SMC InternationalGlobal Case Study #646747 Presented By: Phanthira Rojwattanasiri - Thammasat University Varrick Chambers - Auburn University Cassy Smart - University of North Texas Jonathan Seal - University of North Texas April 17, 2015 2 32 Unit Price (€) Annual Demand (Units) 112.00 73.646.SMC International Global Case Study #646747 Case Summary Case Summary Number of Units per Case 15.00 3 .00 Inventory Carrying Cost (€) 0.00 Cost to Place an Order (€) 48. 277.80 1.612.80 Annual Total Cost (€) 40.924.80 Part B Orders Per Year 1 Q#1: What is the total annual cost of Ferguson's proposal? 4 .SMC International Global Case Study #646747 Rounded Part A Total Annual Cost of Ferguson's Proposal Order Quantity (Units) 90.29 819.612.312.00 Annual ICC 1.00 818.00 Annual Ordering Cost 39.00 90.67 40.87 39.00 6.00 Number of Units per Case 6.890. 40 4.76 273.02 17.SMC International Global Case Study #646747 Rounded Part B Part A Total Annual Cost of Patrachalski's Proposal 2 Order Quantity (Units) 270.40 Annual Total Cost (€) 17.104.00 Annual ICC 4.00 18.00 Number of Units per Case 18.62 13.838.00 Annual Ordering Cost 13.00 Orders Per Year 272.092.838.00 270.942.931.40 Q#2: What is the total annual cost of Patrachalski's proposal? 5 . 959.21 15.00 Number of Units per Case 29.00 Annual ICC 7.15 445.10 7.61 29.00 Annual Ordering Cost 7.959.81 166.974. what order quantity (in units) should Martin recommend? Q#4: What is the total annual cost of Martin’s recommendation? 6 .942.10 7.67 Orders Per Year 165.40 Q#3: Based on the lowest total annual cost.968.918.40 Annual Total Cost (€) 15.SMC International Global Case Study #646747 Rounded 3 Part B Part A The Lowest Total Annual Cost 4 Order Quantity (Units) = EOQ or Q* 444. 126.the Order Quantity is Decreased to the Nearest Whole Case Rounded Order Quantity (Units) 435.6552 15.795." Lewin’s proposal to use Economic Order Quantity may be unrealistic since SMC would like to place orders in whole cases.0000 Number of Units per Case 29.0000 Orders Per Year 169. If the order quantity is decreased to the nearest whole case what percent would your total annual cost change? 7 .955.2000 7.160.0000 29.Part B Part A SMC International Global Case Study #646747 5 Total Annual Cost .795.2000 0.0000 Annual ICC 7.921.3011 170.0803% Percent Total Annual Cost Change Q#5: Let's explore the concept of "robustness.0217% 0.2000 Annual Total Cost (€) 15.0000 Annual Ordering Cost 8.4552 8.0000 435. 064.the Order Quantity is Increased to the Nearest Whole Case Rounded Order Quantity (Units) 435.855.936.Part B Part A SMC International Global Case Study #646747 6 Total Annual Cost .0401% Percent Total Annual Cost Change Q#6: What percent would your annual total cost change if the order quantity is increased to the nearest whole case? 8 .872.919.5733 15.0000 Orders Per Year 163.0000 Annual Ordering Cost 7.0000 Number of Units per Case 30.5733 7.0000 0.0000 8.0000 450.0000 Annual ICC 8.0086% -0.0000 30.0000 Annual Total Cost (€) 15.064.6578 164. 007707 Part B Sales (Demand) 7 Q#7: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if only Vice President of Sales Steve Smith achieves his goal to increase sales by 9.6% 9 .716.50% 402.000000 9.000000 -24.146453 -9.SMC International Global Case Study #646747 Part A The Lowest Total Annual Cost Old Change New EOQ 444.50% 401.016000 Cost to Place an Order (€) 48.725000 73.000000 -9.952540 Rounded EOQ 445.000000 -25.983943% 36.869708 Rounded Cost to Place an Order 48.646.271442% 35.60% 80. 320000 -0.016000 Inventory Carrying Cost 0.343137% 32.294000 Cost to Place an Order (€) 48.60% 80.SMC International Global Case Study #646747 Part A The Lowest Total Annual Cost Old Change New EOQ 444.0% to 29.725000 73.000000 9.146453 -9.4%.50% 402.952540 Rounded EOQ 445.078998% 33.026 0.955294 Rounded Cost to Place an Order 48.6% AND Financial Comptroller Fred Ferguson achieves his goal of reducing the cost to carry inventory from 32. Your answer must be accurate to 6 decimal places 10 .000000 31.082081 Part B Sales (Demand) 8 Q#8: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if Vice President of Sales Steve Smith achieves his goal to increase sales by 9.000000 -9.000000 31.646.50% 401.716. 