GSCM: 4-hour

Practice Session
IBA 2023– Romarin van der Tang
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Welcome!

3rd year IBA student, specialization SCM

Semester in New York
Sports; Marathon

Romarin van der Tang

 Pro-active participation

Please turn on your camera!

For me: see if you understand the explanations.

For yourself: it will push you to better participate and keep
your focus.

If you have ANY question, please feel free to ask:

• Question about the slide itself: unmute if you like
• Question about a topic in general: chat
• Otherwise: feel free to ask questions during break time
Structure
WhatsApp
 Exam Analysis
Strategy/ Cycle view Facilities, Inventory,
Demand 6 stes
Planning/ & Push/Pull betas Transportation,
Operational Uncertainty ±7% Information, Sourcing,
Achieving ±4% Pricing
3 Flows Supply Chain
Strategic Fit
Drivers
Little’s
±11% Responsiveness vs Law Response Time,
Cost Inventory,
Understanding
Supply Chains Transport, and
Facility Costs
100% ±11%
Distribution
ROP Networks
GSCM 6 Different
Designs
Why?
±19%
Cycle
Service Safety
Inventory ±11%
Level
±7% Global Supply
Discounting Chains
Cash Flows
±30% Joint NPV
Total Managing Replenishment
Annual Economies of
Cost Scale
Decision Tree Outsourcing &
EOP/EPQ Analysis Risk/
All-Unit Quantity Discount & Offshoring
Flexibility
Marginal Unit Quantity Discount
 What will we cover today?

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Expectations

What I expect from you:

• Already studied major course content

What you can expect from this session:

 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 1
Lecture 1: Understanding the Supply Chain
Lecture 2: Achieving Strategic Fit in a Supply Chain
 Q1-Supply Chain Stages

Q1. What are the five stages that can be present in a supply chain
and which supply chain stage has the most power (i.e. able to
make the most demands)?
 Q1-Supply Chain Stages

Q1. What are the five stages that can be present in a supply chain
and which supply chain stage has the most power (i.e. able to
make the most demands)?

Supplier, Manufacturer, Distributor, Retailer &

Customer.

Retailers have the most power, they are the

closest to the customers
 Theory-Supply Chain Stages

What does a supply chain look like?

Not all stages necessarily in all supply chains:
ß Upstream Downstream à
e.g.
Direct sale: no retailer needed
Indirect sale: retailer needed
 Q2-3 Flows

Q2. Which of the following statements is correct?

a. Information can only flow upstream
b. Funds only flow downstream
c. Products can flow both upstream and downstream
 Q2-3 Flows

Q2. Which of the following statements is correct?

a. Information can only flow upstream
b. Funds only flow downstream
c. Products can flow both upstream and downstream
Going upstream or downstream, there are different
flows:

• Flow of goods/product: mainly downstream (but

recycling is upstream)
• Flow of capital/funds/Money: mainly upstream
• Flow of information: both upstream and
downstream
 Q3-Profitability
Q3. Supply chain profitability is
a) not correlated to the value generated by the various stages of the supply
chain.
b) the total profit to be shared across all supply chain stages.
c) the difference between the revenue generated from the customer and the
overall cost across the supply chain.
d) the total revenue generated by the distributor stage of the supply chain.
e) b and c
 Q3-Profitability
Q3. Supply chain profitability is
a) not correlated to the value generated by the various stages of the supply
chain.
b) the total profit to be shared across all supply chain stages.
c) the difference between the revenue generated from the customer and the
overall cost across the supply chain.
d) the total revenue generated by the distributor stage of the supply chain.
e) b and c

Success is about total supply chain profitability, not the

profitability at individual stages.
 Q4-Decision Making Levels

Q4.
Proposition: Zara is planning to open a new store in downtown
Amsterdam. This decision refers to “Supply chain planning”
decision phases in a supply chain.

True or false?
 Q4-Decision Making Levels

Q4.
Proposition: Zara is planning to open a new store in downtown
Amsterdam. This decision refers to “Supply chain planning”
decision phases in a supply chain.

True or false?
Should be Strategy/Design
phase
 Q5-Cycle View

Q5. What do we mean by Cycle View and what is the correct

order of the subcycles from supplier to customer?
 Q5-Cycle View
Q5. What do we mean by Cycle View and what
is the correct order of the subcycles from
supplier to customer?

Part 1: With a cycle view, processes in a supply chain are

divided into a series of cycles, each performed at the interface
between two successive stages of the supply chain. It defines
the processes involved and the owners of each process. It is
useful when considering operational decisions because it
specifies the roles and responsibilities of each member of the
supply chain and the desired outcome for each process.

