supply chain management lecture 10. outline today –finish chapter 6 (decision tree analysis)...
Post on 22-Dec-2015
216 views
TRANSCRIPT
![Page 1: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/1.jpg)
Supply Chain Management
Lecture 10
![Page 2: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/2.jpg)
Outline
• Today– Finish Chapter 6 (Decision tree analysis)– Start chapter 7
• Tomorrow– Homework 2 due before 5:00pm
• Next week– Chapter 7 (Forecasting)
![Page 3: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/3.jpg)
Example: Decision Tree Analysis
• New product with uncertain demand ($85 profit/unit)– Annual demand expected to go up by 20% with
probability 0.6– Annual demand expected to go down by 20% with
probability 0.4– Use discount factor k = 0.1
![Page 4: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/4.jpg)
Example
5. Represent the tree, identifying all states as well as all transition probabilities
D=144
D=96
D=64
D=120
D=80
D=100
0.6
0.4
Period 0
Period 2
0.6
0.4
0.6
0.4
Period 1 P = 12240
P = 8160
P = 5440P = 80*85+(0.6*8160+0.4*5440)/1.1 = 13229
P = 120*85+(0.6*12240+0.4*8160)/1.1 = 19844
P = 100*85+(0.6*19844+0.4*13229)/1.1 = 24135
![Page 5: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/5.jpg)
Example
5. Represent the tree, identifying all states as well as all transition probabilities
D=144
D=96
D=64
D=120
D=80
D=100
0.6
0.4
Period 0
Period 2
0.6
0.4
0.6
0.4
Period 1
Calculate the NPV of each possible scenario separately
![Page 6: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/6.jpg)
Example
5. Represent the tree, identifying all states as well as all transition probabilities
D=144
D=96
D=64
D=120
D=80
D=100
0.6
0.4
Period 0
Period 2
0.6
0.4
0.6
0.4
Period 1
Calculate the NPV of each possible scenario separately
Scenario C_0 C_1 C_2 NPV Prob100, 120, 144 100*85 (120*85)/1.1 (144*85)/1.21 27888 0.36 10040100, 120, 96 100*85 (120*85)/1.1 (96*85)/1.21 24517 0.24 5884100, 80, 96 100*85 (80*85)/1.1 (96*85)/1.21 21426 0.24 5142100, 80, 64 100*85 (80*85)/1.1 (64*85)/1.21 19178 0.16 3069
24135
![Page 7: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/7.jpg)
Decision Trees (Summary)
• A decision tree is a graphic device used to evaluate decisions under uncertainty
1. Identify the duration of each period and the number of time periods T to be evaluated
2. Identify the factors associated with the uncertainty
3. Identify the representation of uncertainty
4. Identify the periodic discount rate k
5. Represent the tree, identifying all states and transition probabilities
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• (Alternatively, calculate the NPV of each possible scenario
separately)
![Page 8: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/8.jpg)
Decision Trees
• Using decision trees to evaluate network design decisions– Should the firm sign a long-term contract for
warehousing space or get space from the spot market as needed
– What should the firm’s mix of long-term and spot market be in the portfolio of transportation capacity
– How much capacity should various facilities have? What fraction of this capacity should be flexible?
