Spring 2020 ISOM3770 Final Exam Solution

(10 pts, 2 pts each) Question 1

True/False questions related to SF Express and Yummy 77.

a) Funding was never a concern for a company like Yummy 77 in its O2O journey.

False

b) The main reason why SF Express failed its O2O journey is due to lack of big data capabilities.

False

c) Alibaba and SF Express demonstrate a perfect example of supply chain partnership.

No

d) Inventory management was important to govern whether SF Best could be successful or not.

Yes

e) Heike stores are offline stores as part of SF Express’s O2O journey.

Yes

(10pts, 2 pts each) Question 2

Provide the matching and fill into the table:

Build to order Build to stock

Success factor Accurate order Accurate forecast

Product variety High Low

Batch size Small Large

Efficiency Flexible Economics of scale

manufacturing

Product line Manual Automation

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(4 pts) Question 3
Which of the following is not a cause of the Bullwhip effect?
A. Order batching
B. Forward buying
C. Inflated orders
D. Information sharing
E. All of the above are reasons for the Bullwhip effect.

(4 pts) Question 4
Concerning the Barilla case, which of the following statement is correct?
A. Barilla produces, sells to chain supermarkets, and also manages its own retail outlets.
B. Barilla first implemented the JITD programme with Signora Maria Shops and Distribuzione
Organizzata.
C. Barilla’s marketing and sales personnel and external customers welcomed the JITD programme
immediately right after it was introduced.
D. Barilla mixes heavy and light items in truckloads for shipments is to maximize fuel efficiency.
E. The implementation of JITD resulted in lower inventory but higher fill rate by making large volume
shipment.

(21 pts, 3 pts each) Question 5

PH is a computer equipment manufacturer. It owns a distribution center (DC) in Netherlands serving
10 different countries in Europe each owning its own country specific DC. These countries include
France, Italy, Spain and Germany among others. A DC consolidation project is in place that evaluates
the possibility of eliminating all the country specific DCs, such as the DC in Netherland will direct
ship to customers in all the 10 countries. In other words, all customers in these countries will no longer
served by the DCs of their countries.

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a) As countries in Europe have undergone integration to become a union, will the resulted
liberation of cross-border transportation and customs procedure favor or not favor this
project? Explain.

Favor as it makes international cross border direct shipment easier.

b) If short lead time and highly customized service are priorities, will these favor or not favor
this project?

Not favor as delivery lead time will be longer.

c) If customers of PH include fragmented dealer channels in countries like France, with many
small retail stores, would this favor or not favor this project? Explain.

Not favor, as it makes customization more important and difficult for centralized distribution.

d) What kinds of costs may likely involve in eliminating the country specific DCs? Would you
anticipate resistance from the staff of these countries? Provide your reasoning.

Severance and reconfiguration. Yes due to severance.

e) Give a reason why Netherland is chosen as the site of future single DC to serve the entire
Europe?

Physical distance minimized being at the heart of continental Europe.

f) Would you anticipate inventory holding cost to be going up or down if the project turns out to
be successful? Why?

Inventory going down due to risk pooling.

g) The company plans to increase its spending in a new computer system for running the enhanced
DC at Netherlands. Argue why a new computer system is needed even though a computer
system already existed in the past.

Country specific retail and logistics delivery information needs to be included.

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(12 pts, 4pts each) Question 6
Zara and 7-11 Japan are two companies credited with advanced supply chain management.

(a) It seems that 7-11 Japan spent a lot of efforts to optimize its transportation and receiving
processes. Relatively, it seems that Zara does not pay enough attention to receiving. Do you
agree? Why?

No, products hang on racks upon shipment delivery as a counter-example.

(b) A key advantage for Zara is its speed in introducing new products to its markets. Relatively,
7-11 Japan does not enjoy such kind of advantage. Do you agree? Why?

Yes, because 7-11 Japan is a retailer and does not offer its own branded products.

(c) Zara is known to keep the right amount of inventory to avoid over-stocking. But a downside
of it is the potential of incurring lost sales. Suggest a couple of performance measures for Zara
to monitor and compare the performance of different stores across the globe.

Inventory turnover and sales per square feet

(19 pts) Question 7

Suppose a manufacturer HKUST Ltd. is selling swimsuits to a retailer ISOM Ltd. at the wholesale
price of $80 per unit. The retail price of each unit of swimsuit is $125. The retailer is able to dispose
all overstocked swimsuits at the price of $20. In addition, the manufacturer is willing to buy back the
overstocked swimsuits at the price of $55 and dispose at the price of $20.

Suppose the fixed production cost paid by HKUST Ltd. is $100,000 and the variable production cost
is $35 per unit.

The demand forecast for this type of swimsuits is the following:

Demand Probability
10000 0.25
12000 0.5
14000 0.25

a) How many units of swimsuits should ISOM Ltd. order from HKUST Ltd.? (4 points)

Cu = 125 – 80 = 45
Co = 80 – 55 = 25
P(D <= Q*) = 45/(45 + 25) = 0.6429. Q* = 12000.

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 b) What will be the expected profit of HKUST Ltd. when the optimal quantity is ordered by
ISOM Ltd.? (5 points)

Expected profit of HKUST Ltd. = 12000 (80) – 100000 – 12000 (35) – 0.25 (2000) (55 – 20) =
422500

c) What will be the expected profit of ISOM Ltd. in this case? (5 points)

Expected profit of ISOM Ltd. = 10000 (125) (0.25) + 2000 (55) (0.25) + 12000 (125) (0.5) +
12000 (125) (0.25) – 12000 (80) = 505000

d) What is the loss due to decentralization of the supply chain as HKUST Ltd. and ISOM
Ltd. are separately owned? (5 points)

Cu = 125 – 35 = 90
Co = 35 – 20 = 15
P(D <= Q*) = 90/(90 + 15) = 0.8571. Q* = 14000.
Expected profit of a centralized supply chain = -100000 – 14000(35) + 0.25[10000(125) +
4000(20)] + 0.5[12000(125) + 2000(20)] + 0.25(14000)(125) = 950000
Loss due to double marginalization = 950000 – 422500 – 505000 = 22500

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