McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 3
Network Planning
3-2
3.1 Why Network Planning?
Find the right balance between inventory,
transportation and manufacturing costs,
Match supply and demand under
uncertainty by positioning and managing
inventory effectively,
Utilize resources effectively by sourcing
products from the most appropriate
manufacturing facility
3-3
Three Hierarchical Steps
Network design
Number, locations and size of manufacturing plants and
warehouses
Assignment of retail outlets to warehouses
Major sourcing decisions
Typical planning horizon is a few years.
Inventory positioning:
Identifying stocking points
Selecting facilities that will produce to stock and thus keep
inventory
Facilities that will produce to order and hence keep no inventory
Related to the inventory management strategies
Resource allocation:
Determine whether production and packaging of different
products is done at the right facility
What should be the plants sourcing strategies?
How much capacity each plant should have to meet seasonal
demand?
3-4
3.2 Network Design
Physical configuration and infrastructure of
the supply chain.
A strategic decision with long-lasting
effects on the firm.
Decisions relating to plant and warehouse
location as well as distribution and
sourcing
3-5
Reevaluation of Infrastructure
Changes in:
demand patterns
product mix
production processes
sourcing strategies
cost of running facilities.
Mergers and acquisitions may mandate
the integration of different logistics
networks
3-6
Key Strategic Decisions
Determining the appropriate number of
facilities such as plants and warehouses.
Determining the location of each facility.
Determining the size of each facility.
Allocating space for products in each
facility.
Determining sourcing requirements.
Determining distribution strategies, i.e., the
allocation of customers to warehouse
3-7
Objective and Trade-Offs
Objective: Design or reconfigure the logistics network in
order to minimize annual system-wide cost subject to a
variety of service level requirements

Increasing the number of warehouses typically yields:
An improvement in service level due to the reduction in average
travel time to the customers
An increase in inventory costs due to increased safety stocks
required to protect each warehouse against uncertainties in
customer demands.
An increase in overhead and setup costs
A reduction in outbound transportation costs: transportation
costs from the warehouses to the customers
An increase in inbound transportation costs: transportation costs
from the suppliers and/or manufacturers to the warehouses.
3-8
Data Collection
Locations of customers, retailers, existing warehouses
and distribution centers, manufacturing facilities, and
suppliers.
All products, including volumes, and special transport
modes (e.g., refrigerated).
Annual demand for each product by customer location.
Transportation rates by mode.
Warehousing costs, including labor, inventory carrying
charges, and fixed operating costs.
Shipment sizes and frequencies for customer delivery.
Order processing costs.
Customer service requirements and goals.
Production and sourcing costs and capacities
3-9
Data Aggregation
Customer Zone
Aggregate using a grid network or other clustering technique for
those in close proximity.
Replace all customers within a single cluster by a single
customer located at the center of the cluster
Five-digit or three-digit zip code based clustering.

Product Groups
Distribution pattern
Products picked up at the same source and destined to the same
customers
Logistics characteristics like weight and volume.
Product type
product models or style differing only in the type of packaging.

3-10
Replacing Original Detailed Data
with Aggregated Data
Technology exists to solve the logistics
network design problem with the original
data
Data aggregation still useful because
forecast demand is significantly more
accurate at the aggregated level
Aggregating customers into about 150-200
zones usually results in no more than a 1
percent error in the estimation of total
transportation costs
3-11
General Rules for Aggregation
Aggregate demand points into at least 200
zones
Holds for cases where customers are classified into
classes according to their service levels or frequency
of delivery
Make sure each zone has approximately an
equal amount of total demand
Zones may be of different geographic sizes.
Place aggregated points at the center of the
zone
Aggregate products into 20 to 50 product groups
3-12
Customer Aggregation
Based on 3-Digit Zip Codes
Total Cost:$5,796,000
Total Customers: 18,000
Total Cost:$5,793,000
Total Customers: 800
Cost Difference < 0.05%
3-13
Product Aggregation
Total Cost:$104,564,000
Total Products: 46
Total Cost:$104,599,000
Total Products: 4
Cost Difference: 0.03%
3-14
Transportation Rates
Rates are almost linear with distance but
not with volume
Differences between internal rate and
external rate
3-15
Internal Transportation Rate
For company-owned trucks
Data Required:
Annual costs per truck
Annual mileage per truck
Annual amount delivered
Trucks effective capacity
Calculate cost per mile per SKU.
3-16
External Transportation Rate
Two Modes of Transportation
Truckload, TL
Country sub-divided into zones. One zone/state
except for:
Big states, such as Florida or New York (two zones)
Zone-to-zone costs provides cost per mile per
truckload between any two zones.

