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DETERMINING OPTIMAL LEVEL OF PRODUCTIVITY

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Expected Overstock. SINGLE SEASONAL ORDER. Expected ... Average Overstock Decreases. Profits Increase. QUICK RESPONSE. Consequences of Multiple Orders ... – PowerPoint PPT presentation

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Title: DETERMINING OPTIMAL LEVEL OF PRODUCTIVITY


1
DETERMINING OPTIMAL LEVEL OF PRODUCTIVITY
  • The Purpose of Supply Chains

2
AGENDA
  • INTRODUCTION/IMPORTANCE (9.1)
  • FACTORS AFFECTING (9.2)
  • MANAGERIAL LEVERS (9.3)
  • CONTRACTS (9.4)

3
AGENDA
  • SETTING IN PRACTICE (9.5)
  • SUMMARY AND CONCLUSIONS (9.6)

4
INTRODUCTION
  • Measures
  • Cycle Service Levels
  • Fill Rate
  • Fraction Demand met with Inventory
  • A.k.a., Customer Service Level

5
INTRODUCTION
6
AGENDA
  • FACTORS AFFECTING (9.2)

7
OVERVIEW
  • Cost of Overstocking
  • CO
  • Loss on Each Item at End

8
OVERVIEW
  • Cost of Under Stocking
  • CU
  • Loss at Margin Because not Available
  • Current
  • Future

9
OVERVIEW
10
OVERVIEW
  • Expected Value
  • Let

11
OVERVIEW
  • Expected Value
  • Then Expected Demand

12
OVERVIEW
  • Expected Value
  • And Fill Rate (fr)

13
SINGLE SEASONAL ORDER
  • Given

14
SINGLE SEASONAL ORDER
  • Given

15
SINGLE SEASONAL ORDER
  • At the Margin

16
SINGLE SEASONAL ORDER
  • Optimal CSL

17
SINGLE SEASONAL ORDER
  • Optimal Order Size

18
SINGLE SEASONAL ORDER
  • Expected Profit

19
SINGLE SEASONAL ORDER
  • Expected Overstock

20
SINGLE SEASONAL ORDER
  • Expected Understock

21
CONTINUOUSLY STOCK ITEMS
  • Inputs

22
CONTINUOUSLY STOCK ITEMS
  • Inputs

23
CONTINUOUSLY STOCK ITEMS
  • Inputs

24
CONTINUOUSLY STOCK ITEMS
  • Demand is Backlogged

25
CONTINUOUSLY STOCK ITEMS
  • Demand is Lost

26
AGENDA
  • MANAGERIAL LEVERS (9.3)

27
OVERVIEW
  • Two Obvious Levers
  • Increase Salvage Value
  • Decrease Marginal Loss from Stockout

28
OVERVIEW
  • Another Lever Reduce Uncertainty
  • Improved Forecasting
  • Quick Response
  • Postponement
  • Tailored Sourcing

29
IMPROVING FORECASTS
  • Demand Planning
  • Variation of Cost, Inventories, Profit

30
IMPROVING FORECASTS
31
QUICK RESPONSE
  • What
  • Reducing L
  • Thereby, Improving Forecast Accuracy
  • Therefore, Better Synchronizing Demand and Supply

32
QUICK RESPONSE
  • Multiple Orders
  • Optimal Order Quantity Not Deterministic
  • Must Use Simulation (Appendix 9F)

33
QUICK RESPONSE
  • Consequences of Multiple Orders
  • Increase Availability with Less Inventory
  • Average Overstock Decreases
  • Profits Increase

34
QUICK RESPONSE
  • Consequences of Multiple Orders

35
QUICK RESPONSE
  • Consequences of Multiple Orders

36
POSTPONEMENT
  • What
  • Delay Differentiation
  • Prior Differentiation
  • Aggregate Forecast Accuracy
  • Earlier

37
POSTPONEMENT
  • What
  • Delayed Differentiation
  • Individual Forecast Accuracy
  • Later

38
POSTPONEMENT
  • Economics
  • Higher Cost per Unit
  • Improved Customer Service
  • Synchronization
  • Heuristic Solution

39
TAILORED SOURCING
  • Two Sources
  • Low Cost, Inflexible WRT Uncertainty
  • Higher Cost, Able to Handle Uncertainty

40
AGENDA
  • CONTRACTS (9.4)

41
OVERVIEW
  • What
  • Reality
  • Not Dreams

42
OVERVIEW
  • Profitability
  • Supply Chain
  • Individual Company in Supply Chain
  • Double Marginalization

43
RETURNS POLICY BUY BACK
  • Net Effects
  • Increase Salvage Value
  • Increase Order Size
  • Increase Supply Chain Profits

44
RETURNS POLICY BUY BACK
  • Variables

45
RETURNS POLICY BUY BACK
  • Expected Manufacturer Profit

46
QUANTITY FLEXIBILITY
  • What
  • Retailer Allowed to Change Order Size
  • After Observing Demand (Ex Post)

47
QUANTITY FLEXIBILITY
  • Variables

48
QUANTITY FLEXIBILITY
  • Given

49
QUANTITY FLEXIBILITY
  • Expected Purchased by Retailer (QR)

50
VMI
  • Replenishment Triggered by Manufacturer
  • Mitigate Double Marginalization
  • Competing Products are Difficult

51
AGENDA
  • SETTING IN PRACTICE (9.5)

52
CONSIDERATIONS
  • Use Analytical Framework
  • Know Present Levels of Availability
  • Use Approximate Costs
  • Be Robust
  • Estimate Range of Stockout Costs
  • Match Availability with Strategy

53
SUMMARY AND CONCLUSIONS(8.7)
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