LGMT 683 ASSIGNMENTS

.4 Discussion Questions

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Post your answer to only one of the following topics. Begin your post with the question you are answering and then make your response.

Select and briefly describe one managerial lever (or strategy) for reducing lot size and cycle inventory in the supply chain, without increasing costs.
Discuss bull whip effect and how a retailer can hurt supply chain profits by making lot-sizing decisions to minimize its own costs.

Reply to at least two of your classmates on different topics than your original post.

CLASSMATES POSTS:

Ignatius,

Discuss bull whip effect and how a retailer can hurt supply chain profits by making lot-sizing decisions to minimize its own costs.

Lot size–based quantity discounts increase the lot size of orders placed within the supply chain because lower prices are offered for larger lots. When a firm places orders in lot sizes that are much larger than those in which demand arises, variability of orders is magnified up the supply chain. Firms may order in large lots because a significant fixed cost is associated with placing, receiving, or trans-porting an order (Chopra & Meindl, 2013). Large lots may also occur if the supplier offers quantity discounts based on lot size.

The resulting large lots magnify the bullwhip effect within the supply chain. The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as move further up the supply chain.

The bullwhip effect is commonly caused by overreaction to backlogs, neglecting to order in an attempt to reduce inventory, poor communication the supply chain, poor coordination, poor timeliness for information, forecast inaccuracies and poor return policies.

The described effect can lead to either inefficient production or excessive inventory, as each producer needs to fulfill the demand of its customers in the supply chain. This also leads to a low utilization of the distribution channel. There is also the hazard of stock-outs which result in poor customer service and lost sales.

Lot size discounts are based on the quantity purchased per lot, not the rate of purchase. Lot size-based discounts tend to raise cycle inventory in the supply chain by encouraging retailers to increase the size of each lot. Lot size-based discounts make sense only when the manufacturer incurs a very high fixed cost per order. For commodity products for which price is set by the market, manufacturers with large fixed costs per lot can use lot size-based quantity discounts to maximize total supply chain profits. (Chopra & Meindl, 2013)

QuickMBA.com (2010) “The Bullwhip Effect” Retrieved 12 November, 2015 from: http://www.quickmba.com/ops/bullwhip-effect/

Chopra, S., & Meindl, P. (2013). Supply chain management: Strategy, planning, and operation (5th ed.). Boston: Pearson.

Kirkpatrick,

2. Discuss bull whip effect and how a retailer can hurt supply chain profits by making lot-sizing decisions to minimize its own costs.

The bull whip effect (BWE) results from a lack of supply chain coordination and prevents the supply chain from reach its full potential. The bullwhip effect distorts demand within a supply chain and the effects start relatively small and increase up the supply chain, much like a bullwhip. (Chopra & Meindl, 2010, p. 251) Despite advances in information technology, it has been stated that the bullwhip effect is experienced by two-thirds of firms and the BWE is one of the most widely studied issues facing supply chains. (Domingueza & Cannellaa, 2015, p. 3) The BWE increases cost in every area of the supply chain because it introduces inefficiencies that require the supply chain managers to off-set. (Chopra & Meindl, 2010, p. 252) Inventory cost, for example, are increased because the BWE unnecessarily increases variability, in response safety stock is increased to prevent stock out. Most BWE factors are enabled because each entity struggles to interpret data that it receives because there is a lack of communication.

Volatile demand markets, such as impulse end customer products, are especially effected by the BWE. In volatile demand markets the number of entities (retailers, suppliers, manufactures) involved increasingly affects the degree to which demand is distorted. (Domingueza & Cannellaa, 2015, p. 13) In these markets it is beneficial for a supply chain to reduce complexity.

When ordering decisions are made to satisfy the goals of one stage or entity the BWE is increased. (Chopra & Meindl, 2010, p. 255) For example, the BWE is increased when a retail manager decides to order lot-size quantity in order to reduce cost. This data can be misinterpreted to suggest that actually end customer demand has risen. The reality is that the retailer has many periods worth of product and will not reorder product for some time. To avoid this situation decisions should always be made in the interest of supply chain profitability rather than local profitability, also end customer demand should be used by the entire supply chain in forecasting when possible as this data is the most complete data available.

References
Chopra, S., & Meindl, P. (2010). Supply Chain Management. Upper Saddle River, New Jersey: Pearson.
Domingueza, R., & Cannellaa, S. (2015). The impact of the supply chain structure on bullwhip effect. Applied Mathematical Modeling.

PS: PLEASE RESPOND TO MY CLASSMATES AS YOU SPEAKING TO THEM DIRECTLY. THE RESPONSE CAN BE NEGATIVE OR POSITIVE.

6.5 TEXBOOK QUESTIONS

Chapter 11 – WHAT IS THE DIFFERENCE BETWEEN LOT SIZE-BASED AND VOLUME BASED QUANTITY DISCOUNTS?

Chapter 12-

1) WHAT IS THE ROLE OF SAFETY INVENTORY IN THE SUPPLY CHAIN?

3) WHAT ARE THE PROS AND CONS OF THE VARIOUS MEASURES OF PRODUCT AVAILABILITY?

5) WHAT IS THE IMPACT OF SUPPLY UNCERTAINTY ON SAFETY INVENTORY?

6.6 EXERCISES

1)

Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between the two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 300 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20 percent per year.

a. How many engines should Harley load onto each truck?

b. What is the cycle inventory of engines at Harley?

2)

As part of its initiative to implement just-in-time (JIT) manufacturing at the motorcycle assembly plant Exercise 1. Harley has reduced the number of engines loaded on each truck to 100. If each truck trip still cost $1,000, how does the decision impact annual inventory costs at Harley? What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?

6.7 EXERCISES

Chapter 12: Managing Uncertainty in a Supply Chain: Safety Inventory

1. Using the Wal-Mart Demo for Example 4, what happens to the Required Safety Stock inventory when the Desired Customer Service level is increased to 95%? What happens to the Required Safety Stock inventory when the Desired Customer Service level is decreased to 80%? What about 70%? What did you learn from this exercise?

Note: This is not a “Solver” problem. Just change the service level directly in Excel from .90 to .80 and .70 to see the impact on safety inventory.

2. Using the Wal-Mart Demo, what happens to the Required Safety Stock inventory when the periodic review interval is changed to quarterly, i.e., 12 weeks versus 4 weeks? What happens when it is changed to weekly, i.e., 1 week versus 4 weeks? What did you learn from this exercise?

Note: This is not a “Solver” problem. Just change the Review Interval directly in Excel from 4 weeks to 12 weeks to 1 week, respectively.

6.2 OPTIONAL

I have a midterm as well this week. Please advise if you’re interested in taking it.

attachments

Wal-Mart_Demo_for_Example_4.xls (42.5 KB)

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