TL cost from Chicago to Boston =
Illinois-Massachusetts cost per mile X Chicago-
Boston distance
TL cost structure is not symmetric
3-17
Less-Than-Truckload, LTL
Class rates
standard rates for almost all products or commodities shipped.
Classification tariff system that gives each shipment a rating or a
class.
Factors involved in determining a products specific class
include:
product density, ease or difficulty of handling and transporting, and liability
for damage.
After establishing rating, identify rate basis number.
Approximate distance between the loads origin and destination.
With the two, determine the specific rate per hundred pounds
(hundred weight, or cwt) from a carrier tariff table (i.e., a freight
rate table).
Exception rates provides less expensive rates
Commodity rates are specialized commodity-specific
rates
External Transportation Rate
Two Modes of Transportation
3-18
SMC3s CzarLite
Engine to find rates in fragmented LTL industry
Nationwide LTL zip code-based rate system.
Offers a market-based price list derived from
studies of LTL pricing on a regional,
interregional, and national basis.
A fair pricing system
Often used as a base for negotiating LTL
contracts between shippers, carriers, and third-
party logistics providers
3-19
Transportation Rate for Shipping
4,000 lbs.
FIGURE 3-7: Transportation rates for shipping 4,000 lb
3-20
Mileage Estimation
Estimate lon
a
and lat
a
, the longitude and
latitude of point a (and similarly for point b)
Distance between a and b
For short distances

For large distances
2 2
) 69 ( ( ) ab a b a b lon D lon lat lat = +
1 2 2
) ) )) )) 2(69) sin (sin( cos( cos( (sin(
2 2
a b a b
ab a X b X
lat lat lon lon
D lat lat

= +
3-21
Circuity Factor,
Equations underestimate the actual road
distance.
Multiply D
ab
by .
Typical values:
= 1.3 in metropolitan areas
= 1.14 for the continental United States
3-22
Chicago-Boston Distance
lon
Chicago
= -87.65
lat
Chicago
= 41.85
lon
Boston
= -71.06
lon
Boston
= 42.36
D
Chicago, Boston
= 855 miles
Multiply by circuity factor = 1.14
Estimated road distance = 974 miles
Actual road distance = 965 miles

GIS systems provide more accuracy
Slows down systems
Above approximation good enough!



3-23
Warehouse Costs
Handling costs
Labor and utility costs
Proportional to annual flow through the warehouse.
Fixed costs
All cost components not proportional to the amount of
flow
Typically proportional to warehouse size (capacity)
but in a nonlinear way.
Storage costs
Inventory holding costs
Proportional to average positive inventory levels.
3-24
Determining Fixed Costs
FIGURE 3-8: Warehouse fixed costs as a function of the
warehouse capacity
3-25
Determining Storage Costs
Multiply inventory turnover by holding cost
Inventory Turnover =

Annual Sales / Average Inventory Level
3-26
Warehouse Capacity
Estimation of actual space required
Average inventory level =
Annual flow through warehouse/Inventory turnover ratio
Space requirement for item = 2*Average Inventory Level
Multiply by factor to account for
access and handling
aisles,
picking, sorting and processing facilities
AGVs
Typical factor value = 3
3-27
Warehouse Capacity Example
Annual flow = 1,000 units
Inventory turnover ratio = 10.0
Average inventory level = 100 units
Assume each unit takes 10 sqft. of space
Required space for products = 2,000 sqft.
Total space required for the warehouse is
about 6,000 square feet
3-28
Potential Locations
Geographical and infrastructure
conditions.
Natural resources and labor availability.
Local industry and tax regulations.
Public interest.

Not many will qualify based on all the
above conditions
3-29
Service Level Requirements
Specify a maximum distance between each
customer and the warehouse serving it
Proportion of customers whose distance to
their assigned warehouse is no more than
a given distance
95% of customers be situated within 200 miles
of the warehouses serving them
Appropriate for rural or isolated areas
3-30
Future Demand
Strategic decisions have to be valid for 3-5
years
Consider scenario approach and net
present values to factor in expected future
demand over planning horizon
3-31
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
0 2 4 6 8 10
Number of Warehouses
C
o
s
t

(
m
i
l
l
i
o
n
s

$
)
Total Cost
Transportation Cost
Fixed Cost
Inventory Cost
Number of Warehouses
Optimal
Number
of Warehouses
3-32
Industry Benchmarks:
Number of Distribution Centers
Avg.
# of
WH
3 14 25
Pharmaceuticals
Food Companies Chemicals
- High margin product
- Service not important (or
easy to ship express)
- Inventory expensive
relative to transportation
- Low margin product
- Service very important
- Outbound transportation
expensive relative to inbound
3-33
Model Validation
Reconstruct the existing network configuration using the
model and collected data
Compare the output of the model to existing data
Compare to the companys accounting information
Often the best way to identify errors in the data, problematic
assumptions, modeling flaws.
Make local or small changes in the network configuration
to see how the system estimates impact on costs and
service levels.
Positing a variety of what-if questions.
Answer the following questions:
Does the model make sense?
Are the data consistent?
Can the model results be fully explained?
Did you perform sensitivity analysis?
3-34
Solution Techniques
Mathematical optimization techniques:
1. Exact algorithms: find optimal solutions
2. Heuristics: find good solutions, not
necessarily optimal
Simulation models: provide a mechanism to
evaluate specified design alternatives created by
the designer.

3-35
Example
Single product
Two plants p1 and p2
Plant p2 has an annual capacity of 60,000 units.
The two plants have the same production costs.
There are two warehouses w1 and w2 with
identical warehouse handling costs.
There are three markets areas c1,c2 and c3 with
demands of 50,000, 100,000 and 50,000,
respectively.

