits 7 - Transportation: a) Explain why transportation is necessary to a supply chain and the objectives of transportation b) Define time and place utility c) Define the 5 modes of transportation, provide examples of the types of goods suitable for each mode of transportation, and explain the strengths and weaknesses of each mode. d) Define intermodal transportation, provide examples of intermodal, and explain the benefits of intermodal. e) Define FOB – free on board f) Explains the pros and cons of government regulation/deregulation in the transportation markets. g) Explain how your transportation commodity should be managed. 9 – Supply chain integration a) Define supply chain integration b) Why is supply chain integration so important today c) Describe some difficulties involved with integration d) Define some of the keys to successful supply chain integration 10 – Performance measurements a) Explain the importance of performance measurements b) How do performance measurements help with SC integration c) Discuss some keys to developing a successful measurement system. 12 – Supply chain risk a) Why are supply chains riskier today b) What are some examples of risk in a SC c) How do you define risk d) What should companies do to minimize risk and reduce the impacts if a disruption occurs 13 – Global supply chain management a) Discuss the risks involved in global commerce b) Discuss some of the added costs involved with global sourcing 14 – Aggregate Planning (Chapter 16) 2a – Define dependent and independent demand 2b – Explain in your own words the challenges of resource planning and its importance 2c – List some techniques companies use to deal with uncertainty 2e – Explain the hierarchical resource planning model –master production planning (MPS) and materials resource planning (MRP) 2g – Define MPS and its corresponding capacity check, rough cut capacity planning 2h - Define MRP and its corresponding capacity check, capacity requirements planning CRP 2j - Calculate the Master Production Schedule based on forecast and beginning inventory 2k - Perform the MRP explosion process to calculate planned orders for components based on the Master Production Schedule (from objective 2i) and beginning inventory 2m - Calculate and define Available to Promise and interpret the results of the ATP calculation 2n - Define the Bill of Materials (BOM) and apply the planning factor to determine how many components are needed to produce the product. 2p – define all the Terms Used in MRP (examples – parent, component, gross requirements, etc) 2q – Define Distribution Requirements Planning (DRP) and explain how DRP is used to calculate total demand for factory production (or from the central warehouse.) Question 1 – Learning Curve. You ordered 2 units of a product from a supplier, and this product typically demonstrates a 90% learning curve. You plan to buy an additional 14 units for a combined 16. The price per unit on the original 2 units was $50 each ($100 total for the 2) and you have the following information: Labor - 1 hour at $10/hour $10 Overhead (200% of Labor) $20 Materials $10 Total cost $40 Profit (25% of cost) $10 Per unit price $50 What’s a reasonable estimate of cost and price based on the learning curve benefit for the additional 14 units? Assume the per hour labor rate, overhead percentage and profits percentage remain constant. Units Avg. labor 2 1 hr 4 1*.9 =.9 8 .9*.9= .81 16 .81*.9 = .729 Incremental labor for next 14 units: average labor per unit = 16 * .729 = $11.66 2 * 1 = 2 so 11.66 - 2 = $9.66 incremental labor cost 9.66 * 10 = $ 96.60 / 14 = $6.90 per unit * 2 overhead cost per unit = $13.80 So $6.90 + $13.80 + $10 = $30.70 per unit Therefore: Labor -1 hour at $10/hour $10 Overhead (200% of Labor) $13.80 Materials $10 Total cost $30.70 Profit (25% of cost) $7.68 Question 2 – Risk Pooling. You have 4 warehouses today and you plan to reduce that to 1 central warehouse. You have 5,000 units of inventory today. How much inventory will you have to hold after you make this change assuming a constant service level? (15 points) S2=(√1/√4)*5000 S2=(1/2)*5000 S2= 2,500 Question 3 – Location Break Even Analysis Use the breakeven model to determine the range of volumes over which each site is preferred. LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS Site A $6000 $10 Site B $1000 $30 Site C $5000 $20 B Cost C A: 6000+10x A B: 1000+30x C: 5000+20x AB: 6000+10x=1000+30x X=250 AC: 6000+10x=5000+20x 100 250 400 Quantity X=100 BC: 1000+30x=5000+20x X=400 Question 4


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