Term Project

Integrating Techsoft's New Vision Graphics Card into the Supply Chain

Company Background

Techsoft, a leading technology company specializing in graphics processing, has just developed a new version of their Vision graphics card. The card is 10% smaller than its predecessor and is breaking new ground in cost as it is projected to sell at half the price of their current card. The need for faster, more affordable graphics cards that can be networked to scale according to processing needs, has driven both the lower selling prices and the demand for processing higher than ever before. The issue Techsoft faces now is that its supply chain costs are now proportionally a much larger percentage of the overall graphics card selling price.

Changing Landscape

The technology industry evolves rapidly and each day an unsold graphics card or other piece of advanced hardware loses value as new chips and versions are researched, released and retired. Techsoft is an OEM and sells to other manufacturers and distributors. For the Vision graphics card in particular, all sales are included in other consumer and industrial products and not to be sold directly to consumers themselves. The challenge is with rapidly changing products in the market and intense competition, Techsoft must compete on not only the functionality front, but cost as well. Due to this, its current supply chain cost is unacceptable when the cost of the card itself has been reduced by 50%. Techsoft expects innovation in all aspects of its business beyond just R&D. Therefore, Management has requested your team investigate ways to reduce the per card supply chain costs as much aspossible.

Incumbent Suppliers

Techsoft currently has four major suppliers for its raw materials. Techsoft has been looking to bring down its supplier expenses through consolidation to just 2 suppliers. Flexit has been Techsoft's oldest partner and has been recently awarded the Electronic Industry award for its pioneering work in maintaining its quality standards. Techsoft has been the largest customer for Worldcomm which has always provided Techsoft with the best prices. Worldcomm has even designed its processes to provide flexibility in its services to cater to the changing demands from Techsoft. Maxo Inc has been recently audited by ISO and has been provided with a few observations that could put their eligibility for renewal of its ISO 9001 certification at risk. Nanotech is relatively a new supplier but has innovative processes and customer service which initially attracted Techsoft to contract with it.

Current Supply Chain Operations

Techsoft produces all its products at its manufacturing units in Singapore and South Germany. They must continue with their current manufacturing units as the capital expense and risk to intellectual property are too high to consider outsourcing to reduce costs. Techsoft does not foresee any changes to production capacity or set up costs at this time. The lead time for order processing and Quality Assurance activity is 2 days and the lead time for manufacturing can be assumed to be one week.

Techsoft manages all of its own transportation and warehousing from pre-production to final storage. The company uses a third-party shipper to deliver the Vision cards directly to customers. As the Vision card is just one of many products that Techsoft creates, the company doesn't intend to adjust its transportation practices from factory to warehouse as it's been optimized for the existing mix of products. Techsoft currently supplies the North American market from its manufacturing plant in Singapore. The plant in Germany caters to the European market.

During the 7 weeks from initial order, Techsoft's customers have the luxury to often change their volumes and specifications multiple times. Each vision card remains in the Singapore warehouse for 7 weeks whereas, the actual order details are typically locked in by 2-3 weeks before production.

In North America, Techsoft does not have warehouses to store finished inventory, instead they have a docking location for immediate shipping of finished goods. From its California docking location, Techsoft directly ships the cards straight to customers, as soon as the chips arrive. This docking location is conveniently located for easy access by ship and air.

Overall Techsoft's most significant concern is to retain its high quality and balance the overall availability and inventory as the technology industry, particularly the graphics card industry, changes rapidly.

Looking to the Future

Techsoft is planning to pilot this supply chain reduction program for its Singapore unit. In preparation, Techsoft has started engaging all of its 200 customers affected by the pilot program through interviews and questionnaires. It aims to gain insights into desired customer engagement levels that can impactsupply chain and associated costs.

With respect to this pilot program, Techsoft has asked for your teams' help to determine which aspects of the supply chain provide opportunities to reduce costs and by how much. A few data exhibits are attached to help assess the supply chain costs and the savings potential.