![Page 9: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/9.jpg)
Example: Decision Tree Analysis
• Three options for Trips Logistics1. Get all warehousing space from the spot market as
needed
2. Sign a three-year lease for a fixed amount of warehouse space and get additional requirements from the spot market
3. Sign a flexible lease with a minimum change that allows variable usage of warehouse space up to a limit with additional requirement from the spot market
![Page 10: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/10.jpg)
Example: Decision Tree Analysis
• Trips Logistics input data– Evaluate each option over a 3 year time horizon (1
period is 1 year)• Demand D may go up or down each year by 20% with
probability 0.5• Warehouse spot price p may go up or down by 10%
with probability 0.5• Discount rate k = 0.1
![Page 11: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/11.jpg)
Example
5. Represent the tree, identifying all states
D=100
p=$1.20
Period 0
D=120
p=$1.32
D=120
p=$1. 08
D=80
p=$1.32
D=80
p=$1.08
Period 1
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
Period 2
0.25
0.25
0.25
0.25
0.250.25
0.25
0.25
![Page 12: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/12.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• C(D = 144,000, p = 1.45, 2) = 144,000 x 1.45
= $208,800 • R(D = 144,000, p = 1.45, 2) = 144,000 x 1.22
= $175,680• P(D = 144,000, p = 1.45, 2) = R – C
= 175,680 – 208,800
= –$33,120
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
Period 2
Cost
Revenue
Profit
![Page 13: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/13.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
Period 2
Revenue Cost ProfitR(D =, p =, 2) C(D =, p =, 2) P(D =, p =, 2)
D = 144 p = 1.45 144,000x1.22 144,000x1.45 ($33,120)D = 144 p = 1.19 144,000x1.22 144,000x1.19 $4,320D = 144 p = 0.97 144,000x1.22 144,000x0.97 $36,000D = 96 p = 1.45 96,000x1.22 96,000x1.45 ($22,080)D = 96 p = 1.19 96,000x1.22 96,000x1.19 $2,880D = 96 p = 0.97 96,000x1.22 96,000x0.97 $24,000D = 64 p = 1.45 64,000x1.22 64,000x1.45 ($14,720)D = 64 p = 1.19 64,000x1.22 64,000x1.19 $1,920D = 64 p = 0.97 64,000x1.22 64,000x0.97 $16,000
![Page 14: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/14.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• EP(D = 120, p = 1.22, 1) =
0.25xP(D = 144, p = 1.45, 2) +0.25xP(D = 144, p = 1.19, 2) +0.25xP(D = 96 p = 1.45, 2) +0.25xP(D = 96, p = 1.19, 2)
= –$12,000 • PVEP(D = 120, p = 1.22, 1) =
EP(D = 120, p = 1.22, 1)/(1+k) = –12,000/1.1 = –$10,909
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=96
p=$1.19
D=120
p=$1.32
0.250.25
0.25
0.25
Period 1
Period 2
![Page 15: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/15.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D = 120, p = 1.32, 1) =
R(D = 120, p = 1.22, 1) –C(D = 120, p = 1.32, 1) +PVEP(D = 120, p = 1.22, 1)
= $146,400 - $158,400 + (–$10,909) = –$22,909
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=96
p=$1.19
D=120
p=$1.32
0.250.25
0.25
0.25
Period 1
Period 2
![Page 16: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/16.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
D=120
p=$1.32
D=120
p=$1. 08
D=80
p=$1.32
D=80
p=$1.32
0.250.25
0.25
0.25
Period 1
Period 2Revenue Cost Profit
R(D =, p =, 1) C(D =, p =, 1) PVEP P(D =, p =, 1)D = 120 p = 1.32 120,000x1.22 120,000x1.32 -12,000/1.1 ($22,909)D = 120 p = 1.08 120,000x1.22 120,000x1.08 16,800/1.1 $32,073D = 80 p = 1.32 80,000x1.22 80,000x1.32 -8,000/1.1 ($15,273)D = 80 p = 1.08 80,000x1.22 80,000x1.08 11,200/1.1 $21,382
![Page 17: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/17.jpg)
