What Are the Pros and Cons of the Following Proposals Mentioned in the Case: A European Factory, Better Forecasting, More Inventory?
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- 1.What are the pros and cons of the following proposals mentioned in the case: a European factory, better forecasting, more inventory?
- On account of HP to deliver the issue identified with stock three choices have been distinguished which incorporates air-freighting printers to Europe, growing more formalized stock arranging procedures, or building a plant in Europe. The upsides and downsides of these choices are examined here.air-freighting printers to Europe: This can be considered as the speediest implies while considering the stock administration. To keep up abnormal state of stock constant and quickest method for supply of the item is crucial. Through this accessibility of the item can be ensured. The adjustments in the climate can influence this strategy for stock administration. The ascent in the airfreight charges can likewise influence this technique unfavorably growing more formalized stock arranging forms: Producing a stock arranging procedure can give the association a long haul stock administration arrangement which can keep up high stock level. Through this strategy the monetary allowance for the stock planning procedure can also be assessed. The disservice of this strategy is the time length of time for the arranging and execution process. In specific situations, the expense of arranging will likewise be high. These disservice can influence the intensity of the association. Building a processing plant in Europe: Through this technique the danger connected with the other two options like the expansion in airship cargo charges, climate changes, time length of time and so on a be disposed of. Be that as it may, the cost of building the production line will be high. The association will need to confront the political and legitimate issues before getting into development program.
- 2. Assess quantitatively the air freight option relative to current operations. Just consider the products for the European market. Do not forget to consider pipeline inventory (since HP owns the pipeline inventory from Vancouver to Europe).
- Use the following assumptions:
- - HP wants to minimize inventory while still achieving at least a 98% fill rate.
- - The lead time from Vancouver to Europe is 5 weeks by the current method (ocean) but 1 week by air.
- - HP orders and received inventory on a weekly basis.
- - There are 4.33 weeks per month and demand is independent across time.
- - The product sells for $450 and marginal production cost is $300.
- - Inventory carrying costs are 24% per year.
- - Shipping via sea (the current operation) costs $10 per printer, whereas air freight costs $25 per printer. The lead the reality of the situation will become obvious eventually the time period for the interest that we use to decide the request amount required to achieve 98% fill rate. Thus, if the lead time is 5 weeks, then we have to utilize mean and standard deviation for 6 weeks (5 weeks of pipeline inventory + 1 week of interest.)
- For instance with Europe choices AB:
- • According to Exhibit 4, we have the month to month interest is ordinary appropriation with:
- • Mean=15,830.1
- • Standard deviation=5624.6
- • Weekly request is regularly appropriated with:
- • Mean=monthly mean/4.33=15,830.1/4.33=3655.9
- • Standard deviation=monthly Std Dev/sqrt(4.33)=5624.6/sqrt(4.33)=2,703
- • 6-week interest is typically disseminated with:
- • Mean=weekly mean*6= 3,655.9*6=21,935.5
- • Stand deviation=weekly Std Dev*sqrt(6)=2,703*sqrt(6)=6,621
- To accomplish fill rate of 98%, we have z=2.06 in the Standard Normal Distribution Table
- At that point we can figure Order amount:
- Q= μ+z*σ=21,935.5 + 2.06*6,621= 35,574.7
- We do likewise for every single other alternative of Europe business sector and we have the table beneath:
- Europe Options
- Monthly Mean
- Month to month Std Dev
- Week by week Mean
- week by week Std Dev
- 6-week mean
- 6-week Std Dev
- z(98%)
- Q=μ+z*σ
- μ
- σ
- μ/4.33
- σ/sqrt(4.33)
- (μ/4.33)*6
- (week by week σ*sqrt(6)
- 6 weeks(unit)
- A
- 42.3
- 32.4
- 9.8
- 15.6
- 58.6
- 38.1
- 2.06
- 137.2
- AA
- 420.2
- 203.9
- 97.0
- 98.0
- 582.3
- 240.0
- 2.06
- 1,076.7
- Stomach muscle
- 15,830.1
- 5,624.6
- 3,655.9
- 2,703.0
- 21,935.5
- 6,621.0
- 2.06
- 35,574.7
- AQ
- 2,301.2
- 1,168.5
- 531.5
- 561.5
- 3,188.7
- 1,375.5
- 2.06
- 6,022.3
- AU
- 4,208.0
- 2,204.6
- 971.8
- 1,059.5
- 5,830.9
- 2,595.1
- 2.06
- 11,176.9
- AY
- 306.8
- 103.1
- 70.9
- 49.5
- 425.1
- 121.4
- 2.06
- 675.1
- Absolute
- 23,108.6
- 6,244.0
- 5,336.9
- 3,000.7
- 32,021.2
- 7,350.1
- 2.06
- 54,663.0
- *Also, with z=2.06, we can ascertain expected lost offers of HP by gazing upward in the Standard Normal Loss Function Table:
- L(2.06)= 0.0072=0.72%
- From this number, we can change over into genuine ordinary circulation:
- With choice AB printer:
- Expected Lost Sales=Std Dev* L(2.06)=6,621*0.72%=47.7 (units) (which is little contrasted with the aggregate interest.)
