to Introduction Production and Manufacturing Systems
05/19/09
2006 Prentice Hall, Inc.
ISEN 220
Texas A&M Industrial Engineering
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Newsvendor Model
Unlike the EOQ model, the newsvendor model:
1. allows demand to be random, 2. is a one-period model, i.e., we make a oneshot decision
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Newsvendor Model
No re-stocking allowed. Discussion: How restrictive is the one-period assumption?
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Newsvendor Model
Define the following notation: Q = number of units stocked in the beginning of the period. D = demand, a random variable. co = overage cost, i.e., cost per unit remaining in inventory at the end of the period. cu = underage cost, i.e., cost per unit of unsatisfied demand. F(x) = cumulative distribution function for D, i.e., P(D x)
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Newsvendor Model
Why not just stock exactly enough to satisfy the mean demand?
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Newsvendor Model
How much should we stock in optimality?
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Newsvendor Model
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Newsvendor Model
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Newsvendor Example
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Supply Chain Management
What is a Supply Chain? Network of entities: Suppliers (and their suppliers) Manufacturers of semi-finished and finished products Distributors Customers
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The Strategic Importance of the Supply Chain
Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and the final product, and deliver them to customers Competition is no longer between companies; it is between supply chains
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A Supply Chain -- Beer
Figure 11.1
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Supply Chain Flows
Downstream flows:
Upstream flows:
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Integration of Suppliers: Volkswagen Brazil
Brazilian plant employs 1000 workers
200 work for VW and are responsible for overall quality, marketing, research, and design 800 work for other contractors and do the assembly work
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Volkswagen Brazil
Important elements of this concept
VW is buying not only materials, also but the labor and related services Suppliers are integrated tightly into VW's own network, right down to assembly work in the plant Purchase costs in the auto industry exceed 60% of the sales dollar, so any savings are significant
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Volkswagen Brazil
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Supplier Relationships
Negotiating with many suppliers Long-term partnering with few suppliers Vertical integration
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Many Suppliers
Commonly used for commodity products Purchasing is typically based on price Suppliers are pitted against one another
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Few Suppliers
Buyer forms longer term relationships with fewer suppliers Create value through economies of scale and learning curve improvements
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Vertical Integration
Vertical Integration
Raw material (suppliers) Iron ore
Examples of Vertical Integration
Silicon Farming
Backward integration
Steel
Current transformation
Automobiles
Integrated circuits
Flour milling
Forward integration
Distribution systems
Circuit boards
Finished goods (customers)
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Dealers
Computers Watches Calculators
Baked goods Figure 11.2
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Vertical Integration
Developing the ability to produce goods or service previously purchased Integration may be forward, towards the customer, or ...