3-36
Unit Distribution Costs
Facility
warehouse
p1 p2 c1 c2 c3
w1 0 4 3 4 5
w2 5 2 2 1 2
3-37
Heuristic #1:
Choose the Cheapest Warehouse to Source
Demand
D = 50,000
D = 100,000
D = 50,000
Cap = 60,000
$5 x 140,000
$2 x 60,000
$2 x 50,000
$1 x 100,000
$2 x 50,000
Total Costs = $1,120,000
3-38
Heuristic #2:
Choose the warehouse where the total delivery
costs to and from the warehouse are the lowest
[Consider inbound and outbound distribution costs]
D = 50,000
D = 100,000
D = 50,000
Cap = 60,000
$4
$5
$2
$3
$4
$5
$2
$1
$2
$0
P1 to WH1 $3
P1 to WH2 $7
P2 to WH1 $7
P2 to WH 2 $4
P1 to WH1 $4
P1 to WH2 $6
P2 to WH1 $8
P2 to WH 2 $3
P1 to WH1 $5
P1 to WH2 $7
P2 to WH1 $9
P2 to WH 2 $4
Market #1 is served by WH1, Markets 2 and 3
are served by WH2
3-39
D = 50,000
D = 100,000
D = 50,000
Cap = 60,000
Cap = 200,000
$5 x 90,000
$2 x 60,000
$3 x 50,000
$1 x 100,000
$2 x 50,000
$0 x 50,000
P1 to WH1 $3
P1 to WH2 $7
P2 to WH1 $7
P2 to WH 2 $4
P1 to WH1 $4
P1 to WH2 $6
P2 to WH1 $8
P2 to WH 2 $3
P1 to WH1 $5
P1 to WH2 $7
P2 to WH1 $9
P2 to WH 2 $4
Total Cost = $920,000
Heuristic #2:
Choose the warehouse where the total delivery
costs to and from the warehouse are the lowest
[Consider inbound and outbound distribution
costs]
3-40
The Optimization Model
The problem described earlier can be framed as the
following linear programming problem.
Let
x(p1,w1), x(p1,w2), x(p2,w1) and x(p2,w2) be the flows
from the plants to the warehouses.
x(w1,c1), x(w1,c2), x(w1,c3) be the flows from the
warehouse w1 to customer zones c1, c2 and c3.
x(w2,c1), x(w2,c2), x(w2,c3) be the flows from
warehouse w2 to customer zones c1, c2 and c3
3-41
The problem we want to solve is:
min 0x(p1,w1) + 5x(p1,w2) + 4x(p2,w1)
+ 2x(p2,w2) + 3x(w1,c1) + 4x(w1,c2)
+ 5x(w1,c3) + 2x(w2,c1) + 2x(w2,c3)
subject to the following constraints:
x(p2,w1) + x(p2,w2) s 60000
x(p1,w1) + x(p2,w1) = x(w1,c1) + x(w1,c2) + x(w1,c3)
x(p1,w2) + x(p2,w2) = x(w2,c1) + x(w2,c2) + x(w2,c3)
x(w1,c1) + x(w2,c1) = 50000
x(w1,c2) + x(w2,c2) = 100000
x(w1,c3) + x(w2,c3) = 50000
all flows greater than or equal to zero.
The Optimization Model
3-42
Optimal Solution
Facility
warehouse
p1 p2 c1 c2 c3
w1 140,000 0 50,000 40,000 50,000
w2 0 60,000 0 60,000 0
Total cost for the optimal strategy is $740,000
3-43
Simulation Models
Useful for a given design and a micro-level
analysis. Examine:
Individual ordering pattern.
Specific inventory policies.
Inventory movements inside the warehouse.
Not an optimization model
Can only consider very few alternate
models
3-44
Which One to Use?
Use mathematical optimization for static
analysis
Use a 2-step approach when dynamics in
system has to be analyzed:
Use an optimization model to generate a
number of least-cost solutions at the macro
level, taking into account the most important
cost components.
Use a simulation model to evaluate the
solutions generated in the first phase.
3-45
DSS for Network Design
Flexibility to incorporate a large set of preexisting
network characteristics
Other Factors:
Customer-specific service level requirements.
Existing warehouses kept open
Expansion of existing warehouses.
Specific flow patterns maintained
Warehouse-to-warehouse flow possible
Production and Bill of materials details may be important
Robustness
Relative quality of the solution independent of specific
environment, data variability or specific settings
3-46
3.3 Inventory Positioning and
Logistics Coordination
Multi-facility supply chain that belongs to a single firm
Manage inventory so as to reduce system wide cost
Consider the interaction of the various facilities and the
impact of this interaction on the inventory policy of each
facility
Ways to manage:
Wait for specific orders to arrive before starting to manufacture
them [make-to-order facility]
Otherwise, decide on where to keep safety stock?
Which facilities should produce to stock and which should
produce to order?
3-47
Single Product, Single Facility
Periodic Review Inventory Model
Assume -
SI: amount of time between when an order is placed
until the facility receives a shipment (Incoming
Service Time)
S: Committed Service Time made by the facility to its
own customers.
T: Processing Time at the facility.

