Management Coursework: Supply Chain Management Exam 2

PENN STATE UNIVERSITY ABINGTON
FALL 2020
Subject: Supply Chain Management Topic: Exam II
Instructor: Dr. Joseph JangDue Date: 10/28/2020
1. Discuss the relationship between service level, uncertainty, safety stock, and order quantity. How can trade- offs between these elements be made.
Service level, safety stock, order quantity, and uncertainty are critical concepts that facilitate an in-depth understanding of efficient supply and logistical management. The service level, also called cycle service level, refers to the expected probability of not reaching a stock-out in the next replenishment. It reflects the situation of not losing sales while adequately servicing customers’ demands— it can mean the percentage of customers that do not experience a stock-out and percentage of a section of order fulfill adequately. Service level is managerial issues that deal with the specified performance that is prescribed the organization management. In terms of inventory, service level outlines performance objectives revolving around time, line fill rate, case fill rate, and order fill rate, or aggregation of these activities. Safety stock is that a level of extra stock maintained by companies to limit the risk of stock-out. When there is uncertainty in the demand level or lead time for the product, the safety stock serves as insurance against the stock-out or inventory exhaustion. Safety stock represents inventory that provides a buffer against mismatch between forecasted and actual consumption. Safety stock aligns demand to expected and actual delivery time and unforeseen emergencies. Thus, it can be argued that safety stoke services to managed unforeseen circumstances or uncertainties. Order quantity refers to the quantity of an item that needs to be ordered in a situation where the stock available does not meet the predetermined minimum stock level. Service level is at the apex of these concepts because it acts as a function of order quantity and amount stock—the order quantity and amount of stock influences the supplier on how it services the customers. When the supplier has uncertainties regarding customers demand, there is a need for higher safety stock which is associated with higher cost. The safety stock can be reduced by enhancing the communication between supplier and customer in a bid to bridge the gap between supply and demand by reducing uncertainties. A successful supply chain and logistical management can enjoy optimal performance where there is a perfect interplay amongst service level, order quantity, safety stocks, and insurance against uncertainties.
2. Compare and contrast the transportation principles of economy scale and economy of distance. Discuss how they combine to create efficient transportation.
Transport plays a fundamental role in logistics operation by adding value to products and services. It is a critical element of logistics in providing provides two primary services, which include product movement and product storage. The economic system is often dependant on the efficiency of transport in terms of being economical and reliable. The process entails transport revolves around the mobility of the inventory across business phases. Such mobility of inventory can entail the movement of finished products, components of goods, materials, or work-in-progress. Thus, these items’ mobility to the next stage of inventory is facilitated by transport. Transport also plays a crucial role in the storage because a vehicle or any other means of transport can hold goods, materials, and in-process-work at various points of inventory. For effective performance in storage and movement of inventory, the transport is guided by fundamental principles, which include the economy of scale and economy of distance. First, In terms of economies of scale, efficiency is gained by ensuring that the size of shipment is increased so that that the cost per unit weight is reduced. For example, the larger capacity transport systems like rail and water transport at a lower cost per unit weight than air transport or road transport, because road transports entail facilities like trucks have limited space. Trucks would transport less weight, which leads to increased costs per weight. Second, efficiency can be enhanced by working on the concept regarding the economy of distance. More often, there is a decrease in transportation costs per unit of weight as a distance increase. For instance, a shipment that needs to be transported 2000kilometers would cost less per unit weight than the one that needs to be transported 1200km. The economy of distance is a critical influence on transportation because it determines variable costs. This transportation phenomenon on distance economics is often described as the tapering principle. The rationale for distance economies is the same as that of economies of scale where the longer distances allow fixed cost to be spread over more kilometres, leading to lower in a lower cost of transport per kilometre. Thus, for overall efficiency, one can combine both the economies of scale and distance by ensuring that there is a larger size of weight and equally longer distance in kilometres to be covered. This combined efficiency would result in a reduction of costs per weight of the load and cost per kilometre in transportation costs. The fixed costs on transport facilities, delivery, and administration, are spread over the increasing weight and distance. Both economies of scale and distance economy are integrated to create efficient transportation because it allows consolidation of those small loads into large loads to maximize profitability.
3a. under what conditions could it make sense to combine private and public warehouses in a logistical system?
In some cases, private and public warehouses have been combined. The reason underpinning such a combination is to ensure that companies continue to retain and attract customers. Besides, it provides an integrated approach to warehousing. It is a long term business plan that is tailored to logistics services.
