Chapter
12
Supply Chain Design
DISCUSSION QUESTIONS
1. For any supply chain there is a theoretical efficiency curve that maps the
relationship between total costs and performance. Most firms, if their actual costs
and performance are plotted, will be in a position where total costs exceed those
2. Walmart’s approach is to generate a competitive situation between suppliers and to
drive down prices. One of the major competitive priorities in Walmart’s business is
3. Canon has chosen to keep its new product development process close to its
manufacturing process to take advantage of concurrent engineering. They have
chosen a strategy of speedy introduction of new products. Separating the
⚫ PART 3 ⚫ Managing Supply Chains
12-2
PROBLEMS
Measuring Supply Chain Performance
1. EBI Solar
a. Inventory turnover = (Annual sales at cost)/(Average aggregate inventory value)
$555,556/48,077 = 11.56 weeks of supply
b. Average aggregate inventory value = raw material + work–in-process + finished
2. Cyberphone Company
a. Current Year’s average aggregate inventory value
= $48,000,000/6 = $8,000,000
3. Precision Enterprises. Average aggregate inventory value
= Raw materials + WIP + Finished goods
= $3,129,500 + $6,237,000 + $2,686,500
= $12,053,000
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-3
4. Spearman Fishing Industries
Inventory turnover = (Annual sales at cost)/(Average
aggregate inventory value)
5. Bawl Corporation. Average aggregate inventory value can be calculated as: Average
aggregate inventory value = Raw materials + WIP + Finished goods
= $2,470,000 + $1,566,000 + $1,200,000
= $5,236,000
6. A retailer
a. a. Sales per week = Cost of goods sold/52 weeks per year
= $3,500,000/52
= $67,308
7. Sapphire Aerospace
a.
Average
Part Number
Inventory (units)
Value ($/unit)
RM-1
20,000
1.00
RM-2
5,000
5.00
RM-3
3,000
6.00
RM-4
1,000
8.00
WIP-1
6,000
10.00
WIP-2
8,000
12.00
FG-1
1,000
65.00
FG-2
500
88.00
Average aggregate inventory value: $336,000
⚫ PART 3 ⚫ Managing Supply Chains
12-4
b. Average weekly sales at cost = $6,500,000/52
= $125,000
8. Dogs-R-Us versus K-9 Inc.
a. The following Excel spreadsheet provides the total average inventory value by
inventory category for both firms. The average aggregate inventory value = the
sum of the total inventory value of all categories.
Dogs-R-Us
K-9 Inc.
Cost of Goods Sold
$560,000.00
$640,000.00
Category
Average
Inventory
in Units
Value
per Unit
Total
Value
Average
Inventory
in Units
Value
per Unit
Total
Value
Dog Beds
200
$55.00
$11,000.00
140
$55.00
$7,700.00
Dog Bones & Treats
1200
$2.50
$3,000.00
250
$2.50
$625.00
Pet Feeders
50
$12.50
$625.00
20
$12.50
$250.00
Flea & Tick
350
$7.50
$2,625.00
75
$7.50
$562.50
Dog Kennels
10
$65.00
$650.00
2
$65.00
$130.00
Dog Pens
10
$220.00
$2,200.00
3
$220.00
$660.00
Patio Pet Doors
5
$120.00
$600.00
2
$120.00
$240.00
Dog Ramps
5
$150.00
$750.00
2
$150.00
$300.00
Pet Strollers
10
$40.00
$400.00
2
$40.00
$80.00
Pet Supplements
1400
$4.50
$6,300.00
150
$4.50
$675.00
Dog Toys
250
$2.20
$550.00
100
$2.20
$220.00
Average Aggregate Inventory Value
$28,700.00
$11,442.50
b. Average Weekly Sales at Cost Dogs-R-Us = $560,000/52 = $10,769.23
Outsourcing Processes
9. Large global automobile manufacturer
a. We must use the break-even equation for evaluating processes:
mb
bm
cc
FF
Q−
−
=
Q = ($6 million – $4 million)/($8.00 – $5.00) = 666,667 solenoids.
