Calculate the costs for the existing supply chain , Supply Chain Management

The Logistics Director of a retailer based in the UK has asked for your advice.

The Logistics Director works for a company that purchases a range of household furnishing products from Italy. The Logistics Director is responsible for all aspects of logistics concerned with the flow of inbound consignments to the UK.

The Managing Director of the UK retailer has recently returned from a visit to a manufacturer's factory (near Turin) and has been impressed by the changes in the production processes and the scope to reduce production costs - he has also attended a conference where there were several presentations about the use of Just-in­Time (JIT) techniques.

The company is now reconsidering its own stock holding principles and practices and  has decided to investigate a move towards a JIT system of stock flow in which they would place orders more frequently for smaller consignments of products.

This will require more frequent inbound consignments from manufacturers and the Managing Director feels it would be a good idea to carry out a study involving one of the more important supplier companies in order to assess the implications of the possible change.

The Managing Director has asked the Logistics Director to prepare a report for the Board setting out the implications of this change. The Logistics Director has asked for your advice as a consultant in preparing this report.

The following Data is available:

Total annual purchase = 25,000 units

Orders per year (at present) 10

Units per order (at present)  2,500

Weight per unit 0.1 tonnes (i.e. 100kg)

Order cost £25 per order

Purchase price, ex works £120 per unit

Both the retailer and the various manufacturer have an inventory carrying rate expressed as 30% per annum. This enables them to calculate the cost of carrying inventory as follows:

The Retailer's Inventory Carrying Cost = carrying rate (30%) x unit value(a) x (units per order/2)

The Manufacturer's Inventory Carrying Cost = carrying rate (30%) x unit value(b) x (units per order/2)

(a) Includes transport cost per unit plus purchase price per unit from the manufacturer.

(b) Value assumed to be manufacturer's selling price to the retailer.

The retailer currently purchases all products on an "ex works" basis from the Italian manufacturers.

At present the company receives consignments once every five or six weeks and has negotiated a transport rate for these shipments (£100/tonne). If consignments are shipped in smaller volumes this rate will rise to £125/tonne.

Questions:

Your report must address the following questions:

1)  Calculate the effects on the costs for the two supply chain partners of changing from a system based around 10 orders per year to one in which 50 orders per year are shipped.

2)  Investigate, quantify and comment on the sensitivity of the results to changes in the given costs and other data.

Your answer should show the approach you have adopted to calculations and include graphs and tables where necessary and appropriate.

a) To answer Q1 you will need to calculate the costs for the existing supply chain (and allocate costs to the partners) and then calculate a new supply chain (and allocate costs to the partners).

I suggest you write a few notes to explain your thoughts or reasoning and then if you make a numerical or logical error at least it will be clear why you did this and hopefully the explanation will make sense.

b) For Q2 you need to vary some of the values - it is up to you to choose which values to vary and to explain why it makes sense to change the values. Some changes are more plausible (likely) than others and maybe you need to consider what are the most important and likely changes.

Notes: Inventory carrying rate is a short way of considering the range of costs associated with holding inventory (stock). These costs include:

 -   Storage

-   Handling

-   Obsolescence

-   Damage

-   Administrative

-   Loss (pilferage etc)

-   Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere)

-   Insurance

-   Taxes 

Posted Date: 2/26/2013 2:20:46 AM | Location : United States







Related Discussions:- Calculate the costs for the existing supply chain , Assignment Help, Ask Question on Calculate the costs for the existing supply chain , Get Answer, Expert's Help, Calculate the costs for the existing supply chain Discussions

Write discussion on Calculate the costs for the existing supply chain
Your posts are moderated
Related Questions

what are some theories that would support on my research study?

Supply Chains and Value Chains Supply Chains and Value Chains have been around for many years and Logistics has served as glue to bind the different members. But in the curren

I have a case study about Tehjava, which is a Tea business in indonesia. I need to know what will be the price for 1500words and include relevant diagrams and references.

Q. What are the different methods for evaluating inventory cost? i. FIFO method ii. Average cost method iii. LIFO method iv. Actual cost method v. Base stock prices

Question 1 Discuss the Visualisation strategy in advertising and the components of Visualisation strategy Question 2 Describe the elements of execution of advertising in brie

Account Options> Sign in Settings Managing-Project-Supply-Chains-CH1.pdfYou are using a version of Internet Explorer which is unsupported. Some features may not work correctly. Ple

how to judge whether it is worth processing an order of $ 1,000 at a gross margin of $ 200?

The Pampered Puss is a company with headquarters in Melbourne, Australia and operates 35 retail shops. These shops are spread throughout the metropolitan area and were established

Question 1 Why is it essential for organisations to make sourcing a part of its overall strategic planning process? Question 2 What are the major classes of risks in outsourc