Figure 1. Customer Survey Data
Based on the recent survey of all of its 200 customers, Techsoft Sales team has prepared the following report:
Currently Techsoft has an exceptionally high customer service level of 98%, much higher than any of its competitors. Customers showed positive response towards a possible lower but acceptable service level. Results of the survey showed 45 of the customers would be serviced at90% (classified hereon asCategory B) and the rest would have to be serviced at95%(Category A).
Question	Yes	No
What is your order lead time?	Category A (95%)	Category B (90%)	Category A	Category B
Customers willing to submit/freeze orders 6 weeks before receipt	153	44	2	1	200
Customers willing to submit/freeze orders 4 weeks before receipt	152	42	3	3	200
Customers willing to submit/freeze your orders 2 weeks before you receive them?	50	42	105	3	200

Service Level	Service Factor (z)
85.00%	1.04
86.00%	1.08
87.00%	1.13
88.00%	1.17
89.00%	1.23
90.00%	1.28
91.00%	1.34
92.00%	1.41
93.00%	1.48
94.00%	1.55
95.00%	1.64
96.00%	1.75
97.00%	1.88
98.00%	2.05
99.00%	2.33
99.50%	2.58
99.60%	2.65
99.70%	2.75
99.80%	2.88
99.90%	3.09
99.99%	3.72

Figure 8. Production Shifts and Cost
Production Facility	Singapore, SG
Production per shift	50
Shifts/ Week	20
Set up cost per unit ($)	0.03

Figure 7. Warehousing costs including operations and handling
Warehouse Facility	Singapore, SG
Area (SqM)	15000
Monthly Operating Costs (Per SqM)	2.3
Handling Costs ($/per Item)	1.95
% of Warehouse Dedicated to Vision Card	35%

Figure 4. Supplier uncertainty related information
Techsoft currently orders raw materials from all thefour suppliers. It is looking to save costs through consolidation to one supplier per Category. Techsoft expects the uncertainty in supply to be similar to the past performance even after the scale up of the chosen supplier.Techsoft expects each of the suppliers to have a fulfillment target of 98%
Week	Order placed by Techsoft for the raw materials	Flexit fulfillment till the due date	Maxo Inc fulfillment till the due date	Worldcomm fulfillment till the due date	Nanotech fulfillment till the due date	Fulfillment of Flexit	Fulfillment of Maxo Inc	Fulfillment of Worldcomm	Fulfillment of Nanotech
Week 1	75	75	72	72	74	100%	96%	96%	99%
Week 2	75	77	77	75	76	103%	103%	100%	101%
Week 3	75	73	75	74	74	97%	100%	99%	99%
Week 4	75	75	75	77	76	99%	100%	103%	101%
Week 5	75	74	77	74	73	99%	103%	99%	97%
Week 6	75	78	75	75	74	104%	100%	100%	99%
Week 7	75	75	72	78	77	100%	96%	104%	103%
Week 8	75	74	78	76	77	98%	104%	101%	103%
Week 9	75	74	78	74	74	99%	104%	99%	99%
Week 10	75	77	75	78	77	103%	100%	104%	103%
Week 11	75	75	75	74	76	99%	100%	99%	101%
Week 12	75	75	71	73	72	100%	95%	97%	96%
		75	75	75	75	100%	100%	100%	100%

Figure 5. Current Shipping and Transportation Costs for Vision Graphics Card

Figure 6. Map of Shipping Routes from Singapore Warehouse

There is currently no import tarriff on Graphics Cards into the US from Singapore

Direction

Cost

Unit

Time

Asian Plant to Warehouse

0.01

Per Card

4 hours

Asian Warehouse to North America - Air Expedited*

6.5

Per Card

2 Days

Asian Warehouse to North America - Air Cargo

3.5

Per Card

5 days

Asian Warehouse to North America - Sea

2.19

Per Card

2 weeks

Domestic Route - Express

6.75

Per Card

2 Days

Domestic Route - Priority

4.25

Per Card

4 Days

Domestic Route - Ground

2.3

Per Card

7 Days

* Due to last minute finalization of order quantities most cards are currently sent via Air Expedited to North America

Figure 2. First Quarter Sales Projections for 2019
Below is the historical 1st quarter sales for thepast year. The future demand is expected to follow the same pattern
Week	Actual Graphics Cards Sales
	Category A (95%)	Category B (90%)
Week 1	187	96	283
Week 2	187	186	373
Week 3	140	167	307
Week 4	159	136	295
Week 5	146	177	323
Week 6	157	101	258
Week 7	179	159	338
Week 8	186	168	354
Week 9	139	98	237
Week 10	170	137	307
Week 11	164	185	349
Week 12	186	127	313
	166.7	144.8