HW5_SC Strategy & Product Design 9.24.18 PM
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Industrial Engineering
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Apr 3, 2024
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Homework Assignment – Supply Chain Strategies & Product Design 1.
Orion is a global company that sells copiers. Orion currently sells ten variants of a copier, with all inventory kept in finished-good form. The primary component that differentiates the copiers is the printing subassembly. An idea being discussed is to introduce commonality in the printing subassembly so that final assembly can be postponed, and inventories kept in component form. Currently, each copier costs $1,000 in terms of components. Introducing component commonality in the print subassembly will increase component costs to $1045. One of the ten variants represent 80 percent of the total demand. Weekly demand for this variant is normally distributed with a mean of 1,000 and a standard deviation of 200. Each of the remaining nine variants has a weekly demand of 28 with a standard deviation of 20. Orion aims to provide a 95 percent level of service. Replenishment lead time for components is 4 weeks. Copier assembly can be completed in a matter of hours. Orion manage all inventories using a continuous review policy and incurs an annual holding cost of 20 percent. Please feel free to use the Excel spreadsheet that is provided to you as part of this assignment.
a.
How much safety inventory of each variant must Orion keep without component commonality? What is the annual holding cost? (15 points)
Solved in Excel file.
Low volume SS:
66 units for each of the 9 variants
High volume SS:
658 units
Annual Holding Cost:
$250,018
b.
How much safety inventory must be kept in component form if Orion uses common component for all variants? What is the annual holding cost? (15 points)
Solved in Excel file.
Component Commonality SS:
687 units
Annual Holding Cost:
$143,564
c.
Is component commonality justified across all variants? (5 points)
Solved in Excel file.
It is not justified as the $100k savings in annual safety stock cannot justify the $2 million+ annual increase in cost.
2.
I) Please provide an example of a product with a primarily a.
push-based supply chain. (2.5 points)
a.
Fast food places
b.
pull-based supply chain. (2.5 points)
a.
Custom furniture
II) For both parts a and b, please explain why the proposed strategy is appropriate. (10 points)
Fast food places prepare food in advance based on historical demand forecasts and using a push-based supply chain, it ensures quick service, with some possible waste depending on the demand. Custom furniture is based on customer orders, which are not predictable, and using a pull-based supply chain minimizes the overall inventory costs.
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