Operation and supply chain management

Final exam

By/ Ghada Hosny Mohamed Mehana

Class No/ 71v1

Supervised by

Dr. Mohamed Nafea

Q 1: Sigma fits location analysis

**The objective of location strategy is to maximize the benefit of location to the firm**

Given Information:

 Traffic per square meter: Zayed = 6, Heliopolis = 14, 5th Settlement = 6

 Cost of Labors (per hour): Zayed = LE 60, Heliopolis = LE 100, 5th Settlement =
LE 80

 Availability of target segment: Heliopolis = 80%, Zayed = 80%, 5th Settlement =

90%

 Rental Cost (per month): Zayed = LE 200,000, Heliopolis = LE 180,000, 5th

Settlement = LE 170,000

 Proximity to public transportation (blocks): Heliopolis = 3, Zayed = 5, 5th

Settlement = 4 blocks.

Weights for Factors:

 Traffic per square meter: 0.20

 Cost of Labors: 0.20

 Availability of target segment: 0.20

 Rental Cost: 0.30

 Proximity to public transportation: 0.10

Ratings:

 Higher scores are better.(0,100)

Traffic per square meter:

 Zayed: 6 customers/sq

 Heliopolis: 14 customers per/sq

 5th Settlement: 6 customers per/sq

Cost of Labors:

 Zayed: LE 60 per hour

  Heliopolis: LE 100 per hour

 5th Settlement: LE 80 per hour

Availability of target segment:

 Heliopolis: 80% -Score: 80

 Zayed: 80% -Score: 80

 5th Settlement: 90% -Score: 90

Rental Cost:

 Zayed: LE 200,000/ month

 Heliopolis: LE 180,000/ month

 5th Settlement: LE 170,000/month

Part 1: Location Analysis for SIGMA FIT's New Store

a. Calculate the weighted score for each alternative location:

Conclusion:

the best weighted score is the highest total weighted score for all locations which
is Heliopolis branch with weighted score of (76.5)
b. other factors to be considers

1.taregt market 2. Market demand 3. Customer behavior 4. Competition 5. Supply chain

6. Visibility 7.ROI 8. Economic condition 9. Regulations 10. Accessibility 11. Break even
analysis 12. Staffing 13. Layout and store size

c. weighted factors equally:

Conclusion:

the best weighted score is the highest total weighted score for all locations which
is Heliopolis branch with weighted score of (76).

d. rental cost and traffic with double weight of the other factors:

Conclusion:

the best weighted score is the highest total weighted score for all locations which
is Heliopolis branch with weighted score of (76.7).
Part 2: Warehouse Decision

Center of gravity method:

Stores X Y Weekly Demand

Ma'ady 20 30 40
Zayed 50 20 120
Heliopolis 30 60 80
Mall of Egypt 100 40 240
Mall of Arabia 60 50 80
Cairo festival city 40 65 150
Mohandeseen 10 60 95
Zamalek 75 50 75

Current warehouse 60 80

Given Coordinates and Weekly Demand:

 Current Warehouse Coordinates: (60, 80)

Calculating the Center of Gravity Method:

Explanation for X:

Maadi = X*weekly demands = 20*40 =800

Zayed = X* weekly demands = 50*120 = 6000.

Heliopolis = X*weekly demands = 30*80=2400.

Mall of Egypt = X*weekly demands = 100*240 = 24000.

Mall of Arabia= X*weekly demands = 60*80= 4800.

Cairo festival city = X*weekly demands = 40*150= 6000.

Mohandeseen = X*weekly demands =10*95=950.

Zamalek = X*weekly demands = 75*75 = 5625.

X- COORDINATE= (800+6000+2400+24000+4800+6000+950+5625)/
(40+120+80+240+80+150+95+75)

=50575/880

=57.47.

Explanation for Y:

Maadi = Y*weekly demands = 30*40 = 1200.

Zayed = Y* weekly demands = 20*120 = 2400.

Heliopolis = Y*weekly demands = 60*80 = 4800

Mall of Egypt = Y*weekly demands = 40*240 = 9600.

Mall of Arabia= Y*weekly demands = 50*80 = 4000.

Cairo festival city = Y*weekly demands = 65*150 = 9750.

Mohandeseen = Y*weekly demands = 60*95 = 5700.