Part 2: Procurement Cycle – Manufacturing Cycle –

Replenishment Cycle – Customer Cycle
 Q6-Push/Pull Boundary

Q6. You plan to order a couch with a specific fabric and colour,
based on your interior. Which of the following represent all the
pull processes in the supply chain?
a) Customer order cycle
b) Customer order cycle, replenishment cycle
c) Customer order cycle, replenishment cycle, manufacturing cycle
d) Customer order cycle, replenishment cycle, manufacturing
cycle, and procurement cycle
 Q6-Push/Pull Boundary

Q6. You plan to order a couch with a specific fabric and colour, based on
your interior. Which of the following represent all the pull processes in the
supply chain?
a) Customer order cycle
b) Customer order cycle, replenishment cycle
c) Customer order cycle, replenishment cycle, manufacturing cycle
d) Customer order cycle, replenishment cycle, manufacturing cycle,
and procurement cycle
 Theory-Push/Pull Boundary

Push: execution is
Pull: execution is initiated initiated in anticipation of
in response to a customer customer orders; based
order, on forecasts rather than
actual demand.

The point of change from push to pull

is called the push/pull boundary
 Week 1
Lecture 1: Understanding the Supply Chain
Lecture 2: Achieving Strategic Fit in a Supply Chain
 Q1-Achieving Strategic Fit

Q1. Explain the three step procedure to achieve strategic fit.

 Q1-Achieving Strategic Fit

Q1. Explain the three step procedure to achieve strategic fit.

Three steps to achieve strategic fit:

Understanding of the Achieving strategic fit

Understanding the supply
customer and supply chain (match customer needs
chain capabilities (strong
uncertainty: Customer with what the supply chain
and weak points)
needs and demand/supply does well)
 Q2-Cost-Responsiveness

Q2.
Proposition I. A firm that is on the cost efficient frontier can neither improve its cost
performance nor its responsiveness.

Proposition II. The push/pull view of a supply chain holds that the processes in a supply
chain are divided into categories depending on whether they are initiated in response to
or in anticipation of customer orders.

a) Proposition I is true, Proposition II is false

b) Proposition I and Proposition II are both true
c) Proposition I is false, Proposition II is true
d) Proposition I and II are both false
 Q2-Cost-Responsiveness
Q2.
Proposition I. A firm that is on the cost efficient frontier can neither improve its cost
performance nor its responsiveness.

Proposition II. The push/pull view of a supply chain holds that the processes in a supply
chain are divided into categories depending on whether they are initiated in response to
or in anticipation of customer orders.

a) Proposition I is true, Proposition II is false

b) Proposition I and Proposition II are both true
c) Proposition I is false, Proposition II is true
d) Proposition I and II are both false
 Q3-Cost-Responsiveness

Q3. Should a company making smart-phones focus on

efficiency or responsiveness?
 Q3-Cost-Responsivenss

Q3. Should a company making smart-

phones focus on efficiency or
responsiveness?

Smart-phones have high implied

demand uncertainty (innovative product),
so they should focus on responsiveness
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 2
Lecture 3: Supply Chain Drivers
Lecture 4: Designing Distribution Networks
 Q1-Drivers

Q1. What are the 3 cross-functional drivers for

supply chain performance?
 Q1-Drivers
Q1. What are the 3 cross functional drivers for
supply chain performance?

Information, Sourcing,
and Pricing
 Q2-Drivers
Q2. Which of the followings are the main drivers used to match supply and
demand?
a) Inventory and sourcing,
b) Transportation and pricing,
c) Facilities and inventory,
d) Inventory and pricing.
 Q2-Drivers
Q2. Which of the followings are the main drivers used to match supply and
demand?
a) Inventory and sourcing,
b) Transportation and pricing,
c) Facilities and inventory,
d) Inventory and pricing.
 Week 2
Lecture 3: Supply Chain Drivers
Lecture 4: Designing Distribution Networks
 Q1-# Facilities
Q1. What does the relationship between desired response
time and number of facilities look like?

C
A

D
B
 Q1-# Facilities
Q1. What does the relationship between desired response
time and number of facilities look like?
 Theory-Designing Distribution Networks
How many facilities?

The effect of facilities on one

Customers with a lower
part of the cost-responsiveness desired response time
frontier: responsiveness require more facilities
 Theory-Designing Distribution Networks
How many facilities?