Consequently, the automobile manufacturer would need to use 666,667 or more
solenoids to make a financial case to retain manufacture of them in-house.
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-5
b. If the projection is for less than 666,667 solenoids, the use of the subcontractor
becomes a possibility. However, in doing so, the manufacturer loses some
10. Donegal Footwear.
We must use the break-even equation for evaluating processes:
mb
bm
cc
FF
Q−
−
=
Q = ($16 million – $ 9 million)/( $15.00 – $6.00) = 777,778 packages. Consequently,
Black Bear Outfitters must ship more than 777,778 packages to make the vertical
integration into warehouse operations cost effective.
11. BlueFin Bank
We use the break-even equation for evaluating two processes:
mb
bm
cc
FF
Q−
−
=
The key is to solve for the fixed costs of the “make” option,
QccFF mbbm )( −+=
m
F
= $12 million + 0.02(20 million) = $12,400,000. Consequently, if the fixed
annual costs to do the transactions in-house exceed, $12,400,000, BlueFin would be
better off using DataEase.
12. Global Manufacturer of Electrical Switching Equipment
a. We must use the break-even equation for evaluating processes:
mb
bm
cc
FF
Q−
−
=
Q = ($8 million – $0 million)/($16.00 – $11.00) = 1,600,000 breakers.
Consequently, the manufacturer would need to use 1,600,000 or more breakers
to make a financial case to retain manufacture of them in-house.
b. We must use the break-even equation for evaluating processes:
mb
bm
cc
FF
Q−
−
=
Q = ($8 million – $5 million)/($12.00 – $11.00) = 3,000,000 breakers.
Consequently, the manufacturer would need to use 3,000,000 or more breakers
to make a financial case to retain manufacture of them in-house.
c. Calculate the total cost of each option:
• Make in-house: $8,000,000 + $11(1,500,000) = $24,500,000
⚫ PART 3 ⚫ Managing Supply Chains
12-6
EXPERIENTIAL LEARNING: SONIC DISTRIBUTORS
A. Synopsis
The purpose of this exercise is to provide a situation in which students can observe
how supply-chain management affects the efficiency and effectiveness of a
distribution network. It is designed to be quite flexible. In its simplest form it can be
a “quick hit” to give the students an initial exposure to supply chains and, thus, set
them up for a more productive lecture and discussion of the chapter. Alternatively,
complexity can be added so the efficient and the responsive distribution chains can
be compared or more freedom can be allowed making it an analytical simulation to
observe and measure the effects of changes to the system. In this last format,
students can configure the supply chain for efficiency or responsiveness (or
anywhere in between) and then operate it while measuring its supply-chain
performance.
Many lessons can be brought out from a discussion of the results of this exercise. It
demonstrates the complexities of managing an enterprise where there are multiple
parties and information requirements involved. It brings forth the trade-offs that
must be made when conflicting goals exist with different costs or benefits. It shows
the cost implications of managerial decisions such as establishing safety stock
policies and setting production lot sizes. And, it shows the role of time delay on the
overall system performance.
The results of this exercise can also lead to further discussions: The distribution of
demand for the distribution centers (and thus for the factory) depends not only on
the nature of the demand at the retail stores but also on the ordering policies of the
retailer and the distribution center. This can lead to a discussion of dependent
demand, which sets the stage for Chapter 11, “Resource Planning.” As a tie-in to
applied statistics, the smoothing effect of grouping several independent demands,
and perhaps, even the central limit theorem can be teased out of the results. An
outline of some of the topics from Chapters 12 and 14 that spring from this exercise
can be found at the end of this teaching note.
B. Preparation Materials
❑ Retail and Distributor Purchase Order Forms (one set for each retail store and
one set for each of the two distribution centers). A set is made up of one form
for each simulated day the game is to be played.