Net Lead Time = SI + T - S
Safety stock at the facility:
S T SI > +
S T SI zh +
3-48
2-Stage System
Reducing committed service time from facility 2
to facility 1 impacts required inventory at both
facilities
Inventory at facility 1 is reduced
Inventory at facility 2 is increased
Overall objective is to choose:
the committed service time at each facility
the location and amount of inventory
minimize total or system wide safety stock cost.
3-49
ElecComp Case
Large contract manufacturer of circuit boards and other
high tech parts.
About 27,000 high value products with short life cycles
Fierce competition => Low customer promise times
< Manufacturing Lead Times
High inventory of SKUs based on long-term forecasts =>
Classic PUSH STRATEGY
High shortages
Huge risk
PULL STRATEGY not feasible because of long lead
times
3-50
New Supply Chain Strategy
OBJECTIVES:
Reduce inventory and financial risks
Provide customers with competitive response times.
ACHIEVE THE FOLLOWING:
Determining the optimal location of inventory across the various
stages
Calculating the optimal quantity of safety stock for each component at
each stage
Hybrid strategy of Push and Pull
Push Stages produce to stock where the company keeps safety stock
Pull stages keep no stock at all.
Challenge:
Identify the location where the strategy switched from Push-based to
Pull-based
Identify the Push-Pull boundary
Benefits:
For same lead times, safety stock reduced by 40 to 60%
Company could cut lead times to customers by 50% and still reduce
safety stocks by 30%
3-51
Notations Used
FIGURE 3-11: How to read the diagrams
3-52
Trade-Offs
If Montgomery facility reduces committed lead time to 13
days
assembly facility does not need any inventory of finished goods
Any customer order will trigger an order for parts 2 and 3.
Part 2 will be available immediately, since it is held in inventory
Part 3 will be available in 15 days
13 days committed response time by the manufacturing facility
2 days transportation lead time.
Another 15 days to process the order at the assembly facility
Order is delivered within the committed service time.
Assembly facility produces to order, i.e., a Pull based
strategy
Montgomery facility keeps inventory and hence is
managed with a Push or Make-to-Stock strategy.
3-53
Current Safety Stock Location
FIGURE 3-12: Current safety stock location
3-54
Optimized Safety Stock
Location
FIGURE 3-13: Optimized safety stock
3-55
Current Safety Stock with Lesser
Lead Time
FIGURE 3-14: Optimized safety stock with reduced lead time
3-56
Supply Chain with
More Complex Product Structure
FIGURE 3-15: Current supply chain
3-57
Optimized Supply Chain with
More Complex Product Structure
FIGURE 3-16: Optimized supply chain
3-58
Key Points
Identifying the Push-Pull boundary
Taking advantage of the risk pooling concept
Demand for components used by a number of
finished products has smaller variability and
uncertainty than that of the finished goods.
Replacing traditional supply chain strategies
that are typically referred to as sequential, or
local, optimization by a globally optimized
supply chain strategy.
3-59
Local vs. Global Optimization
FIGURE 3-17: Trade-off between quoted lead time and safety stock
3-60
Global Optimization
For the same lead time, cost is reduced
significantly
For the same cost, lead time is reduced
significantly
Trade-off curve has jumps in various
places
Represents situations in which the location of
the Push-Pull boundary changes
Significant cost savings are achieved.
3-61
Problems with Local Optimization
Prevalent strategy for many companies:
try to keep as much inventory close to the customers
hold some inventory at every location
hold as much raw material as possible.
This typically yields leads to:
Low inventory turns
Inconsistent service levels across locations and
products, and
The need to expedite shipments, with resulting
increased transportation costs
3-62
Consider a two-tier supply chain
Items shipped from manufacturing facilities to primary
warehouses
From there, they are shipped to secondary
warehouses and finally to retail outlets
How to optimally position inventory in the supply
chain?
Should every SKU be positioned both at the primary
and secondary warehouses?, OR
Some SKU be positioned only at the primary while
others only at the secondary?
Integrating Inventory Positioning
and Network Design
3-63
Integrating Inventory Positioning
and Network Design
FIGURE 3-18: Sample plot of each SKU by volume and demand
3-64
Three Different Product
Categories
High variability - low volume products
Low variability - high volume products, and
Low variability - low volume products.

3-65
Supply Chain Strategy Different for
the Different Categories
High variability low volume products
Inventory risk the main challenge for
Position them mainly at the primary warehouses
demand from many retail outlets can be aggregated
reducing inventory costs.
Low variability high volume products
Position close to the retail outlets at the secondary
warehouses
Ship fully loaded tracks as close as possible to the
customers reducing transportation costs.
Low variability low volume products
Require more analysis since other characteristics are
important, such as profit margins, etc.
3-66
3.4 Resource Allocation
Supply chain master planning
The process of coordinating and allocating
production, and distribution strategies and
resources to maximize profit or minimize
system-wide cost

Process takes into account:
interaction between the various levels of the supply
chain
identifies a strategy that maximizes supply chain
performance


3-67
Global Optimization and DSS
FACTORS TO CONSIDER
Facility locations: plants, distribution centers and
demand points
Transportation resources including internal fleet and
common carriers
Products and product information
Production line information such as min lot size,
capacity, costs, etc.
Warehouse capacities and other information such as
certain technology (refrigerators) that a specific
warehouse has and hence can store certain products
Demand forecast by location, product and time.