Let’s look at the cost side now

 Theory-Designing Distribution Networks
How many facilities?
Let’s look at the cost side now

DISECONOMIES OF SCALE

*
 Theory-Designing Distribution Networks

How many facilities?

Let’s look at the cost side now
 Q2-Distribution Networks
Q2. Consider the following distribution network.
This distribution network is most appropriate for delivering:
a) High-value, low-demand items with unpredictable demand.
b) High-value, high-demand items with predictable demand.
c) Low-value items with predictable demand.
d) Low-value, low-demand items with low demand uncertainty.
 Q2-Distribution Networks
Q2. Consider the following distribution network.
This distribution network is most appropriate for delivering:
a) High-value, low-demand items with unpredictable demand.
b) High-value, high-demand items with predictable demand.
c) Low-value items with predictable demand.
d) Low-value, low-demand items with low demand uncertainty.

Manufacturer Storage with Direct

Shipping (Dropshipping)
Low inventory costs (centralised), low
facility costs, but high transportation
costs
 Q3-Distribution Networks

Q3. What do we understand under the Manufacturer /

Distributor storage with customer pickup approach?
 Q3-Distribution Networks
Q3. What do we understand under
the Manufacturer / Distributor storage
with customer pickup approach?

In this approach, inventory is stored

at the manufacturer or distributor
warehouse, but customers place their
orders online or on the phone and
then travel to designated pickup
points to collect their merchandise.
Orders are shipped from the storage
site to the pickup points as needed.

Study all 6 designs!!

 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 3:
Lecture 5 & 6: Designing Global Supply Chain Networks
 Q1-Globalisation

Q1. If the cost per production unit in one country is lower than in
the home country, offshoring is always the best option.

Is this true or false, and why?

 Q1-Globalisation
Q1. If the cost per production unit in one country is lower than in
the home country, offshoring is always the best option.

Is this true or false, and why? Only focusing on production

For example: While the
labor/manufacturing costs
unit cost rather than total
are lower, the transportation
cost
costs are higher

Offshoring decision may

result in failure if:
Supply disruptions or delays

Ignoring critical risk factors.

Price and exchange rate

fluctuations
 Q2-Globalisation

Q2. Apple produces part of its products in one of the

company-owned facilities in Vietnam. This is a case of
a) Chaining
b) Outsourcing
c) Off-shoring
d) b and c
Q2. Apple produces part of its products in one of the
company-owned facilities in Vietnam. This is a case of
a) Chaining
b) Outsourcing
Another trend: Offshoring vs. Outsourcing
c) Off-shoring
d) b and c
 Q3-Globalisation

Q3. Globalisation has offered significant cost reduction to

apparel industry and consumer electronics. Why?
 Q3-Globalisation

Q3. Globalisation has offered significant cost reduction to

apparel industry and consumer electronics. Why?

We should focus on total costs. Normally this means, while the manufacturing
costs are lower if offshored, the transportation costs are higher.

However, both categories include items that are relatively lightweight and cost
effective to transport. Furthermore, the apparel industry is labour intensive,
therefore it makes sense to produce them in low-labour-cost countries.
 Week 3:
Lecture 5 & 6: Designing Global Supply Chain Networks
 Q1-Discounting Cash Flows

Q1. Company X buys a machine to produce books. This investment is $200

million. In the first year, the company makes no profits, but from year 2
onwards they make $150 million, $50 million, and $300 million respectively.
There is a cost of capital of 15%. What is the NPV of this project. Should the
company invest in the machine?
 Q1-Discounting Cash Flows
Q1. Company X buys a machine to produce books. This investment is $200 million. In the first
year, the company makes no profits, but from year 2 onwards they make $150 million, $50
million, and $300 million respectively. There is a cost of capital of 15%. What is the NPV of
this project. Should the company invest in the machine?

K= 15%
 Q1-Discounting Cash Flows
Q1. Company X buys a machine to produce books. This investment is $200 million. In the first year, the company
makes no profits, but from year 2 onwards they make $150 million, $50 million, and $300 million respectively. There
is a cost of capital of 15%. What is the NPV of this project. Should the company invest in the machine?

