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Supply Chain John Guarino Western Governors University Supply Chain A1. Fourth Quarter Cumulative Balanced Scorecard
Investment in Future
Human Resource Management
A2. Income Statements for the Four Quarters
Â Â Revenues
- Cost of Goods Sold
= Gross Profit
Â Â Research and Development
+ Sales Force Expense
+ Sales Office Expense
+ Marketing Research
+ Inventory Holding Costs
+ Excess Capacity Cost
= Total Expenses
Â Â Operating Profit
Miscellaneous Income and Expenses
+ Other Income
- Other Expenses
= Earnings Before Interest and Taxes
+ Interest Income
- Interest Charges
= Income Before Taxes
- Loss Carry Forward
= Taxable Income
- Income Taxes
= Net Income
Earnings per Share
A3. Balance Sheets for the Four Quarters
Top of Form
Â Â Cash
+ 3 Month Certificate of Deposit
+ Finished Goods Inventory
Long Term Assets
+ Net Fixed Assets
+ Emergency Loan
+ Common Stock
+ Retained Earnings
Bottom of Form
Top of Form
Bottom of Form
B. Simulation Analysis
Many errors were committed: errors of commission and omission. Many of the errors were committed in the third and fourth quarter. ComputerAngels was in the top four in "total performance" up until the third quarter. Errors committed in the third and fourth quarter moved ComputerAngels to the ninth overall place in "total performance" (as compared to the other WGU team/companies in the game).
At the end of the second quarter, ComputerAngels closed the Tokyo sales location since there was only one competitor, negligible competition and negligible sales, disregarding the cost of closing and disregarding the future market starting with the third quarter. Another disregard form part of ComputerAngels was the information given to competitors/future competitors (in the game or watching offline) of the company and strategies just by establishing a location in Tokyo first and being visible. This allowed other companies to study the Tokyo market (with the help of ComputerAngels). By the end of the fifth quarter while ComputerAngels had no sales office in Tokyo, Creative Computers had nine employees, Powerhouse Technologies and Olympus Technologies had eight each. The result was that demand outpaced production (stock outs). At the end of the fifth quarter, 3,250 units sold and 3,795 units were stock outs (unmet demand). This also increased the "Ill will" due to unmet demand (regarding the Tokyo market the sales force was zero). There were 1,035 customers lost between the third and fourth quarter.
A smart move was made during the second quarter was replacing the "Traveler" brand with the WorkHorse brand. The Traveler brand demand was only 297 units at the end of the fourth quarter, compared to 14,911 units for the WorkHorse and 10, 023 for the Mercedes brand.
Closing the "Traveler" brand and replacing with the "Mercedes" brand caused confusion for ComputerAngels. Labels, figures, would show up as one or other indistinctively and it was unknown if one was looking at incorrect, mislabeled figures or something in between.
Regarding sales force compensation: ComputerAngels was always second or first in compensation during three quarters but during the fifth quarter and for being a little conservative with salary and health benefits (the most important improvements in all electronics firms) ComputerAngels fell to fourth place overall. Powerhouse Technologies moved to first place with productivity relative to potential of 80 percent by having the highest salary and highest health benefit coverage (the most important improvements for electronic firms).
The income statement was positive during the third and fourth quarter but during the fourth quarter should have been higher than expected if not for the closing of the Tokyo operations (all the lost sales). The Gross profit in the fourth quarter was $76,346 higher than in the third but the operating profit was $208,230 lower than in the third. Due to the bad decision made for closing the Tokyo operation, the earning per share was also lower from $24 per share in the third quarter to $15 per share in the third quarter.
The lowest cost for the ComputerAngels WorkHorse brand $2,500 helped it to be the top computer under "brand judgment" but Powerhouse Technologies surprised the whole market in the fifth quarters with its Stealth (Workhorse) and Commander T1 (Mercedes) bringing in second and first placed under brand judgment respectively.
Under the final cumulative balanced scorecard, ComputerAngels came out better than average in all aspects including: total overall, financial performance, market performance, marketing effectiveness, investment in future, wealth, human resource management, asset management, manufacturing productivity and financial risk.
Under the "competitor tactical highlights", for the world market, ComputerAngels came on top of almost all criteria with 8,080 units of total demand created, 4 sale offices, and 36 total sales force employees. The average price for brands was the lowest, $2,875, total regional inserts was the highest with 33.