3-68
Focus of the Output
Sourcing Strategies:
where should each product be produced
during the planning horizon, OR
Supply Chain Master Plan:
production quantities, shipment size and
storage requirements by product, location and
time period.

3-69
The Extended Supply Chain: From
Manufacturing to Order Fulfillment
FIGURE 3-19: The extended supply chain: from manufacturing to order fulfillment
3-70
Questions to Ask During the
Planning Process
Will leased warehouse space alleviate capacity problems?
When and where should the inventory for seasonal or
promotional demand be built and stored?
Can capacity problems be alleviated by re-arranging
warehouse territories?
What impact do changes in the forecast have on the supply
chain?
What will be the impact of running overtime at the plants or
out-sourcing production?
What plant should replenish each warehouse?
Should the firm ship by sea or by air. Shipping by sea implies
long lead times and therefore requires high inventory levels.
On the other hand, using air carriers reduces lead times and
hence inventory levels but significantly increases
transportation cost.
Should we rebalance inventory between warehouses or
replenish from the plants to meet unexpected regional
changes in demand?
3-71
SUMMARY
Network Planning Characteristics
Network Design Inventory Positioning
and Management
Resource Allocation
Decision focus Infrastructure Safety stock Production Distribution
Planning Horizon Years Months Months
Aggregation Level Family Item Classes
Frequency Yearly Monthly/Weekly Monthly/Weekly
ROI High Medium Medium
Implementation Very Short Short Short
Users Very Few Few Few
3-72
SUMMARY
Optimizing supply chain performance is difficult
conflicting objectives
demand and supply uncertainties
supply chain dynamics.
Through network planning, firms can globally
optimize supply chain performance
Combines network design, inventory positioning and
resource allocation
Consider the entire network
account production
Warehousing
transportation inventory costs
service level requirements.
3-73
SUMMARY
Demonstrate applicability of risk pooling
and postponement, EOQ modeling, and
inventory sizing to improve customer
service in make-to-order job shop setting
Demonstrates value from getting and
looking at data
3-74
Case: H. C. Starck, Inc.
Background and context
Why are lead times long?
How might they be reduced?
What are the costs? benefits?



Stephen C. Graves Copyright 2003
All Rights Reserved
3-75
Metallurgical Products
Make-to-order job shop operation
600 SKUs made from 4 sheet bar (4 alloys)
Goal to reduce 7-week customer lead times
Expediting is ad hoc scheduling rule
Six months of inventory
Manufacturing cycle time is 2 3 weeks
Limited data
Stephen C. Graves Copyright 2003
All Rights Reserved
3-76
Production Order #1
4 Bar 1/4 Plate 1/8 Plate 0.015 Sheet Tubing
Production Order #2 Production Order #3
Clean Roll Anneal
Sheet Bar
(forged ingot)
Repeat
0 s n s 3
Finish
(cut, weld, etc.)
Production Orders
Stephen C. Graves Copyright 2003
All Rights Reserved
3-77
Why Is Customer Lead Time 7
Weeks?
From sales order to process order takes 2
weeks
Typical order requires multiple process
orders, each 2 3 weeks
Expediting as scheduling rule
Self fulfilling prophecy?

