SCM560: Strategic Logistics Management

Fall 2013
Final Exam (Take Home)

Your Name

Your ID No.

Instruction
This is a take-home exam. There are two sections in this exam. There are four questions
in the first section (section 1), and two questions in the second section (section 2).
Questions in section 1 are worth 15 points, and questions in section 2 are worth 20 points
(total 100 points). You must type all of your answers by using Microsoft Word. For each
question in section 1, the length of your answer must not exceed half a page (per
question). You will be penalized for exceeding this limit. For each question in section 2,
use the appropriate software to compute your answers.

Do not send your answers in electronic form (unless you have a special permission from
the instructor). You must submit hard copies to the instructor. The due date will be
determined in class. This is an individual work (not group work). You must not discuss
the exams with other students in class. You must work by yourself.

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 SECTION 1

Question 1
In the Dollar Tree case the company seems to be concerned only about outbound
transportation cost and DC operation costs (Exhibit11 shows projections of these two
costs only). Why did they not consider other costs (namely inventory carrying and
inbound transportation costs) in their DC expansion decisions? Do you think these costs
should be considered? Why, or why not?

Question 2
Seven-Eleven Japan is a good example of how a firm can be successful by structuring its
logistics operations to support its supply chain strategy. Discuss what their main supply
chain strategies are, and describe why or why not these strategies would work in the U.S.

Question 3
We discussed the topic of green logistics and transportation in class. Briefly discuss
below at least five activities and/or strategies the companies can use to pursue green
logistics and transportation. Do you think being green pays off for companies? Why or
why not?

Question 4
The following are some questions taken from student presentations. Answer one
questions of your choice. Note, however, that you are not allowed to pick a question
which you created (i.e., do not choose the question which came from your presentation).
Violation of this rule will results in zero points for this question.

1. What types of event can cause the bullwhip effect?

2. Is there any negative repercussion(s) from having a fully automated and
integrated WMS (warehouse management system)?
3. Automotive industries have help pioneer the evolution of the Lean Process. Can
you name a company and the process implemented that is an example of Lean
Supply Chain?
4. What preparations would a company need to make for a successful
implementation of cross-docking?
5. What is the role of quality in JIT (just in time) system?

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 SECTION 2

Question 1

Suzuki Canned Food is a start-up company that plans to produce canned meals. Major
customers for their products will be the large retailers located in major metropolitan
areas. Products will be shipped by trucking companies at a transportation rate of $0.05
per lb per mile. Customer location and projected annual sales (in lbs) are as follows:

Your task is to determine the optimal number and location of the warehouses to serve the
companys potential markets by using LOGWARE. It is estimated that the annual cost
($) of operating N warehouses is given by the formula:

1,000,000 N

The company is aware of the Square-Root Law that is used in the inventory management
literature, and understands that the annual inventory carrying cost is a function of the
number of warehouses operated (N). The management estimates that the annual
inventory carrying cost of the network with N warehouses is given by the following
formula:

600,000 N

You first determine the optimal solution by defining the total cost as the sum of
transportation cost and warehouse (DC) operating cost. Next you determine the optimal
solution by adding the inventory carrying cost as well. For each of the two definitions
above, complete the following table to compute the optimal number of warehouse

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(numbers given below are hypothetical values do not use them). In addition to
completing the following table, you must also copy and paste to the answer sheet the
screen images of the best solution you obtained. The images must include the following:
(1) data specification page, (2) solution page (with cost figures), and (3) solution page
(plot of locations). Use the map scaling factor of 15 in LOGWARE.

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Question 2

Smith Premium Computers is a computer retail store based in Ames Iowa. The company
management is concerned about the high cost of inventory on a popular type of PC
model, which is supplied by a vendor from Des Moines, IA. The company places orders
at the end of the day (after counting inventories). The lead time for replenishment is only
one day. Thus, if you place an order on Monday, for example, the good will arrive on
Tuesday morning before the store opens. This means that the goods you received on
Tuesday can be used to meet the customer demand on Tuesday.

Currently, the company uses a fixed-order-interval approach where an order is placed

every Monday and Friday evening (the company refers to the order placed on Monday
evening as weekday order and that placed on Friday evening as weekend order). The
order quantity varies from one order occasion to the next depending on the ending
inventory. The company decides how many units to order in each occasion by using the
following formula: M E, where M is the preferred (maximum) inventory the company
wants to have when receiving the order on the following day, and E is the ending
inventory at the time of ordering (i.e., Monday or Friday ending inventory). The
minimum order quantity is 3 units, which means that the orders are placed only on those
days when M E is greater than or equal to 3.

The demand for the PC is unstable (changes from day to day i.e., random variable).
The PC demand follows the probability distributions given in the Excel template. Notice
that the distributions are different between weekdays (Monday to Friday) and weekends
(Saturday and Sunday) such that the expected demand during the weekends are higher
than that during the weekdays. The ordered PC will typically arrive in good conditions,
but occasionally the company receives defective products. As such the number of
defective products should also be considered as a random variable. The probability
distribution of defective products, which is derived from the historical record, is shown in
the Excel template too.

You are asked to make a recommendation on what maximum inventory to use for
weekday orders and what to use for weekend orders (separately). The management wants
to minimize inventories but they also want to attain 100% service level (no stockout) in at
least 95% of the time. Your task is to simulate (by using Risk Solver Platform), for the
next 4 weeks, the PC model sales and inventories to determine the best maximum
inventory for both the weekday and weekend orders. Use 1,000 replications for each
simulation experiment. You are to evaluate only the seven scenarios given in the
following table. Make sure that you report both the service level and the average (mean)
inventory for each scenario, and write a recommendation on which scenario to use.

In addition to completing the table below, you must also provide the hardcopy of your
spreadsheet with cell formulas shown (details on how to do this will be discussed in
class), as well as the screen shot of the Risk Solver Platform specification (including the
options menu).

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Max Inv. Max Inv. Service Level Avg. Inv.
Weekday Weekends (%) (units)
18 23
17 23
18 22
17 22
16 22
17 21
16 21