LINKS Supply Chain Management Fundamentals Simulation Revised July 2010 Randall G. Chapman, PhD 2 LINKS Supply Chain Management Fundamentals Simulation Table of Contents Chapters 1/2: Introduction and Perspective ……………………………………………………….. 3 Chapter 3: Product Development Decisions……………………………………………………….. 7 Chapter 4: Procurement Decisions ……………………………………………………………………. Chapter 5: Manufacturing Decisions………………………………………………………………… 17 Chapter 6: Distribution Decisions ……………………………………………………………………. 25 Chapter 7: Transportation Decisions ……………………………………………………………….. 29 Chapter 8: Service Decisions ………………………………………………………………………….. 37 Chapter 9: Generate Demand Decisions…………………………………………………………… 8 Chapter 10: Forecasting Decisions………………………………………………………………….. 44 Chapter 11: Information Technology Decisions ………………………………………………… 48 Chapter 12: Other Decisions …………………………………………………………………………… 53 Chapter 13: Financial and Operating Reports……………………………………………………. 55 Chapter 14: Research Studies…………………………………………………………………………. 3 Chapter 15: Performance Evaluation ……………………………………………………………….. 83 Chapter 16: Firm Management and Advice……………………………………………………….. 85 Appendix: Web-Based LINKS Access………………………………………………………………. 87 Index …………………………………………………………………………………………………………….. 89 LINKS Supply Chain Management Fundamentals Simulation Chapters 1/2: Introduction and Perspective “I hear and I forget; I see and I remember; I do and I understand. ” – Confucius In LINKS, you manage the supply chain of an on-going high-tech manufacturing business within the simulated set-top box industry. Working with your teammates, you’re in direct competition with other firms in your LINKS simulation industry. Your goal is to improve your FYI: Supply Chain Management Definition firm’s overall financial, operating, and market performance.
In addition to this manual, you may access support resources on the LINKS website: http://www. LINKS-simulations. com Supply chain management addresses fundamental issues of controlling the planning, sourcing, making, and delivering of manufactured goods. The supply chain encompasses sourcing and procurement, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. If we add the generate demand sub-process to the traditional supply chain subprocesses, the extended supply chain’s scope is impressive indeed.
With so much scope, it’s not surprising that managing supply chains well is a great challenge. Supply chain management coordinates suppliers, factories, warehouses, distribution centers, and retail outlets to produce and distribute items to the right customers, at the right time, and at the right price to minimize costs while satisfying a certain level of service. • Many components are involved — all of which reflect on cost and service level. The focus is not on a specific cost component such as reducing inventory, but rather on minimizing system-wide cost. • Integration is necessary to reduce cost and increase service levels. Because you have many different parties with different and conflicting objectives, finding the right strategy that is optimal across the entire supply chain is a huge challenge. Source: David Simchi-Levi, quoted in “The Master of Design: An Interview With David Simchi-Levi,” Supply Chain Management Review (Nov/Dec 2000), p. 75.
The learning objectives implicit in the LINKS simulation include the following: • Gaining exposure to all supply chain elements individually and to their associated interactions • Appreciating the need for balance and managing trade-offs in supply chains • Experiencing competitive dynamics in an evolving marketplace • Appreciating information flows and integration of information with decision making • Enhancing and encouraging fact-based analysis and decision making • Gaining familiarity with financial statements used routinely in for-profit businesses.
LINKS Overview “The ability to learn faster than competitors may be the only true sustainable competitive advantage. ” – Arie P. De Geus LINKS is a supply chain management simulation. LINKS encompasses all major supply chain elements: suppliers, manufacturers, distributors, retailers, and end-users. Firms in LINKS are responsible for managing product development, procurement (purchasing/sourcing), manufacturing, distribution and warehousing, transportation, customer service, generate 4 LINKS Supply Chain Management Fundamentals Simulation emand, forecasting, information technology, and research studies. Traditional financial statements, various operating reports, and optional research studies provide an information-rich environment for LINKS. Information management is important within supply chain management and LINKS includes various optional information enhancements (information technology and research studies) available for a fee. Exhibit 1 contains a schematic representation of the LINKS supply chain. LINKS firms manufacture and distribute products, as well as provide post-sale customer service via regional service centers.
The indirect retailer and direct e-commerce channels in LINKS provide a rich and challenging competitive milieu for supply chain management. Exhibit 1: LINKS Supply Chain Region 1, DC (Distribution Center) Adjacent To Manufacturing Plant RM Suppliers SAC Suppliers Other Regions With No DC (Distribution Center) Other Regions With a DC (Distribution Center) SAC Suppliers Manufacturing Plant and DC DC Retailers Retailers Retailers Customers (Retail) Customers (Direct) Customers (Retail) Customers (Direct) Customers (Retail) Customers (Direct)
Notes: (1) In this Exhibit, “DC” refers to distribution center, “RM” refers to raw materials (used for production and the first stage of postponed production), and “SAC” refers to sub-assembly components (used for production, postponed production, and replacement parts). (2) The shaded area is the direct responsibility of the LINKS manufacturers. The “manufacturing plant” handles product development, procurement, and production. Multiple customer segments (i. e. , “end users” or “final customers”) are reached via indirect (retail) and direct distribution channels.
These customer segments include individuals (consumers) and business-to-business customers. LINKS Supply Chain Management Fundamentals Simulation 5 Some relevant calendar-related LINKS aspects include the following: • Each period in LINKS is one calendar month. No known seasonality exists in LINKS. • You assume control of your firm at the end of month 3. Your first decisions are for month 4. • Firms in your industry started month 1 identically (i. e. , all competitors emulating each other exactly). Decisions were constant throughout months 1-3.
Financial and market positions of the firms in your industry vary somewhat after month 3 due to normal randomness in markets. You manufacture, distribute, and sell set-top boxes in three regional markets. Your manufacturing plant is located in market region 1. Distribution centers in each region inventory your products, fill orders from the retail and direct channels, stock inventories of sub-assembly components for replacement parts for within-warranty failures, and provide customer service via regional service centers.
Your distribution center in region 1 is located adjacent to your manufacturing plant and shares inventory of sub-assembly components with your manufacturing plant. Set-top boxes are high-tech electronics products purchased by individuals for home use and by businesses for office and manufacturing/operations environment uses. LINKS fourth-generation set-top boxes include telephony applications (such as interactive video conferencing), local-area wireless networking, control/monitoring of a range of within-area electrical appliances/devices, digital media server, and basic virtual reality capabilities.
