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Division of Research UM Business School May 27, 2002 VELOCITY MANUFACTURING COMPANY VELOCITY CONSULTING CASE ASSIGNMENT AN ANALYSIS OF HISTORIC DEMAND TO SUPPORT THE DESIGN OF INVENTORY STOCKING AND REPLENISHMENT POLICIES Working Paper # 02-009 Dennis G. Severance Accenture Professor of Computers and Information Systems The University of Michigan Business School FOR DISCUSSION PURPOSES ONLY None of this material is to be quoted or reproduced without the expressed permission of the Division of Research COPYRIGHT 2002 The University of Michigan Business School Ann Arbor, Michigan 48109-1234 1

VELOCITY CONSULTING CASE ASSIGNMENT AN ANALYSIS OF HISTORIC DEMAND TO SUPPORT THE DESIGN OF INVENTORY STOCKING AND REPLENISHMENT POLICIES The Velocity Manufacturing consulting opportunity arises in large part from the company's inability to profitably supply its customers with the product variety and service levels that are now required. Any proposal by your team to redefine Velocity's market strategy or operating policies will require justification, and should include a thorough analysis for any new production, stocking or reordering policy. As illustrated in Figure 1, a basic building block for such analysis is a forecast of demand for products and the resulting requirements for components and raw materials. These often derive in large part from an investigation of historical demand. The goal of this assignment is to provide an understanding of the historical demand for Velocity's products by customer and part number, and the resulting requirements for product components and raw materials (illustrated in Figure 2). The file, Demand2002.XLS, contains a history of all orders for Velocity's products during the year 2002. Your task is to analyze that data to establish the following facts and statistics. * Daily demand. Determine the demand by part and by customer for each day of the past year on which there was some customer order. Summarize your findings with a table giving the mean, variance, standard deviation and the coefficient of variation (standard deviation/mean) for each part. Do the same for each customer. Finally, calculate these statistics for the total demand each day. * Relative demand. Perform a Pareto analysis of the annual demand for both customers and parts. Graph your results for the top 15 elements of each category and group the remaining demand into a sixteenth item ("other"). * Daily demand for components and raw materials. Using the bill-of-materials tables found in Figure 3 (and provided in VelocityBOMs.XLS) calculate the average daily consumption and variation in demand for the 18 end fittings and 17 raw materials used to build Velocity's 68 products. (Matrix multiplication that can accomplish this is illustrated in ExplosionIllustration.XLS for the simplified example of the end fittings consumed by 20 parts over 10 days.) Determine the mean, variance, standard variation and the coefficient of variation for these daily requirements and summarize your findings in the form of a table. Submit your report in both printed and electronic form. Name your file Team#.XLS 2

Dtai..Require d__r _ F er__ sllterals.e uremnent Pinni N, 4. \ \i Figure 1. 3

Bi::-u:::::::::s I-:rocess.=esc= =on Lj 6 machine blanks +.^^^ i:............:::::::::::::::::::::::::::::::::::::......................................... _________...................................................|.|.|............ _ ]1 S e nd fitt ing s~~~~~~~~~................ 3 elbows I n IIiBI II 6D8 D0 + + + + 8 88 88 IOBUO IUI —~ --- —-~ ---IU I Iriig end fitting end fitting end fitting end fitting 2 a+ in+ 2 + a= 2paints 2 abes 1 cap 2 tags q::.....................~ ~~~...............i..i.i.i.......i.i.................. 839,808 finished assemblies Figure 2. SECTOR 1 Red Blue Orange Yellow White Pink Red Blue Green P/N Blank Blank Blank Blank Blank Blank Elbow Elbow Elbow R-R 1 1 R-B 1 1 R-G 1 1 B-R 1 1 B-B 1 1 B-G 1 1 O-R 1 1 O-B 1 1 O-G 1 1 Y-R 1 1 Y-B 1 1 Y-G 1 1 W-R 1 1 W-B 1 1 W-G 1 1 P-R 1 1 P-B 1 1 P-G 1 1 Figure 3a. 4