Stephen C. Graves Copyright 2003
All Rights Reserved
3-78
What Are Benefits From
Reducing Lead Time?
New accounts and new business
Protect current business from switching to
substitutes or Chinese competitor
Possibly less inventory
Better planning and better customer
service
Savings captured by customers?
Stephen C. Graves Copyright 2003
All Rights Reserved
3-79
How Might Starck Reduce
Customer Lead Times?
Hold intermediate inventory
How would this help?
How much? Where?
Eliminate paper-work delays
Reduce cycle time for each process order
How? What cost?
Stephen C. Graves Copyright 2003
All Rights Reserved
3-80
Two-Product Optimal Cycle Time
( )
( )
( )
*
*
2 2
2
2 400 400
0.02 years
.06 100 526000 .06 125 183000
B F B B F F
B F
B B F F
K K h D h D
Cost T T
T
K K
T
h D h D
T
+
| |
= + +
|
\ .
+
=
+
+
= =
+
Stephen C. Graves Copyright 2003
All Rights Reserved
3-81
Intermediate Inventory
Characterize demand by possible
intermediate for each of two alloys
Pick stocking points based on risk pooling
benefits, lead time reduction, volume
Determine inventory requirements based
on inventory model, e. g. base stock
Stephen C. Graves Copyright 2003
All Rights Reserved
3-82
Popularity Material Gauge - Description Jan Feb Mar Apr May Jun Jul Aug Sep Total Cum %
1 1011 0.002 Foil 618 1,079 1,215 1,188 1,020 290 1,590 849 1,017 8,866 22%
2 1004 0.015 Sheet 68 611 1,263 167 1,917 803 321 377 404 5,931 37%
3 1003 0.005 Sheet 263 576 584 812 617 969 572 359 909 5,661 50%
4 1029 0.500 Disk - 10" dia 275 0 353 0 581 0 530 414 1,017 3,170 58%
5 1009 0.030 Sheet 0 122 614 275 422 360 686 246 177 2,902 65%
6 1008 0.040 Sheet 321 101 191 486 8 98 263 176 690 2,334 71%
7 1002 0.010 Sheet 20 56 287 179 41 204 560 143 276 1,766 76%
8 1014 0.250 Plate 6 12 0 770 0 752 0 0 174 1,714 80%
9 1007 0.060 Plate 0 146 32 117 129 414 581 26 191 1,636 84%
10 1012 0.125 Plate 228 8 32 90 432 17 8 0 450 1,265 87%
11 1013 0.150 Plate 1,100 0 0 0 0 35 0 0 0 1,135 90%
12 1028 0.500 Ring - 10" OD x 8.5" ID 0 189 0 48 293 93 0 0 174 797 92%
13 1010 0.020 Sheet 0 54 102 183 45 54 126 92 119 775 94%
14 1017 0.750 Tube - 3/4" 0 0 0 8 12 558 0 0 12 590 95%
15 1015 0.375 Plate 0 0 0 0 0 0 375 0 0 375 96%
16 1018 0.015 Tube - 1.0" OD 8 0 0 0 0 230 0 41 0 279 97%
17 1001 0.005 Sheet - 1.0" x 23.75" 171 0 0 20 0 0 0 17 0 208 97%
18 1016 0.500 Tube - 0.50" OD 3 0 0 51 6 54 33 27 33 207 98%
19 1023 0.010 Sheet - 1.0" x 23.75" 0 99 14 18 0 0 0 0 0 131 98%
20 1027 0.015 Sputter Target - 2.0" x 5.0" 0 105 0 0 0 0 0 0 0 105 98%
Other - - 17 Other Items 217 36 57 86 100 40 52 43 35 666 100%
40,513
1999 Invoiced Sales - Pounds per month
Alloy 1
Stephen C. Graves Copyright 2003
All Rights Reserved
3-83
Sales
Rank Material Gauge - Description Jan Feb Mar Apr May Jun Jul Aug Sep Total Cum %
1 2040 0.015 Welded Tube .75" OD 296 936 2,989 1,366 2,468 989 657 528 1,392 11,623 27%
2 2031 0.020 Sheet Annealed 761 521 826 671 889 1,004 3,975 27 7 8,681 48%
3 2035 0.030 Sheet Annealed 1,638 116 1,138 634 524 579 1,672 703 517 7,520 65%
4 2041 0.020 Welded Tube .75" OD 0 50 316 3 379 0 2,856 0 0 3,604 74%
5 2043 0.015 Welded Tube 1.0" OD 0 0 480 444 0 77 118 343 0 1,462 77%
6 2027 0.060 Plate Annealed 0 0 277 323 60 0 504 12 205 1,382 80%
