| Overview | Sample 1 | Sample 2 | Sample 3 | Sample 4 | Sample 5 | Sample 6 | About the Author | |||||||
...When looking at demand for your own products, it is wise not to make qualitative assumptions regarding independence without checking the numbers carefully. A medical device company was recently surprised to learn that demands across its different product lines were highly correlated; they had incorrectly thought that sales across product lines would be independent! Some reasons for this could be sales-force incentives or quarterly budget targets; whatever the cause, correlation of demands reduces the benefit of risk pooling.
The results of the "quick estimate" formula for values of N from 1 to 25 are plotted in the figure below. Note that for high values of N there are large reductions in safety stock:
Exercises
There are three short exercises below. Use the menu below to try each one:
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Suppose your company's sales for the last 12 months were as follows (some rows may be blank):
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SCM106 Specifications
Rating:
4.3 / 5 (1226 ratings)Total Reading Time: Approx. 1 - 2 hours (for average readers)
Word Count: Approx. 10,600 words
Author: Dr. Warren H. Hausman
Professor of Management Science & Engineering, Stanford University
Certificate: Counts toward Fundamentals of Supply Chain Management
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Contents
- Introduction; Component Commonality, Modularity, Modular vs. Integral Design
- Universality
- Framework for Costs and Benefits
- Benefits of Design Changes
- Benefits of Design Changes, Continued
- Postponement: The HP Deskjet Printer
- Postponement Costs and Benefits (Deskjet Printer, continued)
- A Quick Estimate of Postponement Benefits from Reduced Inventories
- Packaging Postponement
- Postponement via Software
- End-of-Life and New Product Situations
- Process Design for Postponement
- Mass Customization
- Incentive Issues
- Conclusions
- Test Your Knowledge
- Feedback