Assessment: SCM Basics Session Demand Management

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[. . .] It will be the slowest of all the production Centers as well as be forced to carry the greatest constant load when compared to other activities.


The Production Activity Control is responsible for taking the MPS and executing it along with the MRP. It is up to the PAC to maximize the productivity of the workers and machinery as well as keep work-in-progress low and perform other duties such as directing employees and performing customer service. The control function in the PAC is of vital importance since it will essentially manage the production activities and scheduling of various work centers. Additionally, the PAC must take corrective action if the schedules do not go as planned.

Sessions 6, 7, & 8


Accounting for work-in-progress

How many days of supply are really needed

What are the ordering/transaction costs offered from the vendors

What method is currently utilized for evaluating inventory


The average inventory of twenty million is the amount of inventory that one would expect to find in the warehouses at any given time. Given that the average inventory is given as well as the inventory turn time, an estimate for the total annual inventory can be computed; 2,000,000 * 2 = 4 million.


The inventory turns ratio is calculated by taking the Annual Cost of Goods Sold / Average Inventory in Dollars. If the inventory turn ration was increased to three, holding the COGS constant then this would equate to an average inventory of slightly over 1.33 million (4,000K / 3 = 1 1/3 million). Therefore with a carrying cost of 25% on an average inventory of 1.33 million would be equal to roughly 333 thousand dollars a year in reduced expenses.


To achieve this reduction in inventory some possible strategies might include a lean or just-in-time manufacturing strategy. Implementation of this type of strategy would work to reduce the inventory required by carry less inventory and increase the number of orders as needed. This works best when the order costs and administrative costs are low from vendors as well as freight or shipping costs.


Economic order quantity (EOQ) can optimize inventory levels by finding the equilibrium point between ordering costs and carrying costs. The model tries to identify the point of re-order by considering all of the related costs and plots them against the costs of holding inventory (warehouses and equipment). The equilibrium point will resemble something like the following illustration:


Safety stock levels are necessary for human errors, quality issues, machine issues, a spike in sales orders, or anything else that could increase the demand for a material that would have been otherwise unaccounted for. Calculations for safety stock can either be based off of historical data or could be calculated as a percentage of total inventories.


The ABC technique is based upon the Pareto principle which states that a small percentage of the product SKUs will account for a much larger percent of the total sales volumes. Simply stated, there will be some finished goods that will be significantly more popular than many of the other items. Therefore, these three categories of items can be thought of in three different groupings -- A, B, & C. groups. Since the A group is more important than the B. And C. groups and the B. group is more important than the C. groups, this provides are fairly quick and easy way to makes sure the more important goods get first priority.

The "A" group is generally thought to consist of roughly twenty percent of the total SKUs or total goods produced or maintained but it is also thought to account for over seventy percent of the annual consumption value of the total sales amount. Hence, when considering any strategy for inventory management this group should represent the first priority. The next two groups, each of lessor importance, can be afforded to be looked over to some extent because they are not as important to sales volume. Furthermore, when trying to optimize inventory levels you should always begin with the A category and then move down the chain.


A re-order point may not be the best way to handle inventory levels because they may not represent trends in sales such as season trends. Since the trends a stated to be erratic then the question, it might be reasonable to assume that there are some underlying trends. Another option would be to ask clients to accept a greater lead time for orders exceeding a certain quantity. This might help smooth the erratic demands and low the re-order point. As far as the question of distribution points, it is generally valuable to utilize this distribution method because it provides a sales advantage. It allows sales to be delivered in short lead times and also in small quantities; which generally corresponds to a greater profit margin.

To improve communications with the vendors in South East Asia one idea might include finding a local intermediary that spoke the native language fluently so that they could facilitate the ordering process and ensure that all the parties were on the same page. This work could possibly be subcontract through a professional organization or even a local language teacher might suffice.


The only items that would be economically viable for air transport over such a large distance would be items that were first of all, fairly light. The second consideration would be the value of that item in terms of how it affects other production processes. For example, if a part is needed to finish an order that is behind schedule then it might be worthwhile to incur the additional fees for air transport. Another potential option would be in a situation where the item is only occasionally needed and not really worth the carrying costs to keep the item in inventory.

Sessions 9 & 10


In any quality issue there is either a problem with the design, the materials being used, the machines being operated, or the people operating the machines. These four possibilities cover nearly all the operational errors that can be found in a manufacturing environment. Whatever the cause of the inconsistent weights, the major costs of such issues will arise from either customer returns or losing future sales because to the poor quality image associated with producing such variances. The problem should be addressed in the timeliest manner possible to minimize the impact of the quality issue.


Of the seven quality controls listed, in my opinion, the Ishikawa or fishbone diagram is one of the most comprehensive ways to look a problem from different angles. Although it doesn't make use of statistical analysis, it can be an incredibly valuable tool when trying to analyze systems in terms of total quality management. Though statically analysis might provide an answer to an individual problem, this approach addresses the whole organization in more of a holistic manner often leading to greater employee participation and alignment with organizational goals.


Chart 1 seems to have all of the data points within the upper and lower control limits and thus no further action is required.

Chart 2 exceeds the upper control limit at point 10 and thus represents a quality issue that needs to be addressed.

Chart 3 seems to have all of the data points within the upper and lower control limits and thus no further action is required.

Chart 4 seems to have all of the data points within the upper and lower control limits and thus no further action is required.

Lean & JIT


Value -- any activity that is added that the customer would actually pay for; if given the option

Waste -- is any activity that does not add value to the product or service.

Over production -- this is waste because you simply make more than needed for subsequent operations

Waiting -- waiting is waste because it serves no purpose and adds no value

Transportation -- this is any "unnecessary" movement or transport of a good

Non-Value-Adding Processes -- any effort that is made in which no value is added

Inventory -- any inventory sitting on shelves is wasteful

Under Utilizing People -- people who do not perform to the their fullest potential is wasteful

Defects -- possibly the most server forms of waste

Motion -- any unnecessary motion is a waste of both time and energy


It is generally best to enlist the advice of those closest to the problem in both space and time. Thus enlisting the advice of the Team Leaders in the production space redesign decision making would be wise for two separate reasons. First of all, the Team Leader would know the ins and outs of the production flow better than anyone else simply because they spend the most time in this environment. Even the brightest strategist could never address the minute details that a Team Leader… [END OF PREVIEW]

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APA Format

SCM Basics Session Demand Management.  (2011, April 25).  Retrieved July 22, 2019, from

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"SCM Basics Session Demand Management."  25 April 2011.  Web.  22 July 2019. <>.

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"SCM Basics Session Demand Management."  April 25, 2011.  Accessed July 22, 2019.