LINKS includes hyperware and metaware set-top box categories sharing many common supply chain elements so the same general procurement, manufacturing, distribution, transportation, and service mechanisms exist. But, to end users, these categories are quite different products. There is no direct competition across the hyperware and metaware categories. Your firm has two products, referenced as “f-p” (for firm “f” and product “p”). For example, product 4-1 refers to product 1 of firm 4. For all firms, product 1 is a hyperware product and product 2 is a metaware product.
Your firm has a manufacturing plant and owned distribution center in region 1. You may choose to have third-party or owned distribution centers in regions 2 and 3. Your manufacturing plant in region 1 produces set-top boxes that are shipped to distribution centers in the regions served by your firm. The LINKS currency unit is the LCU, the “LINKS Currency Unit. ” The LCU is abbreviated “$” and pronounced Ldollar (“el-dollar”). The “LINKS Currency Unit” (LCU) is a Euro-like multi-country currency.
In your travels, you might have encountered the “$” currency symbol associated with currencies in Australia, the Bahamas, Barbados, Belize, Bermuda, Brunei Darussalam, Canada, Cayman Islands, Fiji, Guyana, Hong Kong, Jamaica, Liberia, Namibia, New Zealand, Singapore, Solomon Islands, Suriname, Taiwan, Trinidad/Tobago, the United States, and Zimbabwe. That’s merely a coincidence. The “$” currency symbol is widely known to have originated with the Ldollar. The LINKS analysis-planning-implementation-evaluation cycle is shown in Exhibit 2.
This cycle repeats throughout your LINKS exercise permitting you to learn from experience. 6 LINKS Supply Chain Management Fundamentals Simulation Exhibit 2: LINKS Analysis-Planning-Implementation-Evaluation Cycle (1) Analysis: Analyze current financial, operating, and market performance, which involves both individual and within-team analysis. (2) Planning: Based on prior analyses and working with your teammates, make decisions for the next round. These decisions represent your plan. (3) Implementation: Submit your decisions for the next round.
The simulation runs and new results are available. (4) Evaluation: Compare your plan to your results. What were you trying to accomplish? How well did you do? What corrective action is needed? Iterate Excel Spreadsheet Access To This Manual’s Exhibits “The secret of getting ahead is getting started. The secret of getting started is breaking your overwhelming tasks into small manageable tasks, and then starting on the first one. ” – Mark Twain This participant’s manual for the LINKS Supply Chain Management Fundamentals Simulation includes a large number of tabular exhibits.
To facilitate convenient access to these exhibits for on-going referencing during your LINKS exercise, these exhibits have been included in an Excel spreadsheet. To access/download this Excel spreadsheet, point your favorite browser to this case-sensitive URL: http://www. LINKS-simulations. com/SCF/ExhibitsSCF. xls LINKS Supply Chain Management Fundamentals Simulation 7 Chapter 3: Product Development Decisions Your firm has two products. Product 1 must always be a hyperware product; product 2 must always be a metaware product. In the LINKS Supply Chain Management Fundamentals Simulation, reconfiguration of your existing roducts is not permitted. Set-Top Box Configurations Each set-top box product is defined by a configuration that is expressed as a six-character code with the following elements and interpretations: (1) Product category: “H” for hyperware, “M” for metaware (2) Raw material Alpha: 0-9 (number of kilograms) (3) Raw material Beta: 0-9 (number of kilograms) (4) Bandwidth: 1-7 (terahertz) (5) Warranty: 0, 1, 2, 3, or 4 (length of warranty in months) (6) Packaging: “1” (standard), “2” (premium), or “3” (environmentally sensitive premium).
For example, H55321 is a hyperware set-top box with 5 kilograms of Alpha, 5 kilograms of Beta, bandwidth of 3 terahertz, warranty of 2 months, and standard packaging. Product configuration influences manufacturing, handling, and post-sale costs in known fashions. These various costs are in the next section. In addition to these six configuration elements, two sub-assembly components must be included within set-top boxes. Details about these subassembly components are provided in Chapter 4. Exhibit 4 contains a schematic representation of the hyperware and metaware set-top box product configurations.
Exhibit 4: Set-Top Box Configurations Product 1: Hyperware Configuration Elements 1. “H” 2. Alpha 3. Beta 4. Bandwidth 5. Warranty 6. Packaging Epsilon Gamma Product 2: Metaware 1. “M” 2. Alpha 3. Beta 4. Bandwidth 5. Warranty 6. Packaging Epsilon Delta Definitions Category [hyperware (“H”) or metaware (“M”)] 0-9 Kg of Raw Material 0-9 Kg of Raw Material 1-7 Terahertz 0-4 Months Stnd (“1”), Prem (“2”), or ES Prem (“3”) Common Sub-Assembly Component Unique Sub-Assembly Component Sub-Assembly Components 8 LINKS Supply Chain Management Fundamentals Simulation
In addition to one Epsilon sub-assembly component, set-top boxes require a Gamma (hyperware) or a Delta (metaware) sub-assembly component. A variety of suppliers provide sub-assembly components and alternative suppliers’ offerings are fully interchangeable in manufacturing. Thus, since their particular “value” (supplier) doesn’t impact configuration, sub-assembly components are not a formal part of the set-top box configuration. Product Costs Costs of raw materials and sub-assembly components are described in Chapter 4.
Costs other than those related to raw materials and sub-assembly components are detailed below: • Bandwidth: $10+0. 5(T*T*T) where T is the terahertz rating of the product. A terahertz level of 1 costs $10. 50 while bandwidth of 6 terahertz costs $118. You have the engineering capability to include any level of bandwidth in your set-top box products, within the technology range 1-7. Bandwidth is a “more-is-better” product attribute. Terahertz is just an industry-specific, generally-accepted metric describing the bandwidth performance of a set-top box.
Customers will always prefer more bandwidth, but they might or might not prefer it enough to offset the additional bandwidth costs. FAQ • Warranty: Set-top boxes may be configured with a warranty or with no warranty. With no “What is the full cost of providing set-top box warranty, there are no associated warranty warranties? ” The full cost of warranties to setcosts. If you choose to offer a warranty, top box manufacturers is the sum of three then the associated cost is $8+3(W*W), elements: where W is the warranty length in months. he direct warranty cost, $8+3(W*W), For example, a one-month warranty costs where W is the warranty length in months $11, a two-month warranty costs $20, a the indirect costs that arise when subthree-month warranty costs $35, and a fourassembly components fail (set-top box month warranty costs $56. Warranty manufacturers provide replacement parts coverage is outsourced to a reputable without charge to the customer when subassembly components fail in the field service provider in each market region. ithin the warranty-period protection These warranty costs are paid directly to the included with the original product outsourced warranty provider at the time the purchase) product is manufactured. Warranty costs do the indirect costs associated with call not depend on the failure rates of the subcenter activity when customers require assembly components. Set-top box within-warranty service/support when submanufacturers are responsible for the costs assembly components fail. associated with replacing sub-assembly components that fail in the field during the warranty period associated with a set-top box product.
