3.

1
Predictable variability is a change in demand that can be forecasted.
Increase in demand can be met either by
MANAGING SUPPLY :
Increase in capacity to match maximum demand level minimum inventory but idle capacity when
demand is low
OR
Build inventory during slack season full utilization of existing capacity but high inventory cost
OR
MANAGING DEMAND :
Offer price promotions to retailers during slack season or short term price promotions

Use dual Capacities dedicated & flexible
Dedicated facility to produce a stable output and flexible facilities to produce widely varying volume
and variety of products.
Promotion campaign can be initiated
During peak season prefer by Sales & Marketing dept.
During slack season prefer by Supply Chain Dept.


To handle predictable variability in a profitmaximizing manner, supply chain must co-ordinate the
management of both demand and supply stages of
supply chain to select aggregate plans that maximize supply chain profit.

3.2
Cycle Inventory
A lot or batch size is the quantity i.e. either produced or purchased at a given time.
Cycle inventory is the average inventory in SC due to either production or purchase lot sizes that are
larger than those demanded / required
at a time is say 80 units so 80 units is a lot size. It
takes 20 days to sale the entire lot. Same is the case with production
Cycle Inventory = Lot size / 2 = 80/2 = 40 units. EOQ/2
Average Flow Time = Cycle inventory/D = 40/4 = 10 days
Larger the lot size, more the cycle inventory
Cycle inventory is held primarily to take advantage of Economies of Scale and reduce cost within supply
chain
The more the quantity purchased, lesser the price per unit (material cost) supplier offers volume/ lot
size discounts
more the quantity purchased, lesser the fixed ordering cost (ordering cost )
BUT
more the lot size and cycle inventory, Higher the inventory carrying cost (holding cost)
Therefore
TOTAL cost i.e. material cost, ordering cost and holding cost are minimum.
Ordering Costs
Incremental time of the buyer placing the extra order.
variable component of transportation cost that increases with the quantity
shipped.
regardless of the size of the
order.
regardless of the quantity of that order.
Inventory holding cost
Cost of Capital The return demanded on firms equity and the amount the firm must pay on its debts.
Obsolescence (Spoilage) Cost : Product life cycle / Shelf life issues.
Handling Cost : The cost of receiving and storage costs
Occupancy Cost - Space cost
Miscellaneous Costs Theft, security, damage, insurance charges.

Economic Order Quantity EOQ

EDLP. Everyday low pricing The price is fixed over time and no short term discounts are
offered. This eliminates any incentive for forward buying.
EDI Electronic Data Interchange
Computer assisted ordering

Lot size discounts are based on the quantity purchased per lot, not the rate of purchase. Lot size-based
discounts tend to raise cycle inventory in the supply chain by encouraging retailers to increase the size
of each lot. Lot size-based discounts make sense only when the manufacturer incurs a very high fixed
cost per order.
Volume discounts are based on the rate of purchase or volume purchased per specified time period.
What is Aggregate Planning
It is not a SKU level planning. It is a process by which a co. determines level of capacity, production,
sub-contract, inventory, stock-outs, pricing, etc.
time span three to eighteen months by best utilizing the existing capacity .
Entire supply chain should co-ordinate the planning process (customers fordemand & suppliers for
constraints).
Also the aggregate plan should be shared across supply chain

Time Flexibility Strategy using utilization as the lever
Chase strategy using capacity as the lever
Level Strategy using inventory as lever Stable machine capacity and workforce are maintained with
inventory fluctuations eg. Pharma / pesticide cos.
Sales and Operations Planning (SOP) is a process that ensures coordination of all the essential
functions of an organization to determine what and when to produce and hence brings together all the
plans of these functions into an aggregated set of plans.



6
Purchasing as used in 1950s had been mainly clerical part where suppliers are either known and hardly
any price / delivery negotiation was done. Its more to do follow ups and chasing (the word is made of
pro + chaser). This term is used more in manufacturing industry. The involvement in product
development is very minimal.
Procurement - Its more of the obtaining of military supplies by a government. This term is used by
Government and non profit organizations. It is transactional in nature.
Buying is more associated with retail and finished goods industry
Sourcing is the latest of the terms and has in addition to regular purchase functions the task of overseas
or global capabilities, looking and developing relationships and getting involved in early stage of product
development.
Vendor Limited relationships, frequency, best price, eg. Hot dog purchase
Long term relationships, frequent provider eg. Favorite Grocery stores

Single sourcing is used to guarantee the supplier sufficient business when the supplier has to make a
significant buyer specific investment say a plant or equipment, artworks, Hologram - cylinder
up source.

Three contracts that increase overall profitability are
Buyback or returns contracts retailer can return leftover units at the end of the season
Revenue sharing contracts manufacturer charges low wholesale price with no return
Quantity flexibility contracts retailer can change the committed quantity closer to demand
Buy Back Contracts A manufacturer can increase the quantity the retailer purchased by offering to buy
back any leftover units at the end of the season at a fraction of purchase price.
Buy back contracts are most effective for products with low variable cost eg music discs. Software.
Books. Magazines and newspapers.
Revenue-Sharing Contracts The manufacturer charges the retailer a low wholesale price on no return
basis and shares a fraction of revenue generated by the retailer. With reduced price, the retailer
increases the level of product availability resulting in higher profits for both mfger & retailer. But it
requires information infrastructure to monitor sales.


Information is the foundation on which sc processes execute transactions and managers make decisions
sc to gather, analyze and act on
information.
The enterprise software is categorized into three main areas
CRM processes
ASCM processes
SRM processes
But the foundation of enterprise software is TMF
Transaction Management Software which consists of
ERP system
Infrastructure software
Integration software
Ecosystem (is a strategy for the integrated management of land, water and living resources that
promotes conservation and sustainable use in an equitable way)
SC Macro processes
Process focused downstream
Processes focused internally
Processes focused upstream
Transaction Management Foundation
Goal for CRM macro processes is to generate customer demand and facilitate transmission and tracking
of orders
Goal for ISCM macro processes is planning for and fulfilling customer order
Goal for SRM processes is to focus on interaction between firm and suppliers