The problems are clear in the regional markets: For Tokyo, ComputerAngels had no sales people, so sales were zero but that was not the only loss since marketing expenses were lost with 33 regional ad inserts. For Sao Paulo, demand created by the sales office was the highest but the sales force was almost the lowest, sales force compensation was also the lowest, possibly causing stress and loss of employees and loss of employees to the competition. For New York, the main differentiators are again the sales force with the least amount, eight, and the highest demand per sales person at 375 units, the total compensation also being the lowest at $63,240. The pricing was the better criteria meeting the lowest price at $2500, beating the highest price with $3250 and having the best average with $2,875. Total number of add designs are the lowest with two. This profile almost repeats itself with Paris with highest demand created by sales office, 3058 units, meeting the lowest amount of employees with seven but paying the lowest salary with $63,240.
B1. Adequacy of Funds
Pro forma statements and budgets used for ComputerAngels were strategic but very conservative. ComputerAngels was worried more about cash flow and debt, disregarding investment in the future and production. In one of those conservative moves, the Tokyo operation was closed, to save money, since there was negligible competition at the time. Without taking into account investment in the future or slow moving competition that would later explode with an average of nine sales employees from each of the four other companies that would later compete in Tokyo.
Adequacy of funds was never a problem for ComputerAngels. The net operating cash flow in quarter three: $1,024,875 and lowered to $639,819 in the fourth quarter mainly because of the Tokyo operation close. The cash balance at the end of the third quarter $3,059,025 lowering to $2,598,843 in the fourth quarter. The balance sheet at the end of the fourth quarter was $4,777,966.
Closing the Tokyo plant caused a great misbalance in regards to inventory. Demand outpaced inventory. At the end of the fifth quarter, 3,250 units sold and 3,795 units were stock outs (demand not met).
Net Demand = 3,250 units sold + 3,795 stock outs = 7,045 units.
3,795 units, 53% percent of the Net Demand was not met, this was lost revenue and caused "ill will" a detriment to the brand and possibly causing the fall of earning of shares from $24 to $15 at the end of the fourth quarter. Operating capacity: scheduled operating capacity and used operating capacity = 3,250 units, so operating capacity was 100%
B2a. Just in Time
"Just in Time" in its most basic definition means efficient throughput, reduced inventory and reduced waste. ComputerAngels took this a little bit extremely and closed the Tokyo plant loosing sales of 3,795 units, 53% percent of net demand. There was negligible competition at the time but future investment and the global market strategy was not taken seriously into consideration. By utilizing operating capacity to its maximum waste was eliminated. Operating capacity 100% (scheduled operating capacity and used operating capacity = 3,250). Excess capacity 0% (unused operating capacity and excess operating capacity = 0). Keeping the Tokyo plant open would have also improved JIT (Just in Time) improving the throughput (a measure in units or time) that it takes to move an order from receipt to delivery for the Asian region. This not only improves receipt and delivery but returns and repairs. In the game there were no supplier variables but these are very important in a real (no game) company.
To optimize JIT the ideal criteria would be:
Supplier would be supportive, few suppliers, deliveries would be on time and directly to work areas.
Layout would be based on work cells, flexible machinery, an organized workplace and reduced space for inventory.
Inventory would be small lot sizes, low setup time and specialized parts bins.
Scheduling would be zero deviation from schedules, level schedules, suppliers aware of schedules.
Preventive maintenance would be scheduled, daily with operator involvement
Quality production with statistical process control, quality suppliers and quality within the firm.
Employee empowerment and cross trained employees, training support, few job classifications to ensure flexibility of employees
Commitment: Support of management, employees and suppliers.
All of these JIT techniques mentioned above, results in:
Rapid throughput free assets
Quality improvement reduces waste
Cost reduction adds pricing flexibility
All of the results above win orders by a faster response to the customer at a lower cost and higher quality.
B2b. Lean Operations
Lean production can be thought of as the end result of a well-run OM function. While JIT and TPS tend to have an internal focus, lean production begins externally with a focus on the customer. Understanding what the customer wants and ensuring customer input and feedback are starting points for lean production. Lean operations means identifying customer value by analyzing all the activities required to produce the product and then optimizing the entire process from the customer's perspective.
The transition to lean production is difficult. Building and organizational culture where learning, empowerment and continuous improvement are the norm is a challenge. However organizations that focus on JIT, quality and employee empowerment are often lean producers. Such firms drive out activities that do not add value in the eyes of the customer. Lean operations adopt a philosophy of minimizing waste by striving for perfection through continuous learning, creativity and teamwork. They tend to share the following attributes:
Use JIT techniques to eliminate virtually all inventory
Build systems that help employees produce a perfect part every time
Reduce space requirements by minimizing travel distance.
Develop partnerships with suppliers, helping them to understand the needs of the ultimate customer
Educate suppliers to accept responsibility for satisfying end customer needs.
Eliminate all but value added activities. Material handling, inspection, inventory and rework are the likely targets because these do not add value to the product
Develop employees by constantly improving job design, training, employee commitment, teamwork and empowerment.
