1. June 19, 2013
Supply Chain Management
- Team 05 -
1

2. 0. Outline
1.
2.
3.
4.
5.
6.
Overview of results
Option Choices
Forecasting
Production Planning
Supplier Choice
Buy Information
2

3. 1. Overview of result
1st year
Margin
2nd year
43,252
29,715
3rd year
30,269
Model A Revenue
125,560
Model A Costs
114,750
120,000
140,000
120,000
Model A Margin
100,000
92,699
81,700
40,000
80,000
60,000
52,717
35,330
28,983
32,861
152,679
Model B Revenue
Model B Costs
106,645
Model B Margin
61,151
60,000
49,443
100,000
88,080
79,420
80,000
Total
Model B – huge mistakes
in 2nd and 3rd year
Model A – Totally nice margin!
140,000
4th year
75,888
73,131
55,619
35,374
34,989
40,000
46,202
40,794
33,514
26,929
20,269
20,000
20,000
385
0
5,408
0
1st year
3
2nd year
3rd year
4th year
1st year
2nd year
3rd year
4th year

4. 1. Overview of result
Unit profit * Actual demand is the maximum margin under perfect prediction
1st year
Perfect
Model A
prediction Model B
2nd year
4th year
Total
30,732
41,026
36,225
27,675
135,658
29,204
11,253
14,250
59,090
113,797
Model A – Totally nice again!
45,000
3rd year
Model A Margin
40,000
Model A Perfect est.
35,000
Model B – huge loss also in 4th year
70,000
Model A Loss
60,000
Model B Margin
Model B Perfect est.
Model B Loss
50,000
30,000
25,000
40,000
20,000
30,000
15,000
20,000
10,000
10,000
5,000
0
0
1st year
4
2nd year
3rd year
4th year
1st year
2nd year
3rd year
4th year

5. 1. Overview of result
The important things are…
Accurate demand
prediction
5
Flexibility of production
to cover miss-prediction

6. 2. Option Choices
 Option Choices
 3 criteria for deciding options to reduce uncertainity.
The estimation of
demand increase
Comprehensive Judgment
Changes of profit
6
The variance of
demand
estimation

7. 2. Option Choices
1st Year
2nd Year
3rd Year
Infrared
& Extra
Battery
Profit
per unit
4th Year
Anti
Theft &
Speakers
demand
How can we stabilize this?
7
Speakers
& Super
Slim
Total
profit

8. 3. Forecasting
 Forecasting
 Flexibility is more important than forecasting
 Forecasting is not worth believing
8

9. But...In reality we had to use
assumption 1data
Year
Year 2
We tried to use “Consensus Data” rather than internal forecast assumptions
9

10. For Year 3 & 4, We respected team
conversation 3
Year
Year 4
Lesson & Learn:
Once set the forecast beginning of the year we stuck on this numbers
10
And lost flexibility

11. 4. Production Planning
 Production Planning
 Setting FarFar Away site as a base line
 Keeping flexibility on PrettyClose site
11

12. Choose “Far Faraway site” to utilize its larger
production capacity and lower cost to build up base
inventory.
Year 1
Year 2
12

13. Choose “Pretty close site” to utilize its
advantage of shorter lead time for keeping
flexibility.
Year 3
Year 4
13

14. 5. Supplier Choice
 Supplier Choice
 The consideration for lead time, capacity, setup cost,
and unit cost
Lead time
Base line
FarFar Away
Far Away
Flexibility
Pretty Close
Ve-Ri-Fas
Capacity
Setup cost
Unit cost
(as of 1st year)
4 mth
60K
$1,000K
A: $137, B: $157
3 mth
60K
$2,000K
A: $137, B: $157
0 mth
35K
$1,000K
A: $147, B: $167
0 mth
40K
$2,000K
A: $147, B: $167
No any reasons why we had to consider Far Away and Ve-Ri-Fas
sites at the 1st phase to cover demand and flexibility.
14

15. 5. Supplier Choice
 Supplier Choice
 We did not hesitate to change the order during the
year to cover the drastic demand change in 4th year
Actual deman in year 4
Change order cost
160
140
120
100
80
60
40
20
0
8,000
6,000
4,000
2,000
0
Model A
Model B
1st 2nd 3rd 4th
year year year year
Changed our mind to quickly response the demand to acquire
more profit than change order cost! But… no enough capacity
15

16. 6. buy information
 How was the buy information beneficial for us?
Year
Buy information
Model B
Result
Model A
Would you like us to set up
this industry conference
??
First $2,000,000?
for
Model A
Model B
??
-4%～+6%
(-2K ～ +3K)
-11%～+28%
(-4K ～ +10K)
Second likely to go up
10% down
-4%～+7%
(-3K ～ +5K)
-13%～+46%
(-2K ～ +7K)
Third
Stable
20% down
-8%～+1.5%
(-5K ～ +1K)
-54%～+0%
(-13K ～ +0K)
Final
Stable
20% up
-11%～+4%
(-5K ～ +2K)
-20%～+129%
(-12K ～ +75K)
Lesson & Learn:
 Buying information is important because the
prediction before the year start cannot be reliable.
 Her prediction seemed to be “bad shot”
Gwyneth:Marketing Department
16

17. Valuation of buy information
 How was the buy information worth of $2,000,000 ?
Overestimation
Underestimation
Items of Loss
Inventory cost
& Liquidation cost
Opportunity cost
Calculation of
Loss (per unit)
Equal values of
2,000,000
A : about $70/ unit
B : about $163 /unit
A: 28 K unit
B: 12 K unit
A: $73-78 / unit
B:$93-98 / unit
A : 25 K units
B : 20 K units
Lesson & Learn:
 Buy information seems to be helpful if the prediction
will be more accurate.
17

18. Appendix
18

19. Fist Year
19

20. Second Year
20

21. Third Year
21

22. Final Year
22