11
S U P P L E M E N T
Supply Chain Management Analytics
DISCUSSION QUESTIONS
1. A unique–event disrupts only one supplier (e.g., it went
broke). A super-event disrupts all suppliers simultaneously (e.g.,
AACSB: Reflective thinking
2. As the probability of a super-event increases, the unique–
simultaneously decreases). Conceptually, if there is a greater
chance that all suppliers will be disrupted simultaneously by a
super-event, it becomes relatively less important to be concerned
AACSB: Analytical thinking
3. As the probability of a super-event decreases, the likelihood
of needing multiple suppliers increases. This can be seen by
observing equation (S11.1). When S decreases, (1 – S) increases,
so Un is multiplied by a larger number (i.e., the unique–event
risk’s relative impact on the probability of all n suppliers being
mix, the probability of all failing at the same time decreases
significantly.
LO S11.1: Use a decision tree to determine the best number of
suppliers to manage disaster risk
4. As members of the supply chain try to “cover” their per-
unstable production schedules, resulting in expensive capacity
change adjustments, such as overtime, subcontracting, extra
inventory, back orders, hiring and firing of workers, equipment
additions, equipment underutilization, longer lead times, and
5. There are four primary causes of the bullwhip effect: (1)
demand forecast updating (cumulative uncertainty), which can be
based on past demand.
LO S11.2: Explain and measure the bullwhip effect
have been identified, corrective action can focus on those supply–
LO S11.2: Explain and measure the bullwhip effect
AACSB: Reflective thinking
7. A multitude of potential factors could be deemed important
for supplier selection. The proper set would be dependent upon
LO S11.3: Describe the factor-weighting approach to supplier
evaluation
AACSB: Reflective thinking
8. The use of a factor-weighting approach can help firms system-
jectivity remains in the process, however, with regard to the criteria
SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS 177
LO S11.3: Describe the factor-weighting approach to supplier
evaluation
AACSB: Reflective thinking
9. Slow shipping methods tie up products and the related
investment. Thus, pipeline holding costs increase. In addition,
coordinating shipments to maintain a schedule may become more
challenging, as well as getting the product to market quickly and
keeping customers happy. For example, for some high–tech prod-
two dozen airplane rides prior to final sale.
LO S11.4: Evaluate cost-of–shipping alternatives
AACSB: Reflective thinking
10. Any application where only a subset of options can be chosen
may apply if each option has both a value and a cost. Examples
include: the knapsack problem, capital budgeting problems, and
choice among machines or workers with different speeds.
LO S11.5: Allocate items to storage locations in a warehouse
AACSB: Reflective thinking
END–OF-SUPPLEMENT PROBLEMS (PROBLEMS WITH ASTER-
ISKS APPEAR IN MYOMLAB ONLY)
past frequency of delivery failures of suppliers.
S11.2 S = 0.03; U = 0.05; L = $400,000; C = $15,000
Using Equation (S11-1), the probability of a total disruption using one, two, or three suppliers equals:
+ − = + = + =
+ − = + = + =
1
2
(1) : 0.03 (1 0.03)0.05 0.03 (0.97)(0.05) .03 0.0485 .0785
(2) : 0.03 (1 0.03)0.05 0.03 (0.97)(0.0025) .03 0.002425 .032425
P
P
178 SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS
S11.4
(a) S = 0.015; U = 0.05
(c) Since 0.0175 < 0.0189, Option 1 (two local suppliers)
carries the lower risk.
S11.5
(a) S = 0.025; U = 0.04
S11.6 Using Equation (S11-2):
2
orders
2
Variance of orders
Bullw hip Variance of dem and
==
(d) 1350 / 750 = 1.8
(e) In this case, the retailer appears to be contributing the most to
the bullwhip effect.
S11.7
S11.3 S = 0.005; U = 0.05; L = $400,000; C1 = $15,000; C2 and C3 =$25,000
Using Equation (S11-1), the probability of a total disruption using one, two, or three suppliers equals:
1
2
(1) : 0.005 (1 0.005)0.05 0.005 (0.995)(0.05) .005 0.04975 .05475
P
+ − = + = + =
From the decision tree, we can see that the best choice is to use one supplier.
SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS 179
(b) Mean orders = (1,100 + 2,500 + 4,000 + 1,000 + 900)/5
= 9,500 / 5 = 1,900
Variance of orders =
2 2 2
22
(1,100 1,900) (2,500 1,900) (4,000 1,900)
(1,000 1,900) (900 1,900)
(5 1)
640,000 360,000 4,410,000 810,000 1,000,000
4
7,220,000 1,805,000
4
− + − + −
+ − + −
−
+ + + +
=
==
Supplier:
Mean orders = (600 + 0 + 0 + 0 + 1,400 + 0 + 0 + 0)/8
= 2,000/8 = 250
2222 2
222
(600 250) (0 250) (0 250) (0 250) (1,400 250)
(0 250) (0 250) (0 250)
(8 1)
− + − + − + − + −
+ − + − + −
−
122,500 62,500 62,500 62,500 1,322,500 62,500
62,500 62,500
7
++++ +
++
=
180 SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS
Sales
2
1
1
2
5 .2 = 1.0
6 .2 = 1.2
Total:
8.2
9.8 higher rating
Company
Donna Inc.