Both the client and the warehouse operator share the risks arising from daily warehouse operations. A combination of private and public warehouses in a logistical system is necessary when there is a need for exclusivity, customization of services, flexibility, and shared risks and benefits. Both types of warehouses can get integrated into a single unit when there is a need for product-supply networks that are integrated to ensure faster delivery and supply of raw materials and other products. Besides, it would be prudent to combine private and public warehouses when there is a need to actualize the full utilization of warehouse space..
b. Discuss the economic justification for establishing a warehouse.
Warehousing plays a fundamental role in a business organization engaged in manufacturing, importing, exporting, and transporting goods, services, material, and in-work-resources. The establishment of a warehouse is a necessary venture and expenditure that will reduce costs and boost productivity in the long run. The interactions and communications between the business organizations and clients do not end when the orders are placed. The warehouse provides an avenue to nurture better control over inventory by ensuring that customers can receive and place their orders at the appropriate time, leading to boosted profitability. Warehousing activities enhance price stabilization. The prices of material, products, services, or goods vary throughout various times of the year depending on government policies, climatic conditions, political situations, war, employment rates and sources of incomes, and other factors that may disrupt the supply and demand of goods. Thus, warehouses provide a way of sourcing goods and material early enough to last over a specified time. These goods and products are source at reasonable costs and are of reasonable amount and quality to take care of uncertainties in future pricing and demand. It allows businesses to store products for future dates with speculations of high demand: this would ensure price stabilization, thereby minimizing unfavorable price fluctuations and reducing revenue losses. Finally, warehouses come with another economic justification, which entails the mitigation of risks. More often, warehouses are fitted with facilities that reduce damage and spoilage of goods and materials, which reduce economic losses. Some warehouses are well equipped with freezers, refrigerators, among other facilities, that are intended to provide favorable conditions for maintenance of product quality. A large portion of materials stored in warehouses is often insured, which means that one can get compensated for losses and damage incurred.
4a. Discuss the logistics considerations for operating in a global environment.
The phenomenon of globalization is at its peak as the trade liberation, and exploration of international markets is gaining momentum. More often, the globalization of business leverages logistical operations across the globe in terms of demand and product or service supply. When carrying out business at the international level, logistics constitutes a matter of great consideration since it forms the core component of the business through facilitating mobility. For logistics, many factors need consideration in the international market. First, logistical operators must consider cultural variations, determining whether a given logistical activity will be successful or not. If the product does not add value nor meet the needs of targeted international markets or communities, there would be no need to facilitate logistical movement and storage for such markets because it will result in losses. Second, logistical operators ought to consider both legal and regulatory barriers that control the mobility of products and materials across international boundaries. The logistics operators must contextualize matters like tariff barriers, taxation on imports, exchange controls, import quotas, and embargoes. Third, logistical firms and their associates need to evaluate the climate in international markets and niches in terms of foreign states’ support, political situations, security issues, currency exchange rates, communication, immigration, and employment lows and accessibility to capital, among others. Finally, logistical operators may need to consider challenges, rewards, and potential rewards presented by globalized business markets and operations. Thus, logistical management will need to reexamine market trends, financial patterns, and economic feasibility and consider a partnership approach in foraying onto international markets.
b. Discuss the rationale and challenges related to sourcing from low-cost countries.
Sourcing from a low-cost country is advantageous due to lower prices of material, commodities or services. However, it comes with various challenges that are complex and uncertain.. It appears that the supply chain administration cost in manufacturing firms tend to rise with sourcing from low-cost countries. The core challenges that impede sourcing from low-cost countries revolve around supplier production capacity, communication infrastructure, and business culture and practice. Regulatory frameworks such as quotas, trade restrictions laws, and tariffs and logistical bottlenecks like border crossing and delay, constitute a primary impediment to sourcing from low-cost countries. Cultural variations and difference in terms of language, business practices, and business practices, and uncertainties like political upheavals continue to degrade sourcing from low-cost countries.
5a. The provincial government uses massive quantities of computer paper, which it buys centrally. The purchasing department calculates an economic order quantity based on an assumed carrying cost rate of 30% per year. A box of printer paper cost $45, it costs $80 to process an order, and annual demand is for 44,000 boxes of paper.
* What is the EOQ or Qopt?
Provide computations for full points. No points for answers only.
The Economic Order Quantity (EOQ) refers to the number of units that a company has to add to inventory with each order to minimize the total costs of inventory, such as holding costs, order costs, and shortage costs.
Optimal Order Quantity:
Qopt = √2DS
H
The Order Point is:
R = dl
Total Annual Cost will be:
TC = DC + D S + Q H
2 2
Annual Order Cost:<...