Supply Chain Management - Assignment Example

Problem a. Expected time for Activity 'C' = [optimistic time + 4 x likely time + pessimistic time 6 = {8 + (4)(12) + 16 6 = 72 / 6 = 12 weeks b. Variance for Activity 'C' = { (Pessimistic - Optimistic) / 6}2 (NetMBA, 2007) = { (16 - 8) / 6}2 = {8/6}2 = 64/36 = 16 / 9 = 1.78 weeks c. Estimates Times: i. A-B-E-G-J-K : 8 + 8 + 2 + 3 + 6 + 2 = 29 weeks ii. A-B-E-F-I-K : 8 + 8 + 2 + 8 + 6 + 2 = 33 weeks iii. A-B-E-F-H-J-K : 8 + 8 + 2 + 8 + 2 + 6 + 2 = 36 weeks iv. A-C-F-I-K : 8 + 12 + 8 + 6 + 2 = 36 weeks v. A-C-F-H-J-K : 8 + 12 + 8 + 2 + 6 + 2 = 38 weeks vi. A-C-G-J-K : 8 + 12 + 3 + 6 + 2 = 31 weeks vii. A-D-J-K : 8 + 6 + 6 + 2 = 22 weeks Hence, the critical path is A-C-F-H-J-K; and the estimated time of critical path is 36 weeks. d. Activity variance along the critical path is the sum of variance of all the activities included in the critical path. The formula used in b. will be repeated for all the activities in the critical path Variance of the critical path = {(10 - 4)/6}2 + 1.78 + {(20 - 6)/6}2 + {(2 - 2)/6}2 + {(12 - 4)/6}2 + {(3 - 2)/6}2 = 1 + 1.78 + 5.44 + 0 + 1.78 + 0.028 = 10.028 weeks e. The critical path will not be changed much as all the routes to K are either through I or J, and both I and J take 6 weeks to complete. Hence, if both I and J are removed, the only difference will be in the time which will be reduced by 6 weeks for all the routes. The new critical path will be A-S-F-H-K with 30 weeks needed to complete the project. Problem 2 1. Economic Order Quantity (Q)= {(2)(S)(D) / H }1/2, Where, S = Cost per Order = $25 D = Annual demand of the product = 4,000 H = Inventory Carrying Cost per year = $9 (C=Cost per unit = $90, h=holding cost per year as a fraction of C = 9/90 x 100% = 10%) = {(2)(25)(4,000) / (9)} 1/2 = (200,000 / 9) 1/2 = 149 units Average Inventory = Q / 2 = 75 units approximately 2. Optimal number of orders per year = D/Q = 4,000 / 149 = 26.85 = 27 approximately 3. Optimal number of days between two orders = 250 / (D/Q) = 250 / 27 = 9.26 days Total annual inventory cost = Total cost of ordering and carrying inventory = S (D/Q) + H(Q/2) = 25(27) + 9(75) = 675 + 675 = $1,350 4. Modern inventory management approaches Two of the modern inventory management approaches are Just In Time (JIT) inventory management (Wikipedia, 2007) and Vendor Managed Inventory (Wikipedia, 2007). a. In JIT system, the inventory is reduced and hence the associated cost of keeping the inventory. The inventory is ordered at the re-order point, this saves warehouse space and cost and increases return on investment, quality and efficiency. A drawback of this approach is that re-order level is determined by historical demand which may not be the accurate forecasting measure. This might lead to inventory depletion and customer service issues. Another drawback is that the system becomes vulnerable to supply shocks; that is, a sudden increase in the price of inventory item. This may disturb the budgets. b. Vendor Managed Inventory is a model where the buyer provides certain information to the supplier who then takes responsibility to maintain an agreed level of inventory for the buyer. This model was successfully used for some time but it makes the buyer too dependent upon the supplier or availability of raw materials and inventory items. 5. a. H = hC = (0.1)(90-5) = $8.5 Q* = {(2)(S)(D) / H }1/2 = {(2)(25)(4,000)/8.5}1/2 = 153 units (approximately) Since, Q* < 500, hence if we order 153 units, the discounts can not be taken. If 500 units are ordered, the discount of $5 can be obtained per unit. But if order more than 500 units, the order and inventory carrying costs will increase without reducing the material cost. Hence, the optimal order size in this case is 500 units. b. H = hC = (0.1)(90-6) = $8.4 Q* = {(2)(S)(D) / H }1/2 = {(2)(25)(4,000)/8.4}1/2 = 154 units (approximately) Since, Q* < 1001, hence if we order 154 units, the discounts can not be taken. If 1001 units are ordered, the discount of $6 can be obtained per unit. But if order more than 1001 units, the order and inventory carrying costs