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-7
❑ Manufacturing Work Order Sheet (one set for the factory). The set for the
factory contains as many forms as the proposed length of the simulation times
the number of distributors it serves.
❑ Factory and Distributor Material Delivery Forms (one set for the factory and one
set for each distribution center that the factory supplies). The size of the set for a
distributor is the proposed number of days times the number of retail stores each
is to serve.
❑ Inventory Position Worksheets (one for each retail store, each distribution
center, and the factory)
❑ A random demand generator such as a pair of dice, a deck of playing cards for
each team (with all face cards removed) or slips of paper with the numbers 1 to
10 written on them, random number table, a simple computer program, etc.
Preparation Time Required
Instructor: It will take a couple of hours to read through the material and fully
understand the procedure that the students will enact. It is suggested that the
instructor personally play several rounds before presenting it in class to the students.
The instructor should play the part of all participants (retail stores, distribution
centers, and the factory) to best grasp each student’s role. Although it appears
complex at first, the procedure is fairly simple.
Preclass preparation consists of devising the random demand generators, one for
each company (team). If only one type of CD is to be produced (Quick-Hit version),
a pair of dice works well (one pair for each retail store is best but a pair can be
shared by the stores in a team). If the demonstration is to include all four types of
CD demands, an easy demand generator is a shuffled deck of playing cards with all
the face cards and jokers removed.
Inventory position and cost calculation worksheets need to be photocopied, one for
each retail outlet, distributor, and factory. Likewise, sets of Retail Store and
Distribution Center Purchase Order Forms, Factory Work Order Forms, and Factory
and Distribution Center Material Delivery Forms need to be photocopied.
Students: Prereading the exercise is suggested; it reduces the startup time. It should
take the students only 15 minutes or so to read and understand the instructions.
Indicate to the students how the exercise will be run (the “Quick Hit” version in the
text or the “Efficient versus Responsive Comparison” or the “Analytical
Simulation” versions in this teaching note).
Class Time Required
As with any business simulation, there is a trade-off between realism and feasibility.
More detail can yield a more realistic estimate of what true distribution chain costs
are. This realism comes at the cost of more effort on the part of the student to
perform the exercise. It also can cause more confusion when trying to explain the
rationale behind each cost and how to account for it when calculating total cost.
Therefore, three versions of the exercise are suggested to allow whatever level of
realism the instructor chooses; other configurations are easily devised, depending on
the objectives of the instructor.
In its simplest form, the “Quick Hit” version can take as little as 45 minutes to run.
This has enough detail for the students to observe the dynamics of a supply chain.
⚫ PART 3 ⚫ Managing Supply Chains
12-8
The “Efficient versus Responsive Comparison” version takes about 75 minutes. The
“Analytical Simulation” version generates the most realistic total costs and allows
the students to try several configurations. Therefore, it can take two hours or more
plus additional time for postexercise debriefing and discussion. This longer
configuration works best for a one-night-per-week class or if the debriefing and
discussion session can take place during the following class. It could also be given
as a multiple session exercise if the goal of the instructor is to cover distribution
chain performance in depth.
Setting Up
This exercise works well when two or more companies are formed. In any case,
companies should be configured with no fewer than two retail outlets drawing from
each distributor (more than one can be used). Although this is the minimum, more
than two retail outlets to each distributor are better because they more clearly
demonstrate the effect of averaging stochastic demand at the distributors.
The following parameters need to be established for each team:
1. Starting conditions:
Initial inventory of each of the four artist’s CDs at the:
2. Operating considerations:
Demand patterns—will a quantity of only one artist’s CD be sold at a given
retail store each day (i.e., each retailer will generate only one random number
for demand per round—as for the Quick Hit version) or will several artist’s CDs
be sold (i.e., each retailer will generate several different random numbers to
determine demand)?
3. Costs
Transportation costs and holding costs in the inventory pipeline are expressly
ignored in the Quick Hit version for simplicity.