361813 Sales (Demand) Part B Inventory Carrying Cost 9 Q#9: What would the cost to place an order need to be for Davis to meet his inventory reduction objective if Vice President of Sales Steve Smith achieves his goal to increase sales by 9.146453 -9.026 0.000000 34.000000 9.6% AND Financial Comptroller Fred Ferguson achieves his goal of reducing the cost to carry inventory from 32.000000 -5.016000 0.952540 Rounded EOQ 445.0% to 29.646.50% 401.000000 -9.000000 34.662890% 31.60% 80.320000 -0.241619 Rounded Cost to Place an Order 48.SMC International Global Case Study #646747 Part A The Lowest Total Annual Cost Old Change New EOQ 444.294000 Unit Price (€) 112.50% 402.725000 73.913294% 31.4% AND Purchasing Director Peter Patrachalski achieves his goal of reducing the average cost per unit by 5.176000 Cost to Place an Order (€) 48.716.2% 11 .20% 106. 000000 9.999537% 0. Your answer must be accurate to 6 decimal places (e.000000 99.g.000222 Rounded Cost to Place an Order 48.SMC International Global Case Study #646747 Part A The Lowest Total Annual Cost Old Change New EOQ 444.€47.016000 Cost to Place an Order (€) 48.646.999537% 0.000000 Rounded EOQ 445.716.000222 Part B Sales (Demand) 10 Q#10: What would the cost to place an order need to be if Davis implemented a Just-In-Time approach so ordering 1 unit at a time is the optimal ordering quantity? Use the original variables for the part number.000000 JIT 1.123456) 12 .146453 JIT 1.000000 99.000000 73.60% 80. Part B Part A SMC International Global Case Study #646747 11 .Four viable recommendations which would result in a lower COST TO PLACE AN ORDER Implement an EDI System Implement a VMI System Implement Assumed Receipts Implement Supply-Chain Technology 13 . (2007). ERP / EDI Integration Methodologies . (2013). Available at: http://www.dicentral.In-House versus Hosted.com/downloads/EDI%20Integration%20Methods%20White%20Paper.pdf (2) Simmons.20 ● Improves data quality.40% reduction in transactions with errors ● Speeds up business cycles by 61% ● Enhanced trading Partner Relationships Implementation Cost: (2) ● In-house model: about €77.pdf 14 .gxs.800 and about €70 per month -----------------------------Sources: (1) The Benefits of EDI. Available at: http://www. delivering at least a 30% . J.com/wp-content/uploads/wp_benefits_edi_gxs.SMC International Global Case Study #646747 Part B Part A 11: Implement an EDI System EDI Benefits: (1) ● Lowers costs by at least 35% ○ Cost to Place an Order decreased from €48 to €31. A GXS White Paper.000 ● Hosted model: about €2. 104432 OLD Annual Total Cost (€) 15.SMC International Global Case Study #646747 Part B Part A 11: Implement an EDI System The Total Annual Cost (New Order Cost) Order Quantity (Units) 444.918.609764 Orders Per Year 165.146453 Number of Units per Case 29.208864 17.417881 Annual ICC 7.500000% 15 .959.132.173.104432 NEW Annual Total Cost (€) 13.959.814676 Annual Ordering Cost 5.522313 % Change OLD Annual Ordering Cost 7. 416.711186 Orders Per Year 205.104432 OLD Annual Total Cost (€) 15.377423% 16 .SMC International Global Case Study #646747 Part B Part A 11: Implement an EDI System The NEW Lowest Total Annual Cost (Changing Q*) Order Quantity (Units) = EOQ or Q* 358.416.833.835138 Annual ICC 6.835138 NEW Annual Total Cost (€) % Change 12.082318 Number of Units per Case 13.670275 OLD Annual Ordering Cost 7.959.208864 19.918.667793 Annual Ordering Cost 6. 17 . OH: South-Western Cengage Learning.. A more consistent order process where the supplier regularly evaluates the complete requirements for its customer typically lowers total order count by 4-6%. pp.. C. B.. Supply Chain Technology—Managing Information Flows. Fewer orders results in downstream savings in warehouse pick time. J. Mason. ● Reduced Operating Costs Include: ○ Fewer order problems caused by bad data ○ Fewer emergency orders due to poor customer habits ○ Fewer orders overall. & Gibson. ed. Novac. and invoice reconciliation. 