Warranties are honored in the original calendar month of sale plus the additional number of months of the warranty associated with a product’s configuration. • Packaging: “1” (standard) packaging costs $10, “2” (premium) packaging costs $14, and “3” (environmentally sensitive premium) packaging costs $28. More expensive, premium packaging presumably has positive generate demand implications and provides greater physical protection during shipping, resulting in somewhat reduced failure rates in the field (i. e. , lower failure rates to customers). 3″ packaging denotes premium packaging with environmentally sensitive design, construction, and materials. LINKS Supply Chain Management Fundamentals Simulation 9 Chapter 4: Procurement Decisions “Buy low, sell higher. ” – Unknown Your LINKS firm manages the procurement function in your supply chain by sourcing subassembly components from various suppliers for use in production and as replacement parts. If postponed production is chosen, then similar inventory management decisions are required at regional distribution centers in which postponement occurs.
Sub-assembly components must be sourced from specific suppliers and transportation method (surface or air) must be chosen. Your LINKS procurement strategies and tactics will need to balance input costs, supplier delivery performance, sub-assembly component quality, and associated relationship management costs (the explicit Ldollar costs associated with maintaining relationships with alternative suppliers and the implicit time costs associated with managing a supplier portfolio). The input costs of raw materials and sub-assembly components represent a izeable portion of total product costs. Thus, thoughtful management of the procurement sub-process will be an important aspect of managing your firm in the set-top box industry. Raw Materials Raw materials Alpha and Beta are widely available single-grade commodities purchased at spotmarket worldwide prices. In-bound transportation costs are covered by the raw material suppliers. Due to their ubiquitous nature, surface transportation is the accepted mode of transportation. Raw materials are always delivered for use within the current month’s production activities.
The current prices of raw materials are $3/kg for Alpha and $4/kg for Beta. Volume discounts exist for all raw materials procurements. • If your firm’s Alpha or Beta raw materials procurements exceed 250,000 kilograms in a month, your firm receives a 7. 6% discount on the current raw materials price for Alpha or Beta procurement volume in excess of 250,000 kilograms. • An additional 6. 2% discount (a total discount of 13. 8%) accrues for Alpha or Beta raw materials procurements in excess of 500,000 units in a month. • A further 5. 4% discount (a total discount of 19. %) is realized for Alpha or Beta raw materials procurements in excess of 1,000,000 units in any month. • These raw materials procurements volume discounts are not applied to the total of Alpha and Beta procurements, but to each of Alpha and Beta separately. Vendors of raw materials in the set-top box industry provide inbound transportation as part of their bundled prices. Thus, there are no transportation decisions for set-top box manufacturers to make with regard to raw materials. No explicit raw materials procurement decisions are required in the LINKS Supply Chain Management Fundamentals Simulation.
The LINKS software automatically manages your raw materials procurement decisions, based on your manufacturing decisions for postponed and regular production. Your firm’s raw material requirements are completely determined by your firm’s production decisions. Thus, the exact amount of raw materials purchases is always known 10 LINKS Supply Chain Management Fundamentals Simulation with certainty and you’ll never have any raw materials inventory on-hand at the end of a month. Sub-Assembly Components and Supplier Decisions Hyperware products include sub-assembly component Gamma while metaware products include sub-assembly component Delta.
Each set-top box is composed of either one Gamma or one Delta sub-assembly component, depending on whether it is hyperware (Gamma) or metaware (Delta). Sub-assembly component Gamma may be sourced from suppliers “A”, “B”, “C”, or “D” while sub-assembly component Delta may be sourced from suppliers “B”, “C”, “D”, “E”, or “F”. Each set-top box (i. e. , hyperware and metaware set-top boxes) is manufactured FAQ with an Epsilon sub-assembly component that may be sourced from suppliers “D”, “We didn’t order Epsilon last month but our financial “E”, “F”, or “G”.
Gamma and Delta sub-assembly components are available on the spotmarket for immediate delivery. Epsilon sub-assembly components are delivered one month after ordering, not within the current month. You’ll need to take this delivery lag into account in managing your Epsilon sub-assembly component inventories. Sub-assembly components from alternative suppliers are freely substituted without influencing manufacturing costs. While all suppliers’ versions of each sub-assembly component perform approximately the same, there are differences in price, delivery performance, and in-field failure rates of the sub-assembly component suppliers.
Product failure in the field can result if the Gamma, Delta, or Epsilon components fail. By common practice, the customer (i. e. , your firm) arranges and pays for the transportation associated with in-bound sub-assembly components. Suppliers and manufacturers are jointly responsible for transportation decisions regarding inbound shipments of sub-assembly components. Suppliers quote unbundled sub-assembly component and transportation mode costs (surface and air). Manufacturers choose modes but suppliers arrange specific carriers for each transaction.
Suppliers choose specific carriers for sub-assembly components to deal with less-than-truckload orders economically. In addition, suppliers’ subassembly components are used in many other industries than just set-top boxes, so they must deal effectively and efficiently with cross-industry transportation requirements. Your LINKS firm must make sourcing decisions for sub-assembly components used in manufacturing involving both supplier selection and transportation modes. Surface and air transportation modes are possible. Costs of air transportation exceed those of surface.
However, air transportation ensures timely receipt of sub-assembly components so that they may always be used within the current month’s production activities. Gamma and Delta sub-assembly components cost $3/unit [$4/unit] for surface [air] transportation with the corresponding surface [air] transportation per-unit cost for Epsilon units being $4 [$6]. Emergency (expedited) orders of sub-assembly components incur a cost 50% higher than air transportation. These transportation costs are payable by the customer (i. e. , your firm), although reports include an in-bound Epsilon shipment. What’s going on? Epsilon sub-assembly components are delivered one month after ordering, not within the current month. This in-bound Epsilon shipment was from your procurement order two months ago. LINKS Supply Chain Management Fundamentals Simulation 11 carrier-specific decisions are made by the sub-assembly component suppliers. And, of course, these transportation costs are in addition to supplier purchase costs. Exhibit 5 contains cost, delivery, and failure data for sub-assembly components. “Delivery” refers to the average rate of receipt of sub-assembly components within the current month via surface transportation.
