CASE: ELECCOMP INC. GROUP 6

D10201803 MAYKED9901003 陳冠華E10321001 Stephan Jan ThomeM10301201 姚翔隆M10301806 QORINA MANDA RIKAM10301807 LINH THI THUY NGUYEN

INTRODUCTIONLarge contract manufacturer of circuit boards and other high

tech parts. Sells about 27,000 high value products with short life cyclesFierce competition: Time to the customer typically shorter than

Manufacturing Lead TimesManufacturing process is quite complex.=> High inventory of finished products for many of its SKUs based

on long-term forecasts => PUSH STRATEGY◦ Huge financial◦ Shortage risks

Long lead time => PULL STRATEGY was not appreciate either.

INTRODUCTION New supply chain strategy with objective

◦ Reducing inventory and financial risks◦ Providing customers with competitive response times.

Achieved by◦ Determining the optimal location of inventory across the various stages ◦ Calculating the optimal quantity of safety stock for each component at each stage

Focus on a hybrid strategy in PUSH AND PULL:◦ PUSH: make-to-stock, will be the locations where the company keeps safety stock.◦ PULL: make-to-order, will keep no stock at all.

Challenge:◦ Identify the location where the strategy switched from a Push-based to a Pull-

based strategy.◦ Push-Pull boundary

Impact of the new push-pull supply chain strategy◦ Same customer lead times, safety stock reduced by 40 to 60 percent.◦ ElecComp can cut LTs to customer by 50% and still reduce in safety stock by 30%

FIGURE 3-11

Reduce the committed service time from 80 days to 50 or 40 days => decrease finished goods inventory and start building inventory in Montgomery.

ElecComp’s objective: Minimize systemwide inventory and manufacturing cost. A multistage inventory optimization technology: Inventory AnalystTM from

LogisticTools.

TRADE - OFFSReduce committed lead time in Montgomery to 13 days

◦No need stock finished goods in assembly facility.◦Any customer order will trigger an order for parts 2 and 3:

Part 2 holds inventory to supply immediately. Part 3 will be available in 15 days: 13days’ committed response time

and 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, that is, a Pull based

strategy◦Montgomery facility keeps inventory and hence is managed

with a Push strategy.

FIGURE 3-12: Current safety stock location

Pink boxes represent outside suppliersBlack boxes represent internal stages within ElecComp’s supply chain.Response time is 30 days to customersKeep inventory in assembly facility and Part 2.

FIGURE 3-13: Optimized safety stock

Response time is 30 days to customers Adjusting committed service time of various internal facilities

◦ Assembly system produces to order, keeps no finish goods inventory◦ Raleigh and Montgomery need to reduce the committed service time =>

keep inventory The impact on the supply chain is a 39% reduction in safety stock

FIGURE 3-15: Optimized safety stock with reduced lead time

Reducing quoted lead times to 15 days.

Inventory was down by 28% while response time to the

customers was halved.

RESULTS

Summary of Results

Scenario Safety Stock holding cost

($/year)

Lead time to customer

(days)

Cycle time (days)

Inventory turns

(turns/year)

Current 74,100 30 105 1.2

Optimized 45,400 30 105 1.4

Shortened lead time

53,700 15 105 1.3

A MORE COMPLEX PRODUCT STRUCTURE

Figure 3-15: Current Supply Chain

A MORE COMPLEX PRODUCT STRUCTURE

Figure 3-16: Optimized Supply Chain

Inventory cost was reduced by more than

60%

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 where the entire

supply chain strategy is integrated to maximize supply chain

performance.

IMPACT OF THE NEW SUPPLY CHAIN PARADIGM

Figure 3-17:Trade-off between quoted lead time and safety stock

CONCLUSION

Due to optimally locating the push-pull boundary, implies

◦For the same lead time, cost is reduced significantly

◦For the same cost, lead time is reduced significantly

The curve between cost and customer quoted lead time

representing:

◦Smoothing in the traditional relationship.

◦No smooth in the location of the push-pull boundary

with jumps in various places to achieve cost savings