Example – Option 1 (Spot)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
D=120
p=$1.32
D=120
p=$1. 08
D=80
p=$1.32
D=80
p=$1.32
D=100
p=$1.20
0.25
0.25
0.25
0.25
0.250.25
0.25
0.25
Period 0
Period 1
Period 2Revenue Cost Profit
R(D =, p =, 1) C(D =, p =, 1) PVEP P(D =, p =, 1)D = 100 p = 1.20 100,000x1.22 100,000x1.20 3818/1.1 $5,471
NPV(Spot) = $5,471
![Page 18: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/18.jpg)
Example: Decision Tree Analysis
• Three options for Target.com1. Get all warehousing space from the spot market as
needed
2. Sign a three-year lease for a fixed amount of warehouse space and get additional requirements from the spot market– Get 100,000 sq ft. of warehouse space at $1 per
square foot– Additional space purchased from spot market
3. Sign a flexible lease with a minimum change that allows variable usage of warehouse space up to a limit with additional requirement from the spot market
![Page 19: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/19.jpg)
Example – Option 2 (Fixed lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
D=120
p=$1.32
D=120
p=$1. 08
D=80
p=$1.32
D=80
p=$1.32
D=100
p=$1.20
0.25
0.25
0.25
0.25
0.250.25
0.25
0.25
Period 0
Period 1
Period 2
![Page 20: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/20.jpg)
Example – Option 2 (Fixed lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 2) = R(D =, p =, 2) – C(D =, p =, 2)• P(D =, p =, 2) = Dx1.22 – (100,000x1.00 + Sxp)
Space Space ProfitLeased Spot price(S) P(D =, p =, 2)
D = 144 p = 1.45 100,000 sq.ft. 44,000 sq.ft. $11,800D = 144 p = 1.19 100,000 sq.ft. 44,000 sq.ft. $23,320D = 144 p = 0.97 100,000 sq.ft. 44,000 sq.ft. $33,000D = 96 p = 1.45 100,000 sq.ft. 0 sq.ft. $17,120D = 96 p = 1.19 100,000 sq.ft. 0 sq.ft. $17,120D = 96 p = 0.97 100,000 sq.ft. 0 sq.ft. $17,120D = 64 p = 1.45 100,000 sq.ft. 0 sq.ft. ($21,920)D = 64 p = 1.19 100,000 sq.ft. 0 sq.ft. ($21,920)D = 64 p = 0.97 100,000 sq.ft. 0 sq.ft. ($21,920)
8
![Page 21: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/21.jpg)
Example – Option 2 (Fixed lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 1) = R(D =, p =, 1) – C(D =, p =, 1) +
PVEP(D =, p =, 1)• P(D =, p =, 1) = Dx1.22 – (100,000x1.00 + Sxp) +
EP(D =, p =, 1)/(1+k)
Space ProfitPVEP Spot price(S) P(D =, p =, 1)
D = 120 p = 1.32 17,360/1.1 20,000 sq.ft. $35,782D = 120 p = 1.08 17,120/1.1 20,000 sq.ft. $45,382D = 80 p = 1.32 -21,920/1.1 0 sq.ft. ($4,582)D = 80 p = 1.08 -21,920/1.1 0 sq.ft. ($4,582)
![Page 22: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/22.jpg)
Example – Option 2 (Fixed lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 0) = R(D =, p =, 0) – C(D =, p =, 0) +
PVEP(D =, p =, 0)• P(D =, p =, 0) = 100,000x1.22 – 100,000x1.00 +
16,364/1.1
Space ProfitPVEP Spot price(S) P(D =, p =, 1)
D = 100 p = 1.20 18,000/1.1 0 sq.ft. $38,364
NPV(Fixed lease) = $38,364
![Page 23: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/23.jpg)
Example: Decision Tree Analysis
• Three options for Target.com1. Get all warehousing space from the spot market as needed
2. Sign a three-year lease for a fixed amount of warehouse space and get additional requirements from the spot market
3. Sign a flexible lease with a minimum change that allows variable usage of warehouse space up to a limit with additional requirement from the spot market– $10,000 upfront payment– Use anywhere between 60,000 and 100,000 sq ft. at $1 per
sq ft.– Additional space purchased from spot market
![Page 24: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/24.jpg)
Example – Option 3 (Flexible lease)
• Flexible lease rules– Up-front payment of $10,000– Flexibility of using between 60,000 and 100,000 sq.ft.