Kay Corp.
2
2
2
2
2
4
2
3
2
3
2
2
2
2
14 .2 = 2.8
18 .2 = 3.6
Service
3
3
3
3
2
3
8 .2 = 1.6
9 .2 = 1.8
Products
4
4
2
2
2
2
8 .4 = 3.2
8 .4 = 3.2
Sales
2
2
2
2
2
3
6 .2 = 1.2
7 .2 = 1.4
Total:
8.8
10.0
S11.12 This exercise can be used to illustrate the difficulty of
selecting criteria and of “objectively” ranking similar companies
criteria (i.e. criteria that significantly impact our choices, but are
not considered sufficiently important for their inclusion in the
rating from).
One set of sample criteria follows. These may or may not be
relevant at any particular school.
SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS 181
S11.12 (continued)
Criteria
University 1
4 3 2 1
University 2
4 3 2 1
University 3
4 3 2 1
University 4
4 3 2 1
University 5
4 3 2 1
Academics
Reputation
Breadth of offerings
Depth of offerings
Variety of offerings
Graduation rate
Length of program
Laboratory facilities
Teaching facilities
% honor graduates
Teaching methodologies
Use of IT in teaching
Financial
Tuition
Room & board
Books, supplies, etc.
Additional expenses
Location
Desirability
Local transportation
Weather
Size
Undergraduate class
Total enrollment
Campus
Size
Adequacy
Appearance
Architecture
Sports
182 SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS
S11.13* Using the following weights for the major sections:
Section
Weight*
Company
0.15
Service
0.30
Products
0.35
Sales Personnel
0.20
*Note: If you wish to imply that a trade-off
L → Classic Ladies’ Wear
E*
G
F
P
E
G
F
P
I → International Fashions
4
3
2
1
4
3
2
1
Company
Products
Size and/or Capacity
L I
Quality
LI
Financial Strength
I
L
Price
L
I
Operating Profit
L
I
Packaging
I
L
Manufacturing Range
L
I
Uniformity
I
L
Research Facilities
L
I
Warranty
L
I
Technical Service
LI
Sales Personnel
Geographical Locations
L
I
1. Knowledge
Management
LI
His Company
LI
Labor Relations
LI
His Products
LI
Our Industry
I
L
Service
Our Company
L
I
Deliveries on Time
I
L
2. Sales Calls
Condition on Arrival
I
L
Properly Spaced
LI
Follow Instructions
L
I
By Appointment
LI
Number of Rejections
LI
Planned and Prepared
I
L
Handling of Complaints
L
I
Mutually Productive
LI
Technical Assistance
I
L
3. Sales Service
Emergency Aid
I
L
Obtain Information
LI
Supply Up-to-Date
Catalogues, etc.
LI
Furnish Quotations
Promptly
LI
Supply Price Changes
Promptly
LI
Follow Orders
L
I
Expedite Delivery
L
I
Handle Complaints
I
L
*E = Excellent, G = Good, F = Fair, P = Poor
Classic Ladies’ Wear
International Fashions
Section
Weight
Total
Total
Weight
Total
Total
Weight
Company
0.15
22
3.3
18
2.7
Service
0.30
28
8.4
30
9.0
Products
0.35
13
4.6
12
4.2
Sales
0.20
34
6.8
35
7.0
1.00
23.1
22.9
It appears that Classic Ladies’ Wear is to be slightly preferred.
SUPPLEMENT 11 SUPPLY CHAIN MANAGEMENT ANALYTICS 183
daily cost of faster shipping with Option b ($100),
use the slower shipping, Option a.
yond the cost savings and a very unhappy customer.
S11.15 Daily holding cost = (Annual holding cost Cost)/
Days in year = (.3 $100,000)/365 = $82.19.
Difference in cost per day between shipping options = ($4,000 –
$3,800)/10 days = $20.
Since the daily holding cost ($82.19) is more than the daily cost of
faster shipping ($20), use the faster shipping, the third option.
the cost of faster shipping ($175), use the faster
subcontractor.
quality test, the production process, etc.).
S11.17 Let x be the maximum production cost in Central America.
The purchase plus holding cost in Central America must be less
than or equal to the same costs in Asia:
+ +
6 27
(0.3)( ) $20 (.30)($20)
365 365
1.004932 20.443836
$20.34
xx
x
x
S11.18
Item
Weekly
Trips
Area Needed
(Blocks)
Trips/Blocks
A
300
60
300/60 = 5
B
219
3
219/3 = 73
C
72
1
72/1 = 72
D
90
10
90/10 = 9
E
24
3
24/3 = 8
(a) Item B at the front (73 is the highest ratio)
(b) Item A at the back (5 is the lowest ratio)
S11.19
Item Category
Monthly
Trips
Area Needed
(Blocks)
Trips/Blocks
Assigned
Blocks
Paper Products
50
2
50/2 = 25
1,2
Dishes, Glasses, and Silverware
16
4
16/4 = 4
5−8
Cleaning Agents
6
2
6/2 = 3
9,10
Cooking Oils and Seasonings
30
2
30/2 = 15
3,4
Pots and Pans
12
6
12/6 = 2
11−16
Area Needed (Blocks)
160/8 = 20