With air transportation, sub-assembly components are always received within the current month and may be used within the current month’s manufacturing activities. Recall that Epsilon sub-assembly components are ordered in this month and are delivered in the following month. Surface and air transportation options exist for Epsilon, but these deliveries are in the following month, not in the current month. Exhibit 5: Sub-Assembly Component Characteristics Sub-Assembly Components Gamma Cost Supplier A Supplier B Supplier C Supplier D Supplier E Supplier F Supplier G $12 $14 $13 $22 Delivery 80% ± 2% 85% ± 4% 85% ± 6% 90% ± 8% Failure 2. % 1. 9% 2. 0% 1. 2% $15 $16 $24 $14 $13 75% ± 4% 78% ± 6% 80% ± 8% 70% ± 10% 70% ± 12% 2. 6% 2. 5% 1. 8% 2. 7% 2. 8% $29 $20 $19 $21 80% ± 8% 75% ± 10% 77% ± 12% 78% ± 14% 1. 1% 1. 7% 1. 8% 1. 7% Cost Delta Delivery Failure Cost Epsilon Delivery Failure • • The delivery rates in Exhibit 5 are average delivery rates. The typical range of delivery rates is shown in “±” form (for example, “80% ± 2%” reflects an average surface delivery rate of 80% with a typical range for that average being 78% to 82%. Surface transportation of in-bound sub-assembly components is subject to various possible delays.
While the typical ranges are plus or minus 2% to 14% from the published statistics in Exhibit 5, more extreme performance levels are possible. If you want to be certain of current-month delivery, you can always use air rather than surface transportation. But, as you might expect, there are higher costs associated with air compared to surface transportation of sub-assembly components. Variability in surface transportation performance is one of the many elements of supply chain variability that must be managed, in real supply chains and in the LINKS set-top box supply chain. Failure” refers to the per-month failure rate for each sub-assembly component from each supplier. These failure rates refer to in-field failure faced by customers. A 1% failure rate is 12 LINKS Supply Chain Management Fundamentals Simulation • interpreted as a probability of 0. 01 that a specific sub-assembly component fails in any month. These failure rates are especially relevant during your products’ warranty periods, when your firm must bear any costs associated with sub-assembly component failure.
The costs in Exhibit 5 are the spot-market prices for sub-assembly components as of month 1. You will be advised of any changes in these sub-assembly component spot-market prices. Volume discounts exist for all sub-assembly components. • If your firm’s procurements of any sub-assembly component from any sub-assembly component supplier in a region exceed 50,000 units in a month, your firm receives a 10. 4% discount on the supplier’s current price for procurements volume in excess of 50,000 units. • An additional 7. 1% discount (a total discount of 17. %) is realized for any individual subassembly component procurement in excess of 100,000 units from any supplier in a region. Obviously, a range of trade-offs exist in sourcing sub-assembly components. Cost, delivery performance, and failure rates must all be balanced in sourcing sub-assembly components. Some suppliers may not be able to supply sub-assembly components for spot-market purchases in any given month due to capacity limitations and pre-existing contractual obligations with existing customers. Set-top box manufacturers that already have on-going relationships with suppliers (i. . , firms that purchased sub-assembly components last month from a supplier) receive preferential treatment as existing customers and, therefore, are normally unaffected by spotmarket unavailability conditions with such suppliers. Inventory Management For Postponed Production LINKS firms produce set-top boxes at their manufacturing plant and ship them through their regional distribution centers to customers. Alternatively, postponement is possible by producing semi-finished set-top boxes. Postponed production involves creating a semi-completed product at the manufacturing plant.
That semi-completed product, referenced as product “f-0” (for firm “f”), may be subsequently converted into either hyperware or metaware at a distribution center. If your firm practices postponed production, sub-assembly components inventories must be managed at your regional distribution centers. And, if you are currently manufacturing completed products at your manufacturing plant, inventories of sub-assembly components also have to be managed at the manufacturing plant. Recall that your manufacturing plant shares inventories with your distribution center in market region 1.
Raw materials are included within the initial production activities conducted at your firm’s manufacturing plant. Thus, you only procure raw materials at your manufacturing plant, not at any regional distribution centers outside of market region 1. Negative shipments of sub-assembly components (i. e. , returns to vendors) are not possible. However, the LINKS software automatically disposes of any residual inventory of sub-assembly components and finished goods when a DC is closed. The inventory is converted to cash at the current balance-sheet values and a corresponding disposal cost of 20% of the inventory’s value accrues.
This disposal cost is recorded under Consulting Fees on the firm’s P&L statement. An appropriate disposal-sale message appears at the end of the firm’s financial statements. LINKS Supply Chain Management Fundamentals Simulation 13 Replacement Parts Sub-assembly components may fail in the field as customers use their set-top boxes. Within the warranty period associated with each product, replacement parts are provided without cost by settop box firms. Each regional distribution center services demand for sub-assembly component replacement parts from the “local” region.
If a particular regional distribution center does not exist, then replacement part demand from that region is sourced from the distribution center adjacent to the firm’s manufacturing plant in market region 1. Obviously, your LINKS firm must maintain a suitable inventory of sub-assembly components to service replacement parts demand. Emergency Procurement Your firm has a policy of never running out of inventories of sub-assembly components. If the available inventory of any sub-assembly component is insufficient to meet the requirements implicit in your production orders, an mergency procurement order is automatically executed by the simulation software. FYI: JIT Versus JIC Companies have come to depend more and more on just-in-time (JIT) delivery. Perceptions of risk increases tilt the balance away from JIT and toward JIC, the just-in-case strategy of holding inventory against the risk of unexpected supply chain disturbances. This balance has been tilted further by sharp falls in interest rates, which cut the cost of holding inventory by more or less half, reducing the need for JIT systems. Emergency procurement orders of subassembly components are made from supplier D.