- This Expected Lost Sales is viewed as Expected Backorder
- At that point we have :
- Expected close by Inventory= Order Quantity-Expected Demand more than 6 weeks+ Expected delay purchase
- =35,574.7 – 21,935.5 +47.7= 13,686.9 printers
- In this way, all things considered, there are 13,686.9 AB printers available toward the end of a period (week).
- Because of Little's Law, expected on-request stock doesn't rely on upon interest variability:
- Expected on-request Inventory=Expected request in one period(1 week) *Lead time(5 weeks) = 3,655.9 *5=18,297.6 printers
- It implies there are 18,297.6 AB printers on-request at any given time.
- Stock level=on-hand stock –back order=
- From here, we can figure conveying cost on week after week premise:
- Conveying cost=Expected available inventory*$300(cost)* 24%pa/12months/4.33weeks
- =13,686.9*$300*24%/12/4.33=$18,965.71.
- We do likewise for all others choices and we have the table beneath:
- Europe Options
- Q=μ+z*σ
- Expected Lost deals/ Backorder
- Expected On hand Inventory
- Expected on-request Inventory
- Close by inventory value
- week by week carrying cost
- 6 weeks(unit)
- 0.72%
- Cost:$300/unit
- 24%/(12*4.33)
- A
- 137.2
- 0.3
- 78.8
- 48.8
- $ 23,653
- $ 109.25
- AA
- 1,076.7
- 1.7
- 496.2
- 485.2
- $ 148,851
- $ 687.53
- Stomach muscle
- 35,574.7
- 47.7
- 13,686.9
- 18,279.6
- $ 4,106,077
- $ 18,965.71
- AQ
- 6,022.3
- 9.9
- 2,843.4
- 2,657.3
- $ 853,030
- $ 3,940.09
- AU
- 11,176.9
- 18.7
- 5,364.7
- 4,859.1
- $ 1,609,405
- $ 7,433.74
- AY
- 675.1
- 0.9
- 250.9
- 354.3
- $ 75,265
- $ 347.65
- Downright
- 54,663.0
- 79.1
- 22,720.9
- 26,684.3
- $ 6,816,280
- $ 31,483.97
- with Lead time of 5 weeks and transportation via ocean
- Europe Options
- Q=μ+z*σ
- week by week carrying cost $300/unit
- Cost by ocean
- absolute expense
- Revenue p=$450/unit
- net revenue by ocean
- benefit $
- 6 weeks(unit)
- 24%/(12*4.33)
- $10/unit
- c
- (p-c)/p
- value absolute expense
- A
- 137.2
- $ 109.25
- $ 1,372
- $ 42,636
- $ 61,732
- 30.93%
- $ 19,096
- AA
- 1,076.7
- $ 687.53
- $ 10,767
- $ 334,466
- $ 484,518
- 30.97%
- $ 150,051
- Stomach muscle
- 35,574.7
- $ 18,965.71
- $355,747
- $11,047,130
- $16,008,626
- 30.99%
- $ 4,961,496
- AQ
- 6,022.3
- $ 3,940.09
- $ 60,223
- $ 1,870,840
- $ 2,710,016
- 30.97%
- $ 839,176
- AU
- 11,176.9
- $ 7,433.74
- $111,769
- $ 3,472,286
- $ 5,029,625
- 30.96%
- $ 1,557,338
- AY
- 675.1
- $ 347.65
- $ 6,751
- $ 209,640
- $ 303,812
- 31.00%
- $ 94,172
- Absolute
- 54,663.0
- $ 31,483.97
- $546,630
- $16,976,999
- $24,598,329
- 30.98%
- $ 7,621,329
- * We realize that the transportation cost via ocean is $10/printer and via air is $25/printer, we can see that we have $15 higher expense per printer
- Clearly, the air shipping expense is much higher however we can lessen the lead time from 5 weeks to 1 week which can take care of more issues.
