Considering a supply chain consisting of a single manufacturing facility, a cros

Question

Considering a supply chain consisting of a single manufacturing facility, a cross-dock, and two retail outlets. Items are shipped from the manufacturing facility to the cross-dock facility and from there to the retail outlets. Let L1 be the lead time from the cross-dock facility to each retail outlet. Let L= L1 + L2. In the analysis below, we fix L and Vary L1 + L2. a. Compare the amount of safety stock in two systems, one in which lead time from the cross-dock facility to a retail outlet is zero (i.e., L1 = L and L2 = 0) and a second system in which lead time from the factory to the cross dock facility is equal to zero (i.e., L1 = 0 and L2 = L). b. To reduce safety stock should the cross-dock facility be closer to the factory or the retail outlets? For purpose, analyze the impact of increasing L1 and therefore decreasing L2 on total safety stock

Explanation / Answer

Solution:

L= Lead time from Manufacturing to Retail Outlet

L2 = Lead time from Croos Dock facility to retail outlet

L1 = Lead time from Manufacturing Facility to Cross Dock Facility

L = L1 + L2

a) When L2= 0 then L= L1 at this stage keep optimum safety stock level

When L1 = 0 then L= L2 i.e. lead time from Cross dock facilty to retail outlet Keep safety stock at high level.

b) To reduce the safety stock Crossdock facilty should be near to Retail Outlets. In this case the lead time L2 from cross dock facilty to retail outlet will be minimum level and L1 from manufacturing to crossdock lead time going to increase. If we reduced L2 then L1 will going to increase and when we reduce L1 the L2 will going to increase.

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