1. OM 783 Supply Chain Strategy and Analysis
Steel Works, Inc.
OM 783
Supply Chain Strategy and Analysis

2. Background of Steel Works, Inc.
Annual sales of $400 Million?
Can this be possible given information in case?
Conflicting data? What do we do about it?
5 Locations
Custom division
Develop products for single customer
Specialty division
Sell custom products to other companies at higher price

3. Inventory

4. What is the objective? Stay in business! Minimize inventory cost
Grow business?
Improve customer satisfaction? How?
Minimize inventory cost
What are components of cost?
How measured?
Provide high level of customer service
How high?

5. Consultant Recommendations
Discontinue products that have low sales.
Use statistical forecasting to predict demand.
Reduce number of warehouses.
Staff Reaction:
Won’t work! Why?

6. What do data in case tell us?
Exhibit 2: 80% of products have high volatility?
Maybe, but …
What about Exhibit 1?
5 large customers (> $25 mill)
107 small customers (< $1 mill)
Is this a potential problem?

7. What is proper model for this scenario?
Are we in a continuous review or a periodic review inventory setting?
Why? How do we know?
What are proper parameters for model?
Why?
How measure in reality?
Can we validate our choice of model and assumptions?
How?
Look at production batch sizes given in case

8. How to analyze case? Model suggestions?
Assume we use Periodic Review with r = 1 month and L = 1 week
Calculate expected inventory and compare to Steel Works, Inc. actual inventory.
What do we find?

9. Recommendations? Why do divisions operate separately?
Any economies to be gained by combining?
How can Steel Works better manage their customer relationship process?
How can Steel Works make sure that they are continuing to use right model, right parameters, etc.?
Should we adjust production parameters by product? How?

10. Questionable Assumptions?
How confident are you that demand is normally distributed?
How can you test?
Are data accurate?