1. 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

2. 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. Notations Used
FIGURE 3-11: How to read the diagrams

4. 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.

5. Current Safety Stock Location
FIGURE 3-12: Current safety stock location

6. Optimized Safety Stock Location
FIGURE 3-13: Optimized safety stock

7. Current Safety Stock with Lesser Lead Time
FIGURE 3-14: Optimized safety stock with reduced lead time

8. Supply Chain with More Complex Product Structure
FIGURE 3-15: Current supply chain

9. Optimized Supply Chain with More Complex Product Structure
FIGURE 3-16: Optimized supply chain

10. 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.

11. Local vs. Global Optimization
FIGURE 3-17: Trade-off between quoted lead time and safety stock

12. 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.

13. 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

14. Integrating Inventory Positioning and Network Design
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?

15. Integrating Inventory Positioning and Network Design
FIGURE 3-18: Sample plot of each SKU by volume and demand

16. Three Different Product Categories
High variability - low volume products
Low variability - high volume products, and
Low variability - low volume products.

17. 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.