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Kindly solve this case study and the 3 questions please ..

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CASE STUDY Should Packing be Postponed to the DC? Penang Electronics (PE) is a contract manufacturer lead time from Penang to St. Louis is nine weeks. PE that produces and packages private label products for uses a continuous review policy to manage inventories several retail chains including Target. Best Buy.at its DC and aims to provide a cycle service level of Staples, and Office Max. In each case, the basic 95 percent for each product to every customer. product is identical with the only difference being the The previous month had been very challenging labeling and the packaging. Thus, the labeled and because Best Buy requested 5,000 additional units packed version of the product destined for Target can beyond what was available at the DC, whereas Target not be sent to Best Buy ordered 3.500 units less and Staples ordered 4,000 units Currently, a production facility in Malaysia is used less. Even though there was sufficient product inventory to manufacture, label, and pack all products. The manu- available at the DC (in the form of the basic product). PE facturing facility replenishes a distribution center (DC) in could not meet the Best Buy request because the excess St. Louis from which the contract manufacturer fills all inventory available was labeled and packed for other customer orders. The manufacturing and transportation customers. The DC had leftover inventory from Target 354 Chapter 12 . Managing Uncertainty in a Supply Chain: Safety Inventory and Staples, which unfortunately could not be used to Evaluating the Two Options serve Best Buy, PE had lost business and surplus inven- tory all because of the wrong labels and packaging! To evaluate the two options, a team from both manufac- turing and the DC was set up. The team decided to focus its analysis on three major product categories - Labeling and Packaging at the DC computers, printers, and scanners, and four major The vice president of supply chain at PE proposed Weekly demand for each product and customer is customers-Target, Best Buy, Staples, and Office Max postponing the final labeling and packaging to the DC shown in Table 12-9. In each case, "Mean" indicates the Her logic was that postponing labeling and packaging to the DC would allow PE to use all available inventories average weekly demand, and "SD" indicates the to serve any customer. In particular, the situation that standard deviation of weekly demand. All demand was assumed to be normally distributed. PE incurred a total arose the past month when Best Buy did not get its entire order could have been avoided through postponement. If cost of $1.000 per computer, $300 per printer and $100 packaging was shifted to the DC, the lead time of per scanner. Given the short life cycle of these products, manufacturing and transporting the basic product from PE used a holding cost of 30 percent when making its Malaysia would continue to be about nine weeks. inventory decisions. The team analyzed the impact of Labeling and packaging were relatively quick steps and postponement on safety inventories before making a final recommendation the response time from the DC to the customer was not expected to change. QUESTIONS The DC management was opposed to this idea because would add additional work that was different 1. What is the annual inventory cost of the current system in from what they had done so far. A detailed study of the which product is produced, labeled, and packed in production process had shown that labeling and packaging Malaysia before being shipped to the DC? at the DC cost $2 per unit more than the cost of labeling 2. How would the inventory cost change if labeling and pack- and packaging in Malaysia. DC management believed aging were moved to the DC? Evaluate the change in inventory costs as the correlation coefficient of demand that this increase in cost would be held against them once between any pair of customers varies from 0 to 0.5 to 10 the process was changed, and they would be under 3. How should PE set up its production, labeling, and pack- constant pressure to lower cost. They also believed it aging processes? Does your answer change if the additional would complicate the work they did when filling an order cost of labeling and packaging at the DC is reduced to SI and could adversely impact customer service. (from the current value of S2) Table 12-9 Distribution of Weekly Demand by Product and Customer Computers Printers Scanners Mean SD Mean SD Mean SD Target 1,000 700 2,000 1,000 4,000 1,000 Best Buy 700 600 1,500 800 4,500 900 Office Max 800 600 1,200 600 2,000 700 Staples 500 400 900 500 1,400 500 APPENDIX 12A The Normal Distribution A continuous random variable X has a normal distribution with mean and standard deviation > O if the probability density