Zamalek = Y*weekly demands = 50*75 = 3750.

Y- COORDINATE= (1200+2400+4800+9600+4000+9750+5700+3750)/
(40+120+80+240+80+150+95+75) =

41200/880 =46.8
Warehouse Analysis:

 Current warehouse is at (60, 80)

 Center of gravity method suggests a new optimal location around (57.7, 46.8)

 Consider cost of expanding current facilities vs. constructing a new warehouse at

the optimal location.

Part 3: Factory Location Decision

Given Cost Information:

Annual Fixed and Variable Costs:

Total Cost=Fixed Cost+(Variable Cost per ton×Volume)

Conclusion:

Optimal Site:

 From volume (0 : 4000) 10th of ramdan has the lowest cost.

 From volume (4000 : 15000) October has the lowest total cost for 10,000 units at
L.E. 3,500,000.

 From volume ( 15000 : above) sokhna has the lowest cost.

** so if the firm want to produce a volume of 10,000 units of backpack so october will
be the best option and if the firm want to produce 4000 units or less so 10th of
ramadan is the best option but if they want to produce higher than 15000 unit so
sokhna is the best option.

Q2: Sigma fits aggregate planning:

** The objective of aggregate planning is to meet forecasted demand while
minimizing cost over the planning period.

Original Plan (Steady Output with Inventory and Backlog)

Step 1: Calculate Required Production

Given:

Forecasted demand:

 January: 800 units

 February: 800 units
 March: 1,200 units
 April: 1,600 units
 May: 2,000 units
 June: 800 units

Total forecasted demand for 6 months: 7,200 units

Production capacity:

 15 workers each producing 80 units per period.

 Regular production capacity monthly will be 15 * 80 = 1200 (or) 7200/ 6 months
will equal the same.

Costs:

 Regular time: LE 80 per unit

 Inventory: LE 40 per unit per period
 Back orders: LE 200 per unit per period
 Initial inventory: 0 units
 Planned ending inventory: 0 units

**Given the constraint of maximum 80 units of overtime per period for the
alternative plan.
 1. steady regular output plan

Alternative plan with smaller workforce and over time .2

Conclusion:

**Steady Regular Output Plan: Total cost = 752,000 LE

**Alternative Plan with Smaller Workforce and Overtime: Total cost = 771200

**The steady regular output plan is more cost-effective, with a total cost of
752,000 LE compared to the alternative plan.
**As expected the alternative plan with over time 80 results in higher costs so
based on the provided data and cost structure , plan (1) which utilizes inventory
to absorb demand fluctuations, appears to be more cost-effective than plan (2).

Q3: SIGMA FIT’s MRP

Given Data

 Orders: 100 units due in April, 150 units due in August.

 Each backpack requires:

o 2 leather sides

o 4 inside textile sections

 Lead times:

o Textile fabrication: 1 week

o Leather sides: 2 weeks

o Assembly: 1 week

 Scheduled receipt of textile sections: 70 units in January

a. Lot-for-lot ordering b. Lot-size ordering

 Leather sides: 320 units

 Textile sections: 70 units

1. Bill of Materials (BOM)

 Each backpack needs:

o 2 leather sides

o 4 inside textile sections

a. Lot-for-lot Ordering (In this method, the planned order release equals the net
requirements.)

** The choice between Lot-for-Lot and Lot-Size ordering depends on various

factors like inventory holding costs, order costs, and production capacity.

**Lot-for-Lot minimizes inventory but can lead to higher ordering costs.Lot-Size

reduces ordering costs but increases inventory holding costs.

B: Lot-size ordering ( In this method, we order in fixed quantities )

Conclusion:

This ensures the orders for 100 units in April and 150 units in August are met
according to the production schedule, lead times, and order policies and all the
materials are available in timwe for assembly and delivery of the finished
backpacks as per given schedule.

Q4: SIGMA FIT’s Inventory Management:

A-Which inventory model should be used here: the basic EOQ, the EPQ, or the
single period model? How do you know?

EPQ economic productio quantity model:

Qunatity Produce 20
Holding Cost 10
Set up cost 300
Total Cost 310

item Qunatity Produce Total Cost

Production Run 20
Holding cost 20 10
Set up Cost 20 300

Reason:

The machine will produce the item at a rate of 20 units a day, and eight units will
be used daily, aligns with the continuous production nature of the EPQ model,
which is suitable for managing inventory when items are produced continuously.
B-What run quantity should be used to minimize total annual costs?

