Supply Chain

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Suppose a firm operates gas turbine power plants in 50 different locations in the Asia region. It is important that the power plant operates with minimal disruptions, and therefore having spare parts inventories are very important. The severity of the disruptions depends on which component fails. Hence, the different spare parts can be divided in 3 categories:

1. Very critical parts: failure will result in turbine shut down and failure to start 2. Medium critical parts: failure will not immediately result in turbine shutdown but will deteriorate the power generation quickly.

3. Non critical parts: failure will not result in turbine shut down or failure to start
There are a few medium critical parts which if one of the parts fail in the plant, the firm will need the spare part latest by next day at that plant location. These parts are quite reliable, that is, their mean time to failure is as long as 1 year but they are very expensive. Each part can cost at least $100,000. Hence the parts are very costly to hold as inventory. The firm is looking for a supply chain solution that can meet its needs.

(a) What is the competitive strategy if you want to service this firm? (b) What supply chain infrastructure and flows do you think would be appropriate to service this customer? You will need to justify your recommendation. (You can surf the internet to get some ideas. Use keywords such as “critical spare parts”, “next day delivery”)

1a) Since the parts that are needed only have the next day as the dateline, responsiveness is the priority. Of course, high responsiveness and low cost is the ultimate goal to work towards.

1b) Since the customer will demand spare if they require spares, the process will be a "pull" process. Infrastructure required will be a warehouse that is near to the plant if possible. Since mean failure is 1 year, we can store 2 of each medium critical and very critical spares in the warehouse for within 1 day transportation when the customer...
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