Holding cost per unit per day—may be different for each of the stages in the
distribution chain.1 The text suggests:
1 These holding costs differentials are designed to dissuade students from positioning too much forward
inventory at the retail outlets. See a discussion of other possibilities in the parameter list for the Efficient
vs. Responsive version, later on.
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-9
4. Delays
Ordering delay—time from when a purchase order (PO) is issued until it is
received. The text suggests one day.
run the entire order. Partial production runs are not shipped.
5. Lot sizing restrictions—
Retail Store orders—the text indicates there are none.
complexity needing to extend a production run over several days.
6. Storage capacity restrictions—the text does not mention any for the Quick Hit
version.
C. Conducting the Exercise
Break the class into teams and have them sit together so that communication among
the team members will be convenient. They can be seated in an area of the
classroom or around a large table. Let them arrange themselves to establish effective
and efficient transmission chains for the required information (POs and material
delivery forms). To include delays in the transmission of POs to suppliers or in the
delivery of goods from suppliers, provide a place where the POs and delivery forms
can be placed for the required delay periods. If the team is seated at a table, 8 ½
11 pieces of paper (one for each source and destination pair) can be fastened on the
table and marked as delay stations. If the students are sitting in chairs, an empty
chair between the various pairs within the team can serve as a delay station.
⚫ PART 3 ⚫ Managing Supply Chains
12-10
Specify the values for the parameters (listed previously) that will be followed for the
exercise. Review the sequence of play. If a deck of cards or slips of paper are used
to determine demand, specify that at the end of each round (day) the cards or slips
that were drawn should be returned to the deck and the deck reshuffled. Go over the
items that are to be recorded on the worksheets. Start off with a few practice rounds
to be sure each student understands his or her task, how the data are gathered, and
how play progresses.
To simplify record keeping, have the students adopt a “midpoint convention” for
recording transactions. This assumes all transactions occur simultaneously in the
middle of the day—scheduled receipts arrive, demand is determined and met, and
any shortages occur, all at noon. Inventory recorded in the inventory position
worksheet is the ending inventory after all these transactions occur.
Regardless of the version, for each simulated day the sequence of play goes as
follows:
Retailer:
a. Each retailer receives any shipment due in from their distributor (one day after
shipment) and places it into sales inventory (adds the quantity indicated on any
incoming Material Delivery Form from the distributor—after its one-day
delay—to the current inventory level on the Retailer’s Inventory Position
Worksheet). Note: for the first day of the exercise no order will be coming in.
b. The retailers each determine the day’s retail demand (the quantity of CDs
requested) by rolling a pair of dice. The roll determines the number demanded.
c. Retailers fill demand from available stock if possible. Demand is filled by
subtracting it from the current inventory level indicated on the worksheet. If
demand exceeds supply, sales are lost. Record all lost sales on the worksheet.
d. Retailers determine whether a replenishment order should be placed. If an order
is required, the desired quantity of CDs is written on a Retail Store Purchase
Order, which is forwarded to the distributor (who receives it after a one-day
delay). If an order is made, it should be noted on the worksheet. Retailers may
also desire to keep track of outstanding orders separately.
Distributor:
a. The distributor receives any shipment due in from the factory and places the
CDs in available inventory (adds the quantity indicated on any incoming
Material Delivery Form from the factory—after its one-day delay—to the
current inventory level on the distributor’s Inventory Position Worksheet).
b. All outstanding back orders are filled (the quantity is subtracted from the current
inventory level indicated on the worksheet) and prepared for shipment. CDs are
shipped by filling out a Distribution Center Material Delivery Form indicating
the quantity of CDs to be delivered.
c. The distributor uses the purchase orders received from the retail stores (after the
designated one-day delay) to prepare shipments for delivery from available
inventory. Quantities shipped are subtracted from the current inventory level on
the worksheet. If insufficient supply exists, back orders are generated.
d. The distributor determines whether a replenishment order should be placed. If an
order is required, the quantity of CDs is written on a Distribution Center
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-11
Purchase Order, which is forwarded to the factory (after a one-day delay). If an
order is made, it should be noted on the worksheet. The distributor may also
desire to keep track of outstanding orders separately.
