Operation Management

MEMO 2 : PIONEER

NOTE: For technical details and deadlines see the course outline.

1. Learning Objectives (why am I asking you to do this memo?)

The principal focus of the discussion is to determine what bears on the key issues – the size of the safety stock inventory and the level of overseas production – and to specify the information that would be needed to arrive at a decision.

Learning objectives:

• To Provide a real case of supply uncertainty: supply management issues in agribusiness firms are often compounded by uncertain production conditions e.g., effects of weather, insects and diseases

• To examine how to go about deciding specific international production issues and understand how linear programming can be used in such cases.

• To Introduce inventory management: low inventory leads to stock out (in this business, lost sales of seeds products and customer goodwill) while high inventory would result in extra holding costs (storage, capital and product obsolescence)

2. Address the following questions in 1500 Words maximum and following the quality criteria given in the module outline.

1. As the largest seed company in the world, Piooner recorded net sales of $ 1,721 and net income of $223 million in 1996, with 45% share of the U.S hybrid corn seed market. Why was John Smith so apprehensive about the 1998 production plan? How would the uncertainty of demand forecast and yield affect the supply management decisions at Piooner?

1. To avoid unnecessary costs of unavailable products, Piooner had been relying on a safety stock inventory in its production planning. Traditionally a 33% planned carryover in addition to the expected demand was designated as safety stock inventory to protect against uncertainties in demand and production yields. What should John Smith do about the 33% inventory in safety stock? What are the principal factors and considerations relevant to the safety stock inventory?

1. Southern Hemisphere production at Pioneer provided off-season (winter) production and multiple climate conditions throughout the year to supplement the regular production in U.S. and other Northern Hemisphere production sites. In 1997, off-season production accounted for 5% of the worldwide total production (line 8, Exhibit 4), whereas the planned off-season production for 1998 ranged from 6.4 for normal yield to 9.6  for 80% of normal yield. How should John Smith decide the relationship between the rate of Northern Hemisphere production and that of off-season production? What are the pros and cons of increased off-season production?

1. In 1997, there were 22.5% of Piooner’s total hybrid corn seed products sold in international markets (line 14, Exhibit 4), but only 15.5% of the total products were produced abroad (line 9, Exhibit 14). What should John Smith do about overseas production issues? What are the advantages and disadvantages of expanding international production and marketing?

Facultative:

1. How would the LP/excel model help John Smith make such decisions as the overproduction rate and overseas production? What would be the decision variables to be used in the LP model? How might the objective function and main constraints look like? What different kind of data would eventually feed the LP model? Try to build your Excel model by making assumptions and approximations (even fake number to replace unavailable information are considered good for this assignment!).