Supply Chain
Submitted by: Submitted by Asha8
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Words: 949
Pages: 4
Category: Science and Technology
Date Submitted: 10/27/2014 05:37 PM
Quality in Supply Chain Design
Risk Pooling
1
Outline
Risk Pooling Multi-Stage Models
2
Risk Pooling
Demand variability is reduced if one aggregates demand across locations. More likely that high demand from one customer will be offset by low demand from another. Reduction in variability allows a decrease in safety stock and therefore reduces average inventory.
Acme Risk Pooling Case
2 warehouses for distribution in New York and New Jersey Customers (that is, retailers) receiving items from warehouses (each retailer is assigned a warehouse) Warehouses receive material from manufacture (Chicago) Lead time: one week Service level: 97 % Fixed ordering cost: $60 per order Inventory holding cost: $0.27 per unit per week
New Idea
Replace the 2 warehouses with a single warehouse (located in some suitable place) and try to implement the same service level 97 % Delivery lead times may increase But may decrease total inventory investment considerably.
Historical Data
PRODUCT A
Week
Massachusetts
1
33
2
45
3
37
4
38
5
55
6
30
7
18
8
58
New Jersey
Centralized
46
79
35
80
41
78
40
78
26
81
48
78
18
36
55
113
PRODUCT B
Week 1 2 3 4 5 6 7 8
Massachusetts
New Jersey Centralized
0
2 2
3
4 7
3
0 3
0
0 0
0
3 3
1
1 2
3
0 3
0
0 0
Summary of Historical Data
Statistics Product Average Demand (Weekly) 39.3 1.125 38.6 1.25 77.9 2.375 Standard Deviation of Demand 13.2 1.36 12.0 1.58 20.71 1.9 Coefficient of Variation 0.34 1.21 0.31 1.26 0.27 0.81
Massachusetts
A B
New Jersey
A B
Centralized Centralized
A B
Demand Variation
Standard deviation measures how much demand tends to vary around the average
Gives an absolute measure of the variability
Coefficient of variation is the ratio of standard deviation to average demand
Gives a relative measure of the...