Emergency procurement orders of subSource: “Taking Stock,” The Economist (09/22/01) assembly components involve extra charges of $3/unit ($6/unit for Epsilon sub-assembly components). Emergency procurement costs are recorded as “Emergency Procurement” costs on the “Corporate P&L Statement. ” Emergency orders are always shipped by air so that they arrive in time to be used within the current month’s production activities. Emergency orders of sub-assembly components involve transportation costs that are 50% higher than the usual costs associated with sourcing via air transportation. Relationship Management Costs
Each relationship with a sub-assembly supplier incurs one-time start-up costs of $20,000, plus ongoing costs of $10,000 in the initial month of procurement and $5,000 in subsequent months as long as your firm continues to source sub-assembly components from a supplier. If you cease ordering sub-assembly components from a supplier and then start ordering again in a later month, these start-up costs are incurred again. “Relationship” means one or more purchase orders processed with a sub-assembly component provider. Relationship management costs are recorded under “Procurement FC” on your financial statements. 14
LINKS Supply Chain Management Fundamentals Simulation Fixed order costs of $1,250 accrue for every sub-assembly component procurement order (via surface or air) from every supplier used in a month. These costs are also recorded under “Procurement FC” on your financial statements. On-going relationships with sub-assembly component suppliers have the positive benefit of reducing the risk associated with spot-market unavailability in any given month. As mentioned above, as an existing customer of a sub-assembly component supplier, your firm would receive preferential treatment with regard to any supply constraints.
Thus, your firm would normally not face spot-market unavailability from your existing sub-assembly component suppliers. LINKS Supply Chain Management Fundamentals Simulation 15 Procurement Decisions (1) Sub-Assembly Components, Plant&DC1 Gamma, Surface Gamma, Air Delta, Surface Delta, Air Epsilon, Surface Epsilon, Air Supplier A Supplier B Supplier C Firm Month Supplier D Supplier E Supplier F Supplier G Reminders Only input changes. If you’re happy with the current values of these decisions, leave the appropriate decision entries blank.
Don’t forget to zero-out prior procurement decisions if you don’t wish them to continue on into the next month. All decision inputs change the existing values to the values that you specify. Do not enter “+” or “-” values. Rather, enter new values only (new values replace the existing value of the decision variable with your designated value). 16 LINKS Supply Chain Management Fundamentals Simulation Procurement Decisions (2) Sub-Assembly Components, DC2 Gamma, Surface Gamma, Air Delta, Surface Delta, Air Epsilon, Surface Epsilon, Air Supplier A Supplier B Supplier C Firm Month
Supplier D Supplier E Supplier F Supplier G Sub-Assembly Components, DC3 Gamma, Surface Gamma, Air Delta, Surface Delta, Air Epsilon, Surface Epsilon, Air Supplier A Supplier B Supplier C Supplier D Supplier E Supplier F Supplier G Reminders Only input changes. If you’re happy with the current values of these decisions, leave the appropriate decision entries blank. Don’t forget to zero-out prior procurement decisions if you don’t wish them to continue on into the next month. All decision inputs change the existing values to the values that you specify. Do not enter “+” or “-” values.
Rather, enter new values only (new values replace the existing value of the decision variable with your designated value). LINKS Supply Chain Management Fundamentals Simulation 17 Chapter 5: Manufacturing Decisions “Nobody wants to have inventory, but everybody wants a product there when they want it. ” – Joe Chernay, Vice-President of Manufacturing and Technology, Bayer Corporation, http://www. industry. net/ discussions/supplychain. htm The LINKS production sub-process involves planning ahead to create your production volume orders in light of downstream demand forecasts that you craft as part of your supply chain decision making.
In a build-to-plan (build-to-stock) production system, the consequences of poor production planning are either too much inventory of unsold products or unfilled orders. Perspective on Manufacturing and Postponed Production Production decisions for unrelated products are simple: produce sufficient quantities to meet end-user demand at your plant and then ship market-specific quantities to regional distribution centers to meet forecasted enduser demand. With unrelated products that don’t share anufacturing and parts components, supply-demand imbalances inevitably arise at the various regional distribution centers due to the natural variability of end-user demand. Some distribution centers will have too much finished goods inventories to meet local end-user demand, while other distribution centers will have too little finished goods inventories to meet local end-user demand. With unrelated products, there is little that can be done to alleviate these imbalances, given fallible forecasts and unpredictable end-user demand levels.
FYI: Postponement Examples Postponement examples in manufacturing systems include: • “Package-to-order” manufacturing where country-specific language considerations are taken into account only at the point where the product is packaged for final shipment to particular countries. • Benetton used to dye yarn different colors, knit sweaters, and keep stocks of each color to meet varying demand. Now, Benetton knits seaters with undyed yarn, keeps much smaller stocks of these, and then dyes the finished sweaters to meet actual orders. Manufacturers of electrical equipment, such as Philipps and Hewlett-Packard, used to build into their products the transformers and plugs needed for different markets. Then, they had to keep separate stocks of products destined for each country. Now, they make the transformers and cables as separate, external units. They only keep stocks of the basic, standard products and then customize then for different markets by adding the appropriate transformer and plugs at the last minute. The result, of course, is much lower inventory stocks.
The theoretical basis for postponed production is potential underlying production/engineering similarities across multiple related products and/or product lines. For example, a diversified manufacturer of TVs, automobiles, and footwear has no apparent production/engineering similarities among these disparate products. These are “unrelated” products. On the other hand, a Source: Donald Waters, Logistics: An Introduction To manufacturer of TVs and personal computer Supply Chain Management (Hampshire UK: Palgrave MacMillan, 2003), pp. 32-33.
CRTs has “related” products with many similarities in production/engineering. As described in detail below, postponement is one strategy for taking advantage of “relatedness” in products and product lines. 18 LINKS Supply Chain Management Fundamentals Simulation Customer preference variations predispose manufacturers to offer extensive product lines to appeal to a range of customer segments, notwithstanding the customization costs accruing with specialized product offerings (e. g. , shorter production runs with more products in a line).
Perhaps less obviously, demand-supply matching is more challenging for each item in an extensive product line, since forecasting errors are inevitably larger as more disaggregate forecasts are required. 1 The theory of postponed production is to mass produce a core product and then finish, customize, or refine it relatively close to the final customer, when customer preferences and demand for particular product variations are known. FYI: Mass Customization With related products as in LINKS, some further supply chain management possibilities arise.
The supply-demand imbalance issue still exists, of course, with the painful aspect that some products will have too much finished goods inventory at the regional distribution centers while other products will have too little finished goods inventory. If only there was a way to use the related products to meet these local supply-demand imbalances. Postponed production is one such strategy. Retrofitting hyperware to become metaware and vice-versa would be another hypothetical strategy, but that’s not possible in the set-top box for a variety of engineering and design reasons.