Make jobs challenging, pushing responsibility to the lowest level possible
Build worker flexibility through cross training and reducing job classifications.
Success requires the full commitment and involvement of managers, employees and suppliers. The rewards that lean producers reap are spectacular. Lean producers often become benchmark performers.
B3. Work Cells
Any change agent or lean team must use the right techniques for deploying lean manufacturing. The transition team must:
Organize cells: Lean manufacturing requires organized product-family cells. This means each cell needs to be set up in the order it takes to make its product. So it will go from start to finish, or raw materials to final product.
Standardize work: Standardizing work keeps a product-family cell organized. The lean team should help establish a system of rules to maintain consistent work practices as raw materials move through production.
Make staffing projections: Being lean requires companies to make staffing projections within new cells. The lean team must estimate the minimum number of people necessary to do the job. Unneeded staffers stay employed with the company, but their roles change.
Implement 5S housekeeping: Implementing 5S housekeeping means workers will: sift, sort, sweep, standardize, and sustain their cell. Using 5S housekeeping helps workers keep product family cells organized. Since the cells stay neat and orderly, production moves ahead smoothly.
Establish the management process: Managers show their commitment to lean with regular checks on progress. They also encourage everyone to look for ways to improve processes.
The first three techniques used in the lean deployment phase give the transition organization, consistency, and logic. The final two techniques complete the deployment phase of the lean transition.
Organizing cells gives logic to the production process, but it takes careful planning. To organize the cells, follow the steps below:
Involve frontline workers in the cell design. Empower those most affected by the changes by asking for their help. They know the systems and are more likely to accept changes when they have been part of the design.
Make the material flow in one direction. Prevent waste by eliminating the need to pass items back and forth during production.
Lay out machines and tools in sequence. Machines should be placed in a U-shape. This keeps everything necessary to do the job close at hand. Plus, workers can communicate easier than if they have to walk from one end of a production line to another.
The lean technique to standardize work calls for companies to perform these two steps:
Balance the workload of each worker to takt time. Takt time is how often an employee produces one part or product in relation to the rate of demand of the customer.
Check to see that each worker in the cell has enough time to perform tasks properly to deliver products on time. Idle time should also be avoided.
Document the method, sequence, and roles of workers. Every worker in the cell should achieve tasks the same way to maintain consistency.
Be sure to keep track of systems that work, post them, and enforce them.
Making staffing projections requires a counter-intuitive thought process. Tasks in a cell should be very different from traditionalÂ batch-and-queueÂ production. Workers may focus on more than one task because of the start-to-finish setup. Also, it should take fewer people to produce the product.
It is critical, however, for employees to know this is lean, not mean, manufacturing. If they are not needed on the line, they must know they will be reassigned.
The technique to implement 5S housekeeping is critical to maintaining lean cells. The Japanese developed the 5S concept. It stands for sifting, sorting, sweeping, standardizing, and sustaining, or the original Japanese terms: Seiri, seiton, seiso, seketsu, and shitsuke:
Sifting, or seiri-Sifting refers to going through the contents of the cell. Sort out which items must remain in the cell to complete production. Keep those and remove everything else.
Sorting, or seiton-The sorting part of housekeeping requires labeling and organizing all of the items necessary for production. This lets employees find all of their materials, tools, references, parts, etc. without having to stop work to conduct a search.
Sweeping, or seiso-Sweeping means keeping the cell clean. Cell workers must pick up, sweep, and reorganize their area as they work and after each shift to maintain order. Neatness definitely aligns with lean concepts.
Standardizing, or seiketsu-Standardizing gives everyone in the cell responsibility to sift, sort, and sweep. Just by looking at the cell, every worker involved should be able to tell whether the tasks have been done. Here, housekeeping becomes the norm.
Sustaining, or shitsuke-The sustaining portion of 5S means ensuring housekeeping takes place. A checklist will help cell workers know whether they have done their part.
When establishing the management process, the lean team and executives need to encourage a change in attitude. Keep on top of everything happening with the transition. Analyze the results, then:
Remove any anchor draggers who refuse to try to make lean processes work
Accept mistakes or backwards steps, as long as progress, or some forward motion, takes place
Seek improvements constantly, even when things are going well.
The lean techniques for the deployment phase give your lean transformation a strong foundation. The lean techniques used in the deployment phase are: Organizing cells, standardizing work, making staffing projections, implementing 5S housekeeping, and establishing the management process.Â
B4. Inventory Management
Most companies utilize two major types of warehouses. The first are those located at or near their manufacturing facilities. The second type are those warehouses located in the field.