function (X.M,c) of the random variable is given by (x - ) $(x.4.6) (12.20) 2er oV2 exp CASE STUDY Should Packing be Postponed to the DC? Penang Electronics (PE) is a contract manufacturer lead time from Penang to St. Louis is nine weeks. PE that produces and packages private label products for uses a continuous review policy to manage inventories several retail chains including Target. Best Buy.at its DC and aims to provide a cycle service level of Staples, and Office Max. In each case, the basic 95 percent for each product to every customer. product is identical with the only difference being the The previous month had been very challenging labeling and the packaging. Thus, the labeled and because Best Buy requested 5,000 additional units packed version of the product destined for Target can beyond what was available at the DC, whereas Target not be sent to Best Buy ordered 3.500 units less and Staples ordered 4,000 units Currently, a production facility in Malaysia is used less. Even though there was sufficient product inventory to manufacture, label, and pack all products. The manu- available at the DC (in the form of the basic product). PE facturing facility replenishes a distribution center (DC) in could not meet the Best Buy request because the excess St. Louis from which the contract manufacturer fills all inventory available was labeled and packed for other customer orders. The manufacturing and transportation customers. The DC had leftover inventory from Target 354 Chapter 12 . Managing Uncertainty in a Supply Chain: Safety Inventory and Staples, which unfortunately could not be used to Evaluating the Two Options serve Best Buy, PE had lost business and surplus inven- tory all because of the wrong labels and packaging! To evaluate the two options, a team from both manufac- turing and the DC was set up. The team decided to focus its analysis on three major product categories - Labeling and Packaging at the DC computers, printers, and scanners, and four major The vice president of supply chain at PE proposed Weekly demand for each product and customer is customers-Target, Best Buy, Staples, and Office Max postponing the final labeling and packaging to the DC shown in Table 12-9. In each case, "Mean" indicates the Her logic was that postponing labeling and packaging to the DC would allow PE to use all available inventories average weekly demand, and "SD" indicates the to serve any customer. In particular, the situation that standard deviation of weekly demand. All demand was assumed to be normally distributed. PE incurred a total arose the past month when Best Buy did not get its entire order could have been avoided through postponement. If cost of $1.000 per computer, $300 per printer and $100 packaging was shifted to the DC, the lead time of per scanner. Given the short life cycle of these products, manufacturing and transporting the basic product from PE used a holding cost of 30 percent when making its Malaysia would continue to be about nine weeks. inventory decisions. The team analyzed the impact of Labeling and packaging were relatively quick steps and postponement on safety inventories before making a final recommendation the response time from the DC to the customer was not expected to change. QUESTIONS The DC management was opposed to this idea because would add additional work that was different 1. What is the annual inventory cost of the current system in from what they had done so far. A detailed study of the which product is produced, labeled, and packed in production process had shown that labeling and packaging Malaysia before being shipped to the DC? at the DC cost $2 per unit more than the cost of labeling 2. How would the inventory cost change if labeling and pack- and packaging in Malaysia. DC management believed aging were moved to the DC? Evaluate the change in inventory costs as the correlation coefficient of demand that this increase in cost would be held against them once between any pair of customers varies from 0 to 0.5 to 10 the process was changed, and they would be under 3. How should PE set up its production, labeling, and pack- constant pressure to lower cost. They also believed it aging processes? Does your answer change if the additional would complicate the work they did when filling an order cost of labeling and packaging at the DC is reduced to SI and could adversely impact customer service. (from the current value of S2) Table 12-9 Distribution of Weekly Demand by Product and Customer Computers Printers Scanners Mean SD Mean SD Mean SD Target 1,000 700 2,000 1,000 4,000 1,000 Best Buy 700 600 1,500 800 4,500 900 Office Max 800 600 1,200 600 2,000 700 Staples 500 400 900 500 1,400 500 APPENDIX 12A The Normal Distribution A continuous random variable X has a normal distribution with mean and standard deviation > O if the probability density function (X.M,c) of the random variable is given by (x - ) $(x.4.6) (12.20) 2er oV2 exp