K= 15%
Year 0: -200 (investment)= -200
Year 1: -
Year 2: 150/(1,15^2)= 113,42
Year 3: 50/(1,15^3)= 32,88
Year 4: 300/(1,15^4)= 171,53

NPV= -200+ 113,42+ 32,88+

171,53= $117,82 million

The company should make the

investment
 Q2-Discounting Cash Flows
Q2. Consider this cash-flow that belongs to an investment with an interest
rate of 15%:

Which of the following intervals includes all the values for 𝑥 that make this
investment profitable?
a) 𝑥 ≥ 99.3
b) 𝑥 ≥ 103.8
C) 𝑥 ≥ 109.3
D) 𝑥 ≥ 113.8
 Q2-Discounting Cash Flows
Q2. Consider this cash-flow that belongs to an investment with an interest
rate of 15%:

Which of the following intervals includes all the values for 𝑥 that make this
investment profitable?
a) 𝑥≥99.3
b) 𝒙≥𝟏𝟎𝟑.𝟖
c) 𝑥 ≥ 109.3
d) 𝑥 ≥ 113.8
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 4:
Lecture 7 & 8: Managing Economies of scale
 Q1-Inventory

Q1. The larger the cycle inventory, the … the lag time between
when a product is purchased and when it is sold
a) Longer
b) Shorter
 Q1-Inventory

Q1. The larger the cycle inventory, the … the lag time between
when a product is purchased and when it is sold
a) Longer
b) Shorter
 Theory-Inventory

• Lot/batch size (Q): The quantity that a stage purchases or

produces in one go
• Cycle inventory (Q/2): The average inventory in a supply
chain, i.e., area under inventory curve/time or half of the
lot size
 Q2-Inventory
Q2.
Proposition I: The lower the cycle inventory, the higher the inventory holding costs

Proposition II: The lower the cycle inventory, the shorter the average flow time

a) Proposition I and II are both true.

b) Proposition I is true, II is false.
c) Proposition I is false, II is true.
d) Proposition I and II are both false.
 Q2-Inventory

Q2.
Proposition I: The lower the cycle inventory, the higher the inventory holding costs

Proposition II: The lower the cycle inventory, the shorter the average flow time

a) Proposition I and II are both true.

b) Proposition I is true, II is false.
c) Proposition I is false, II is true.
d) Proposition I and II are both false.
 Q3-EOQ

Q3. James Bons sells high-end fashion clothing. The weekly demand for one of
their premium leather jackets is 25 (if necessary assume 4 weeks per month, 12
months per year) with a standard deviation of 10 units/week. The order-processing
cost per order is 25 EUR, and inventory holding cost is EUR 50/item/year. How
many jackets should they order in one shipment to minimize costs?
a) Between 20 and 30 units
b) Between 30 and 40 units
c) Between 65 and 75 units
d) Between 75 and 85 units
 Q3-EOQ

Q3. James Bons sells high-end fashion clothing. The weekly demand for one of
their premium leather jackets is 25 (if necessary assume 4 weeks per month, 12
months per year) with a standard deviation of 10 units/week. The order-processing
cost per order is 25 EUR, and inventory holding cost is EUR 50/item/year. How
many jackets should they order in one shipment to minimize costs?
a) Between 20 and 30 units
b) Between 30 and 40 units
c) Between 65 and 75 units
d) Between 75 and 85 units

"∗"#∗$∗%"∗"#
𝑄∗ = =34.64
#&
Theory-EOQ
 Q5-EOQ

Q5.
 Q5-EOQ

Q5.
 Q6-EOQ

Q6.

Information from previous subquestion:

 Q6-EOQ

Q6.
 Theory-Total Annual Costs

Material Cost: CD Ordering Cost (S): Cost of Inventory Holding/Carrying Cost (H):
- Independent of the actual placement of an Cost to physically carry an item in
lot size/ number order (not including purchase inventory ($ / unit / year)
of orders cost) ($/order) • H = hC where
- Charged every time an • h = annual interest rate
order is placed, (holding cost rate or
independent of the size of percentage, opportunity
the order! cost of capital)
• C = unit production
(purchase/material) cost
Cycle inventory= Q/2
 Q8-Joint Replenishment
Q8. Batavus bikes are sold by a large bike shop, which has three warehouses in Europe. Currently a full
truck load of 600 bikes is delivered to each of these three warehouses. The order cost of a full
truckload is 700 EUR. A single bike costs 500 EUR and the holding rate is 25 percent per year.
The consumption of the three warehouses are given below:

The bike shop is investigating its supply chain and they want to know what the cost would be if they use a joint transport
plan. The transport company indicates that a trip costs 400 EUR plus 300 EUR per drop. A direct delivery therefore costs
400 EUR- + 300 EUR = 700 EUR and a truck making 2 deliveries costs 1000 EUR.
The bike shop wants to know the order frequencies for complete aggregation. What is the order frequency when Batavus
employs complete aggregation?
a) Between 0 and 10 times per year
b) Between 20 and 30 times per year
c) Between 20 and 30 times per year
d) More than 30 times per year
 Q8-Joint Replenishment
Q8.
C: 500 EUR
h: 25%
S*: 400+300+300+300=1300 EUR