Modularized design and postponement allow manufacturers to build standard modules and put off making the final product from those modules until the very last minute. This gives them the flexibility to respond to changes in orders and in markets so they can minimize the risk both of putting the wrong products on the shelves and of consuming capacity better used to produce products in demand. The idea of postponement is to build a plain vanilla base product, then wait until the last minute to configure it precisely to the customer’s needs. Source: Adapted from G.
Berton Latamore, “The Burden of Choice: Mass Customization Drives Market Differentiation,” APICS — The Performance Advantage, Volume 11, Number 1 (January 2001), p. 42. Paint is an ideal example where postponed production is crucial. Suppose that paint had to be manufactured in all possible colors and shades at the manufacturing plant. This would involve hundreds or thousands of paint SKUs. Each paint SKU would have to be inventoried individually throughout the paint supply chain. Efficient inventory management of paint SKUs would be impossible.
Too much paint of one color would accumulate at some DCs or retail outlets while there would be shortages of that paint color at other DCs or retail outlets. But, consider an alternative manufacturing process: base paint ingredients (prime colors) are produced at the manufacturing paint and these base paint ingredients are suitably mixed at the DCs, retail outlets, or at the customer’s site to form the final paint color. In such a postponed production system, customization of paint color occurs close to or at the point of sale and inventories of paint SKUs do not accrue throughout the paint supply chain.
With postponement, production of paint ingredients (base colors) occurs at the manufacturing plant with final customization into a finished product (paint color) occurring later in the supply chain, at the DC, retail outlet, or customer’s site. Hyperware and metaware share a variety of engineering and production characteristics. Except for a few product configuration elements (Gamma or Delta), hyperware and metaware products 1 It’s easier to forecast aggregate sales for a product class than to forecast disaggregate sales for each item in that product class.
Similarly, it’s easier to forecast aggregate monthly sales for a product than to forecast that product’s daily sales levels. Disaggregate forecasting errors tend to “average out” as one moves to more aggregate forecasts. LINKS Supply Chain Management Fundamentals Simulation 19 share a common production/engineering platform. To take advantage of this common production platform, postponed production is possible. Postponed production involves creating a partially completed product, referenced as product “0” (zero), at your firm’s manufacturing plant.
Inventories of product “0” are tracked, like all other finished goods inventories of your other products, from your manufacturing plant to your distribution centers. Postponed production occurs at your regional distribution centers and involves converting product “0” into specific finished goods. With postponed production, final product identity is assigned at the distribution center (DC), not at the manufacturing plant. Postponed production has the potential to reduce demand-supply imbalances at distribution centers since not all product shipped to the distribution centers has to be completely finished.
Product “0” postponed units may be converted into either hyperware or metaware to meet local demand variations across your set-top box product line. Postponed production is only possible with an owned DC in a region, not with a third-party DC or with no DC. Production and Postponed Production The costs associated with manufacturing and postponed production are described in Exhibit 6. DC-specific costs refer to the incremental production costs associated with converting postponed-production units into either hyperware or metaware completed products.
There is a fixed cost per order associated with setting up each production run, whether at the manufacturing plant or for postponed production at any distribution center. In addition to these production-related costs, the implied costs associated with the configurations of the products are also added into the costs of the products. FYI: Why Hold Inventory? While low inventory levels are attractive from a cost perspective, there are a variety of reasons for holding inventory: • To create buffers again the uncertainties of supply and demand. To take advantage of lower purchasing and transportation costs associated with high volumes. • To take advantage of economies of scale associated with manufacturing products in batches. • To build up reserves for seasonal demands or promotional sales. • To accommodate products flowing from one location to another (work in progress or in transit). • To exploit speculative opportunities for buying and selling commodities. Production volumes for each product (including postponed production [product 0]) can change by a maximum of 10,000 units from the previous month’s value.
You may, however, Source: Jeremy F. Shapiro, Modeling The Supply Chain (Pacific Grove, CA: Duxbury, 2001), p. 477. change a product’s production volume to 0 units at any time, but you’d then be limited to a maximum production volume of 10,000 units in the following month. This constraint on successive month’s production volumes is necessitated by load balancing requirements associated with available plant capacity and labor force overtime scheduling requirements.
In addition to the order-related fixed costs and the unit-related variable costs described in Exhibit 6, your firm absorbs costs associated with depreciation and maintenance of your dedicated plant 20 LINKS Supply Chain Management Fundamentals Simulation capacity to manufacture set-top boxes. These costs are $100,000 per month for each production “shift,” and they are recorded as “Plant Capacity FC” (plant capacity fixed costs) on your “Corporate Current P Statement. ” These costs are allocated equally among your products. Exhibit 6: Manufacturing Costs (Per Unit)
Postponed Production Manufacturing Plant Postponed Production Fixed Costs (per order) Labor Costs (per unit) Production Costs (per unit) Hyperware Fixed Costs (per order) Labor Costs (per unit) Production Costs (per unit) Metaware Fixed Costs (per order) Labor Costs (per unit) Production Costs (per unit) $20,000 $22 $11 $22,500 $30 $20 $24,500 $36 $16 $5,000 $14 $12 $6,000 $16 $10 $5,000 $15 $14 $8,000 $20 $12 $4,000 $12 $11 $5,000 $15 $10 DC1 DC2 DC3 Note: DC-specific “Postponed Production” costs are incremental, above and beyond “Postponed Production” costs recorded in the “Manufacturing Plant” column.
For example, the total fixed costs (per order) associated with postponed production for hyperware completed at DC1 are $20,000+$5,000=$25,000. With postponed production, the semi-completed set-top box (product 0) must be initially configured at the manufacturing plant to facilitate ultimate conversion to a specific hyperware or metaware product at the second-stage of postponed production which occurs at the regional distribution center. To do this, some elements of the set-top box must initially be overbuilt to ensure downstream conversion flexibility.
Postponed production of product 0 requires raw materials values of Alpha and Beta equal to 9. At postponement completion at a regional distribution center, excess raw materials are retooled out of semi-completed production as product 0 is transformed into a complete finished product (product 1 or product 2). These excess raw materials are waste and have no recovery value. • Raw materials (Alpha and Beta) are only procured and inventoried at your manufacturing plant, not at your distribution centers. The first-stage production process in postponed production occurs only at your manufacturing plant.
