MMM267 Business Logistics Assessment

Part A (12 marks)

Hint – Week 6 Chapter 12: see #70 (Excel) & Q30 (discussion)

DBS is a manufacturer of hi-tech digital devices in Melbourne. It uses a special part to make its devices. DBS requires an average of 24,000 units of this special part every year in its manufacturing process. The major supplier of the special part that DBS has been dealing with, is a preferred supply chain partner who charges a price per unit of $9000 for the part. Each order costs $1700 to process. Because of limited storage space, the operations manager wants to factor in inventory holding cost at 34.5% of unit cost. You have been asked to:

• Determine the economic order quantity (EOQ) and annual total cost assuming no waste disposal

(4 marks)

• Environmental considerations, material losses and waste disposal can be included in the EOQ model to improve inventory management practices. Assume that on an average 12.25% of the parts that DBS purchases are damaged in transit thus becoming unusable and have to be disposed of. Disposal cost is $640 per unit. Find the new EOQ and total annual cost when the disposal cost is What implications does this have for DBS’ sustainability practices?

(4 marks)

• Explain the implications to the operations manager of DBS if estimates of inventory holding costs include fixed, semi-variable, and pure variable costs while setup (order) costs include only pure variable costs.

(4 marks)

Part B (12 marks)

Hint – Week 4 Chapter 9: see #36 and #37 (Excel) & Q16 (discussion)

In the above data table, the operations manager of DBS Manufacturing Company has provided you historical data on their annual requirement of the special component over the past ten years.

• What is the forecast requirement for next (i.e., eleventh) year using a two-year and three-year simple moving average? Compute the MSE for each of those two moving averages and compare your results.

(4 marks)

• Using the same data table, find the best single exponential smoothing model by evaluating the MSE, starting with an alpha of 0.10 and changing alpha in increments of 0.10. How does the best single exponential smoothing model compare with the best moving average model you found in (4)?

(4 marks)

• If the DBS operations manager asked for your advice as to whether it is better to use regression- based forecasting models or time-series forecasting models, what would your advice be and why?

(4 marks)

Part C (12 marks)

Hint – Week 3 Chapter 6: see #36, #37 and #38 (Excel) & Q19 (discussion)

• DBS is evaluating the alternative of manufacturing a part that is currently being outsourced from an outside The relevant information is provided below:

(i)

For in-house manufacturing:

Upfront fixed cost = $53,000,000 Variable cost per part = $6750

For purchasing from supplier:

Purchase price per part = $9000

What will the demand need to be in order to justify making the components in-house?

(2 marks)

(ii) In the event that a forecasted increase in demand does not materialize and the marketing department rather expects the demand to drop to 17,500 units next year, then what will be the maximum price per part that DBS would be willing to pay to the supplier?

(2 marks)

• Going forward, if it is eventually found to be a better decision to make the components in-house, DBS will then need to select an optimal location point to set up its manufacturing facility. Given the following location information and expected material movements between several retail outlets and the intended manufacturing facility, find and plot the best location using centre-of-gravity method:

(4 marks)

• Using one or more relevant examples, explain to the DBS operations manager some of the potential consequences of not understanding or considering non-quantifiable factors like local culture and practices when taking location decisions.

(4 marks)

Part D (12 marks)

Hint – Week 5 Chapter 10: see #35 (Excel) & Q22 (discussion)

There are three distinct types of digital devices; namely TX (base model), TY (mid-range model) and TZ (top-range model), which DBS Manufacturing Company makes and sells to its customers. The operations manager has decided to combine orders for the same product type from customers to increase work order size and therefore be able to make one large production run per product type. Speciality machinery is used to make these products, and it is time-consuming to clean the machinery and set them up again between production runs. Each machine and operator run a daily nine-hour shift with 60 minutes lunch break and 30 minutes for operator breaks.

• What is the total workload (demand) in hours for the above work order mix?

(4 marks)

• How many machines will it take to do this work in one, two or three days? What might you say if DBS asked for your expert advice on how might this process be further improved?

(4 marks)

• DBS is contemplating increasing its long-term capacity in light of its strategic decision to enter new markets. Explain to the DBS operations manager the pros and cons of each of the long-term capacity expansion

(4 marks)

Part E (12 marks)

Hint – Week 2 Chapter 3: see Q29 (discussion)

• The DBS operations manager wants to focus on sustainability. Explain to the DBS operations manager whether sustainability is best viewed as a strategy or as a competitive priority.

(6 marks)

Hint – Week 9 Chapter 16: see Q30 (discussion)

• Explain to the DBS operations manager how quality management concepts can help to support their sustainability Find one or more relevant examples to support your explanation.

(6 marks)