Scm study final

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Supply Chain Management- Team 05 -

June 19, 2013

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1. Overview of results2. Option Choices3. Forecasting4. Production Planning5. Supplier Choice6. Buy Information

0. Outline

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1. Overview of result

1st year 2nd year 3rd year 4th year Total

Margin 43,252 29,715 30,269 49,443 152,679

1st year 2nd year 3rd year 4th year0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

81,700

114,750

125,560

88,080

52,717

79,420

92,699

61,151

28,98335,330 32,861

26,929

Model A Revenue

Model A Costs

Model A Margin


20,000

40,000

60,000

80,000

100,000

120,000

140,000

75,888

35,37446,202

106,645

55,619

34,98940,794

73,131

20,269

3855,408

33,514

Model B Revenue

Model B Costs

Model B Margin

Model A – Totally nice margin!Model B – huge mistakes

in 2nd and 3rd year

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1st year 2nd year 3rd year 4th year Total

Perfect prediction

Model A 30,732 41,026 36,225 27,675 135,658Model B 29,204 11,253 14,250 59,090 113,797


5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000Model A Margin

Model A Perfect est.

Model A Loss


10,000

20,000

30,000

40,000

50,000

60,000

70,000Model B Margin

Model B Perfect est.

Model B Loss

Unit profit * Actual demand is the maximum margin under perfect prediction

Model A – Totally nice again! Model B – huge loss also in 4th year

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The important things are…

Accurate demand prediction

Flexibility of production to cover miss-prediction

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Option Choices 3 criteria for deciding options to reduce uncertainity.

2. Option Choices

The estimation of demand increase

The variance of demand

estimationChanges of profit

Comprehensive Judgment

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2. Option Choices

Profit per unit demand Total

profit

How can we stabilize this?

Infrared & Extra Battery

Anti Theft &

Speakers

Speakers & Super

Slim

1st Year 2nd Year 3rd Year 4th Year

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Forecasting Flexibility is more important than forecasting Forecasting is not worth believing

3. Forecasting

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Year 1 Year 2

But...In reality we had to use assumption data

We tried to use “Consensus Data” rather than internal forecast assumptions

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Year 3 Year 4

For Year 3 & 4, We respected team conversation

We

belie

ved

pre-

info

that

“High

-end

Mod

el ” w

ill be

pop

ular

We

belie

ved

pre-

info

that

“High

-end

mod

el” m

arke

t migh

t be

toug

h

Lesson & Learn: Once set the forecast beginning of the year we stuck on this numbers

And lost flexibility

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Production Planning Setting FarFar Away site as a base line

Keeping flexibility on PrettyClose site

4. Production Planning

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Choose “Far Faraway site” to utilize its larger production capacity and lower cost to build up base inventory. Year 1

Year 2

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Choose “Pretty close site” to utilize its advantage of shorter lead time for keeping flexibility.

Year 3

Year 4

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Supplier Choice The consideration for lead time, capacity, setup cost,

and unit cost

5. Supplier Choice

Lead time Capacity Setup cost Unit cost(as of 1st year)

FarFar Away 4 mth 60K $1,000K A: $137, B: $157

Far Away 3 mth 60K $2,000K A: $137, B: $157

Pretty Close 0 mth 35K $1,000K A: $147, B: $167

Ve-Ri-Fas 0 mth 40K $2,000K A: $147, B: $167

No any reasons why we had to consider Far Away and Ve-Ri-Fas sites at the 1st phase to cover demand and flexibility.

Base line

Flexibility

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Supplier Choice We did not hesitate to change the order during the

year to cover the drastic demand change in 4th year

5. Supplier Choice

1st year

2nd year

3rd year

4th year

0

2,000

4,000

6,000

Change order cost

Changed our mind to quickly response the demand to acquire more profit than change order cost! But… no enough capacity

MayJune

July

August

Septem

ber

October

November

December

020406080

100120140160

Actual deman in year 4

Model AModel B

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6. buy information

How was the buy information beneficial for us?

Gwyneth:Marketing Department

Would you like us to set up this industry conference for $2,000,000?

Year Buy information ResultModel A Model B Model A Model B

First ?? ?? -4% ～ +6%(-2K ～ +3K)

-11% ～ +28%(-4K ～ +10K)

Second likely to go up 10% down -4% ～ +7%(-3K ～ +5K)

-13% ～ +46%(-2K ～ +7K)

Third Stable 20% down -8% ～ +1.5%(-5K ～ +1K)

-54% ～ +0%(-13K ～ +0K)

Final Stable 20% up -11% ～ +4%(-5K ～ +2K)

-20% ～ +129%(-12K ～ +75K)

Lesson & Learn: Buying information is important because the

prediction before the year start cannot be reliable.

Her prediction seemed to be “bad shot”

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Valuation of buy information

How was the buy information worth of $2,000,000 ?

Overestimation Underestimation

Items of Loss Inventory cost& Liquidation cost

Opportunity cost

Calculation of Loss (per unit)

A : about $70/ unitB : about $163 /unit

A: $73-78 / unitB:$93-98 / unit

Equal values of 2,000,000

A: 28 K unitB: 12 K unit

A : 25 K unitsB : 20 K units

Lesson & Learn: Buy information seems to be helpful if the prediction

will be more accurate.

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Appendix

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Fist Year

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Second Year

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Third Year

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Final Year

Scm study final

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