Simulation

Topics: Standard deviation, Cost, Business school Pages: 27 (1928 words) Published: April 15, 2015
Global Supply Chain
Management Simulation
Debrief Slides

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1

Board Members’ Objectives
Member

Objective

Betty

Forecasting: choice of options (consensus vs.
mean)

Doug

Forecasting: choice of options (role of risk)

Yvonne

Stocking Levels: Weighing the costs of
over/understocking

Meryl

Production flexibility: accurate response/
sourcing strategy (focus on flexibility)

Paul

Production flexibility: accurate response/
sourcing strategy (focus on demand uncertainty)
2

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2

1. Betty?

3
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3

1. Betty: Forecasting Room Choices
• Consensus forecasts can be
problematic:
– Can be skewed by interpersonal
dynamics: e.g. person with power or
“squeaky” wheel can dominate
– Can lose valuable information about
variance in opinions
• Betty believes that using the mean of
the forecasters for your point estimate
is a better choice than the consensus.
• Betty withholds her vote if you choose
an option that has:
– Consensus forecast ,
– Mean forecast , and
– No change in profitability
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4
4

The Details: Betty’s Criteria
Betty withholds her vote if you choose a
High Consensus/Low Mean option.
There were 6 such options (Model A):

5
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5

2. Doug?

6
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6

2. Doug: Forecasting Room Choices
• It is critical to consider forecast
variance when making product
design decisions and production
planning decisions.
• High variance among forecasters is
often a sign of demand uncertainty.
Doug believes the slight increase in
demand may not be worth the
associated risk.
• Doug withholds his vote if you
choose an option that has:
– High risk (high standard deviation
among forecasters)
– Low (or no) increase in demand
– No change in profitability
7
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7

The Details: Doug’s Criteria
Doug withholds his vote if you choose a
High Variance/Low Mean option
There were 4 such options (Model A):

8
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8

Full Option Detail (Model A)

9
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9

3. Yvonne?

10
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10

3. Yvonne: Risks of Over- and Underproduction
• When planning production levels, it is
important to weigh all costs.
• “Indirect costs” such as stockout and
markdown or liquidation costs are
often not obvious on a P & L, but can
be significant.
• “Newsvendor problem” in complex
setting
• Yvonne looks at your expected ending
inventory. You get her vote if you
choose to:
– Overproduce when the markdown
cost < stockout cost
– Underproduce when the markdown
cost > stockout cost
11
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11

The Details: Production Levels
In year 1, the cost structures and demand forecasts
(assuming no options are):
Cost Structure...
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