eleccomp case - group 5
DESCRIPTION
ElecComp Case - Group 5TRANSCRIPT
Team 5 : Snow (M10101802)Jason (M10101826)Richard (M10101829)Hendry (M10101830)Omar (M10121803)Stephen (M10121819)
CASES
INVENTORY POSITIONING and LOGISTIC COORDINATION
ElecComp Inc.Contract manufacturer of circuit boards and other
high tech parts.
Sells around 27,000 products with short life cycles.
Competition forces to:Lower lead time to its customers
High inventory of SKUs based on long-term forecasts [Push Strategy]High shortages
Huge risk
Pull Strategy not feasible because of long lead times.2
Supply Chain Strategy(The Comparison)
3
Push Based
• Based on long term forecast
• High inventory• Long lead time• Objective:
minimize cost• Resources
allocation focus
Pull Based
• Production-distribution are demand-driven (based on customer demand not forecast)
• Low inventory• Short lead time• Objective:
maximize service level
• Responsiveness focus
New Supply Chain StrategyObjectives:• Reduce inventory and financial risks
• Provide customers with competitive response times.
Achieve the following:
• Determining the optimal location of inventory across the various stages
• Calculating the optimal quantity of safety stock for each component at each stage
Hybrid strategy of Push and Pull• Push Stages produce to stock where the company keeps safety
stock
• Pull stages keep no stock at all.
Challenge:• Identify the location where the strategy switched from Push-based
to Pull-based
• Identify the Push-Pull boundary.
Benefits:• For same lead times, safety stock reduced by 40 to 60%
• Company could cut lead times to customers by 50% and still reduce safety stocks by 30% 4
Trade-Offs• If Montgomery facility reduces committed lead time
to 13 days• assembly facility does not need any inventory of
finished goods
• Any customer order will trigger an order for parts 2 and 3.
• Part 2 will be available immediately, since it is held in inventory
• Part 3 will be available in 15 days
• 13 days committed response time by the manufacturing facility
• 2 days transportation lead time.
• Another 15 days to process the order at the assembly facility
• Order is delivered within the committed service time.
• Assembly facility produces to order, i.e., a Pull based strategy
• Montgomery facility keeps inventory and hence is managed with a Push or Make-to-Stock strategy
8
Current Safety Stock
9
FIGURE 3-12: Current safety stock location
Reduce system-wide inventory cost
Reduce Lead Time
Strategy BOptimized Safety Stock + Reduced Lead
Time
11
FIGURE 3-14: Optimized safety stock with reduced lead time
15
Optimized Supply Chain in More Complex Product Structure
Safety stock cost:
$36,000/year(62% savings)
ElecComp Actions
16
• Which stages should make-to-stock and which ones should make-to order
• Pushing inventory to less costly locations
Identifying the push-pull
boundary
• Demand for a component has smaller variability and uncertainty than finished products
Taking advanta
ge of the risk pooling concept
• Replacing sequential (local) optimization strategy by global optimization supply chain strategy
Replacing
traditional
supply chain
strategies
Significantly reduce inventory
cost
Maintaining/
decreasing service
time to the customer
Each stage tries to optimized its profit with little regard to the impact of its decision on other stage
Local Optimization
Global Optimization
The entire strategy is integrated
maximize supply chain
performance
18
Conclusions
23
• Several factors in choosing the appropriate supply chain strategies• Demand uncertainty • Product Category
• High-variability-low-volume products > Pull Strategy
• Low-variability-high-volume products > Push Strategy
• Low-variability-low-volume products • Cost• Safety stock• Lead time• Competition
• Push-Pull Hybrid Strategy / Globally optimized supply chain strategy :• Customer satisfaction• Competitive pricing
Conclusions
25
• Several factors in choosing the appropriate supply chain strategies• Demand uncertainty • Product Category
• High-variability-low-volume products > Pull Strategy
• Low-variability-high-volume products > Push Strategy
• Low-variability-low-volume products • Cost• Safety stock• Lead time• Competition
• Push-Pull Hybrid Strategy / Globally optimized supply chain strategy :• Customer satisfaction• Competitive pricing