- Presently we do likewise computation with the lead time 1 week and perceive how every one of the numbers change:
- Europe Options
- 2-week mean
- 2-week Std Dev
- z(98%)
- Request Quantity Q=μ+z*σ
- Expected Lost deals/ Backorder
- Expected On hand Inventory
- Expected on-request Inventory
- Close by inventory value
- week after week carrying cost
- (μ/4.33)*2
- (wk-σ*sqrt(2)
- 2 weeks (unit)
- 0.72%
- Cost:$300/unit
- 24%/(12*4.33)
- A
- 19.5
- 22.0
- 2.06
- 64.9
- 0.2
- 45.5
- 9.8
- $ 13,656
- $ 63.08
- AA
- 194.1
- 138.6
- 2.06
- 479.6
- 1.0
- 286.5
- 97.0
- $ 85,939
- $ 396.95
- Abdominal muscle
- 7,311.8
- 3,822.6
- 2.06
- 15,186.5
- 27.5
- 7,902.1
- 3,655.9
- $ 2,370,645
- $ 10,949.86
- AQ
- 1,062.9
- 794.1
- 2.06
- 2,698.8
- 5.7
- 1,641.7
- 531.5
- $ 492,497
- $ 2,274.81
- AU
- 1,943.6
- 1,498.3
- 2.06
- 5,030.2
- 10.8
- 3,097.3
- 971.8
- $ 929,190
- $ 4,291.87
- AY
- 141.7
- 70.1
- 2.06
- 286.1
- 0.5
- 144.8
- 70.9
- $ 43,454
- $ 200.71
- All out
- 10,673.7
- 4,243.6
- 2.06
- 23,746.0
- 45.7
- 13,117.9
- 5,336.9
- $ 3,935,381
- $ 18,177.28
- With lead time 1 week and delivery via air
- Europe Options
- Q=μ+z*σ
- week after week carrying cost
- Shipping Cost by air
- all out expense
- Revenue p=$450/unit
- overall revenue
- benefit $
- 2 weeks(unit)
- 24%/(12*4.33)
- $25/unit
- (p-c)/p
- p-c
- A
- 64.9
- $ 63.08
- $ 1,622
- $ 21,155
- $ 29,205
- 27.56%
- $ 8,049
- AA
- 479.6
- $ 396.95
- $ 11,989
- $ 156,252
- $ 215,800
- 27.59%
- $ 59,547
- Abdominal muscle
- 15,186.5
- $ 10,949.86
- $379,661
- $ 4,946,546
- $ 6,833,903
- 27.62%
- $ 1,887,356
- AQ
- 2,698.8
- $ 2,274.81
- $ 67,471
- $ 879,401
- $ 1,214,482
- 27.59%
- $ 335,081
- AU
- 5,030.2
- $ 4,291.87
- $125,754
- $ 1,639,094
- $ 2,263,573
- 27.59%
- $ 624,478
- AY
- 286.1
- $ 200.71
- $ 7,151
- $ 93,168
- $ 128,724
- 27.62%
- $ 35,556
- All out
- 23,746.0
- $ 18,177.28
- $593,649
- $ 7,735,616
- $10,685,685
- 27.61%
- $ 2,950,069
- We can see that with air shipping, however the delivery expense is higher, we can abbreviate lead time from 5 weeks to 1 week, decrease stock significantly, stock administration can be less demanding, deals conjecture is better then conveying expense is lower. From that point, in the long haul, we can take care of all demand in the brief span and acquire clients, build piece of the overall industry later on. On the off chance that we do shipping via air more as often as possible than some time recently, we can arrange the transportation cost with airship cargo organizations.
- With the cost contrast in the middle of air and ocean strategy, we can consider again in the event that it's ideal to change shipping technique or construct the new manufacturing plant in Europe and the holding up time issue and stock emergency have the arrangement now.
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