- 1000 ∗ 12 ∗ 500 ∗ 0,25 + 250 ∗ 12 ∗ 500 ∗ 0,25 + 100 ∗ 12 ∗ 500 ∗ 0,25

𝑛∗ =
2 ∗ 1300

1.500.000 + 375.000 + 12.500

= = 27.91
2600
 Q8-Joint Replenishment
Q8. Batavus bikes are sold by a large bike shop, which has three warehouses in Europe. Currently a full
truck load of 600 bikes is delivered to each of these three warehouses. The order cost of a full
truckload is 700 EUR. A single bike costs 500 EUR and the holding rate is 25 percent per year.
The consumption of the three warehouses are given below:

The bike shop is investigating its supply chain and they want to know what the cost would be if they use a joint transport
plan. The transport company indicates that a trip costs 400 EUR plus 300 EUR per drop. A direct delivery therefore costs
400 EUR- + 300 EUR = 700 EUR and a truck making 2 deliveries costs 1000 EUR.
The bike shop wants to know the order frequencies for complete aggregation. What is the order frequency when Batavus
employs complete aggregation?
a) Between 0 and 10 times per year
b) Between 20 and 30 times per year
c) Between 20 and 30 times per year
d) More than 30 times per year
 Theory-Joint Replenishment
When aggregating multiple orders,
two approaches:
• Each product inventory system
could be independently
optimized
• A manager can jointly order
multiple items: joint
replenishment
Theory-Joint Replenishment
 Q9-Discounts
Q9. A fast food restaurant in the Netherlands uses approximately 1 000 hamburgers per week
at a fairly constant rate. The fast food restaurant buys hamburgers from a large meat distributor
for € 0.50 per hamburger, regardless of the size of the order. The fixed cost of placing an order
is €200. The company assumes a holding rate of 25% per year.
The meat distributor recently started to offer the following all-unit quantity discount:

What is the optimal order quantity under the new pricing scheme with quantity discounts?
a) Between 0 and 10 000 units
b) Between 10 001 and 14 000 units
c) Between 14 001 and 30 000 units
d) 30 001 units or more
 Q9-Discounts
Q9.
D: 1 000 hamburgers per week
S: €200 per order
h: 25% per year.
All-unit quantity discount:
 Q9-Discounts
Q9.
Q0: 12900 unitsà Above, so ignore
Q1: 13597 unitsà Within, so 13.597 units
Q2: 14422 unitsà Below so use lowerbound of 30.001 units
 Q9-Discounts
Q9. Step 3: Determine TC1 and TC2

D: 1 000 hamburgers per week

S: €200 per order
h: 25% per year.
Q1*: 13.597 units
Q2*: 30.001 units
 Q9-Discounts
Q9. Step 4: Pick lowest TC and corresponding amount

Q1*: 13.597 unitsà TC1: 24.927

Q2*: 30.001 unitsà TC2: 22.646
 Q9-Discounts
Q9. A fast food restaurant in the Netherlands uses approximately 1 000 hamburgers per week
at a fairly constant rate. The fast food restaurant buys hamburgers from a large meat distributor
for € 0.50 per hamburger, regardless of the size of the order. The fixed cost of placing an order
is €200. The company assumes a holding rate of 25% per year.
The meat distributor recently started to offer the following all-unit quantity discount:

What is the optimal order quantity under the new pricing scheme with quantity discounts?
a) Between 0 and 10 000 units
b) Between 10 001 and 14 000 units
c) Between 14 001 and 30 000 units
d) 30 001 units or more
 Theory-Marginal Unit Quantity Discount

Marginal Unit Quantity Discount

- If your order quantity Qj fits in price category Cj, this price only
applies the part of your order that falls within category Cj.
- Please read though this method as well because you can
expect either an all-unit or marginal unit quantity discount.
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 5
Lecture 9 & 10: Managing Uncertainty
 Q1-Inventory

Q1.
Proposition I: The average inventory level is (cycle inventory + safety inventory)/2.
Proposition II: Cycle inventory is inventory that is built up to counter predictable variability
in demand during the replenishment cycle.
a) Proposition I and Proposition II are both true
b) Proposition I is true; Proposition II is false
c) Proposition I is false; Proposition II is true
d) Proposition I and Proposition II are both false
 Q1-Inventory

Q1.
Proposition I: The average inventory level is (cycle inventory + safety inventory)/2.
Proposition II: Cycle inventory is inventory that is built up to counter predictable variability
in demand during the replenishment cycle.
a) Proposition I and Proposition II are both true
b) Proposition I is true; Proposition II is false
c) Proposition I is false; Proposition II is true
d) Proposition I and Proposition II are both false
 Theory-Managing Uncertainty

The actual demand during the lead time may be more or less than
expected demand. Thus, the store wants to hold safety (extra) inventory.