at $1.00 per sq.ft. per year– Additional space requirements from spot market
![Page 25: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/25.jpg)
Example – Option 3 (Flexible lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step
D=144
p=$1.45
D=144
p=$1.19
D=96
p=$1.45
D=144
p=$0.97
D=96
p=$1.19
D=96
p=$0.97
D=64
p=$1.45
D=64
p=$1.19
D=64
p=$0.97
D=120
p=$1.32
D=120
p=$1. 08
D=80
p=$1.32
D=80
p=$1.32
D=100
p=$1.20
0.25
0.25
0.25
0.25
0.250.25
0.25
0.25
Period 0
Period 1
Period 2
![Page 26: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/26.jpg)
Example – Option 3 (Flexible lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 2) = R(D =, p =, 2) – C(D =, p =, 2)• P(D =, p =, 2) = Dx1.22 – (Wx1.00 + Sxp)
Space Space ProfitLease $1.00(W) Spot price(S) P(D =, p =, 2)
D = 144 p = 1.45 100,000 sq.ft. 44,000 sq.ft. $11,800D = 144 p = 1.19 100,000 sq.ft. 44,000 sq.ft. $23,320D = 144 p = 0.97 100,000 sq.ft. 44,000 sq.ft. $34,200D = 96 p = 1.45 96,000 sq.ft. 0 sq.ft. $21,120D = 96 p = 1.19 96,000 sq.ft. 0 sq.ft. $21,120D = 96 p = 0.97 60,000 sq.ft. 36,000 sq.ft. $22,200D = 64 p = 1.45 64,000 sq.ft. 0 sq.ft. $14,080D = 64 p = 1.19 64,000 sq.ft. 0 sq.ft. $14,080D = 64 p = 0.97 60,000 sq.ft. 4,000 sq.ft. $14,200
![Page 27: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/27.jpg)
Example – Option 3 (Flexible lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 1) = R(D =, p =, 1) – C(D =, p =, 1) +
PVEP(D =, p =, 1)• P(D =, p =, 1) = Dx1.22 – (Wx1.00 + Sxp) +
EP(D =, p =, 1)/(1+k)
Space Space ProfitPVEPLease $1.00(W) Spot price(S) P(D =, p =, 1)
D = 120 p = 1.32 19360/1.1 100,000 sq.ft. 0 sq.ft $37,600D = 120 p = 1.08 25,210/1.1 100,000 sq.ft. 0 sq.ft $47,718D = 80 p = 1.32 17,600/1.1 80,000 sq.ft. 0 sq.ft $33,600D = 80 p = 1.08 17,900/1.1 80,000 sq.ft. 0 sq.ft $33,873
20,00020,000
![Page 28: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/28.jpg)
Example – Option 3 (Flexible lease)
6. Starting at period T, work back to period 0 identify the expected cash flows at each step• P(D =, p =, 0) = R(D =, p =, 0) – C(D =, p =, 0) +
PVEP(D =, p =, 0)• P(D =, p =, 0) = 100,000x1.22 – 100,000x1.00 +
38,198/1.1
Space Space ProfitPVEPLease $1.00(W) Spot price(S) P(D =, p =, 1)
D = 100 p = 1.20 38,198/1.1 100,000 sq.ft. 0 sq.ft. $56,725
NPV(Flexible lease) = 56,725 – 10,000 = $46,725
![Page 29: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/29.jpg)
From Design to Planning
• Network design– C4 Designing Distribution Networks– C5 Network Design in the Supply Chain– C6 Network Design in an Uncertain Environment
• Planning in a supply chain– C7 Demand Forecasting in a Supply Chain– C8 Aggregate Planning in a Supply Chain– C9 Planning Supply and Demand
![Page 30: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/30.jpg)
Demand Forecasting
• How does BMW know how many Mini Coopers it will sell in North America?
• How many Prius cars should Toyota build to meet demand in the U.S. this year? Worldwide?
• When is it time to tweak production, upward or downward, to reflect a change in the market?
What factors influence customer demand?
![Page 31: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/31.jpg)
Factors that Affect Forecasts
• Past demand• Time of year/month/week• Planned advertising or marketing efforts • Planned price discounts • State of the economy• Market conditions • Actions competitors have taken
![Page 32: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/32.jpg)
Example: Demand Forecast for Milk• A supermarket has experienced the following weekly
demand (in gallons) over the last ten weeks– 109, 116, 108, 103, 97, 118, 120, 127, 114, and 122
What is a reasonable demand forecast for milk for the upcoming week?
If demand turned out to be 125 what can you say about the demand forecast?
When could using average demand as a forecast lead to an inaccurate forecast?
