Supply Chain Management – Inventory Aggregation/Delayed Differentiation

Consider the information and data presented in the case study “Should Packing Be Postponed to the DC?” (SEE BELOW), that concerns inventory management at Penang Electronics, where orders are placed weekly, and the lead time for receiving orders is 9 weeks.   Pay close attention to the details of the case study.

Do the following:

Compare the two alternatives under consideration for final labeling and packaging:

1. At the production faculty in Malaysia before being shipped to the DC (the current approach) and
2. At the DC in St. Louis (i.e., postponing labeling and packaging until just before shipment).

The comparison should consider the savings in annual holding cost with aggregation compared to the increased production costs of aggregation.  When determining if aggregation is warranted, note that how inventory is managed does not need to be consistent across the three products (computers, printers, scanners).  That is, aggregation may be worthwhile for only one or two of the three products, and this approach can be implemented.

When analyzing the two alternatives, assume that the demand across the four customers are independent and that the target product fill rate is 99%.  Because a fire destroyed all historical forecasting performance data, whether or not it is fair to assume that demand is independent across periods of the lead time is unknown.  Therefore, run the analysis two times, using the followingassumptions: (a) that demand variation is independent across periods, and (a) that demand variation is perfectly correlated across periods.