please answer question 2

Instructions: Use of Excel is allowed. By taking the test you are signing on to the University of Washington's Honor code system THIS IS AN INDIVIDUAL TEST NO DISCUSSIONS OF ANY FORM ARE ALLOWED. PARTIAL CREDITS POSSIBLE FOR WORK SHOWX. Please upload an online submission via Canvas on the due date of the exam Below is some information about PNWChemicals, a manufacturer of specialty chemicals. Put yourself in Susan's position and prepare a report detailing outcome of your analysis conducted to answer the questions on page 4. and your recommendation for an inventory management structure. Include your analysis that leads to your discussion and recommendations i.e. you can attach it as an Excel file to your submission). If you need to make any assumptions, clearly state what your assumptions are, and the reasoning behind them PNWCHEMICALS Susan Mineris the VP of Supply Chain at PNWChemicals, a company that produces specialty chemicals. After PNWChemicals end of year meeting, she was distraught to have learned that the company has achieved only two inventory furns last year. After analyzing the records, she realized that this low inventory turns were tied to the fact that more than 50% of their inventory was on consignment to its customers (below their consignment structure is explained in more detail). This occurred despite the fact that only about 20% of their customers held consigned inventory Susan was responsible for the inventory and the transportation costs. She decided that it was time that the consignment plan was examined carefully, and that a more advanced inventory plan was put in place PNWChemicals Operations PNWChemicals operated eight production facilities and 40 distribution centers to manufacture and transport their specialty chemicals. Base chemicals were manufactured at the production facilities and they were mixed at the distribution centers, so that a variety of end products that would match a range of customer requirements could be produced. In the specialty chemicals market, PNWChemicals decided to differentiate itself in the western portion of the state of Washington by providing consignment inventory to its customers. PNWChemicals kept the chemicals required by each customer in the western Washington region on consignment at the customers' sites. Customers used the chemicals as needed, and PNWChemicals managed replenishment to ensure availability. In most instances, consumption of chemicals by customers was stable. PNWChemicals owned the consignment inventories and was paid for the chemicals as they were used. The company aimed to make this strategy national if it proved ellective. Distribution at PNWChemicals PNWChemicals used Evergreen trucking, a full-truckload carrier, for all its shipments. Evergreen has dedicated a track to PNWChemicals, which had a capacity of 100,000 pounds: Evergreen charged a fixed rate given the origin and destination, regardless of the quantity shipped on the truck. PNW Chemicals sent full truckloads to each customer to replenish its consignment inventory. The Western Washington Pilot Study Susan decided to carefully investigate the company's distribution operations. She focused on western Washington, which was supplied from the Snohomish distribution center. She broke up western Washington into a collection of areas with codes that were contiguous, as shown in Figure 1 below. He restricted attention to the Pierce county region, which was classified as code 615. A careful study of the Pierce county region revealed two large customers, six medium-sized customers, and twelvemmall customers. The annual consumption at each type of customer was as shown in Table Evergreen charged $400 for each shipment from Snohomish to Pierce, and PNWChemicals's policy was to send a full trackload to each customer as needed. } ht 1 ! li 1 Figure 1: Western Washington Code Map 2 Table 1: Customer profile for PWChemicals in Pierce county region L Susan checked with Evergreen to find out what it would take to include shipments for multiple customers on a single load Evergreen informed him that it would charge 5400 per truck and adid 575 for cach drop-off for which Evergreen was responsible. Thus, if Evergreen carried a truck that had to make one delivery the total charge would be $475. However, if a truck had to make four deliveries, the total charge would be 5700. Each pound of chemical in consignment cost PN WChemicals $1.5, and PN WChemicals had a bolding cost of 30 percent, Susan wanted to analyze a few different options for distribution available in the Pierce county region to decide on the optimal distribution policy. First option was to aggregate all 20 customers into each truck going to Pierce county Second option was to have separate groups for the small, medium and large customers fie. all small customers would be in one group, all medium ones in another and all large ones in a third group. The detailed study of the Pierce county region would provide the blueprint for the distribution strategy that PN WChemicals planned to roll out nationally Questions 1. What is the annual cost of PNWChemicals' strategy of sending full truckloads to each customer (per order) in the Pierce region to replenish consignment inventory? (30 points) 2. Consider different delivery options (options one and two described above)) and evaluate the cost of each. (Hint, for option two use the same procedure used for full aggregation, except, for each group, aggregate demand and calculate S* separately for each group to find n* unique to each group). What delivery option do you recommend for PNWChemicals? Why? (40 points) 3. How does your recommendation impact consignment inventory for PNWChemicals? (20 points) 4. What supply chain management challenges would you be concerned with if PNWChemicals were to expand to the eastern WA counties, and what can PNWChemical do to overcome these challenges and turn them into opportunities. (10 points) 2