Factory:
a. The factory places any available new production into inventory (adds the items
produced the previous day to the current inventory level on the Factory
Inventory Position Worksheet).
b. All outstanding back orders are filled (the quantity is subtracted from the current
inventory level indicated on the worksheet) and prepared for shipment. CDs are
shipped by filling out a Factory Material Delivery Form, indicating the quantity
of CDs to be delivered.
c. The factory obtains the incoming distributor’s purchase orders (after the
designated one-day delay) and ships them from stock if it can. These amounts
are subtracted from the current values on the inventory worksheet. Any unfilled
orders become back orders for the next day.
d. The factory decides whether to issue a work order to produce CDs either to
stock or to order. If production is required, a Factory Work Order is issued and
the order is noted on the inventory worksheet. Remember that the setup cost is
for each production order. It is important to keep careful track of all production
in process.
When all parties have completed and recorded their day’s transactions, go back to
Retailer Step (a.) and repeat. Make the students aware that, once an order is placed,
it cannot be changed (unless, of course, you wish to simulate the ability to amend
orders).
The exercise must be run long enough in order for the interactions within the system
to be revealed. The number of rounds required will depend on the parameters that
are selected. In general, if feedback is sluggish (the time between issuing a PO and
the receipt of inventory is two or more days), as many as 40 simulated days may be
required to see the effects of the system dynamics. If feedback time is short, the
number of required rounds may be reduced at the expense of fully developing the
dynamic characteristics in the system.
When the exercise is concluded, have each entity (retailer(s), distributor, and the
factory) calculate the total cost of operation.
For retail stores, find the total of:
1. The cumulative amount of inventory of each type of CD (there will be only one
type of CD if the Quick Hit version is run). Add the inventory position
numbers in each of the two columns on the worksheet for each type of CD and
then multiply the total by the holding cost per CD per day.
2. The total ordering cost. Count the number of times an order was placed and
multiply by the ordering cost.
3. The total stockout cost. Add the numbers in each of the two columns on the
worksheet for stockouts and multiply the total by the cost per lost sale.
4. For distribution centers, find the total of:
i. The cumulative amount of inventory of each type of CD (only one type
if Quick Hit version). Add the numbers in each of the two columns on
⚫ PART 3 ⚫ Managing Supply Chains
12-12
the worksheet for each type of CD and then multiply the total by the
holding cost per CD per day.
ii. The total ordering cost. Count the number of times an order was placed
and multiply by the ordering cost.
For the factory, find the total of:
i. The cumulative amount of inventory of each type of CD (only one type
if Quick Hit version). Add the numbers in each of the two columns on
the worksheet for each type of CD and then multiply the total by the
holding cost per CD per day.
ii. The total setup cost. Count the number of times a production order was
placed and multiply by the setup cost.
Then add up the costs of all the entities. The lower the total cost, the better the team
operated the distribution chain.
D. “Quick Hit” Version (the version in the text)
In this version, only one type of CD is produced and there is only one Distribution
Center. The team breakout, procedures, costs, and conditions for this version are
given in the text. Distribute the materials to each team (the worksheets, order and
delivery forms, and the random demand generator). Assuming that they have
already read the exercise description and instructions, briefly review the sequence of
steps they will follow in each round (simulated day). Remind them of the values
they need to use for each of the operating parameters (costs and conditions).
Allow the students to complete a couple of practice rounds so that each person
knows his or her task. Then have them reset to the starting conditions (no pipeline
inventory and the initial quantities in stock) and begin the exercise. Let them go
until most teams have at least 25 rounds completed, more if you have time.
When completed, have them determine the total cost of their operation. Discussion
can then begin.