Safety inventory: Inventory carried to satisfy demand that exceeds the

amount forecasted.
 Q2-Inventory

Q2.
Proposition I: With deterministic lead time and demand, longer lead times do not require
any the safety stock.
Proposition II: In continuous review policy, the time interval between two orders is fixed.
a) Proposition I is true, Proposition II is false.
b) Proposition I and Proposition II are both true.
c) Proposition I is false, Proposition II is true.
d) Proposition I and II are both false.
 Q2-Inventory
Q2.
Proposition I: With deterministic lead time and demand, longer lead times do not require
any the safety stock.
Proposition II: In continuous review policy, the time interval between two orders is fixed.
a) Proposition I is true, Proposition II is false.
b) Proposition I and Proposition II are both true.
c) Proposition I is false, Proposition II is true.
d) Proposition I and II are both false.

When demand is certain (deterministic case): Continuous review

• A lot size of Q is placed when inventory level
• The firm knows exactly when it will run out of
reaches the ROP.
inventory
• The time between two orders may vary.
• The firm orders Q when the inventory level Periodic review
reaches ROP
• Fixed time intervals.
• No need for any safety inventory
 Q3-Uncertain Demand, Certain lead time
Q3.

Assume 50 weeks in a year

 Q3-Uncertain Demand, Certain lead time
Q3.

• D= 30,000 units/year • 𝐷A = 𝐷 ∗ 𝐿
• 𝜎" =3,500 units
• S= 1,200 euro • 𝜎A = 𝜎B ∗ 𝐿
• L= 3 weeks • 𝑠𝑠 = 𝑅𝑂𝑃 − 𝐷 ∗ 𝐿
• Z value: 2.06 • 𝑠𝑠 = 𝑧 ∗ 𝜎A
 Q3-Uncertain Demand, Certain lead time
Q3.

• D= 30,000 units/year • 𝐷A = 𝐷 ∗ 𝐿
• 𝜎" =3,500 units
• S= 1,200 euro
• 𝜎A = 𝜎B ∗ 𝐿
• L= 3 weeks • 𝑠𝑠 = 𝑅𝑂𝑃 − 𝐷 ∗ 𝐿
• Z value: 2.06 • 𝑠𝑠 = 𝑧 ∗ 𝜎A
 Q4-Uncertain demand, Uncertain lead time

Q4. Use the information from question 8:

To allow for uncertainties in delivery and in customer demand, James Bons

wishes to hold four weeks of demand as safety stock. The average lead time is
four weeks and the standard deviation of the lead time is 2 weeks. The company
uses a continuous review policy. Which statement is about the cycle service level
is true?
a) The cycle service level is approximately 90%
b) The cycle service level is approximately 93%
c) The cycle service level is approximately 95%
d) The cycle service level is approximately 97%
 Q4-Uncertain demand, Uncertain lead time

Q4. Use the information from question 8:

• D= 25 units/week
• 𝜎" =10 units 𝜎$ = 4 ∗ 10% + 25% ∗ 2% = 53,85
• S= 25 euro
• H= 50 euro/unit/year 100 = 𝑧 ∗ 53,85
100
• L= 4 weeks 𝑧= = 1,856953
• 𝑆$ = 2 weeks 53,85
• SS= 25*4= 100
Q4-Uncertain demand, Uncertain lead time

𝜎$ = 4 ∗ 10% + 25% ∗ 2% = 53,85

100 = 𝑧 ∗ 53,85
100
𝑧= = 1,856953
53,85
 Q4-Uncertain demand, Uncertain lead time

Q4. Use the information from question 8:

To allow for uncertainties in delivery and in customer demand, James Bons

wishes to hold four weeks of demand as safety stock. The average lead time is
four weeks and the standard deviation of the lead time is 2 weeks. The company
uses a continuous review policy. Which statement is about the cycle service level
is true?
a) The cycle service level is approximately 90%
b) The cycle service level is approximately 93%
c) The cycle service level is approximately 95%
d) The cycle service level is approximately 97%
 Theory-Uncertain demand, Uncertain lead time

With certain lead time we used: σ!= σ" ∗ L

With uncertain lead time we use: 𝜎# = 𝐿𝜎$% + 𝐷%𝑆#%
Evaluation form
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Week 6
Lecture 11 Transportation
 Q1-Modes of Transport
Q1
Proposition I: Intermodal transportation is the use of more than one
mode of transport to move a shipment from its origin to its
destination.
Proposition II: Pipeline is known as a mode for transportation.

a) Proposition I is true, Proposition II is false.

b) Proposition I and Proposition II are both true.
c) Proposition I is false, Proposition II is true.
d) Proposition I and II are both false.
 Q1-Modes of Transport
Q1
Proposition I: Intermodal transportation is the use of more than one
mode of transport to move a shipment from its origin to its
destination.
Proposition II: Pipeline is known as a mode for transportation.

a) Proposition I is true, Proposition II is false.

b) Proposition I and Proposition II are both true. Air Road Rail
c) Proposition I is false, Proposition II is true.
d) Proposition I and II are both false. Package
Water Pipeline
carrier

Intermodal
 Planning

-Exam Analysis Week 1 Week 2

Introduction:
Understanding the supply Supply chain drivers &
-Myself -Planning of Course chain & Achieving strategic Designing distribution
fit networks
-Athena
-Set Expectations

Week 3
Week 6 Week 5 Week 4
Designing global SC networks
Transportation Managing uncertainty Managing Economies of scale
 Exam Analysis
Strategy/ Cycle view Facilities, Inventory,
Demand 6 stes
Planning/ & Push/Pull betas Transportation,
Operational Uncertainty ±7% Information, Sourcing,
Achieving ±4% Pricing
3 Flows Supply Chain
Strategic Fit
Drivers
Little’s
±11% Responsiveness vs Law Response Time,
Cost Inventory,
Understanding
Supply Chains Transport, and
Facility Costs
100% ±11%
Distribution
ROP Networks
GSCM 6 Different
Designs
Why?
±19%
Cycle
Service Safety
Inventory ±11%
Level
±7% Global Supply
Discounting Chains
Cash Flows
±30% Joint NPV
Total Managing Replenishment
Annual Economies of
Cost Scale
Decision Tree Outsourcing &
EOP/EPQ Analysis Risk/
All-Unit Quantity Discount & Offshoring
Flexibility
Marginal Unit Quantity Discount
Recommendation
Look at articles once more!
 Any Questions?
Or if questions arise; feel free to use the WhatsApp group
Additional Practice Material
On EOQ, Product fill rate & some theory
 Q1-EOQ and Annual Costs
Q1. Superunie is a purchasing organization representing 13 independent retailers in the Netherlands such as Dirk van
den Broek, Coop Supermarkten, Spar, Plus etc. For more than 50 years Superunie does joint purchases for its
members, supplying over 1,800 stores and having a market share exceeding 30%. Imagine that you have a
traineeship at Superunie and would be asked to advise the supply chain manager.
The demand for one of Superunie’s products is 800 items a week. Based on the information that you obtained within
the company you estimate the holding rate to be 20% per year. The cost of placing an order is limited (some 25 EUR)
thanks to the IT systems that are being used, but the cost of receiving an order amounts to 175 EUR. The product
under consideration is usually sold at a price of 3 EUR each.

How much should Superunie order in each replenishment lot? What is the annual inventory holding cost?
a) Q = 79 items, inventory holding cost is 24 EUR
b) Q = 730 items, inventory holding cost is 219 EUR
c) Q = 730 items, inventory holding cost is 438 EUR
d) Q = 5266 items, inventory holding cost is 1580 EUR
 Q1-EOQ and Annual Costs
Q1. Superunie is a purchasing organization representing 13 independent retailers in the Netherlands such as Dirk van
den Broek, Coop Supermarkten, Spar, Plus etc. For more than 50 years Superunie does joint purchases for its
members, supplying over 1,800 stores and having a market share exceeding 30%. Imagine that you have a
traineeship at Superunie and would be asked to advise the supply chain manager.
The demand for one of Superunie’s products is 800 items a week. Based on the information that you obtained within
the company you estimate the holding rate to be 20% per year. The cost of placing an order is limited (some 25 EUR)
thanks to the IT systems that are being used, but the cost of receiving an order amounts to 175 EUR. The product
under consideration is usually sold at a price of 3 EUR each.

How much should Superunie order in each replenishment lot? What is the annual inventory holding cost?
a) Q = 79 items, inventory holding cost is 24 EUR
b) Q = 730 items, inventory holding cost is 219 EUR
c) Q = 730 items, inventory holding cost is 438 EUR
d) Q = 5266 items, inventory holding cost is 1580 EUR
 Q2-Product Fill Rate

Q2.
A waste facility is processing 3000 tons of garbage per day with a standard deviation of 300 tons. If
waste would be sourced in 1000 ton barges, average lead time would be 2 days with a standard
deviation of 0.5 days. The safety stock is 1777 units.

What is the fill rate under continuous review?

a) Around 80%
b) Around 85%
c) Around 90%
d) Around 95%
 Q2-Product Fill Rate

Q2.
A waste facility is processing 3000 tons of garbage per day with a standard deviation of 300 tons. If
waste would be sourced in 1000 ton barges, average lead time would be 2 days with a standard
deviation of 0.5 days. The safety stock is 1777 units.

𝜎$ = 2 ∗ 300% + 3000% ∗ 0.5%

• D= 3000/day = 2430000 = 1558.85
• 𝜎" =300
• Q= 1000
• L= 2 days
• 𝑆$ = 0.5 days
• SS= 1777
 Q2-Product Fill Rate

Q2.
A waste facility is processing 3000 tons of garbage per day with a standard deviation of 300 tons. If
waste would be sourced in 1000 ton barges, average lead time would be 2 days with a standard
deviation of 0.5 days. The safety stock is 1777 units.

𝜎$ = 2 ∗ 300% + 3000% ∗ 0.5%

• D= 3000/day = 2430000 = 1558.85
• 𝜎" =300
• Q= 1000
• L= 2 days
• 𝑆$ = 0.5 days
• SS= 1777
'((( '(((
𝐸𝑆𝐶 = −1777 1 − 𝐹& + 1558.85 ∗ 𝑓& =
'))*.*) '))*.*)
−1777 1 − 𝐹& 1.14 + 1558.85 ∗ 𝑓& 1.14
 Q2-Product Fill Rate

'((( '(((
𝐸𝑆𝐶 = −1777 1 − 𝐹& '))*.*)
+ 1558.85 ∗ 𝑓& '))*.*)
=
−1777 1 − 𝐹& 1.14 + 1558.85 ∗ 𝑓& 1.14 =

−1777 1 − 0.872857) + 1558.85 ∗ 0.208308 =

−225.93 + 324.72 = 98.79
 Q2-Product Fill Rate
Q2.
A waste facility is processing 3000 tons of garbage per day with a standard deviation of 300
tons. If waste would be sourced in 1000 ton barges, average lead time would be 2 days with
a standard deviation of 0.5 days. The safety stock is 1777 units.

What is the fill rate under continuous review?

a) Around 80% 𝐸𝑆𝐶 = 98.79
b) Around 85%
c) Around 90%
d) Around 95%

98.79
𝑓𝑟 = 1 − = 0.90121
1000
 Q3-Safety Stock

Q3. What is the aim of Postponement?

 Q3-Safety Stock

Q3. What is the aim of Postponement?

To have common parts in the supply chain for most of the push
phase and move the customization part to the pull phase
 Theory-Safety Stock

Ways of to reduce safety inventory:

1. Product substitution:
1. Manufacturer-driven substitution: Give (better) product without charging
2. Customer-driven substitution: You should choose another product if not
available

2. Component commonality: Using common components for different product

3. Postponement: Postponing the product customization to the pull stage as much as
possible
 Q4-EOQ
Q4. A retailer has an EOQ of 600 units. Due to new agreements between the
retailer and its supplier, the setup cost is decreased by 50%. The purchasing
price however is increased by 50%. What is the new EOQ for the retailer?

a) 600
&
b) 600
%
&
c) '
600
'
d) %
60
 Q4-EOQ
Q4. A retailer has an EOQ of 600 units. Due to new agreements between the
retailer and its supplier, the setup cost is decreased by 50%. The purchasing
price however is increased by 50%. What is the new EOQ for the retailer?

a) 600
&
b) 600
%
𝟏
c) 𝟑
𝟔𝟎𝟎
'
d) %
60
 Q5-Transportation Networks
Q5
Explain what a milkrun with DC is and when it can be used. Draw the
network.
 Q5-Transportation Networks
Q5
Explain when a milk run with DC should be
used. Draw the network.

Milks runs can be used from a DC when the

delivered amount to each location is small.
With milk runs outbound transportation
costs are reduced with small shipments.