That’s where raw materials are embedded into your products, both postponed production and completed/finished goods. Raw materials are never needed at your distribution centers. • With postponed production, all sub-assembly components (Gamma, Delta, and Epsilon) are applied to the final-form product at the distribution center. Thus, inventories of all sub-assembly components must be maintained at DCs where LINKS Supply Chain Management Fundamentals Simulation 21 • • postponement is executed. With postponed production, the bandwidth associated with a product is engineered in at the final production stage at your istribution center, not during initial production at your plant. Postponed production qualifies as “local” manufacturing at the owned DC in which product “0” is converted into finished goods. No duties and tariffs are payable for such “local” manufacturing at owned DCs. Of course, by definition, all finished goods sold in market region 1 are “local,” since your firm’s manufacturing plant is located in market region 1 and you own your DC in market region 1. “Duties & Tariffs” are levied on sales in a market region (orders from customers) with appropriate credit being provided for “local” production (i. e. for the second-stage of postponed production when the final identity is assigned to the finished product at the within-region owned distribution center). Case Study: Zara International fashion retailer Zara has crafted a value proposition of combining moderate prices with the ability to offer new clothing styles faster than competitors. To make this happen, the company designs and cuts its fabric in-house, and it acquires fabrics in only four colors to keep costs low. Zara postpones dyeing and printing designs until close to manufacture, thereby reducing waste and minimizing the need to clear unsold inventories.
Postponement and reconfiguration are two different concepts. With postponement, you’re not actually establishing the identity of the postponed product (product 0) until the second-stage of the production process, at the distribution center when postponed production (product 0) is converted into a final finished good. Reconfiguration, on the other hand, involves changing the configuration of a fully complete/finished set-top box product. A production “shift” can accommodate up to 50,000 units of production per month.
If your Source: “How Zara Stays on the Cutting Edge,” Optimize total production volume across all products Magazine (December 2003). (including regular and postponed production at your manufacturing plant) is less than 50,000 units per month, then you only need one production shift, and the associated costs are $100,000. If your total production volume across all products (including regular and postponed production at your manufacturing plant) is 50,001 to 100,000 units per month, then you need two production “shifts” in that month, with associated costs of $200,000.
The LINKS software automatically schedules the appropriate number of production “shifts” based on your total production volume. You must always have at least one production “shift” capability at all times, even if your total production volume in a month is zero units. Unfilled Orders Unfilled orders can exist in your set-top box industry. If demand for any product exceeds finished goods inventory, customer sales and scheduled product shipments to other DCs must be reduced (proportionately) by the amount that orders exceed finished goods inventory.
The difference between potential customer sales (orders) and actual customer sales due to inadequate on-hand finished goods inventory is “unfilled orders” in LINKS. Unfilled orders are not backlogged orders. Unfilled orders are not guaranteed (i. e. , contracted, pre-paid) future sales. Unfilled orders occur at a particular time due to inventory shortages relative to potential customer demand (orders), given competitive conditions at that particular time. 22 LINKS Supply Chain Management Fundamentals Simulation
Unfilled orders incur processing and handling costs of $25/unit. Past experience suggests that current unfilled orders reflect three types of set-top box customers. Some customers immediately defect to another competitor’s (available) product. Other customers decide not to buy any set-top product now or in the near-term future. A third segment of customers are inclined to wait and attempt to repurchase the preferred product having these unfilled orders again in the future when supply (i. e. , inventory availability) is more favorable.
The size of these three types of unfilled-orders customers is unknown. In all cases, however, it should be expected that unfilled orders negatively impacting downstream demand to some extent. If competitive conditions change (e. g. , if you raise your unfilled-orders product’s price dramatically or competitors substantially improve their own product offerings and marketing programs), then the share of customers with unfilled orders who would have been inclined to attempt to repurchase your unfilled-orders product in the future can decrease.
Additionally: • If you drop a product with unfilled orders from active distribution in a particular channel and region, the unfilled orders associated with that product in that particular channel and region are completely lost. They will not shift to another product, even your own dropped product still actively distributed in another channel in that region. • If you reconfigure a product with outstanding unfilled orders, those unfilled orders are lost. Unfilled orders represent additional potential demand that might have been realized beyond “filled orders” (i. e. sales) if sufficient product supply had been available to meet customer purchase requests. Note that unfilled orders also reflect industry-wide double-counting if multiple firms’ products simultaneously have unfilled orders. If two products simultaneously have unfilled orders, then some customers might have wished to purchase first one of the products and then the other product when the stockout situation for the first product was encountered. In such a situation, a single customer would have been counted as an unfilled order by both stocked-out products. The definition of unfilled orders varies by channel.
For a direct channel (like channel #2), an unfilled order to an end-user customer is the same as an unfilled order to the manufacturer. However, for an indirect channel (like channel #1), inventory buffer stock routinely maintained by retailers complicates the interpretation of unfilled orders. If retailers order 1,000 units from a manufacturer but that manufacturer is only able to fill 600 units of that order, this represents 400 units of unfilled orders to the manufacturer. However, this doesn’t necessarily mean that retailers have unfilled orders from end-user customers.
If the 600 units of the retailers’ manufacturer-order yield sufficient on-hand retailer inventory to permit all end-user customer orders to be filled, then there are no unfilled orders as far as retailers are concerned. (In this case, retailers’ ending inventory level would be below the desired level, which presumably would lead to increased orders in the following month to meet expected end-user customer demand plus inventory restocking targets. ) With the buffering nature of retailer inventory, there could be no industry-wide unfilled orders but individual manufacturers could still have unfilled orders in channel #1.
If dealers stockout, they’ll reorder in anticipation of future rising demand above current sales levels, as well as having to account for their (i. e. , dealers’) desired inventory levels in the future. These are the total unfilled orders that manufacturers see arising from channel #1. Industry-wide unfilled orders, as reported in Research Study #12, reference actual final end-user customer stockouts now (not in the future). Note, too, that since industry-wide unfilled orders are customerbased, industry-wide unfilled order estimates presumably are based on customer surveys.
Such survey-based estimates contain some statistical noise as well as reflecting the potential for biases in customer surveys, especially if there are lots of customers who encountered stockout LINKS Supply Chain Management Fundamentals Simulation 23 situations. Thus, even a thoughtful/rational survey respondent might claim to have wanted to buy and encountered a stockout situation, to encourage manufacturers to have more plentiful inventory, especially when no contractual purchase commitment is required within the survey. 4 LINKS Supply Chain Management Fundamentals Simulation Manufacturing Decisions Manufacturing Decisions Production Product 0 Product 1 Firm Month Product 2 Notes: (1) “Product 0” refers to postponed-production units. (2) Each production volume may change by a maximum of 10,000 units from the preceding month’s value. You may, however, change production to 0 at any time. However, note that with a production value of 0 units, the following month’s production volume would be limited to a maximum of 10,000 units.