E. Efficient Versus Responsive Comparison
Divide the class into two companies (teams) of 16 to 26 or so, although, if
necessary, as few as 7 can form a team:
2 people schedule production at the factory
2 people operate each of the two distribution centers
The remaining pairs of people operate the retail stores
Retail
Stores
Distribution
Centers
Factory
At each of the distribution centers and retail stores, one person determines demand
and fills the orders while the other records and graphs inventory levels as play
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-13
progresses. Both help decide when and how much to order. The goal is to achieve
the lowest total operating costs for the entire distribution chain.
In these expanded versions four groups currently have top-10 recordings being sold.
They are: Jake Spade and the Diggers, The Heartmenders, Diamonds in the Ruff,
and Kulture Klub. Consequently, playing cards make a convenient way of
determining demand. When using cards, the daily retail demand for a given group’s
recording at a given retail outlet is determined by drawing a playing card. The suit
determines which group’s CDs sold that day and the pip (the number) indicates how
many were sold.
Briefly review the sequence of steps they will follow in each round. Then give the
students the following parameters for their production:
Starting conditions for both teams:
Initial inventory of each of the four artist’s CDs at the:
Retail stores—10 CDs of each artist
Distribution centers—25 CDs of each artist
Factory—50 CDs of each artist
Team 1—Efficient Supply Chain
Costs:
Holding cost per unit per day:2
Retail outlets: $1.00/CD/day
Distribution centers: $0.50/CD/day
Factory: $0.25/CD/day
Pipeline inventory cost: These costs can be ignored or added in depending on the
level of realism desired (because they are linear, they don’t affect the best decisions
to make, only the total cost that is generated). If you choose to include them, add
another column to the inventory position worksheets for the DCs and the factory
next to the inventory column. Explain that the DC pays inventory holding costs on
open orders (inventory shipped to the retailers but not yet received), and the factory
pays inventory costs for open orders sent to the DCs.
Ordering cost (retailers and distributors): $20/order for single or mixed types.
Factory setup cost (to run an order): $50 (unless the subsequent order is for the
same type CD as the preceding order).
Stockout (lost margin) cost for retail stores: $8 per CD sale lost in a period.
Back orders: There is no cost for back orders due to shortages from the factory or
the distribution centers, although all back orders must be filled first before shipping
new orders.
Shipping cost: One alternative is to ignore this cost by using the rationale that, as
other products are already being distributed through this chain and CDs are light and
2 As with the Quick Hit version, these cost differentials are designed to prevent too much forward
placement of inventory. One possibility is to make the costs more equal, but impose capacity limits on
how much a retailer is willing to hold. Another possibility is to make the lead time from the factory
longer than from the DC to the retailers.
⚫ PART 3 ⚫ Managing Supply Chains
12-14
take up little volume, the cost is essentially zero. If you desire more realism, a per
shipment (or per unit) shipping cost can be included.
Expediting cost (for example, shipping an order by UPS instead of normal freight):
$1 per CD.
Outstanding orders:
Retail outlets and distribution centers: no orders.
Existing factory order: 200 Kulture Klub CDs in production, the first 50 to be
delivered next period.
Lot sizing restrictions:
Retail store orders—minimum order: 20 of each artist. More may be ordered if
desired.
Distribution center orders—minimum order: 100 of each artist. More may be
ordered if desired.
Factory production lot sizes and capacity: Limited to only one type CD at a
time. Produce in lots of 200 at the rate of 50 per day (i.e., an order takes four
days to complete but 50 units are available the day after production starts).3
Delays
Ordering delay: 1 day transit time for orders between retail stores and
distributors and between distributors and the factory. Note: As an alternative, you
may wish to allow this “efficient” firm to employ electronic data interchange
(EDI) and allow the team to electronically forward orders with no delay. This
capability is provided to the other “responsive” firm.
