Class Extra Bonus

Homework 1

Please write a report with the answers to the following questions and deliver it to Mathias Klapp (326, Main Building) before the deadline. (15:59 p.m., Sep. 16, 2013)

Question 1: In the whole world the demand for decorative lights on Christmas trees occurs over a limited period of time during the year (e.g. 2 weeks before Christmas). Explain why it could be a problem to match supply with demand? What are the biggest challenges (give 2)?

The main challenges in this scenario, one with single ordering or production opportunity, arise is that there is no clear indication of how the market will behave, therefore the exact demand is impossible to predict.

Given the uncertainty of demand the major challenge that would arise is to produce the optimal quantity in order to avoid overestimating demand, which would leave unsold inventory, or underestimating demand, which would to inventory stockouts and loss of potential customers.

Question 2: Consider a firm redesigning its logistics network. What are the advantages to having a small number of centrally located warehouses? What are the advantages to having a larger number of warehouses closer to the end customer?

Having a small number of centrally located warehouses has several advantages over having several warehouses. The most obvious come from risk pooling, which could be achieved by aggregating the demand from several different locations into an average demand. Therefore demand variability would reduce allowing decreasing safety stock, thus reducing inventory costs. Centralized warehouses take advantage of economies of scale, and reduce overhead costs. Inbound transportation costs may also decreased having centrally located warehouses. On the other hand lead time decreases having by having a larger number of warehouses. Also as we increase the number of warehouses outbound transportation costs decreases since warehouses are closer to the client. Service levels are not affected in either scenario;...