The RDC corporation is a manufacturer and seller of electronic testing equipment and sells direct to business and on the internet. Their supply chain, at a high level, is depicted below.

Recently they decided to change the supply chain operations of one of their biggest products, the P60, as follows:

RDC decided to plan for all supply and operations prior to Final Assembly based on forecasts and a stable schedule in order to try and reduce the upstream “bullwhip” effect. Everything downstream from Final Assembly would be driven by customer demand. RDC’s move would result in an End-to-End

Supply Chain that is an example of:

A Push-Pull System

Off-shoring

An E-Business Fulfillment System

Outsourcing

Risk Mitigation in case of natural disasters

Risk Mitigation in case of natural disasters

RDC is making this move (in the above question) with the objective of

Maximizing their Accounts Receivables

Reducing the overhead costs of ordering

Maximizing their Final Assembly capacity utilization

Minimizing their system-wide inventory levels

Reducing the taxes and tariffs paid

RDC has decided to outsource the manufacturing of one of its major products to Outside Manufacturing Corp. (OMC), an Eastern European-based company. Among the major reasons was flexibility in response to uncertain demand, in addition to a reduction in unit cost. The product involved, the N20 electronic range-finder, is designed as an integrated system, made up from components whose functionalities are tightly related, and is not made from off-the-shelf components. The RDC Operations Manager was tasked with identifying the risks involved in the strategy. Which of the following should she be concerned about? (6

The OMC work force stopped work at 5 pm every day

OMC’s factory that made the product is located in Germany, which is governed by EU rules.

The OMC executives went to a bar and partied every evening

OMC insisted on a constant amount of product ordered every month for the next year, with severe penalties if RDC makes any changes to the quantities.

RDC would like to free up some automaton equipment so that it can use it as a

test bed for the development of new and innovative products. As a result, it is

considering outsourcing a major component (C400) of another product (the

M40). OMC is a prime candidate for manufacturing this C400 component. In the

decision whether to outsource the C400 component or not, which of the

following factors is most critical for the RDC Operations Manager to address?

Equipment layout and work flow of the OMC factory

The work in process that OMC will have to maintain for the production

Work habits of the OMC work force

The IT planning system that OMC uses.

The speed at which the component’s technology changes relative to other

components in the system.

One of RDC’s major components for the N20 product is a passive electronic

component (C100) . In conducting an analysis of this component, the C100, the

RDC Procurement Management has determined that this component has a

relatively low profit impact on the N20. However, owing to the very limited

number of available suppliers globally and their location, management believes

it has a high risk of supply disruption. The optimal strategy for the Procurement

Manager to adopt would be

Develop an e-marketplace to get the best price for the component

Focus on unit cost reduction by going to bid among suppliers and encouraging

competition

Change the Economic Order Quantity formula used to increase the holding costs

estimate.

Develop long-term contracts with the current supplier and carry enough stock to

assure supply in case of disruption

Bring the manufacture of the C100 component in-house by investing in technology

and capacity

In evaluating the procurement strategy of the C400 component for the M40, the

Procurement Manager is conducting a Total Cost of Acquisition for the

current supplier. The various Costs/unit estimates are shown below. What is

the “best estimate” of the Total Cost of Acquisition per unit?

Supplier Labor Manufacturing Cost 8.00

Supplier Margin 5.00

RDC Marketing and Advertising for M40 (total divided by M40 volume as

a proportion of total products)

3.00

RDC Sales Costs for M40 (total divided by M40 volume as a proportion

of total products)

5.00

RDC General Administration Costs (total divided by M40 volume as a

proportion of total products)

2.00

Shipment Costs from supplier facility to RDC Inbound Warehouse 4.00

RDC Inspection Costs at Warehouse (total divided by M40 volume as a

proportion of total products)

1.00

RDC Costs of rejection and Purchase Order reconciliation 1.00

RDC costs of returns to supplier 2.00

RDC Costs of Re-Ordering to make up for shortfall 1.00

RDC costs of the CFO and Finance Dept (total divided by M40 volume

as a proportion of total products)

1.00

RDC IT Management Costs for current financial and legal systems (total

divided by M40 volume)

2.00

60

52

65

46

In determining supply chain strategies for their finished products, RDC

categorizes their products as Innovative and Functional. Among the key

characteristics of a Functional Product are

It typically has low average stockout rates

It is a unique product that nobody else has

It is designed by very smart engineers

It has unpredictable demand rates

It requires significant quality inspection before shipping to the customer

It has a high product mix variety

RDC has a specific sub-assembly that has a major component whose

technology changes very rapidly compared with the other components in the

sub-assembly. In addition, management consider this component to have to a

high Supply Risk because of the component manufacturing complexity. The

best supply strategy is to focus on

Designing out the key component even if it means falling behind in technology and

sales

Negotiating cost reductions with every new technology generation

Increasing Supply Flexibility and shortening Lead times

Minimizing short term cost

Work with the supplier in increasing process automation

RDC sells a Range-Finder product through XVX, a global electronics distributor

and a major channel partner. RDC and XVX have a Quantity-Flexibility Contract

for this set of products, where RDC provides a refund for some or all of returned

items that are unsold. This, in effect

Required RDC to hold inventory for XVX, in case demand surges beyond forecast

Reduces RDC’s risk of holding unsold product

Reduces XVX’s risk of holding unsold product

Maximizes the profit margin for RDC

Ensures a lower price for XVX

One of RDC’s major B2B customers is Acme Manufacturing. This is for a maketo-

stock product specific to Acme. RDC and Acme have a supply contract with

“Asymmetric” information. This typically means that: (

The products or components in question are not critical

There are no engineering changes involved

Acme and RDC do not share the same forecast

The forecasts are only supplied from Acme to RDC on a quarterly basis.

Acme’s quality audits often come up with a different results than RDC’s own Quality

process