An industrial company is seeking your help to improve their distribution system.
ID: 2423989 • Letter: A
Question
An industrial company is seeking your help to improve their distribution system.The distribution network consists of four manufacturing facilities in the U.S., Canada, and Mexico; seven major distribution centers (DCs) in New York, San Francisco, Los Angeles, Atlanta, Chicago, Dallas, and Washington, D.C.; and 13 smaller regional DCs in cities such as Salt Lake City, Minneapolis, St. Louis, Houston, etc.Note that each major DC supports distribution of products in its local area as well as one or more regional DCs, except for the Washington, D.C. distribution center, which does not support any regional DCs.Thus, the major DCs are referred to as “parents” and the regional DCs are referred to as “children.”
The company’s objective is to have the right amount of inventory at the right locations at the right times.While shortages result in poor customer service, holding too much inventory results in high inventory carrying costs.Determining the appropriate safety stock levels at each of the 20 DCs is the key to achieving the company’s objective.The company desires a 97% service level.
Currently, the company utilizes the following model recommended by Sharp Consulting Associates (a management consulting firm) to set safety stock levels at all its 20 DCs.
z x STD x L0.7
The model compensates for the variation in lead time by inflating the z-value to 2, as well as inflating all the lead times, L, by 2 days.Unfortunately, as a result of this approach the company is experiencing high inventory carrying cost as well as poor service levels in particular DCs.
The company would like you to help them set appropriate safety stock levels at each of the 20 DCs to improve its performance.Table 1 provides some information regarding a typical product manufactured in Arkansas to give you an opportunity to perform an analysis.The average lead times are calculated by adding the fixed procurement lead times of 3 days to the average transportation lead times (i.e., procurement lead times are fixed while transportation lead times are variable).Note that the specified lead times (Table 1) for major DCs represent the procurement and transportation lead times from the Arkansas manufacturing facility to the major DCs, while the specified lead times for the regional DCs represent the procurement and transportation times from their parents.
Calculate the safety stock levels for each of the 20 DCs using the model recommended by Sharp Consulting Associates.
Calculate safety stock levels for each of the 20 DCs by utilizing an appropriate model that explicitly considers the variation in lead times.
Compare the results obtained in sections (1) and (2) and explain the reasons for the poor performance of the Sharp Consulting Associates model.
Table 1 Standar Standard Average Average Deviation Demand Deviation of Lead Time of Lead Time 0.40 3.50 2.30 1.10 2.40 2.70 1.00 4.70 1.75 2.00 1.95 0.70 1.20 0.25 6.75 2.50 4.90 1.50 3.60 2.30 Demand San Francisco 151.73 70.93 3.34 20.50 36.06 150.07 11.22 88.37 11.56 47.14 12.66 21.68 73.93 46.20 340.60 19.52 8.85 24.38 95.20 17.51 3.81 6.10 6.50 5.90 5.75 7.20 7.25 5.25 7.23 4.25 5.10 5.70 5.00 5.60 3.65 8.05 4.90 4.90 5.75 6.90 10.15 Salt Lake City 8.79 Seattle 49.03 48.73 384.18 Puerto Rico 23.11 Washington DC New York Chicago 351.33 St Louis 29.59 Indianapolis 155.56 Minneapolis 33.42 Detro18.37 191.36 Tampa58.39 517.38 Denver30.28 Kansas City 35.67 Houston 22.28 Atlanta Dallas Los Angeles 228.36 Phoenix 20.04 Hawa10.60Explanation / Answer
Calculate the safety stock levels for each of the 20 DCs using the model recommended by Sharp Consulting Associate
The company’s objective is to have the right amount of inventory at the right locations at the right times.While shortages result in poor customer service, holding too much inventory results in high inventory carrying costs.Determining the appropriate safety stock levels at each of the 20 DCs is the key to achieving the company’s objective.The company desires a 97% service level.Currently, the company utilizes the following model recommended by Sharp Consulting Associates (a management consulting firm) to set safety stock levels at all its 20 DCs.
z x STD x L0.7
the sharp consulting associates calculate the stock safety levels with their model of the company.
Calculate safety stock levels for each of the 20 DCs by utilizing an appropriate model that explicitly considers the variation in lead times.
The company would like you to help them set appropriate safety stock levels at each of the 20 DCs to improve its performance. The appropriate model is used to calculate the safety stock levels in the lead variation time of the company.It can utilise the model to calculate.
The average lead times are calculated by adding the fixed procurement lead times of 3 days to the average transportation lead times (i.e., procurement lead times are fixed while transportation lead times are variable).Note that the specified lead times (Table 1) for major DCs represent the procurement and transportation lead times from the Arkansas manufacturing facility to the major DCs, while the specified lead times for the regional DCs represent the procurement and transportation times from their parents.Table 1 provides some information regarding a typical product manufactured in Arkansas to give you an opportunity to perform an analysis.
There is a difference in the section (1) and (2).
The reasons for the poor performance of the Sharp Consulting Associates model the lead time is taken for the transportation.so the products are manfacturing is taken more time.
Unfortunately, as a result of this approach the company is experiencing high inventory carrying cost as well as poor service levels in particular DCs. The company would like you to help them set appropriate safety stock levels at each of the 20 DCs to improve its performance.It also improve the lead time for the transportation and manufacturing of the products.IT will reduce the carrying inventory cost with the help of the safety stock levels.