It takes one day to start up production (i.e., a one-day delay) if the factory has not
been producing anything the previous day. There is no delay if immediately
starting a second order of an existing CD or switching to a new type CD.
Delivery delay: 1-day delivery time between distributors and retail stores and
between the factory and the distributors.
Team 2—Responsive Supply Chain
Costs:
Holding cost per unit per day (see footnote 2 above):
Retail outlets: $2.00/CD/day
Distribution Centers: $1.00/CD/day
Factory: $0.50/CD/day
Pipeline inventory cost: These costs can be ignored or added in depending on
the level of realism desired (as they are linear, they don’t affect the best
3 The factory capacities should be adjusted upward if there are more than six retail stores drawing off a
single factory’s production. Using playing cards, the average demand is 5.5 CDs per store per day. With
four retail stores the factory will experience a mean demand of 22 CDs per day, and the peak demand can
occasionally approach 40. Having a production capacity of 50/day makes meeting demand without a lot
of forward placed inventory a challenge. With more than four retail outlets, the capacity cushion becomes
very thin. Six retail outlets give a mean demand of 33 with a peak of 60. Although the increased number
of retail outlets reduces the variability of the demand experienced by the factory, it becomes very hard to
avoid stockouts. More than six retail outlets require increased capacity at the factory.
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-15
decisions to make, only the total cost that is generated). If you choose to include
them, add another column to the inventory position worksheets for the DCs and
the factory next to the inventory column. Explain that the DC pays inventory
holding costs on open orders (inventory shipped to the retailers but not yet
received), and the factory pays inventory costs for open orders sent to the DCs.
Ordering cost (retailers and distributors): $20/order for single or mixed types
Factory setup cost (to run an order): $25 (unless the subsequent order is for the
same type CD as the preceding order).
Stockout (lost margin) cost—retail store: $16 per CD sale lost in a period.
There is no cost for back orders for shortages from the factory or the distribution
centers, although all back orders must be filled first before shipping new orders.
Expediting cost (for example, shipping an order by UPS instead of normal
freight): $.50 per CD. (This is suggested to be lower than for the efficient chain
using the rationale; this is planned for and, thus, can be contracted at a lower
cost.)
Lot sizing restrictions—none: all orders may be made lot-for-lot including
factory production lot sizes.
Factory capacity: 50 units/day, may be of mixed types (see footnote 3).
Outstanding orders: no orders for retail outlets, distribution centers, or the
factory.
Delays
Ordering delay: none. Using EDI, orders placed in one period can be acted on
the following period. This includes the factory. Furthermore, the factory should
be informed about all retail store purchase orders at the time they are made,
although they do not ship to the distribution centers until a request for inventory
has been issued.
Delivery delay: orders received are shipped the same day. They are available for
use the following day. Note: As an alternative, you may wish to maintain a
delivery delay, say, of one day.
Have the two teams run 30 to 40 rounds and then allow the students to compare the
performance of the two different types of supply chains using the data gathered on
their worksheets. To focus the discussion, suggest to the students that they use
Tables 10.2 and 10.3 found in the text as a guide for comparison.
F. “Analytical Simulation” Version
This version allows the students to see how the various distribution chain
parameters (see the list under “Setting Up” in Section B) affect performance. It can
be run by forming two or more teams, each designing a distribution system by
selecting values for their distribution system’s parameters based on their
understanding of the chapter material. The teams run their various systems
simultaneously (like in the “Efficient Versus Responsive Comparison” version).
⚫ PART 3 ⚫ Managing Supply Chains
12-16
After sufficient periods have been simulated, the teams come together to discuss and
compare the effectiveness of their distribution system designs.
Alternatively, it can be run with the class operating as one team. Have them select
the way they want to design the distribution system and then run it for a while to
establish how well it performs. They can then discuss the results, adjust various
parameters, and rerun the exercise to see if performance has been improved. This
alternative works best for smaller sized classes.