202-203).SMC International Global Case Study #646747 Part B Part A 11: Implement a VMI System VMI Benefits: ● By implementing VMI systems.]. In Supply Chain Management: A Logistics Perspective (9e [ed. ● Although the supplier takes on the responsibility for replenishment in a VMI relationship. the savings in operating costs alone can easily offset the costs of doing VMI. -----------------------------Source: Coyle.. accounts receivable. R. (2012). SMC will be able to manage the inventory of its product (and possibly related products) at the retailers warehouse(s) and reorder as appropriate for consumer fulfillment. Langley Jr.. transportation scheduling. 146453 Number of Units per Case 29.959.564432 30.SMC International Global Case Study #646747 Part B Part A 11: Implement a VMI System The Total Annual Cost (New Order Cost) Order Quantity (Units) 444.46 OLD Annual Ordering Cost 7.4.918.64 .104432 OLD Annual Total Cost (€) 15.959.000017 % 18 .609764 Orders Per Year 165.775.000011 .20.183.814676 Annual Ordering Cost (4%-6%) Annual ICC NEW Annual Total Cost (€) (4%-6%) % Change 3.208864 7.744432 12734.104432 11142. html Cost of Goods Sold 19 . (n.). Retrieved April 18.com/extreme-lean.technicalchange. 2015. from http://www.d.SMC International Global Case Study #646747 Part A 11: Implement Assumed Receipts ● Part B ● ● Labor represents 10% of the total cost associated with receiving orders ○ Receiving is the variable overhead in order cost Reducing inspection and eliminating counting of received orders decreases labor costs associated with receipt to almost zero The EOQ model is a fixed order quantity model which lends itself well to an Assumed Receipt process -----------------------------Source: EXTREME LEAN MANUFACTURING. 3.208864 3.360000 Order cost w/ reduced Labor 44.SMC International Global Case Study #646747 Part B Part A 11: Implement Assumed Receipts The Total Annual Cost (New Order Cost) Order Quantity (Units) 444.640000 OLD Annual Ordering Cost 7.959.50000% 20 .146453 Number of Units per Case 29.104432 OLD Annual Total Cost (€) 15.918.071554 % Change Labor cost .401.609764 Orders Per Year 165.104432 NEW Annual Total Cost (€) 15361.814676 Annual Ordering Cost 7.959.967122 Annual ICC 7. Novac. as well as automation of processes ○ Microchips used to store product identification and universally interpreted as an “Electronic Product Code (EPC)” ● Can lead to a reduction in labor costs and product theft ● Easy access to information regarding current inventory levels. “pay as you go” ○ Avoid initial costs for investment of infrastructure ● Creates opportunities for management to prioritize decision-making strategies by shifting technical responsibility to a third-party expert for a cost-efficient price -----------------------------Source: Coyle. Langley Jr. 202-203). Cloud Computing: ● Easy access to networks with computational resources ● No long-term contracts.. (2012). pp. tracing and tracking.. Mason. 21 . Supply Chain Technology—Managing Information Flows.SMC International Global Case Study #646747 Part B Part A 11: Implement Supply-Chain Technology RFID (“Radio-frequency Identification”): ● Allows for product visibility. J. B..]. In Supply Chain Management: A Logistics Perspective (9e [ed. R. C.. ed. OH: South-Western Cengage Learning.. & Gibson. 680.814676 Annual Ordering Cost 7.640209 % Change Labor cost .918.208864 1.959.959.680000 Order cost w/ reduced Labor 46.75000% 22 .639.104432 OLD Annual Total Cost (€) 15.609764 Orders Per Year 165.104432 NEW Annual Total Cost (€) 15.320000 OLD Annual Ordering Cost 7.146453 Number of Units per Case 29.1.535777 Annual ICC 7.SMC International Global Case Study #646747 Part B Part A 11: Implement Supply-Chain Technology The Total Annual Cost (New Order Cost) Order Quantity (Units) 444.