Supply Chain Management
Group work 2: HP DESKJET PRINTER SC
Tom van der Laan
PTMSc16: June 6th 2013
1. Consider the solution alternative - placing scientifically based inventory system, (say Periodic review system) - to solve inventory-service crisis. Estimate cycle inventory, safety inventory and pipeline inventory, for all desk jet printer models, to achieve 95% cycle service level (under the option of sea shipment mode). Estimate the annual average supply chain inventory cost (do not forget to include the cost of pipeline inventory in the annual average supply chain inventory cost).(3 points) All the frameworks that we have drawn in this group work show as well the formulas that are used as the explanation in text. All the figures that concern demand data (like the average monthly demand of AB printers of 15.830 units) are taken from the demand table in Appendix 1. Also we have rounded all number to whole numbers in between the calculations to keep the explanation in text aligned with the results of the calculations. The table below shows that the cycle inventory is 1.828 units, the pipeline inventory is 18.280 units and the safety inventory is 2.703 units, all to achieve a 95% cycle service level (under the option of sea shipment mode). The annual average supply chain inventory cost are $4.654.950.
2. Consider the solution alternative - using Air Transport - to solve inventory-service crisis. Assess the economic impact of air transport solution to provide 95% cycle service level. Which mode of transport would you choose when you tradeoff inventory cost savings and transportation cost increase?(5 points) The table on the next page shows that the annual average supply chain inventory cost under the option of air transport are $1.768.650. Question 1 has shown that the annual average supply chain inventory cost under the option of sea shipment mode are $4.654.950. Hence this shows $2.886.300 of possible inventory cost savings when switching from sea to air transport. However, the transportation cost of switching from sea to air transport would raise by $3.799.220. Hence overall, switching from sea to air transport would result in an increase of cost of $912.920. Therefore we would choose for the option of sea shipment mode.
3. The Marketing Department is concerned about increasing competition from other manufacturers and has proposed that the cycle service level for all products be raised to 99%. What is the annual average cost of achieving 99% service level for option AB, assuming all products are shipped by sea?(3 points) The table below shows that the annual average cost of achieving 99% service level for option AB, assuming all products are shipped by sea, are $5.327.400.
4. A detailed market study shows that only a small segment of the European market, representing 30% of sales, requires the 99% cycle service level. HP can maintain its competitive position in the rest of the European market with its current 95% service level. The Logistics Department has proposed a differentiated service policy whereby inventory is physically separated and allocated to each of the two market segments in order to achieve the 99% and 95% cycle service level, respectively. What is the cost impact of such a policy, compared with the practice of providing the higher service level to all customers (as addressed in Question 3)? Should this practice be adopted? (Assume that all products are shipped by sea; Assume that demand between the two segments is uncorrelated; Hence the mean and variance of demand is split in the same percentage level (70 / 30 ) across two segments). (6 points)
Question 3 shows that to improve the service level from 95% to 99% for all customers, the cost will raise with $5.327.400 - $4.654.950 = $672.450. When you would do this for only 30% of the customers you would expect this extra cost to be...
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