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Inventory Supply Integration

This plant addition has a number of unique ion and heat exchangers that are connected by a maze of pipe spools, small bore piping, valve and pumps. There is also a fair amount of structural steel required to hang all of these components and a lot of concrete work to anchor the steel as well as build walls at various places. In round numbers, there are 100 unique components, 10K pipe spools, 300K of straight piping split almost evenly between 4", 6" and 8" bore (most comes is either 8' or 10' sections), 5K valves and the assorted hardware to put things together (flanges, gaskets, pipe hangers, welding rods, etc.).

You have two suppliers of pipe spools: a smaller shop within a 15 minute drive of the site and a larger shop about 2 hours away.

There are three possible suppliers of straight pipe. The lowest cost producer is in Asia so transportation is weeks. A higher cost alternative is in Mexico and the average travel time, including time through the border crossing, is about 4 days. A shop within about a hour of the plant is also available.

The structural steel can also be procured from Asia; however, a domestic supplier is also possible. This supplier's shop is a day's drive; however, they actually own some land about 5 minutes from the plant that they said was available if you wanted to use it somehow. The valves take 2 full days to be sent from the plant and the hardware is all available locally from multiple vendors.

Using inventory, push and pull, develop ideas on how the various parts could be controlled. There is no need to look at cost. Comment on the types of things you think should be included in the analysis to get the best answer. You may assume that you have a large laydown area and a moderate sized warehouse already in place to receive items and that the site has staging areas scattered around that could be used to hold inventory for a short period of time or to do some pre-processing on items before moving it to the workface for installation.

Briefly discuss why you chose the strategy that you did for each of the items and be sure to address why you think that strategy is better. (e.g., You think it is better to stockpile flanges at the workface because craft labor should never be idle because they don't have flanges; or you think flange should be pulled from the warehouse JIT because this is one item that we can "flow" and get all of the advantages including no clutter at the workface.)

Solution Preview

There are many aspects or things that need to be analyzed in order to arrive at the best answer. First of all, we need to analyze the accuracy with which the demand for such items can be forecasted by the forecasting team. In other words, if demand for such parts can be predicted with fair level of accuracy, the company would be motivated to source it from lowest cost providers in Asia by planning in advance as it would result in significant cost savings for the firm. If the demand for such parts is erratic and cannot be predicted with good accuracy, the firm will have to consider sourcing it from domestic or nearby suppliers.

The company will also have to estimate the loss that can occur due to delay in availability of parts. The calculation of this figure is essential to conduct a cost benefit analysis of ordering parts from offshore suppliers versus local suppliers by comparing the savings generated due to procurement from low cost suppliers versus loss of production/work due to delay in arrival of such parts.

The company will also need to analyze carrying cost of inventory as this is also ...

Solution Summary

Briefly discuss why you chose the strategy that you did for each of the items and be sure to address why you think that strategy is better. (e.g., You think it is better to stockpile flanges at the workface because craft labor should never be idle because they don't have flanges; or you think flange should be pulled from the warehouse JIT because this is one item that we can "flow" and get all of the advantages including no clutter at the workface.)

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