Scott R. Swenseth

Incorporating transportation costs into inventory replenishment decisions

Abstract Dating to the origination of economic order quantity (EOQ) models, the objective of inventory replenishment decisions has centered on the minimization of total annual logistics cost. Accurate solutions require that all relevant costs be appropriately incorporated into the total annual logistics cost function to determine purchase quantities. Depending on the estimates used, upwards of 50% of the total annual logistics cost of a product can be attributed to transportation. Any consideration of purchase quantities should therefore consider transportation costs. To appropriately incorporate transportation cost into the total annual logistics cost function, it must first be possible to identify transportation cost functions that emulate reality and simultaneously provide a straightforward representation of actual freight rates. This study demonstrates that straightforward freight rate functions presented in the literature can be incorporated into inventory replenishment decisions without compromising the accuracy of the decision. Equally important, these functions can be incorporated without adding undue complexity to the decision process.

JUST-IN-TIME -- SOME EFFECTS ON THE LOGISTICS FUNCTION

This article provides an analysis of inbound logistics incorporated in a JIT manufacturing environment. An inventory‐theoretic model is presented that measures the implications of JIT manufacturing on the logistics process and the ability of inbound consolidation opportunities to accommodate these implications. Key components of the inventory‐theoretic model are indentified and the sensitivity of the model to these components is analysed.

An iterative procedure for reducing problem size in large scale AHP problems

Abstract The Analytic Hierarchy Process (AHP) is a multiple objective decision making tool that consolidates information about tangible and intangible criteria and alternatives in the decision making process. This consolidation of information is completed on data collected using a form of paired comparisons. Each criterion is compared to all other criteria to determine the relative importance of each and, within each criterion, each alternative is compared to all other alternatives. As a result, the number of comparisons required of the decision maker quickly becomes burdensome. The results presented here indicate the existence of a point where one alternative becomes dominant to such degree that, regardless of the effects of the remainder of the comparisons, it cannot be overtaken as the preferred choice. By identifying this dominance point as a stopping criterion, problem size is reduced. This reduction in problem size is based on the decision makers time frame, not the computation time. Computation time is also reduced, but it is a minor savings compared to the reduction of human decision making time. While this dominance point differs for every problem, results indicate that, on the average, about 50% of the comparisons can be eliminated. An iterative procedure is presented whereby the decision maker and/or analyst is informed when no further comparisons are necessary.

Planning for Continual Improvement in a Just‐in‐Time Environment

Addresses the dynamic, continual‐improvement nature of the JIT implementation process. Learning curves are incorporated to analyse the impact of continual reduction of processing time variation over time. The results provide valuable information on the relationship between the level of processing time variation, the output rate of the production system, and inventory between work processes. The methodology used in this study incorporates an additional dimension in analysing JIT. It also provides a general and effective tool for decision makers facing the complex task of implementing pull production processes.

Implications of Inbound Lead Time Variability for Just‐in‐Time Manufacturing

This article provides a discussion of key components for the decisionmaker concerned with the logistical issues of implementing a Just‐in‐Time (JIT) manufacturing philosophy. A JIT philosophy promotes reduced cycle times that provide benefits not normally considered in traditional inventory models and presents new concerns for the purchasing and logistics functions. The ramifications are investigated of a JIT implementation using an inventory‐theoretic modelling procedure modified and expanded to incorporate these considerations. The resulting cost comparisons indicate that the lead time variability associated with uncertain transit times in JIT is critical in the determination of order cycle time, order point, safety stock and the holding cost of the safety stock.

Extending product profiling through simulation

Manufacturing strategy literature continues to be split between process and content. Content has continually evolved and more precise applications have been developed. Process has lagged behind because of the difficulty in conducting research in this area. Little has been developed since the introduction of the product profiling mechanism. This study presents a methodology that extends the product profiling technique, resulting in more appropriate content recommendations. Two case examples, one manufacturing operation and one service operation, are provided to demonstrate the improved performance of the product profile when combined with simulation. In both cases, problem symptoms caused the organization to seek help in scheduling operations. Cursory study clearly indicated that neither organization had a scheduling problem, but rather, an improper relationship between the marketing and operations functions of the organizations. In both cases, it was possible to demonstrate, with product profiling, the lack of coordination between the marketing and operating functions of the organizations. Product profiling alone, however, was not sufficient to convince either organization to implement proper solutions. When changes were supplemented with a graphical simulation analysis, both organizations agreed with the recommendations and began implementing change.

Trade-offs in lean vs. outsourced supply chains

Lean supply chain management is well established, effective in improving inventory control as well as leading to greater quality. Continuous improvement obtained from lean implementation is expected to lead to better learning, yielding added profitability over time. However, the growth of global supply chains lead to increased complexity and variability, which may not always favour the lean management style. Impact on total cost is often difficult to precisely estimate, in part due to high levels of uncertainty with respect to disaster and catastrophe, changing governmental regulation around the world, and in part due to increased variability from longer supply lines. We examine some of the cost impacts of lean systems vs. outsourcing policies with assumed purchasing cost advantages through simulation of a global supply chain with detailed inventory factors, and compare relative profit impact. These results are used to argue that in some circumstances strategic considerations such as lower purchasing cost can override short-term inventory savings obtained from lean systems.

Transitioning operations to accommodate growing pains in evolving companies: an application of product profiling to a service company

As businesses progress through their organizational lifecycle, many experience growing pains associated with increased volume, product line breadth, personnel, and the complexity associated with managing larger businesses. It is essential that the company have the ability to recognize these and develop methods of dealing with them if they expect to survive. While many authors address the area of how to grow in terms of marketing, product development and financing and, while they note that there are risks to rapid growth, little information is available on how to recognize trouble spots, analyze them and accommodate them. The product profile is a management tool that helps decision‐makers to identify problems that have evolved through time and to identify impending opportunities on the horizon. Discusses the advantages of adapting product profiling to services to identify and accommodate growing pains and then provides an example of its successful use by a service company.

Simulation model of professional service personnel inventory

Supply chains are found in service organisations as well as in manufacturing. A common type of supply chain is personnel. Firms such as accounting, consulting, or legal firms need to develop a chain of trained professionals who hone their skills through training and experience throughout their careers. While such firms have to consider these long-range goals, they also need to manage operations in the short-term to generate adequate profit, both through increasing demand for their services as well as controlling costs of delivering them. This paper applies a simple Monte Carlo simulation model to a legal firm decision of managing short-term capacity. Factors to include covering demand, minimising cost, and maintaining quality are considered. The simulation model deals with the uncertainties involved in demand, to include consideration of risk level. A hypothetical law firm (based loosely on an existing firm) is used as a basis for this analysis. Results emphasise that the tools developed for very different purposes work appropriately in this context.