Sector 2 P/N R-R R-B R-G B-R B-B B-G O-R O-B O-G Y-R Y-B Y-G W-R W-B W-G P-R P-B P-G Bases 01-2 2 1 ___ _ 1 1 02-2 2 1 __1 1 03-2 1 1 1 1 1 04-2 1 1 1 __1 1 05-2 1 1 1_ _ 1 1 06-2 1 1 1 1 1 07-2 2 1 1 1 08-2 2 1 1 1 09-2 1 1 1 1 1 10-2 1 1 1 1 1 11-2 1 1 1 1 1 12-2 1 1 1 1 1 13-2 2 1 1 1 14-2 1 1 1 1 1 15-2 1 1 1 1 1 16-2 1 1 1 1 1 17-2 2 1 1 1 18-2 1 1 1 1 1 19-2 2 1 1_____ 1 20-2 1 1 1 1 1 21-2 2 1 1 1 22-2 1 1 1 1 1 23-2 1 1 1 1 1 24-2 1 1 1 1 1 25-2 1 1 1 1 1 26-2 1 1 1__ 1 1 1 27-2 1 1 1 1 1 28-2 2 1 1 1 29-2 1 1 1 1 1 30-2 2 1 1 1 31-2 1 1 1 1 1 32-2 1 1 1 1 1 33-2 2 1 ___ _1 1 1 34-2 1 1 1 1 1 35-2 1 1 1 1 1 36-2 1 1 1 1 1 37-2 1 1 1 1 1 38-2 1 1 1 1 1 39-2 2 1 1 1 40-2 1 1 1 1 1 41-2 1 1 1 1 1 42-2 1 1 1 1 1 43-2 2 1 1 1 44-2 1 1 1 1 1 45-2 1 1 1 1 1 46-2 1 1 1 1 1 47-2 1 1 1 1 1 48-2 1 1 1 1 1 49-2 1 1 1 1 1 50-2 1 1 1 1 1 51-2 2 1 1 1 52-2 2 1 1 1 53-2 1 1 1 1 1 54-2 1 1 1 1 1 55-2 1 1 1 1 1 56-2 1 1 1 1 1 57-2 2 1 1 1 58-2 2 1 1 1 59-2 2 1 1 1 60-2 2 1 1 1 61-2 2 1 1 1 62-2 2 1 1 1 63-2 2 1 1 1 64-2 2 1 1 1 65-2 1 1 1 1 1 66-2 2 1 1 1 67-2 1 1 1 1 1 68-2 2 1 1 1 Figure 3b. 5

______ ~SECTOR 3 Red Green Customized Standard Metal Plastic Raw PIN Cap Paint Paint Label Label Tag Tag Assembly 01-3 1 1 1 1 01-2 02-3 1 1 1 1 02-2 03-3 1 1 1 1 03-2 04-3 1 1 1 1 04-2 05-3 1 1 1 1 05-2 06-3 1 1 1 1 06-2 07-3 1 1 1 ___ 1 07-2 08-3 1 1 1 1 08-2 09-3 1 1 1 1 09-2 10-3 1 1 1 1 10-2 11-3 1 1 1 1 11-2 12-3 1 1 1 1 12-2 13-3 1 1 1 1 13-2 14-3 1 1 1 1 14-2 15-3 1 1 1 1 15-2 16-3 ___1 1 1 1 16-2 17-3 1 1 1 1 17-2 18-3 1 1 1 1 18-2 19-3 1 1 1 _ _ _ 1 19-2 20-3 1 1 1 1 20-2 21-3 1 1 T 1 21-2 22-3 1 1 1 1 22-2 23-3 1 1 1 1 23-2 24-3 1 1 1 ___ 1 24-2 25-3 1 1 1 1 25-2 26-3 1 1 1 1 26-2 27-3 1 1 1 ___ 1 27-2 28-3 1 1 1 1 28-2 29-3 1 1 1 1 29-2 30-3 1 1 1 1 30-2 31-3 1 1 1 1 31-2 32-3 1 1 1 1 32-2 33-3 1 1 1 1 33-2 34-3 1 1 1 1 34-2 35-3 1 1 1 _____ 1 35-2 36-3 1 1 1 1 36-2 37-3 1 1 1 1 37-2 38-3 1 1 1 1 38-2 39-3 1 1 1 _____ 1 39-2 40-3 1 1 1 1 40-2 41-3 ___1 1 1 1 41-2 42-3 1 1 1 1 42-2 43-3 1 1 1 _____ 1 43-2 44-3 1 1 1 1 44-2 45-3 1 1 1 1 45-2 46-3 1 1 1 1 46-2 47-3 1 1 1 1 47-2 48-3 1 1 1 1 48-2 49-3 1 1 1 1 49-2 50-3 1 1 1 1 50-2 51-3 1 1 1 ___ 1 51-2 52-3 1 1 1 1 52-2 53-3 1 1 1 1 53-2 54-3 1 1 1 1 54-2 55-3 1 1 1 _____ 1 55-2 56-3 1 1 1 1 56-2 57-3 1 1 1 1 57-2 58-3 1 1 1 1 58-2 59-3 1 1 1 1 59-2 60-3 1 1 1 1 60-2 61-3 1 1 1 1 61-2 62-3 1 1 1 1 62-2 63-3 1 1 1 _____ 1 63-2 64-3 1 1 1 __ _ _ _ 1 64-2 65-3 1 1 1 1 65-2 66-3 1 1 1 1 66-2 67-3 1 1 1 1 1 1 1 1 67-2 68-3 1 ____ 1 68-2 Figure 3c. 6