Demand rate:

D= 5 days per week X 8 unites per day X 50 week per year = 2000

S= Set up cost = 300

H=Holding Cost =10

EPQ = 2DS/H X P-U/U

p-u / u

= 2(2000X300) X (20 / 20-10)

=490 units approx

C-Calculate the Total Inventory Cost for this case.

Total Cost = TC = THC + TSC

D-What is the length of a production run in days?

Run Time , Length Q/P =490/20= 24.5 days

E-During production, at what rate will inventory build-up?

Rate at which Inventory Builds up = P - U

20 – 8=12

F-If the manager wants to run another job between the runs of this item, and
needs a minimum of 10 days per cycle for the other work, will there be enough
time?

Pure consumption time = Cycle time - run time 61.25 - 24.5= 36.75

Cycle Time = Q/U 490 / 8= 61.25

Conclusion : As an operation manager yes can run another job.

Q5: SIGMA FIT’s Supply Chain (Theoretical Analysis)

a. Demand Chain Management (DCM) vs. Supply Chain Management (SCM)

Supply Chain Management (SCM): is centered on optimizing the seamless movement

of products, services, and information from initial sourcing to final customer
consumption. It places a strategic emphasis on minimizing operational costs, effectively
managing inventory levels, and ensuring the timely fulfillment of customer orders.

Demand Chain Management (DCM): is centered on harmonizing the supply chain with
fluctuating customer demands. It places a strategic emphasis on comprehending
consumer needs and preferences to inform production and supply decisions, thereby
enhancing customer satisfaction and market responsiveness.

** Supply Chain Management is instrumental in driving operational excellence, cost

minimization, and ensuring timely product availability. Conversely, Demand Chain
Management is paramount for achieving sustained revenue growth and profitability by
aligning product offerings with customer desires. This alignment translates to enhanced
customer satisfaction and increased sales, ultimately contributing to overall business
success.

b. Implemented Supply Chain Strategies at SIGMA FIT and Competitors

SIGMA FIT:

1. Vertical Integration:

SIGMA FIT exercises complete control over its supply chain. This vertical integration
encompasses the entire production process, from sourcing raw materials to
manufacturing and distributing its product line, example such as backpacks and tote
bags.

2. Technology Integration:

Leveraging cutting-edge technological solutions for leather product production. This

involves incorporating innovative manufacturing techniques to enhance product quality
and operational efficiency.

**Competitors (PAVO and Mi Bags):

Product Differentiation is a strategic approach to target specific customer segments

by offering unique and appealing products. This strategy emphasizes creating distinct
product offerings to stand out in the market.

Brand Loyalty: involves cultivating strong brand identities, such as those associated
with PAVO and Mi Bags, to foster customer loyalty and premium pricing
opportunities. By consistently delivering exceptional products and experiences, brands
can command higher prices and secure a dedicated customer base.

c. Recommended Strategies for Different Stages for SIGMA FITS of Product Life
Cycle (PLC)

 Introduction Stage: Aggressive market penetration strategies are employed to

establish brand recognition. Tactics such as product launches, promotional
offers, and social media campaigns are essential during this phase.
  Growth Stage: Expanding the product line through diversification, such as
introducing new designs or colors, is crucial for sustaining market growth and
capturing a larger market share.

 Maturity Stage: The focus shifts to optimizing profitability by reducing production

and distribution costs.Streamlining operations and negotiating favorable supplier
terms are key strategies during this phase.

 Decline Stage: A harvest strategy is implemented to maximize profits by

gradually reducing investments and concentrating on high-margin products.

d. Responsibilities and Challenges of a SIGMA FIT Supply Chain Manager

Responsibilities:

 Overseeing the entire supply chain, including procurement, production, and

distribution.

 Effectively managing inventory levels to balance supply and demand.

 Fostering strong partnerships with suppliers.

 Ensuring product quality meets established standards.

Supply Chain Challenges:

 Adapting to fluctuating customer demand.

 Relying on consistent supplier performance and delivery.

 Balancing cost reduction with quality maintenance.

