ReviewQuestionsSession5

ProductProcessMatrix
Drawaproductprocessmatrixfortheapparelindustryanduseittodiscusstheoperationsstrategy
ofthefollowingcompanies:i)Marks&Spencer;ii)thehautecouturedepartmentofahighfashion
company;iii)amassmerchant;iv)Zara.
Apparelindustry
A. Insectorscharacterizedbyuncertaindemandandlongleadtimes,suchastheapparel
industry,investingintoolsandtechniquestoimprovemarketforecastsisthemosteffective
waytoavoidendofseasonsalesatadiscountedpricetogetridofexcessinventory.
a)Yes.
b)No.

B. Newsboylossesareaseriousconcernformanyfirmsinthefashionindustry.Whichone
betweenthetwocompaniesbelowismorelikelytosufferfromtheselosses?Why?
a)Marks&Spencer
b)Zara

LaurenceandRalph
YouarethepurchasingmanagerofLaurenceandRalph,amanufacturerofhighqualitycoatsfor
men,theL&RBarbour.ManufacturingoftheBarbourcoatsisoutsourcedtoaChinesefirm.Dueto
thelargevolumeofordersthattheChinesesuppliermustprocess,productionhastobeordered
fromChinabeforetheseasonstarts(i.e.beforedemandinformationisknown).AnyBarbours
orderedbyL&RfromChina,butunsoldattheendofthesalesseason,areheavilydiscounted(i.e.
theyaresoldbelowcost).Mindfuloftheinventorymanagementtoolsthatyoulearnedinyour
supplychainmanagementcourseatHEC,youcorrectlyapplyaNewsboymodeltocomputethe
optimalquantitythatyoushouldorderfromtheChinesesupplieratthebeginningoftheseason.
Supposethat,aftertakingintoaccounttheparametersofthedemandandtheeconomicsofthe
problem,youestimatethatyouroptimalordertotheChinesefirmforthenextseasonshouldbeQ*
=5,000units.
BeforeconfirmingtheorderwiththeChinesefirm,youdiscoverthatyoualsohavetheopportunity
touseanIrishfirminadditiontotheChinesesuppliertomanufacturetheBarbourcoats.Irish
productionisslightlymoreexpensivethanChineseproduction,butisalsomoreresponsive.With
Irishproduction,replenishmentorderscanbemadethroughoutthesalesseason,eliminatingany
possibilityoflostsales.UnsoldBarboursattheendoftheseasoncontinuetobesoldtodiscount
retailersbelowcost.
IfyouaccepttheofferoftheIrishfirm,howdoyouexpecttheorderfromtheChinesesuppliertobe
modifiedcomparedtothecasewhenyoucannotusetheIrishsupplier?
a.Itwilldecrease
b.Itwillincrease
c.Itwillremainunchanged

ChaseJacobsChapter17Problem1(chapteronKhub)
RevenueManagement
Considerasimpleyieldmanagementproblem.Anaircrafthas100seats,andtherearetwotypesof
fares:full($500)anddiscount($100).Althoughthereisunlimiteddemandforthediscountfare,
demandforfullfareisestimatedtobeequallylikelyanywherebetween11and30.Howmanyseats
shouldbeprotectedforfullfarepassengers?

ChaseJacobsChapter17Problem2(chapteronKhub)


2productscenario
Afactorymakestwoproducts.Ithascapacitytoproduceacombinedtotalof100unitsperweek,in
anycombination.Product1costs$20perunittomake,andsellsfor$30.Demandforthisproduct
exceedsthefactoryscapacity.Product2costs$10perunittomake,andsellsfor$100,butdemand
isuncertain.Product2isproducedinbatchesonceaweek.Anyunitsthatarenotsoldbytheend
oftheweekmustbethrownout:theyhavenosalvagevalue.TheaveragedemandforProduct2is
15unitswithastandarddeviationof5.HowmanyunitsofProduct2,ifany,shouldbeproduced?

DualSourcing
A company sources bicycle components from China, which they source at the beginning of each
selling season due to long production lead times. In recent years, the demand volatility has
increased significantly resulting both in left-overs and lots sales, while the cost advantage of
China relative to a Mexican competitor has decreased a lot. The CEO approaches you and
wonders whether he should replace the Chinese supplier by the Mexican one who can deliver
the components JIT or use some kind of combination of the two.
He provides you with the following information for a typical bike (everything else is equal):
Demand: The seasons demand for this model is about 600 bikes, with a standard deviation of
250. These bikes are sold at a retail price of $1000, with other locally sourced components and
production cost accounting for a total cost (except for the cost of components from China) of
$350.
Chinese supplier: total landed cost of component (cost including shipping etc.): $200 per unit,
Any components left at the end of the season are bought by a wholesaler at $90 per unit.
Mexican supplier: total landed cost of component: $300 per unit. Due to JIT production, no
unused items would remain at the end of the season.
How many units should he source from the Chinese supplier at the beginning of each production
cycle? How many units will he source on average from the Mexican supplier during the
production cycle?