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SC Capabilities required at various elements:

Manufacturing requirements:
Ordering system should be capable of generating dynamic designs/layout based on customer requirement
(customizations) and transmit to the manufacturing unit along with the order details.
Since the customization is performed in the manufacturing line, workload has to be efficiently managed
(either by having buffer stock between manufacturing cells or by having flexible workforce) since cycle
times for each customization can vary.
Additional skilled workforce is required for the customization process
Extra equipment to perform the increased activities following the customization

Logistics/Delivery:
When the order becomes due or when the items against the order is completed, the tracking system should
be capable (also to handle increased volume) enough to match the finished goods inventory to the
delivery note.
The number of shipments are expected to increase as a result to customization, hence the
logistics/shipping unit should be flexible enough to handle this.

e-commerce channel is the most profitable channel, since the bags are sold directly to customers at retail
price rather than having a retailer in between the company and customer.
Pros of Build your own Channel
Variety and power to customers
Shorter lead time ordering to delivery in two to three days
The visual aspect of customers seeing the product even before placing the order can result in increased
sales with better customer satisfaction (and reduced product returns)
Cons:
Need for additional inventory (custom components) and real time inventory tracker to ensure that the
parts selected by customers are in stock.
Since the options are more for customized product, the additional labor is required (in this case it is
roughly 15% increase in man-hours)
Costs
Costs (all costs in $)
Hourly wage
Direct labor content/bag (min)
Direct labor content/bag ($) (min/60)*wage
Manufacturing overhead (40% of Direct labor)
Materials
Other manufacturing expenses
Total cost of manufacturing

San Francisco
12.5
35
7.29
2.92
13
1.5
$24.71

China
1.25
45
0.94
0.38
13
0.75
$15.06

On account of outsourcing, the lead time is nearly three months. This implies the ordering quantity is
more per order and average time inventory is held goes up.
So, the Inventory turns ratio is likely to drop.

If the company is planning and maintaining safety stock for each retailer:
REI
Backcountry EMS
Zappos Sierra
Trek
Demand during lead time
3120.4
2096.0
2647.7
1551.7
1305.8
300.4
Std dev of the demand
during lead time
637.7
534.5
474.4
328.9
355.6
73.4
Service level req
99%
99%
99%
99%
99%
99%
Reorder point (Norm.inv())
4603.9
3339.4
3751.4
2316.8
2133.1
471.2
Safety stock req (Reorder
pt-Mean demand)
1483.5
1243.4
1103.7
765.1
827.3
170.8
Total safety stock company has to maintain for 99% service level across all the six retailers: 5594
Assumption:
Company has to achieve 99% service level across each of the six retailers. So it makes disaggregate plans
and maintains individual safety stocks.

New Safety stock calculation


Total mean demand
Total std dev
Std dev during lead time
New Reorder point
New Safety stock

Costs with and without postponement


Costs

11021.9
621.1
1075.9
12466.9
1445.0

with postponement

without postponement

Savings

Safety Stock
Cost of sewing ($0.2/bag)
Cost of holding inventory ($1/bag/month)
Net benefit

1445.0
$289.0
$1,445.0
$1,734.0

5593.9
$0
$5,593.9
$5,593.9

4148.9
-$289.0
$4,148.9
$3,859.9