Reminders Only input changes. If you’re happy with the current values of these decisions, leave the appropriate decision entries blank. Don’t forget to zero-out prior production decisions if you don’t wish them to continue on into the next month. All decision inputs change the existing values to the values that you specify. Do not enter “+” or “-” values. Rather, enter new values only (new values replace the existing value of the decision variable with your designated value). LINKS Supply Chain Management Fundamentals Simulation 5 Chapter 6: Distribution Decisions Distribution decisions in LINKS include whether you have distribution centers (DCs) in regions other than your home-base (i. e. , region 1) and, if so, the form of those DCs (outsourced vs. owned). For each region-specific DC, you also face a decision related to how RFID-application occurs for products distributed through the retail channel (channel #1). Distribution Center Decisions While you must always have an owned DC in region 1, you may or may not wish to have DCs in other regions.
Even if you choose not to have a distribution center in a region other than region 1, you can have sales in that region if you choose to actively distribute products in any channel in that region. Such sales would be serviced directly from the region 1 DC. With a distribution center in a region: • Replacement parts demand is fulfilled from that regional DC, rather than from DC1, thus requiring inventories of sub-assembly components to be maintained at such regional DCs. • Postponed production is possible at owned DCs, with consequent implications for nventorying of sub-assembly components at that regional DC. • When you open a regional distribution center, you’ll have no inventory of sub-assembly component Epsilon available at that DC for the first month. Thus, all first-month usage of Epsilon will be on an emergency basis, with consequent emergency ordering costs. • Transportation of finished goods to customers from a regional DC is via surface transportation. Otherwise, air transportation is required to ship finished goods from the distribution center in region 1 to customers in other regions without a local distribution center.
Three distribution center decision options exist in regions other than region 1. In region 1, you must always own your distribution center (located adjacent to your manufacturing plant in region 1). The distribution center decision options, along with their cost consequences, are as follows: • Decision Option “0” (don’t have a distribution center): No distribution center costs exist. • Decision Option “1” (outsourced third-party distribution center): By using a third-party logistics strategy, your firm outsources your regional distribution center to a reputable partner in any market region.
Outsourced distribution centers involve one-time costs of $100,000 to open an outsourced distribution center, $50,000 in one-time costs to close an outsourced distribution center, $50,000 in recurring monthly costs as long as your firm has an outsourced distribution center in any region, and inventory charges of 5% based on the inventory value at any outsourced distribution center. These one-time costs of $100,000 are incurred to open any outsourced distribution center or to convert any owned distribution center to outsourced status. Decision Option “2” (operate owned distribution center): In operating your own distribution centers, your firm incurs one-time costs of $250,000 to open an owned distribution center in any market region, $150,000 in one-time costs to close any owned distribution center, $25,000 in recurring monthly costs as long as your firm owns a regional distribution center, and inventory charges of 3% based on the inventory value at owned regional distribution centers. These one-time costs of $250,000 are incurred to open any owned distribution center or to convert any outsourced distribution center to owned status. 6 LINKS Supply Chain Management Fundamentals Simulation Inventory costs are recorded under “Inventory Charges” on your “Corporate P Statement” and other distribution costs are recorded under “Distribution FC” on the “Corporate P Statement. ” Your firm either has no DC in a region or your firm has one DC in a region. Your firm never has more than one DC in a region. The DC status code “2” denotes an owned DC in a region, not two DCs in that region. DC-openings and DC-conversions (from outsourced to owned or from owned to outsourced) occur immediately (i. e. at the start of the next month). In DC-conversions, existing inventory is automatically transferred to the new DC-form. The LINKS software automatically disposes of any residual inventory of sub-assembly components and finished goods when a DC is closed. The inventory is converted to cash at the current balance-sheet values and a corresponding disposal cost of 20% of the inventory’s value accrues. This disposal cost is recorded under Consulting Fees on the firm’s P&L statement. An appropriate disposal-sale message appears at the end of the firm’s financial statements.
Postponed production is only possible with an owned DC, not with a third-party DC. RFID-Application For Retail-Channel Sales A recent development in the set-top box industry has increased your costs associated with selling through the indirect channel (i. e. , channel #1). Retailers of set-top box products now require that your products be equipped with RFID (radio-frequency identification). Compared to bar codes, radio tags can carry more information about products, can be scanned more rapidly, and can be located easily even if they are hidden in cartons or behind other products.
RFID is seen as the long-term successor to bar codes throughout the retail industry. RFID is applied to your outbound set-top box products at your distribution centers. Only products being distributed to the retail channel (i. e. , channel #1) require RFID-application. At each distribution center, you have two choices with regard to how RFID is included on your settop box products sold through the indirect (retail) channel. • Decision Option 0 (outsourced RFID-application): Your current practice is to outsource RFID application to a reputable vendor in each market region in which you have a distribution center.
Outsourcing adds $11 in variable costs to all of your set-top box products sold through the retail channel (i. e. , channel #1). • Decision Option 1 (insourced RFID-application): You can insource the provision of RFID for products sold through the retail channel. Insourcing incurs a one-time investment of $350,000 (for capital equipment purchases, process reorganization, and staff retraining) and reduces the variable costs to $1 for all set-top box products sold through the retail channel (i. e. , channel #1).
The one-time investment of $350,000 is recorded under “Consulting Fees” on your corporate profit-and-loss statement. Note that there is no re-sale market for used RFID equipment. Therefore, you would not be able to recapture any part of the one-time $350,000 investment in RFID insourcing at any distribution center if you subsequently choose to close that distribution center. Your RFID decision is specific to each distribution center. Thus, you may choose to insource at some DCs and outsource at other DCs, as you wish. LINKS Supply Chain Management Fundamentals Simulation 7 RFID insourcing is only possible if you already have (or simultaneously open) a DC in a region. With no DC in a region, your set-top box products must be sourced from DC1 and your RFID status at DC1 will be in effect for your retail-channel sales in other regions without a local DC. Emergency Carriers For Plant-To-DC Shipments You must also choose an emergency carrier for each of your DCs (other than DC1). This emergency carrier for each DC (other than DC1) is used for plant-to-DC transportation shipments required on an