CASE STUDY

Should Packing Be Postponed to the DC$?$

Penang Electronics $($PE$)$ is a contract manufacturer that produces and packages private$-$label products for several retail chains, including Target, Best Buy, Staples, and Office Max. In each case, the basic products are identi$-$ cal, with the only difference being the labeling and the packaging. Thus, the labeled and packed version of the product destined for Target cannot be sent to Best Buy.

Currently, a production facility in Malaysia is used to manufacture, label, and pack all products. The manu$-$ facturing facility replenishes a DC in St$.$ Louis, from which the contract manufacturer fills all customer orders. The manufacturing and transportation lead time from Penang to St$.$ Louis is nine weeks. PE uses a con$-$ tinuous review policy to manage inventories at its DC and aims to provide a cycle service level of $95$ percent for each product to every customer.

The previous month had been very challenging because Best Buy requested $5,000$ additional units beyond what was available at the DC$,$ whereas Target ordered $3,500$ fewer units and Staples ordered $4,000$ fewer units. Even though there was sufficient product inventory avail$-$ able at the DC $($in the form of the basic product$),$ PE could not meet the Best Buy request because the excess inven$-$ tory available was labeled and packed for other custom$-$ ers. The DC had leftover inventory from Target and Staples, which unfortunately could not be used to serve Best Buy. PE had lost business while carrying surplus inventory, all because of the wrong labels and packaging.

Labeling and Packaging at the DC

The vice president of supply chain at PE proposed post$-$ poning the final labeling and packaging to the DC$.$ Her logic was that postponing labeling and packaging to the DC would allow PE to use all available inventories to serve any customer. In particular, the situation that arose in the previous month when Best Buy did not get its entire order could have been avoided through postponement. If packaging was shifted to the DC$,$ the lead time of manufac$-$ turing and transporting the basic product from Malaysia would continue to be about nine weeks. Labeling and pack$-$ aging were relatively quick steps and the response time from the DC to the customer was not expected to change.

The DC management was opposed to this idea because it would create additional work that was differ$-$ ent from what they had done so far. A detailed study of the production process showed that labeling and packag$-$ ing at the DC cost $$2$ per unit more than the cost of labeling and packaging in Malaysia. DC management believed that this increase in cost would be held against them once the process was changed, and they would be under constant pressure to lower cost. They also believed

it would complicate the work they did when filling an order and could adversely impact customer service.

Evaluating the Two Options

To evaluate the two options, a team from both manufac$-$ turing and the DC was set up$.$ The team decided to focus its analysis on three major product categories$--$comput$-$ ers, printers, and scanners, and four major customers$-$ Target, Best Buy, Staples, and Office Max. Weekly demand for each product and customer is shown in Table $12-9.$ In each case, "Mean" indicates the average weekly demand, and $"$SD$"$ indicates the standard devia$-$ tion of weekly demand. All demand was assumed to be normally distributed. PE incurred a total cost of $$1,000$ per computer, $$300$ per printer, and $$100$ per scanner.

Given the short life cycle of these products, PE used an annual holding cost of $30$ percent when making its inventory decisions. It was assumed that batch sizes and cycle inventories would be unchanged irrespective of where packaging and labeling were done. Thus, the team analyzed the impact of postponement on safety invento$-$ ries before making a final recommendation.

Question:

The numbers in the table are correct, please tell me the algorithms for Sigma Wk Aggregation, and for mu$-$T$+$L$,$sigma$-$T$+$L$,$CV$-$T$+$L$,$f$($x$)$ and ss in Approch$1,2,$ if time is limited you can just tell me the Sigma Wk Aggregation and algorithms for Printers in Approch$1$ clearly. Thank you very much.