The primary goal of field warehousing is to reduce the delivery time to customers. Field warehouses are located near customers in order to serve them more quickly. They often provide a significant competitive advantage and may take several forms. They include warehouses run by:
Field warehouses may be public or private. A company rents public warehouses when it does not need its own. There is no initial investment in the facilities by the company using them. However, operating costs may be higher since the public warehouse is probably trying to make a profit. There are other advantages to using public warehousing.
Reduced risk-A company can change to another facility as technology changes. This eliminates the risk of investing in private facilities that may become obsolete.
Flexibility-A company can change field locations readily as the market changes-a company can rent additional space as needed for periods of peak demand.
There are some disadvantages to public warehousing. A company has less input into the design of facilities they do not own. Public warehouses manage goods for many different companies, and the personnel are not as familiar with each individual company's particular products.
There are also significant disadvantages to private warehouses. A company does not have the flexibility to quickly change either the design or location of facilities in response to market changes.
In general, a company utilizes private warehouses when the product volume warrants it. If there is insufficient inventory volume, public warehouses are used. Logistics personnel must carefully monitor public warehouse usage. When the volume of activity reaches a high enough level, the costs exceed those of a private facility. This makes warehouse ownership a much more attractive option.
As the Inventory or Logistics Manager responsible for your company's warehousing strategy, you need to be aware of the benefits and drawbacks of public and private warehousing, whether near your manufacturing facility or in the field.Â
B5. Continuous Improvement Program
A program should involve a process of continuous improvement. Quality assurance is there to verify or determine whether program elements meet overarching customer expectations, and to ensure continuous improvement. The Perform Quality Assurance process is part of the Executing process group. It identifies poorly performing systems and enforces planned quality standards. The process also develops process improvement initiatives. The Perform Quality Assurance process uses the quality management plan, operational definitions, quality metrics, and work results as inputs. It produces findings and change requests as outputs. The process can be used at any point in the program life cycle.
The Perform Quality Assurance process does not replace the quality assurance efforts for program components or projects. Instead, it assures the quality of the outputs of the program as a collective of projects or components. It also assures the quality of the outputs of the individual projects, which may feed to other projects or to the program deliverables. The program-level Perform Quality Assurance process focuses on fulfilling the quality requirements of the customer, whereas project output quality assurance seeks to meet the requirements of internal customers, such as other projects.
Four activities are commonly performed during the program-level Perform Quality Assurance process:
AuditingÂ - An audit is used to perform quality assurance. It can evaluate the effectiveness of a product or process, and it is usually performed by a person independent of the program or organization. The audit compares a system or product against planned standards such as customer requirements, statutes, or other regulations.
Repeatability and reproducibility (R&R) techniquesÂ - The validity of the quality performance metrics is checked using a number of R&R techniques. The R&R analysis ensures the integrity of the metrics being analyzed by attempting to define a constant measurement error.
Root cause analysisÂ - this activity aims to identify the root cause of a problem. The tools used for root cause analysis attempt to define a problem and its related problems within a system. It then aims to identify corrective actions for all the related problems, rather than a quick fix of just the symptoms. Failure Mode and Effect Analysis (FMEA) can be used to perform root cause analysis.
InterviewingÂ - If a problem is found, the program employees and stakeholders close to the problem should be interviewed. This may reveal that alternative work methods are being used, and it allows more informed corrective action to be developed.
The Information Distribution process is a process in the Executing process group used to provide stakeholders, clients, and component managers with information. The process uses communication messages, information requests, communications management plans, stakeholder analysis charts, and information for stakeholders as inputs. The process outputs are the formal communication of program information, as well as the informal communication of information as it's needed. The Information Distribution process distributes information to three groups, known as distribution channels:
Information that could be delivered using the Information Distribution process includes:
Status informationÂ - Information such as schedule progress, risk analysis, or internal budgetary information may be distributed through performance reports or updates.
Notification of change requestsÂ - Change requests and responses to change requests are distributed by the process.
Filings with regulatory bodiesÂ - The process is responsible for accurate and timely filings with government or other regulatory bodies.
Public announcementsÂ - The process is used to communicate useful information to the public.
The Information Distribution process is successful if the information it distributes is relevant to the recipients, accurate, received on time, and presented in a format that is appropriate for the target audience.
The Perform Quality Assurance process ensures that the program meets planned quality expectations. During quality assurance, an audit is performed on the quality systems of the program, including manufacturing and business systems. Repeatability and reproducibility (R&R) tests are performed on the quality performance metrics, and a root cause analysis is performed if the quality performance is low. The employees are interviewed to gain insight into the functioning of the systems, which may lead to quality performance failures. Information that is distributed using the Information Distribution process can be status information, notification of change requests and change approval, filings with regulatory bodies, or public announcements. For the process to be effective, it must deliver information that is relevant to the recipient, is accurate and received on time and is in an appropriate format.