![Page 33: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/33.jpg)
1) Characteristics of Forecasts
• Forecasts are always wrong!– Forecasts should include an expected value and a
measure of error (or demand uncertainty)• Forecast 1: sales are expected to range between 100
and 1,900 units• Forecast 2: sales are expected to range between 900
and 1,100 units
![Page 34: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/34.jpg)
2) Characteristics of Forecasts
• Long-term forecasts are less accurate than short-term forecasts– Less easy to consider other variables
• Hard to include the effects of weather in a forecast
– Forecast horizon is important, long-term forecast have larger standard deviation of error relative to the mean
![Page 35: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/35.jpg)
3) Characteristics of Forecasts
• Aggregate forecasts are more accurate than disaggregate forecasts
SKU A SKU BForecast 75 25Actual 25 75Accuracy 0% 0%
SKU A SKU B TotalForecast 75 25 100Actual 25 75 100Accuracy 0% 0% 100%
![Page 36: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/36.jpg)
3) Characteristics of Forecasts
• Aggregate forecasts are more accurate than disaggregate forecasts– They tend to have a smaller standard deviation of
error relative to the mean
Monthly sales SKU
Monthly sales product line
![Page 37: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/37.jpg)
4) Characteristics of Forecasts
• Information gets distorted when moving away from the customer– Bullwhip effect
![Page 38: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/38.jpg)
Characteristics of Forecasts
1. Forecasts are always wrong!
2. Long-term forecasts are less accurate than short-term forecasts
3. Aggregate forecasts are more accurate than disaggregate forecasts
4. Information gets distorted when moving away from the customer
![Page 39: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/39.jpg)
Role of Forecasting
Push Push Push
Push Push
Push
Pull
Pull
Pull
Manufacturer Distributor Retailer CustomerSupplier
Is demand forecasting more important for a push or pull system?
![Page 40: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/40.jpg)
Types of Forecasts
• Qualitative– Primarily subjective, rely on judgment and opinion
• Time series– Use historical demand only
• Causal– Use the relationship between demand and some
other factor to develop forecast
• Simulation– Imitate consumer choices that give rise to demand
![Page 41: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/41.jpg)
Components of an Observation
• Quarterly demand at Tahoe Salt
0
10,000
20,000
30,000
40,000
50,000
1, 2 1, 3 1, 4 2, 1 2, 2 2, 3 2, 4 3, 1 3, 2 3, 3 3, 4 4, 1
Quarter
Dem
and
Actual Actual demand (D)
![Page 42: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/42.jpg)
0
10,000
20,000
30,000
40,000
50,000
1, 2 1, 3 1, 4 2, 1 2, 2 2, 3 2, 4 3, 1 3, 2 3, 3 3, 4 4, 1
Quarter
Dem
and
Actual
Components of an Observation
• Quarterly demand at Tahoe Salt
Level (L) and Trend (T)
![Page 43: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/43.jpg)
0
10,000
20,000
30,000
40,000
50,000
1, 2 1, 3 1, 4 2, 1 2, 2 2, 3 2, 4 3, 1 3, 2 3, 3 3, 4 4, 1
Quarter
Dem
and
Actual
Components of an Observation
• Quarterly demand at Tahoe Salt
Seasonality (S)
![Page 44: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/44.jpg)
Components of an Observation
Observed demand =
Systematic component + Random component
L Level (current deseasonalized demand)T Trend (growth or decline in demand)S Seasonality (predictable seasonal fluctuation)
![Page 45: Supply Chain Management Lecture 10. Outline Today –Finish Chapter 6 (Decision tree analysis) –Start chapter 7 Tomorrow –Homework 2 due before 5:00pm Next](https://reader036.vdocument.in/reader036/viewer/2022081519/56649d7f5503460f94a63591/html5/thumbnails/45.jpg)
Time Series Forecasting
0
10,000
20,000
30,000
40,000
50,000
1, 2 1, 3 1, 4 2, 1 2, 2 2, 3 2, 4 3, 1 3, 2 3, 3 3, 4 4, 1 4, 2 4, 3 4, 4 5, 1
Quarter
Dem
and
Actual
Forecast demand for thenext four quarters.