1. Supply Chain Management
SYST 4050 Slides
Supply Chain Management
Lecture 26
Chapter 3

2. Detailed Outline Thursday April 22 Simulation game briefing
SYST 4050 Slides
Detailed Outline
Thursday April 22 Simulation game briefing
Simulation game description
FCQs
Tuesday April 27 Review
Simulation strategy
Formula sheet (available online)
Review final
Thursday April 29 Simulation Game
Thursday December 10 is the last day to turn in homework
Tuesday May 4 Final 7:30pm – 10:00pm
Chapter 3

3. SYST 4050 Slides
Teams
Chapter 3

4. SYST 4050 Slides
The Supply Chain Game
Simulation game description:
Simulation game login:
Chapter 3

5. SYST 4050 Slides
The Supply Chain Game
Manage the supply chain for the Jacobs Industries on the fictional continent of Pangea
Jacobs only product is an industrial chemical that can be mixed with air to form a foam (used in air conditioner retrofit kits)
Chapter 3

6. Assignment You can make the following changes to the supply chain
SYST 4050 Slides
Assignment
You can make the following changes to the supply chain
Add capacity to the factory (increase only)
Chapter 3

7. Assignment You can make the following changes to the supply chain
SYST 4050 Slides
Assignment
You can make the following changes to the supply chain
Change the order quantity
Change the reorder point
Chapter 3

8. Assignment You can make the following changes to the supply chain
SYST 4050 Slides
Assignment
You can make the following changes to the supply chain
Change the type of transportation (mail or truck)
Chapter 3

9. The winning team is the one with the highest cash position on day 1460
SYST 4050 Slides
Objective
It is now day 730, two years after Jacobs began producing and marketing the chemical. A new foam technology is in development at Jacobs that will render all production capacity and inventory of the current foam obsolete and worthless on day All customers are aware of the pending new technology and as a result, demand will decrease to zero on day 1460.
Maximize the cash generated by the foam technology over the remaining two years of its lifetime. On day 1460 the game will end and all inventory and capacity will become obsolete
The winning team is the one with the highest cash position on day 1460
Chapter 3

10. SYST 4050 Slides
The Market
Jacobs Industries’ only product is an industrial chemical that can be mixed with air to form a foam that is
Lightweight, stable over a wide range of temperatures, a very efficient thermal insulator, a very efficient acoustic insulator
Jacobs sells its chemical to manufacturers of air conditioner retrofit kits. The manufacturers are all located in the region of Calopeia
Chapter 3

11. SYST 4050 Slides
The Market
The chemical is shipped in small plastic drums at a price of $1450 a piece.
Demand for the chemical is highly seasonal but otherwise very stable. There are no long-run market trends, either upward or downward.
The size of orders is very random and arrive randomly throughout each 24-hour day.
If Jacobs cannot ship an order within 24 hours of receiving the order from the customer, the customer makes its purchase from a competitor without any loss of future demand.
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12. SYST 4050 Slides
Demand
It is now day 730, two years after Jacobs began producing and marketing the chemical.
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13. SYST 4050 Slides
Operations
The current capacity of the factory is 20 drums per day. More factory capacity can be purchased at a cost of $50,000 per drum per day. For example, expanding the capacity by 10 drums per day for a total of 30 drums per day would be 10*$50,000 = $500,000. Capacity costs are incurred as soon as the capacity expansion begins. It takes 90 days to complete a capacity expansion. Capacity cannot be retired
20 units per day
Unlimited storage
Chapter 3

14. One truck can carry up to 200 drums
SYST 4050 Slides
Operations
Jacobs produces its chemical in batches, loads the chemical into small plastic drums, and then transports the drums from the factory to the warehouse by truck. The warehouse sends drums to customers as orders are received. The cost of fulfilling an order, including the cost of mailing the drum to the customer, is $150 per drum
$150 by mail (1 day)
$15,000 by truck (7 days)
$1000
$150
$1,450
One truck can carry up to 200 drums
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15. Drums won’t ship until batch is complete Order quantity = batch size
SYST 4050 Slides
Operations
Production in factories is carried out in batches, where each batch is an integer number of drums set by you. The cost to produce one batch equals $1500 plus the number of drums in the batch times $1000. For example, the cost to produce a batch of 10 drums is $ *$1000 = $11,500.
Drums won’t ship until batch is complete
$1500 per batch
Order quantity = batch size
Chapter 3

16. SYST 4050 Slides
Operations
Both the costs of producing the batch and then shipping it to the warehouse are incurred as soon as production of the batch starts. If there is insufficient cash to pay for the production and shipping of the batch, the factory will remain idle
Production of a batch is triggered when the finished goods inventory (both en route to the warehouse and in the warehouse) fall below the order point
Holding costs for one drum for one year equal $100, whether the drum is en route to a warehouse or the drum is physically in the warehouse. There are no such holding costs for work-in-process inventory in the factory
Jacobs earns 10% interest per year on its cash, compounded daily
Chapter 3

17. Assignment You can make the following changes to the supply chain
SYST 4050 Slides
Assignment
You can make the following changes to the supply chain
Add capacity to the factory (increase only)
Change the order quantity (i.e. batch size)
Change the reorder point
Change the type of transportation (mail or truck)
Chapter 3

18. Decisions Add capacity to the factory (increase only) SYST 4050 Slides
Chapter 3

19. Decisions Change capacity of factory (increase only) SYST 4050 Slides
Chapter 3

20. Decisions Change the order quantity (i.e. batch size)
SYST 4050 Slides
Decisions
Change the order quantity (i.e. batch size)
Change the reorder point
Change the type of transportation (mail or truck)
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21. Grading Based on your analysis (see handout) SYST 4050 Slides
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22. Hints Create a general strategy beforehand
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Hints
Create a general strategy beforehand
All inventory and capacity will be obsolete at the end of the simulation
Most investments pay off, but it takes time
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23. Analysis questions When are transportation cost per drum minimized?
SYST 4050 Slides
Analysis questions
When are transportation cost per drum minimized?
What is minimum transportation cost per drum?
What is the physical annual holding cost of one drum?
What is the financial annual holding cost of one drum (what is the opportunity cost)?
What is the total holding cost of one drum?
Chapter 3

24. SYST 4050 Slides
Analysis questions
Ignore the batch production cost. What is the maximum margin that can be obtained from selling one drum?
Retail price per drum
Production cost per drum
Minimum transportation cost per drum
Minimum holding cost per drum
Fulfillment cost per drum
Maximum margin per drum
Chapter 3