1. Supply Chain Management
SYST 4050 Slides
Supply Chain Management
Lecture 15
Chapter 1

2. Outline (last week) February 25 (Today) March 2 March 4 March 9
SYST 4050 Slides
Outline (last week)
February 25 (Today)
Network design simulation description
Chapter 8
Homework 4 (short)
March 2
Chapter 8, 9
Network design simulation due before 5:00pm
March 4
Simulation results
Midterm overview
Homework 4 due
March 9
Midterm
Chapter 1

3. Outline March 2 (Today) March 4 March 9 Network design simulation
SYST 4050 Slides
Outline
March 2 (Today)
Network design simulation
Chapter 8, 9
Chapter 8
Sections 1, 2, and 3 only
Chapter 9
Sections 1, 2, and part of 3 only
March 4
Simulation results
Midterm overview
Important sections
Formula sheet
Practice questions
March 9
Midterm
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4. Simulation Assignment (25%)
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Simulation Assignment (25%)
Design the supply chain network for 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)
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5. Demand Average demand for Jacob’s product in Pangea
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Demand
Average demand for Jacob’s product in Pangea
Existing and new markets
250
Chapter 1

6. SYST 4050 Slides
Assignment
Jacobs management would like to design a supply chain network for Pangea. It’s current network consist of a factory in Calopeia with a capacity of 20. You have been hired to suggest a network design that will maximize profits for Jacobs Industry. Designing such a network is complex and includes the following decisions:
Should the factory in Calopeia be expanded?
Should factories in other regions be built? If so, what should their capacity be?
What regions should each factory serve?
Chapter 1

7. Questions What to do with Fardo? What to do with Calopeia?
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Questions
What to do with Fardo?
Service Fardo demand from the mainland
Service Fardo demand from local (to be built) factory
Don’t service Fardo demand
What to do with Calopeia?
Add capacity to existing factory or not
Service other regions or not
What to do with Sorange, Entworpe, and Tyran?
Built new factory or not
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8. From Forecasting to Planning
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From Forecasting to Planning
Capacity
SKU = stock keeping unit
How should a company best utilize the resources that it has?
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9. From Forecasting to Planning
SYST 4050 Slides
From Forecasting to Planning
Capacity
SKU = stock keeping unit
How much should be produced and when?
Chapter 1

10. Aggregate Planning Aggregate planning
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Aggregate Planning
Aggregate planning
A general plan that determines ideal levels of capacity, production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon (i.e. planning horizon)
Production rate (number of units to produce)
Workforce (number of workers needed)
Overtime (number of overtime hours)
Machine capacity level (machine capacity needed)
Subcontracting (subcontracted capacity)
Backlog (total demand carried over to future periods)
Inventory on hand (total inventory carried over to future periods)
Chapter 1

11. All-Terrain Vehicle (ATV)
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Aggregate Planning
Aggregate planning involves aggregate decisions rather than stock-keeping unit (SKU)-level decisions for a medium term planning horizon (3-18 months)
All-Terrain Vehicle (ATV)
Engine Assembly
Transmission
Model A
Model B
Model C
Automatic
Manual
Chapter 1

12. Aggregate Planning Strategies
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Aggregate Planning Strategies
Basic strategies
Level strategy (using inventory as lever)
Synchronize production rate with long term average demand
Swim wear
Chase (the demand) strategy (using capacity as lever)
Synchronize production rate with demand
Fast food restaurants
Time flexibility strategy (using utilization as lever)
High levels excess (machine and/or workforce) capacity
Machine shops, army
Tailored strategy
Combination of the chase, level, and time flexibility strategies
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13. Case Study Results In general, the chase strategy is used when
SYST 4050 Slides
Case Study Results
In general, the chase strategy is used when
Products are valuable
Products are bulky or hard to store
Products are perishable or carry an appreciable risk of obsolescence
High variety
Accurate sales predictions are hard to obtain making stockpiling hazardous
Fashion items
In general, the level strategy is used when
Operators take a long time to become proficient at critical tasks
Products with negligible probability of obsolescence
Low variety
Forecasts are quite good
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14. Aggregate Planning in Services
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Aggregate Planning in Services
Is aggregate planning useful for the service industry?
What is the major variable in managing supply for service industries?
Chapter 1

15. Managing Supply Managing capacity Managing inventory
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Managing Supply
Managing capacity
Time flexibility from workforce
Use of seasonal workforce
Use of subcontracting
Use of flexible facilities
Managing inventory
Built inventory for high-demand or predictable demand products
Use common components across multiple products
Chapter 1

16. Managing Demand Pricing and other forms of promotion
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Managing Demand
Pricing and other forms of promotion
Timing of promotion is important
Chapter 1

17. SYST 4050 Slides
Timing of Promotion
Why would a firm want to offer pricing promotions during its low-demand periods?
Why would a firm want to offer pricing promotions during its peak-demand periods?
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18. SYST 4050 Slides
Why would a firm want to offer pricing promotions during its low-demand periods?
Market growth – new customers
Forward buying – existing customers move up purchases
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19. SYST 4050 Slides
Why would a firm want to offer pricing promotions in its peak-demand periods?
Price sensitivity is higher during periods of peak demand
Brands that are losing market share reduce prices
Stealing share – customers substitute the firm’s product for a competitor product
Chapter 1

20. Managing Demand Pricing and other forms of promotion
SYST 4050 Slides
Managing Demand
Pricing and other forms of promotion
Timing of promotion is important
Demand increases from promotion can result from a combination of three factors:
Market growth (increased sales, increased market size)
Increase in consumption from both new and existing customers
Example: Toyota Camry attracting buyers who were considering lower-end models
Stealing share (increased sales, same market size)
Product substitution (overall demand stays the same)
Example: Toyota Camry attracting buyers who were considering Honda Accord
Forward buying (same sales, same market size)
Customers move up purchases (does not increase sales)
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21. Factors Affecting Promotion Timing
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Factors Affecting Promotion Timing
Factor
Impact on Timing of Promotion
High forward buying
High ability to steal market share
High ability to increase overall market
High margin
Low margin
High holding cost
High costs of changing capacity
Favors promotion during low-demand periods
Favors promotion during peak-demand periods
Favors promotion during peak-demand periods
Favors promotion during peak-demand periods
Favors promotion during low-demand periods
Favors promotion during low-demand periods
Favors promotion during low-demand periods
Chapter 1