 Integrating technology to optimize supply chain operations.

e. Overcoming the Bullwhip Effect

The Bullwhip Effect describes a supply chain phenomenon where minor demand
variations at the retail level escalate into significantly amplified fluctuations as they
move upstream through the supply chain. This distortion can lead to
inefficiencies, excess inventory, and stockouts.

To mitigate the bullwhip effect, organizations can implement strategies such as:
  Enhanced communication among supply chain partners to share real-time
demand information.

 Improved demand forecasting utilizing advanced analytics to predict demand

patterns accurately.

 Order synchronization to align order quantities and intervals across the supply
chain.

 Inventory optimization through just-in-time inventory management to reduce

excess stock while meeting customer demands.

f. Main Stakeholders in SIGMA FIT’s Supply Chain

there are internal and external stakeholders for SIGMA FITS like:

Internally:

employees, management, top management, R&D, finance, marketing.

Externally:

 Raw Material Suppliers: Provide essential components like leather and textiles
for production.
 Manufacturers: Convert raw materials into finished products such as
backpacks and tote bags.
 Distributors: Facilitate the movement of products from manufacturers to
retailers.
 Retailers: Serve as the final point of sale for consumers, both in physical stores
and online platforms.
 Customers: The end users who purchase and consume the products.
 Logistics Providers: Manage the transportation and warehousing aspects of
the supply chain.
 Technology Providers: Offer software and systems to streamline supply chain
operations.
Q6: SIGMA FIT’s Analytical Question

1. analysing every symbol and componet in the attached diagram:

The process flow diagram illustrates the journey of orders and production
activities, starting from the supplier, PALMA, and culminating in delivery to the
customer. The following section provides a comprehensive breakdown of the
process steps.

(1) supplier (PALMA)

 Delivers custom-made zippers on a weekly schedule.

 The shipment is represented by a truck icon.

(2) production control (ERP)

 Uses monthly and weekly demand predictions to plan weekly production.

 The weekly schedule outlines the production plan, specifying items to be made
and their production times.

(3) processes(symbols)

 Receiving: raw materials ( processing time C/T ) 60 second.

 Change overtime (C/O) 10 m.
 Uptime is 95% & quality 95%

(4) prepaing

 Initial material processing and refinement steps.

 Processesing time is 60 seconds
 Change overtime is zero m.
 Uptime is 100% & quality also 100%as well.

(5) cutting leather

 Cutting the leather for zippers

 Processing time is 60 seconds
 Change over time is zero m.
 Up time and quality are 100%
 (6) accessory

 Accessories adding to zippers

 Process time is 60 seconds
 Change over time is 10 m.
 Uptime ans quality is 95%

(7) assembly

 Assembling the zippers

 Process time 60 second
 Change over time is 5 m.
 Up time is 95% and quality 100%

(8) The final testing

 Testing the final products

 Processing time is 60 seconds
 Change over time is 20 m.
 Uptime and quality are 98%

(9) shipping

 Delivers the completed product to the customer.

 Processing time is 60 seconds
 Change over time is zero
 Uptime and quality are 100%
2. factors causing inventory build up between different stages

Inventory accumulation within the production process can be attributed to several

interconnected factors. Process imbalances, characterized by varying cycle times
between stages, often create bottlenecks, as exemplified by extended changeover
times in the final testing phase. Operational inefficiencies, including suboptimal
equipment uptime and quality control failures, contribute to production disruptions and
subsequent inventory build-up. Moreover, frequent changeovers at specific process
steps, such as receiving materials or assembling accessories, can impede workflow and
lead to material accumulation. External factors, such as fluctuations in customer
demand, can exacerbate these issues by creating mismatches between production
output and market requirements. Finally, system-related challenges, including ERP
system inadequacies and forecasting errors, can result in overproduction and excess
inventory.

3. information indicating total potential improvement

The substantial discrepancy between the stated total process time of eight days and the
actual processing time of merely eight minutes underscores significant inefficiencies
within SIGMA FIT's operations. This stark contrast reveal sample opportunities for
process optimization. By scrutinizing cycle times, equipment uptime, and changeover
durations across each stage, the organization can identify specific areas for
improvement. Implementing strategies to reduce non-value-added activities, such as
minimizing changeover times and enhancing equipment reliability, will be instrumental
in accelerating overall throughput and diminishing inventory accumulation.