In either case, the instructor will need to establish values for the various operating
costs and set limits over which the other parameters can reasonably range. Other
variations can be included as well. For instance, it could be permissible to allow the
factory or DCs to position inventory forward (as anticipation inventory) rather than
waiting for a purchase order to better synchronize the entire distribution chain. It is
also possible to allow for partial shipments to better allocate scarce resources.
G. Debriefing/Discussion
When any of the versions of the game have been completed, there will be an
opportunity to discuss many of the topics that are covered in Chapters 12 and 14 of
the text. Some of the more relevant of these topics are outlined below. Furthermore,
any of these topics can become issues to include for investigation when playing the
analytical version of the game.
Possible disruptions to model:
External supply chain causes
Volume changes
Product mix changes
Delivery delays
Partial shipments
Internal supply chain causes
Production failure
Product modifications
New products
Promotional demand peaks
Information
Value analysis
Where to stock
Forward placement
Backward placement (Even out variations in demand—inventory pooling.
This could be simulated by developing a bimodal demand generator—
include face cards and have them worth 25 CDs.)
Holding costs
Aggregate inventory value (the different types of CDs could be valued
differently)
Week’s supply
Inventory turns
Production costs:
Setups
Lot sizes
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-17
Material purchases (quantity and supplier lead-time)
Defects—yield (relate to required speed of delivery and length of run)
Transport (shipping) costs
Truckload vs. LTL common carrier vs. UPS
Tardiness costs
Time delay
Lost sales, back orders (measured as percent on-time delivery)
Students can also be shown the imbalance that exists between a flow shop
production and a product that needs to be flexible by decreeing that the factory only
produce in large, multiday runs.
It may also be instructive to have the students graph their inventory positions over
the duration of the exercise to better display the supply chain dynamics. It will
become evident that the greater the delays in the delivery of the POs and the
shipment of the CDs, the more wild the resulting inventory level excursions.
Some students may wish to write a computer simulation to replicate this exercise.
By doing so and then experimenting with the model, they will develop a deeper
appreciation for the system dynamics that evolve from adjusting various parameters.
Although a simulation is an interesting tool, most students will not gain much by
playing with a model created by someone else. The inner workings are not clear
enough to develop a full understanding of the interactions that take place. However
by participating in the in-class exercise, these interactions become more evident and
can be better appreciated.
H. Worksheets
Two sets are provided; one for the single product version (“Quick Hit”), and one for
the other two multiple product versions. Duplicate as many of these as needed (see
“Materials” section of the instructions).
One thing expressly left out of the worksheets is a column for keeping track of what
has been ordered but not yet delivered. This is to allow the students to discover, on
their own, the importance of keeping track of outstanding orders so that double
ordering does not occur. If you do not wish this to be a self-discovery exercise, you
can add a column to the Inventory Position Worksheets for this information to be
recorded.
⚫ PART 3 ⚫ Managing Supply Chains
12-18
Forms for Single Product (Quick Hit) Version:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
RETAIL STORE PURCHASE ORDER
RETAIL STORE PURCHASE ORDER
Retailer:
Day Sent:
Day Rec.:
Retailer:
Day Sent:
Day Rec.:
Quantity:
Quantity:
Supply Chain Design ⚫ CHAPTER 12 ⚫
12-19
Forms for Single Product (Quick Hit) Version:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
Day Rec’d.:
Day Sent:
Day Rec’d.:
Quantity:
Quantity:
DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
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DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
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DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
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Quantity:
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DISTRIBUTION CENTER P. 0.
DISTRIBUTION CENTER P. 0.
Day Sent:
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Day Sent:
Day Rec’d.:
Quantity:
Quantity:
⚫ PART 3 ⚫ Managing Supply Chains
12-20
Forms for Single Product (Quick Hit) Version:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity:
FACTORY WORK ORDER
FACTORY WORK ORDER
Day Placed:
Day Complete:
Day Placed:
Day Complete:
Quantity:
Quantity: