The Supply Chain of Tan Long Mechanical Electrical Refrigeration Company

Vietnam National University - Ho Chi Minh City
International University
School of Industrial Engineering and Management
Vietnam National University – HCMC
SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT
Principle of Logistics and

Supply Chain
Management
GROUP PROJECT
THE SUPPLY CHAIN OF TAN LONG

MECHANICAL ELECTRICAL
REFRIGERATION COMPANY
0
GROUP 1
LIST OF MEMBERS
Ordinal FULL NAME STUDENTS’ ID CONTRIBUTION

Numbers
1 Lê Minh Trí IELSIU19079 100%
2 Dương Vân San IELSIU19253 100%
3 Trần Duy Phúc IELSIU19059 100%
4 Nguyễn Đức Minh Thư IELSIU19075 95%
5 Huỳnh Quốc Khánh IELSIU19029 100%
6 Nguyễn Minh Hiếu IELSIU19022 100%
7 Đặng Thoại Quỳnh Mai IELSIU19199 100%
8 Lê Quốc Việt Phương IELSIU19246 98%
9 Lê Thành Nhân IELSIU19053 90%
1
Table of Contents
I. INTRODUCTION ............................................................................................ 3
II. PROBLEM STATEMENT
1. Problem Statement ............................................................................................. 5
2. Methodolody ...................................................................................................... 6
III. SOLUTIONS
1. Inventory ............................................................................................................ 6
2. Material Requirements Planning
a) Bill of Material..................................................................................................... 7
b) MRP Tables ......................................................................................................... 8
IV. CONCLUSION
1. Reason .............................................................................................................. 13
2. Recommendation .............................................................................................. 13
V. REFERENCES ............................................................................................... 14
2
I. Introduction:
Tan Long Mechanical Electrical Refrigeration Company is a company operating in

industrial refrigeration, specializing in providing technical solutions, designing, installing
industrial refrigeration systems, cold and cool storage, and supplying freezing equipment,
cold system. In this report, we will focus on the air condenser, which is one of the most
valuable products of Tan Long Company. Air condenser is used to condense the cold gas
for the freezing equipment.
Tan Long Company’s supply chain consists of four elements: Raw materials and
supplier, warehouse, factory, and customers.
Raw materials and Warehouse Factory Customers

supplier
Upstream activities Downstream activities
As mentioned above, Tan Long Company provides customers with products related
to the company’s field. To do so, they have to implement a suitable supply chain, which
will be described as follow. Firstly, for the upstream activities, raw materials from
3
suppliers are delivered to Tan Long’s Warehouse and they become inventories. Secondly,
when the Company receives the order, inventories become inputs and they are
transported to Tan Long’s factory in order to assemble according to the company’s need.
The last element in the supply chain is the customers who placed and received orders,
which is included in the downstream activities.
Tan Long Company’s supply chain is a forward supply chain, with the flow of
products from the factory to the customers. Their customers are not the popular people,
but the big food companies who use the equipment for their business (Business-to-
business), so Tan Long Company can transport the orders directly to their customers
without the need of any distribution center.
Although Tan Long’s supply chain seems effective at times, it still has some flaws
that need to be improved. This report will tackle one of the issues Tan Long Company has
met in the past. Furthermore, we will utilize MRP and inventory cost calculation to find a
solution to this problem, which will be specified in the next part.
II. Problem Statement:

1. Problem Statement:
In the past, Tan Long Mechanical Electrical Refrigeration Company applied a push
strategy for their 2 main products: refrigerator and air conditioner which was quite
successful. However, this is not a good choice for the air condensers as the company often
has difficulty in finding customers and their inventory cost is higher than needed. The
following case study will act as a clear demonstration of the problem:
Case study:
In the first 6 months of 2018, the company used push strategy by reordering parts
every 3 months. The annual average demand for air condensers is 20 units with a standard
deviation of 2. Every quarter, the company would manufacture 5 air condensers which
were then put in stock and waited to be sold. By using lots of money on inventory and
order just from experience the company had met some financial troubles. In the first 6
months of 2018 alone, the company has a total inventory cost for air condensers up to 50
million VND.
4
2. Methodology:
Therefore, our group suggests a solution. By using the pull strategy together with
MRP, EOQ and lots for lots order quantities. The products will only be made when there
is demand. This new strategy will help the company react faster to sudden catastrophes
such as Covid 19, prevent stockout as well as minimizing the total inventory cost.
To prove our point, we will compare the case study above with our own case. We
will assume that in the first 2 quarters of 2021 the company will receive the total order of
10 air condensers:
● 2 from Famisea Food Company (5/3/2021)

● 3 from Dary Food (29/3/2021)
● 1 from GN Food Company (12/4/2021)
● 2 from Lenger Seafoods Vietnam (17/5/2021)
● 2 from Fando Feed Company (21/6/2021)
III. Solutions:
1. Inventory Cost:
For the calculation, we assume that:

● The cost of processing an order and arranging a delivery (S) is 500,000 VND.
● The inventory holding cost (H) for each set of items is 800,000 VND per year.
● The demand (D) for these accessories to come is constant at 20 sets a year.
The economic order quantity for the accessories inventory is given by the
following formula:
2∗𝑆∗𝐷 2∗500,000∗20
EOQ = Q* = √ 𝐻 =√ 800,000 = 5 sets
Hence, the optimal order quantity for each time is 5 sets of accessories.
Each order will come at a certain time so the stock cycle length for each order is
given by:
𝑄∗ 5
Cycle length = = = 0.25 years or 3 months.
𝐷 20
5
The total inventory cost using EOQ is calculated by the formula:
𝐷 𝑄∗
Total inventory cost (Q*) = S x +Hx
𝑄∗ 2
20 5
= 500,000 x + 800,000 x
5 2
= 4,000,000 VND
From the calculations above, the optimal quantity of accessories that Tan Long
have to order is 5 sets with a time cycle of 3 months. That way, the company can keep its
inventory cost at the lowest possible stage, standing at 4,000,000 VND. Thanks to EOQ,
Tan Long company can implement a suitable business plan that is capable of covering the
economic order quantity and keeping the minimum cost simultaneously.
2. Material Requirements Planning (MRP):

a) Bill of Materials:
Level 0:
Air condenser (1)
Level 1:
Motor (2) Condenser Coil (1) Axial Fan (10)
Level 2:
Frames (1) Reels (1) Accessories (1)
Level 3:
Stainless Steel Shape Steel Bolts and Nuts Spray Bump

Plate (1) (1) Sets (1) Sets (1)
6
b) MRP Tables:
In order to calculate new inventory costs when changing to MTO method, we need
to calculate which ingredients need to be produced, which ones need to be purchased
from outside, thereby dividing the order schedule and production export reasonably,
avoiding unnecessary waste. In addition, when ordering or manufacturing, it is necessary
to anticipate more unforeseen events such as goods not on schedule, not produced on
schedule, ... to be able to manage in time. and ensure the final product is finished quickly:
On-hand stock (at the end t) = Max {0, On hand (at the end t-1) +
Scheduled/Planned receipts (in t) – Gross requirement (in t)}
Net requirements (t) = Gross requirements (t) – On-hand stock (at the end of t-1)
– schedule receipts (≤ t) > 0 → order.
Otherwise, no order.
Applying the above equations, these are the MRP tables for Tan Long Company in
6 months:
Unit: set.
Level 0:
Level: 0
Period: 24 weeks
Item:
EVAPORATIVE
CONDENSER
Lead time: 3
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 0 0 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2
Scheduled
2 3 1 2 2
completion
Start assembly 2 3 1 2 2
7
Level 1:
Level: 1
Period: 24 weeks
Item: MOTOR
Lead time: 4
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
4 6 2 4 4
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 0 0 4 0 6 0 2 0 0 0 0 4 0 0 0 0 4 0 0 0
Planned receipt 4 6 2 4 4
Planned order
4 6 2 4 4
release
Level: 1
Period: 24 weeks
Item:
CONDENSER
COIL
Lead time: 2
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2 0 0 0
Planned order
2 3 1 2 2
release
8
Level: 1
Period: 24 weeks
Item: AXIAL FAN
Lead time: 4
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
20 30 10 20 20
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 0 0 20 0 30 0 10 0 0 0 0 20 0 0 0 0 20 0 0 0
Planned order
20 30 10 20 20
release
Level 2:
Level: 2
Period: 24 weeks
Item: FRAMES
Lead time: 2
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2 0 0 0 0 0
Planned order
2 3 1 2 2
release
9
Level: 2
Period: 24 weeks
Item: REELS
Lead time: 2
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2 0 0 0 0 0
Planned order
2 3 1 2 2
release
Level: 2
Period: 24 weeks
Item:
ACCESSORIES
Lead time: 3
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 3 3 0 0 4 4 4 4 4 2 2 2 2 2 0 0 0 0 0 0
inventory
Net requirement 0 0 0 0 0 2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipt 5 5
Planned order
5 5
release
10
Level 3:
Level: 3
Period: 24 weeks
Item:
STAINLESS
STEEL PLATE
Lead time: 2
weeks 1 set = 2673kg
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2 0 0 0 0 0 0 0
Planned order
2 3 1 2 2
release
Level: 3
Period: 24 weeks
Item: SHAPE
STEEL
Lead time: 2
weeks 1 set = 2173
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 3 1 2 2
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 0 2 0 3 0 1 0 0 0 0 2 0 0 0 0 2 0 0 0 0 0 0 0
Planned order
2 3 1 2 2
release
11
Level: 3
Period: 24 weeks
Item: BOLTS,
NUTS,...
Lead time: 1
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 1
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipt 2 1
Planned order
2 1
release
Level: 3
Period: 24 weeks
Item: SPRAY
BUMP
Lead time: 1
weeks
L4L rule 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Gross
2 1
requirement
Project on-hand
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
inventory
Net requirement 0 0 2 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipt 2 1
Planned order
2 1
release
Because the suppliers do not allow us to follow L4L method, so we use EOQ to
calculate the optimal lot size for accessories in order to minimize total cost.
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IV. Conclusion:
1. Reason:
The main reason for the Tan Long Company’s high cost of inventory is due to
random orders that are placed based on the experiences and forecasting demand data
from previous periods. However, that method shows no efficiency with products that
need time to assemble.
Ordering high quantities of components and accessories to prepare for assembling
lines would increase considerable inventory cost and take a huge place in the warehouse.
What is more, in the case of fluctuated demand or sudden outburst of Covid 19, products
stocked in the warehouse shall not cost only a small amount.
2. Recommendation:
Make-to-order strategy chases the aim of accomplishing the orders when they are
requested by the customers and it lies under the pull strategy system. Technically, MTO
is most suitable for assembled products that accomplish in particular sales orders, air
condenser is a great example.
Herewith Tan Long Company’s problem involving high inventory cost for the air
condensers, MTO pull strategy is strongly recommended to build up an efficient
organizational system with the following pieces of evidence:
● The high difference in the total cost when the two methods applied marks the
differences. Clearly, when mass production (make to stock) is applied, holding cost is
evidently higher than that of the MTO and potentially contend high risk of high inventory
level in the case of products being manufactured but not being sold, especially in the
event of the stagnant economy due to the outburst of the Covid 19.
● With MTO strategy and planned MRP for each order, components and materials
delivered in the warehouse will be used up for one order corresponding to minimize the
wastes. Consequently, damages will also be eliminated and order cost as well as holding
cost for each set of accessories will be considerably declined.
● Once an order is placed by the customer, a lead time will be announced for the
customer and therefore, the manufacturing process can take time to work efficiently and
focus mainly on fulfilling the order timely. This will raise the customer service level of the
company.
● To meet the expectations of a MTO strategy, the company must assure that they
have their materials and components delivered on time for manufacturing and a highly
qualified management board to control strain work pace to meet the timeliness. And
these are what Tan Long Company’s management board should discuss more if they
desire to reach high efficiency and lower the inventory cost in assembling air condensers.
13
V. References:
● Tân Long. (2020b, December 4). Trang chủ. Retrieved from https://tanlongvietnam.com/
● Tan Long Company’s Data. (n.d.). Retrieved from
https://drive.google.com/file/d/1MswhUovDx2i7hzt5c0Onxys9NxHQfLOi/view?usp=sh
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The Supply Chain of Tan Long Mechanical Electrical Refrigeration Company

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Vietnam National University - Ho Chi Minh City

Vietnam National University – HCMC

SCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Principle of Logistics and

THE SUPPLY CHAIN OF TAN LONG

Ordinal FULL NAME STUDENTS’ ID CONTRIBUTION

Tan Long Mechanical Electrical Refrigeration Company is a company operating in

Raw materials and Warehouse Factory Customers

Upstream activities Downstream activities

II. Problem Statement:

● 2 from Famisea Food Company (5/3/2021)

For the calculation, we assume that:

The total inventory cost using EOQ is calculated by the formula:

2. Material Requirements Planning (MRP):

Motor (2) Condenser Coil (1) Axial Fan (10)

Frames (1) Reels (1) Accessories (1)

Stainless Steel Shape Steel Bolts and Nuts Spray Bump

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