7 2050 0.015 Welded Tube 1" OD With Cap 0 0 0 1,003 0 0 176 0 0 1,179 83%
8 2029 0.045 Sheet Annealed 137 122 430 18 37 16 0 368 5 1,133 86%
9 2026 0.010 Sheet Annealed 0 0 435 0 251 412 0 0 0 1,098 88%
10 2051 0.022 Welded Tube 1.25" OD 0 0 0 1,014 0 0 0 0 0 1,014 91%
11 2025 0.002 Foil Annealed 551 0 0 0 0 0 0 0 0 551 92%
12 2034 0.125 Plate Annealed 0 35 78 63 34 0 0 208 0 418 93%
13 2045 0.030 Welded Tube 1.0" OD 0 0 370 0 0 1 0 0 41 412 94%
14 2044 0.020 Welded Tube 1.0" OD 0 0 0 32 241 108 4 0 0 386 95%
15 2047 0.030 Welded Tube 1.5O" OD 0 255 100 0 0 0 0 0 0 355 96%
16 2039 0.020 Welded Tube .50" OD 0 0 181 142 0 0 0 0 0 323 96%
17 2052 0.035 Tube 1.25" OD 0 0 302 0 0 0 0 0 0 302 97%
18 2036 0.015 Sheet Annealed 108 0 13 56 0 27 0 0 1 205 98%
19 2046 0.015 Welded Tube 1.5" OD 0 0 0 0 40 0 133 0 0 173 98%
20 2012 0.045 4" Repair Disk 0 8 6 15 0 84 7 9 8 137 98%
Other - - 35 Other Items 77 118 64 67 113 133 44 24 112 753 100%
42,709
1999 Invoiced Sales - Pounds per Month
Alloy 2
Stephen C. Graves Copyright 2003
All Rights Reserved
3-84
Alloy #1 Product Heirarchy
(Top 20 Items - 98% of Sales)
4
8
12
15
10
11
2
5
6
9
13
14
16
18
20
1
3
7
17
19
0.030" Sheet
2,053 lbs/mo
28% RSD
1/8" Plate
4,104 lbs/mo
30% RSD
1/4" Plate
5,463 lbs/mo
23% RSD
4" Bar
6,817 lbs/mo
25% RSD
Stephen C. Graves Copyright 2003
All Rights Reserved
3-85
Alloy #2 Product Heirarchy
(Top 20 Items - 98% of Sales)
6
12
2
3
4
8
10
13
14
15
16
17
20
1
5
7
18
19
0.015" Sheet
1,808 lbs/mo
65% RSD
11
9
0.030" Sheet
204 lbs/mo
126% RSD
1/8" Plate
5,181 lbs/mo
59% RSD
1/4" Plate
6,726 lbs/mo
59% RSD
4" Bar
7,474 lbs/mo
59% RSD
Stephen C. Graves Copyright 2003
All Rights Reserved
3-86
Sales
Rank Material Gauge - Description Jan Feb Mar Apr May Jun Jul Aug Sep
Total
(Pounds)
Monthly
Average
Standard
Deviation % RSD
From 0.030" Sheet
1 1011 0.002 Foil 618 1,079 1,215 1,188 1,020 290 1,590 849 1,017 8,866 985 372 38%
3 1003 0.005 Sheet 263 576 584 812 617 969 572 359 909 5,661 629 235 37%
7 1002 0.010 Sheet 20 56 287 179 41 204 560 143 276 1,766 196 168 85%
19 1023 0.010 Sheet - 1.0" x 23.75" 0 99 14 18 0 0 0 0 0 131 15 32 223%
17 1001 0.005 Sheet - 1.0" x 23.75" 171 0 0 20 0 0 0 17 0 208 23 56 242%
Monthly Subtotal 1,072 1,810 2,100 2,217 1,678 1,463 2,722 1,368 2,202
90% Input required at yield 1,191 2,011 2,333 2,463 1,864 1,626 3,024 1,520 2,447 18,480 2,053 569 28%
From 0.125" Plate
0.030" Sheet to Supply Above 1,191 2,011 2,333 2,463 1,864 1,626 3,024 1,520 2,447 18,480 2,053 569 28%
2 1004 0.015 Sheet 68 611 1,263 167 1,917 803 321 377 404 5,931 659 594 90%
16 1018 0.015 Tube - 1.0" OD 8 0 0 0 0 230 0 41 0 279 31 76 245%
20 1027 0.015 Sputter Target - 2.0" x 5.0" 0 105 0 0 0 0 0 0 0 105 12 35 300%
18 1016 0.015 Tube - 0.50" OD 3 0 0 51 6 54 33 27 33 207 23 22 94%
14 1017 0.015 Tube - 3/4" 0 0 0 8 12 558 0 0 12 590 66 185 282%
13 1010 0.020 Sheet 0 54 102 183 45 54 126 92 119 775 86 54 63%
5 1009 0.030 Sheet 0 122 614 275 422 360 686 246 177 2,902 322 224 70%
6 1008 0.040 Sheet 321 101 191 486 8 98 263 176 690 2,334 259 214 83%
9 1007 0.060 Plate 0 146 32 117 129 414 581 26 191 1,636 182 194 107%
Monthly Subtotal 1,591 3,150 4,535 3,750 4,403 4,197 5,034 2,505 4,073
90% Input Required at Yield 1,768 3,500 5,039 4,167 4,893 4,663 5,594 2,783 4,525 36,932 4,104 1213 30%

