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Products differ
Low
High
Risk of obsolescence
Low
High
Forecast accuracy
High
Low
Low
High
Long
Short
Product variety
Product life cycle
Functional
2005 Marshall L.
Innovative
Factory focus
Inventory Strategy
Lead-time focus
Supplier selection
Product-design strategy
High utilization
Maintain buffer
capacity
High turns
Aggressively
shorten lead-time
Low cost
Integral for max
performance at min cost
Physically efficient
2005 Marshall L.
Market
responsive
Respond quickly
to unpredictable
demand to
minimize
stockouts,
markdowns, and
obsolete inventory
2005 Marshall L.
Functional Products
Innovative Products
Efficient
Supply Chain
Supply predictable
demand efficiently
at lowest cost
match
mismatch
Responsive
Supply Chain
mismatch
match
Raw
Materials
Component
Suppliers
Manufactur
er
Retailers
Consumer
s
Production Costs
Transportation Costs
Facility Utilization rates
Inventory carrying cost on pipeline and cycle stocks
Lost revenue and profit margin when supply is less than demand
Product and parts scrapped or sold at a loss when supply
exceeds demand
Inventory carrying cost on safety stocks
2005 Marshall L.
Dell
S&P 500
10000
35000
9000
25000
6000
20000
5000
15000
4000
3000
10000
2000
trendlin
e
2005 Marshall L.
1998
1997
1996
1995
1994
1993
1990
1000
1992
5000
1991
7000
8000
30000
During 9498
Net Sales
grew 22.3%
Net Earnings
grew 71%
2005 Marshall L.
Next years
catalog
2005 Marshall L.
2005 Marshall L.
Factories in
China
DC in
Denver
800 Ski
Retailers
2005 Marshall L.
Sold 4
2005 Marshall L.
Orders
Production
Lost sales
Full price = $200
4000
4
2000
2000
2000
Excess
1996
Markdown price = 130 Variable cost = 150
but improve
dramatically with
just a little sales
data
2005 Marshall L.
Early write
Bring 25 (out of 800) largest retailers to Aspen in
February. Accounts for 20% of sales.
Put them up at the Ritz Carlton
They ski with Klaus Obermeyer, an industry icon
They get an advance preview of the line
They order early
Fabric
Dyer
undyed greige
goods
Cut/Sew
Factory
Denver
Warehouse
Retailer
Sport Obermeyer
Consumer
Fabric dyer lead time of several months was a problem for Obermeyer
Dyer has long lead time on greige goods and needed to keep their
capacity utilized year round but can change colors overnight
Obermeyer can predict total annual sales and sales of basic colors,
but cant predict fashion colors
Solution
Offer dyer one year commitment on greige goods and capacity
Dye basic colors early in year and fashion colors late in
season on few days notice
2005 Marshall L.
2005 Marshall L.
Tom
Kenny
Wally
Pandora
Parka
1200
1150
1250
1300
1100
1200
1200
65
Entice
Shell
1500
700
1200
300
2075
1425
1200
572
2005 Marshall L.
Wendy Averag
e
Std.
Dev.
Caroly
n
High
Error
1200
Average
Error =
155 units
1000
Forecast
Error
Average
Error =
252 units
800
600
400
Low
Error
200
0
0
110
High Agreement
220
330
Low Agreement
2005 Marshall L.
Wholesale
Price
LK
CO
SS
CB
JD
WS
WRO TT
GW
AM
COMM COMM
AVE
STD DEV
AS
6220
77.5
64
45
78
9
TOTAL:
6221
479
650
50
180
1359
700
200
300
300
1500
500
500
200
200
1400
350
600
350
500
1800
700
200
300
400
1600
700
200
750
450
2100
930
1450
450
1529
500
350
400
475
200
560
100
475
100
390
800 1900
600
340
840
340
600
510
360
510
2400 1700
481
500
373
361
1715
125
233
253
217
581
500
600
400
400
400
500
300
100
385
400
400
320
1600 1500 1605
275 465
575 542
400 310
150 233
1400 1550
200
300
175
175
850
420
300
516
375
432
600
72
225
1440 1500
421
441
335
288
1485
152
128
138
137
249
700
200
500
600
2000
400 1100
350
400
400
250
500
200
350
500
300
150
1800 2000 1100
400
600
672
300
400
800
200
300
1672 2000
597
303
526
323
1749
232
168
189
150
324
800
600
600
2100
400
300
700
300
740
1300 1000 1310
500
300
150
1400 2100 1225
400
400
320
300
100
385
1015 1415
1750 1291
150 275
1425 1650
150 233
400 310
760 1310
2028 1015
200
300
1420 1240
72
225
432
600
887
1244
323
1499
288
335
316
440
150
375
137
138
94.5
64
45
78
76
TOTAL:
6222
9.5
64
45
9
49
TOTAL:
Color forecasts 9
45
49
64
76
78
2005 Marshall L.
900
700
300
900
175
175
2005 Marshall L.
Pandora Parka
15%
33%
33%
2%
2%
740
15%
970
1200
1430
1660
2005 Marshall L.
$ 200
100
30
25
_____
$ 45
$ 120
100
35
_____
($15)
Production
Decision if we can
only buy once
Probability = .25
Pandora Parka
1200 1430
Gain if we sell
2005 Marshall L.
Demand Distributions
Cost of Stockouts & Excess Inventory
Production Capacity and Minimum Constraints
Minimize Expected Cost
of Stockouts
& Excess Inventory
2005 Marshall L.
Factories in
China
DC in
Denver
Order 50%
in April
Order 50%
in
November
Forecasts
Product
Sketches
Forecast
Committee
800 Ski
Retailers
Retailers
order in
Feb & April
Optimization
Model
Decisions
Total Production (Units)
Demand
103,,831
Over-Production (Units)
Under-Production (Units)
7,493
124,805
121,432
103,831
22,036
25,094
792
2005 Marshall L.
1.30%
0.18%
1.48%
1.56%
3.30%
2005 Marshall L.
2005 Marshall L.
Inventory
Accurate
Forecasts
Track & improve the accuracy
of forecasts that drive
decisions e.g. parts lead time
demand
2005 Marshall L.
Responsive
Supply Chain
Optimize cost of
lost margin,
carrying and
obsolescence