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Slides_for_class_7 - Lambda plans and executes to Agilent's...

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Page 1 Proprietary and Confidential © Vivecon 2002 Copyright Blake Johnson, Stanford University Lambda plans and executes to Agilent’s range contract terms and utilization, not a range forecast Planning Agilent: Order given actual demand and updated range forecast, subject to range contract terms Lambda: Execute based on range contract terms and Agilent’s orders 800 Firm 2500 Peak Flex 1500 Flex Agilent: Range forecast + performance objectives Range contact terms Lambda: Plan to range contract terms Execution
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Page 2 Proprietary and Confidential © Vivecon 2002 Copyright Blake Johnson, Stanford University As a supplier under range contracts… How might Lambda estimate the probability distribution of Agilent’s future orders within the range contract flex ranges? Should Lambda plan and execute to ensure it will be able to perform fully to the contract ranges? If Agilent is concerned Lambda may not know, or may choose to not do, what it needs to do to perform fully, what “audit” or “verification” rights could it request? If it sold the same products to multiple customers, how should Lambda plan and execute? If it has range contracts with all its customers? If it has range contracts with some of its customers, but not others? In either case, should Lambda plan and execute to ensure it will be able to perform fully to all its range contract commitments?
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Copyright, Blake Johnson Comparison with today’s status quo How process is supposed to work: - Buyer forecast is correct - Supplier plans to forecast Range forecast / plan (contract) / performance management alternative: - Substitute best available demand forecast range (buyer information) - Plan and execute to buyer’s P&L performance objectives over range (buyer incentives)      How process does work: Buyer forecast will change Supplier planning process: Guess buyer forecast error range  Invest to optimize own P&L performance over  range Example business:  Large capital costs, low margins   High  capacity utilization essential Decision: Under-invest in capacity Demand Jan Mar Jun Sept Supplier  capacity  decision Buyer  forecast Supplier  production  decisions Demand Jan Mar Jun Sept Supplier  capacity  decision Supplier’s  guess of  buyer forecast range Buyer  forecast
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Copyright, Blake Johnson Suppliers  Procurement Supply chain Business unit # 1 Business unit # 2 Partners Product # 1 Product # 2 Product # 1 Product # 2 Supplier # 1 Supplier # 2 Partner # 1 Partner # 2 Performance triangle solutions  Visibility to and control over future “performance triangle”  Tailor performance to financial and operational goals  Example: High vs. low margin product, stage in lifecycle, … Cost Availability Liability Procurement and supply chain as internal solution  provider for “performance triangle”
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