From 0.250" Plate
0.125" Plate to Supply Above 1,768 3,500 5,039 4,167 4,893 4,663 5,594 2,783 4,525 36,932 4,104 1213 30%
10 1012 0.125 Plate 228 8 32 90 432 17 8 0 450 1,265 141 185 131%
11 1013 0.150 Plate 1,100 0 0 0 0 35 0 0 0 1,135 126 365 290%
Monthly Subtotal 3,096 3,508 5,071 4,257 5,325 4,715 5,602 2,783 4,975
80% Input Required at Yield 3,870 4,385 6,339 5,321 6,656 5,894 7,002 3,479 6,219 49,165 5,463 1273 23%
From 4.0" Sheet Bar
0.250" Plate to Supply Above 3,870 4,385 6,339 5,321 6,656 5,894 7,002 3,479 6,219 49,165 5,463 1273 23%
8 1014 0.250 Plate 6 12 0 770 0 752 0 0 174 1,714 190 328 172%
15 1015 0.375 Plate 0 0 0 0 0 0 375 0 0 375 42 125 300%
4 1029 0.500 Disk - 10" dia 275 0 353 0 581 0 530 414 1,017 3,170 352 337 96%
12 1028 0.500 Ring - 10" OD x 8.5" ID 0 189 0 48 293 93 0 0 174 797 89 107 121%
Monthly Subtotal 4,151 4,586 6,692 6,139 7,530 6,739 7,907 3,893 7,584
90% Input Required at Yield 4,612 5,096 7,436 6,821 8,367 7,487 8,786 4,326 8,427 61,357 6,817 1722 25%
Alloy 1 Stephen C. Graves Copyright 2003
All Rights Reserved
3-87
Sales
Rank Material Gauge - Description Jan Feb Mar Apr May Jun Jul Aug Sep
Total
(Pounds)
Monthly
Average
Standard
Deviation % RSD
From 0.030" Sheet
11 2025 0.002 Foil Annealed 551 0 0 0 0 0 0 0 0 551 61 184 300%
9 2026 0.010 Sheet Annealed 0 0 435 0 251 412 0 0 0 1,098 122 190 156%
Monthly Subtotal 551 0 435 0 251 412 0 0 0
90% Input required at yield 612 0 484 0 279 458 0 0 0 1,833 204 256 126%
From 0.015" Sheet
1 2040 0.015 Welded Tube .75" OD 296 936 2,989 1,366 2,468 989 657 528 1,392 11,623 1291 900 70%
5 2043 0.015 Welded Tube 1" OD 0 0 480 444 0 77 118 343 0 1,462 162 202 125%
7 2050 0.015 Welded Tube 1" OD With Cap 0 0 0 1,003 0 0 176 0 0 1,179 131 332 254%
18 2036 0.015 Sheet Annealed 108 0 13 56 0 27 0 0 1 205 23 37 163%
19 2046 0.015 Welded Tube 1.5" OD 0 0 0 0 40 0 133 0 0 173 19 45 232%
Monthly Subtotal 404 936 3,483 2,869 2,508 1,093 1,084 871 1,393
90% Input required at yield 449 1,040 3,870 3,188 2,787 1,215 1,205 967 1,548 16,269 1,808 1175 65%
From 0.125" Sheet
0.030" Sheet to Supply Above 612 0 484 0 279 458 0 0 0 1,833 204 256 126%
0.015" Sheet to Supply Above 449 1,040 3,870 3,188 2,787 1,215 1,205 967 1,548 16,269 1808 1175 65%
2 2031 0.020 Sheet Annealed 761 521 826 671 889 1,004 3,975 27 7 8,681 965 1184 123%
4 2041 0.020 Welded Tube .75" OD 0 50 316 3 379 0 2,856 0 0 3,604 400 933 233%
14 2044 0.020 Welded Tube 1.0" OD 0 0 0 32 241 108 4 0 0 386 43 83 193%
16 2039 0.020 Welded Tube .50" OD 0 0 181 142 0 0 0 0 0 323 36 72 200%
10 2051 0.022 Welded Tube 1.25" OD 0 0 0 1,014 0 0 0 0 0 1,014 113 338 300%
3 2035 0.030 Sheet Annealed 1,638 116 1,138 634 524 579 1,672 703 517 7,520 836 533 64%
13 2045 0.030 Welded Tube 1.0" OD 0 0 370 0 0 1 0 0 41 412 46 122 268%
15 2047 0.030 WELDED TUBE 1.5O" OD 0 255 100 0 0 0 0 0 0 355 39 87 221%
17 2052 0.035 Tube 1.25" OD 0 0 302 0 0 0 0 0 0 302 34 101 300%
8 2029 0.045 Sheet Annealed 137 122 430 18 37 16 0 368 5 1,133 126 163 130%
20 2012 0.045 4" Repair Disk 0 8 6 15 0 84 7 9 8 137 15 26 171%
Monthly Subtotal 3,597 2,113 8,022 5,717 5,136 3,464 9,718 2,074 2,127
90% Input required at yield 3,997 2,347 8,913 6,352 5,706 3,849 10,798 2,305 2,363 46,630 5,181 3053 59%
From 0.250" Plate
0.125" Sheet to Supply Above 3,997 2,347 8,913 6,352 5,706 3,849 10,798 2,305 2,363 46,630 5181 3053 59%
6 2027 0.060 Plate Annealed 0 0 277 323 60 0 504 12 205 1,382 154 183 119%
12 2034 0.125 Plate Annealed 0 35 78 63 34 0 0 208 0 418 46 67 145%
Monthly Subtotal 3,997 2,382 9,268 6,738 5,801 3,849 11,302 2,524 2,568
80% Input required at yield 4,996 2,978 11,585 8,423 7,251 4,811 14,128 3,156 3,210 60,538 6,726 3990 59%
From 4.0" Sheet Bar
0.250" Plate to Supply Above 4,996 2,978 11,585 8,423 7,251 4,811 14,128 3,156 3,210
90% Input Required at Yield 5,551 3,309 12,872 9,359 8,057 5,346 15,698 3,506 3,567 67,264 7,474 4433 59%
Alloy 2
Stephen C. Graves Copyright 2003
All Rights Reserved
3-88
Material
Monthly
Demand
Monthly
Sigma
Period
(Weeks)
Average
(Pipeline)
Period
Sigma
Service
Level
Reliability
Factor Buffer Safety Total
Alloy #1
0.125" Plate 4,104 1,213 1 947 583 95% 90% 958 191 2,100
0.030" Sheet 2,053 569 1 474 273 95% 90% 450 92 1,020
Alloy #2
0.125" Plate 5,181 3,053 1 1,196 1,467 95% 90% 2,412 361 3,970
0.015" Sheet 1,808 1,175 1 417 564 95% 90% 928 135 1,480
Estimated Inventory Requirements
Stephen C. Graves Copyright 2003
All Rights Reserved