30 DESIGNING AND MANAGING THE SUPPLY CHAIN If that weren't bad enough, Debby happens to stop OVERVIEW OF STEEL WORKS, INC., DATA back in. "Reduce our warehouses? What are you Since it would be nearly impossible to analyze all oftalking about? If we have to ship from fewer Steel Works' data, a representative sample of productswarehouses, it will take longer, cost more and that from 1994 has been provided to you. Specific data has will really make the divisions mad. Plus, just because been provided for portions of two of the product lines: you combine two warehouses doesn't mean you're DuraBend™ and DuraFlex™. going to save that much money. Some fixed costs Five spreadsheets are available in the book's certainly, but that won't make up for those added CD-ROM to assist you in your analysis: transportation costs you're going to have to swallow." Lemming didn't believe this, so he mounted an S0121958.XLS Sales of DuraBend™ R12 for effort to get to the bottom of the warehouse consoli-each month and for each customer. dation issue. Several hours and several hundred sheets MONTHVOL.XLS Total sales of DuraBend™ of paper later, Lemming realized that he had underes-and DuraFlex ™ for each month. timated the data collection and number-crunching PRODBAT.xLS Production batch sizes for involved with this type of analysis. Although the idea DuraBend™ and DuraFlex™. had the potential to reduce costs, his team did not have FINCLDAT.xLS Unit costs and 1994 selling prices enough time to look at it this week. for DuraBend™ and DuraFlex™. EOMINY.XLS DuraBend™ and DuraFlex™ THE CLOCK CHIMES ELEVEN inventories at the end of each month. It's Thursday, close to midnight, and Lemming is now Note: In the spreadsheets provided, all data (including sweating. Debby, Maria, and John Thompson, a recent dollar figures) are in thousands. Sloan graduate, are all gathered in the corner office. When drawing inferences from the data, you can safely They've listed a dozen ideas on the blackboard: ABC assume that the DuraBend™ and DuraFlex™ product lines analysis, customer segmentations, EOQs, and many are representative ofthe entire Specialty division. more ... and crossed them all off. Lemming can see Callow's angry face now-his career is slipping away. Now what do you do, John Thompson? By the end of this chapter, you will understand the following issues: • How firms cope with huge variability in customer demand. • What the relationship is between service and inventory levels. • What impact lead time and lead time variability have on inventory levels. • What an effective inventory management policy is. • How buyers and suppliers use supply contracts to improve supply chain performance. • What approaches can be used to forecast future demand.
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