Graphic Corporation Inc. (GC) is one of the leading producers of semiconductor chips in the USA. The semiconductor industry is a highly dynamic industry, which often results in product becoming obsolete very quickly. GC, founded in 1986, is located in Charlotte, NC. GC has had a good run since its inception, primarily due to its innovation and high service levels. GC's profits and market share have recently declined due to increased competition. GC is currently trying to raise capital to enter newer Asian markets, but cash flow issues have come to light with the increase in competition. John, GC’s chief operations officer, conducted a simple capital expenditure breakdown and found that much of the capital was locked up in the form of finished goods inventory. Moreover, John recognized that each of the past five years GC had to write-off several million dollar worths of inventory as they became obsolete. John attributed the supply-demand mismatch to the variability in demand for their products, which are classified as innovative.

GC's success is contingent upon providing high service-levels and holding safety stock is necessary to provide high service-levels for their products, which are currently set at 98%. Carrying too much inventory in the form of finished goods safety stock was hurting GC’s operational performance. To improve GC’s inventory position, John has hired Tom Brown as the senior inventory manager and has given him three months to show progress.

Tom came into GC with 20 years of experience as an inventory manager at Dell. Tom quickly realized that GC was dealing with 1150 different product types at any given time, and held safety stock for each of them to buffer against uncertainty in demand. With his experience at Dell, Tom understood that most of GC’s 1150 unique products were manufactured from a few standardized wafers. This understanding prompted Tom to examine the benefits of postponement strategy (i.e., delaying the differentiation of a product and thereby combining demand streams into standardized products) at GC. To make a compelling case for the meeting with the top management scheduled for next week, Tom, identified a set of seven representative products made using various combinations of wafers A, B, & C (see excel document for product architecture). Tom then put together some cost and demand information for his analysis from the past year (see Excel attachment), and found that the average daily demand for each of the representative products was normally distributed and independent of each other. The seven products constitute about 1% of the overall sales for GC’s NC facility. GC currently holds $50,000 worth of safety stock for these seven products combined.

Instructions:

1. Please complete the answer form provided below based on your excel work and upload the answer form and excel sheet to the submissions folder.
2. Please try to label excel sheets to correspond with those questions that require excel computation.
3. Highlight your answers in the excel sheet.

Fill in the answer to the questions provided below:

1. What is the safety stock related costs for each of the seven products at 98% service level?

(List the product number and safety stock’s dollar value below) 

2. Does the $50,000 worth of inventory in the form of safety stock reflect a 98% service level or more for the seven products combined? ( Please respond below in 2 to 3 lines)

3. What is the safety stock related cost for each of wafers A, B, & C at 98% service level?

(List the wafer and the safety stock’s dollar value below)

4. What is the potential cost saving due to the proposed postponement strategy achieved via product risk pooling? (List the dollar value below)

5. What are other aspects could influence the top management’s willingness to adopt the proposed postponement strategy despite cost savings? ( Respond below in four to six lines) 

 
 

Transcribed Image Text:

fx B A B C D E F G H Product Raw Material Input (Wafers Used) ic-207+ LA ic-250+ B ic-245+ A ic-425% B B ic-455 ic-495 A ic-750 B Product Architecture Cost Information Demand Information (2) + fx B A B C D E F G H Product Raw Material Input (Wafers Used) ic-207+ LA ic-250+ B ic-245+ A ic-425% B B ic-455 ic-495 A ic-750 B Product Architecture Cost Information Demand Information (2) +

Answer rating: 100% (QA)

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