will increase without reducing the material cost. Hence, the optimal order size in this case is 1001 units. Problem 3 1. Forecast using 2-year moving average (x6) = (Y4 + Y5) / 2 = (3800 + 3700) / 2 x6 = 3750 miles Absolute deviation Di = |xi- Mean of data values| Mean = (3000 + 4000 + 3400 + 3800 + 3700 + 3750)/6 = 3608 approx. MAD = Mean Absolute Deviation = (D1 + D2 + D3 + D4 + D5 + D6)/6 (Wikipedia, 2007) = (608 + 392 + 208 + 92 + 142) / 6 = 240 miles 2. Forecast for year 6 using exponential smoothing: Initial forecast for year 1 = 3,000 Initial forecast for year 2 = 4,000 a = 0.5, 0.7 The high value of a correspond to a forecast that is more responsive to recent observations, whereas a low value of a corresponds to a more stable forecast that is less responsive to recent observations. We will take a=0.7 X6 = aX5 + a(1-a)X4 + a(1-a)2X4 + a(1-a)3X4 + a(1-a)4X4 (Wikipedia, 2007) X6 = (0.7)(3700) + (0.7)(0.3)(3800) + (0.7)(0.3)2(3400) + (0.7)(0.3)3(4000) + (0.7)(0.3)4(3000) = 3,695 miles Weighted moving average is effective when demand has no observable trend or seasonality. On the other hand, exponential smoothing can be used even if there is tend and seasonality in demand (Chopra, 2004) Problem 4 1. Arnold Palmer Hospital operates in an area where the differentiator for service is considered to be customer satisfaction, as stated by Executive Director of the hospital. The quality of service can best be judged by the responses received from the customers - in this case, the patients who are treated in the hospital. Hence it is important for the hospital to obtain patients' assessment of health care quality. Though they do not have the expertise in absolute terms, yet the patients can measure the health care by the service they receive from the hospital staff and doctors; which is critical to the mental calmness and satisfaction of the patients. 2. A quality culture can be developed by establishing a quality policy which defines the quality philosophy of the top management; and serves as a guide towards spreading awareness among employees with regard to the quality philosophy of the hospital management. Continuous training programmes should be arranged for employees. The quality objectives of the company and the proposed quality values should be clear, concise and doable. The top management should sponsor and lead the development of quality culture in the hospital. Providing rewards and recognition to top performing employees in regard to quality policy of the hospital should also improve the employees' motivation level in providing high quality services to patients. 3. Arnold Palmer Hospital has benchmarked its processes with other national hospitals and hospitals in the southeast region. This helps the hospital to measure their performance in terms of quality against other top performing hospitals in the region. In addition, the hospital provides questionnaires and surveys to patients and their families, and the response that they receive, allow them to fine tune their processes and systems. The employees are empowered to provide gifts in value up to $200 to patients if they find reason to complain about hospital services. The hospital has developed an internal quality process that helps them achieve their quality goals and allow them to maintain superior quality of services. References Chopra, S. (2004) Supply Chain Management: Strategy, Planning, and Operation. 2nd ed. New Delhi, Prentice Hall of India. NetMBA. (2007). PERT Chart [Internet]. Available from: [Accessed 04 February 2007]. Wikipedia. (2007). Economic Order Quantity [Internet]. Available from: [Accessed 05 February 2007]. Wikipedia. (2007). Mean Absolute Deviation [Internet]. Available from: [Accessed 05 February 2007]. Wikipedia. (2007). Exponential Smoothing [Internet]. Available from: [Accessed 06 February 2007]. Wikipedia. (2007). Just In Time Business [Internet]. Available from: http://en.wikipedia.org/wiki/Just_In_Time_%28business%29 [Accessed 05 February 2007]. Wikipedia. (2007). Vendor Managed Inventory [Internet]. Available from: [Accessed 05 February 2007]. Read More