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Is it possible, that all buyers from the same company will order the same amount of inventory, if they will have the identical conditions? Let's check how big fluctuation in answers we will get!
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Fairy tale: Mr.Smart from LaLiMa
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My dear readers!
I would like to tell you a very old fairy tale. Some said it is more than 100 years old. But some claimed it is more than 2000 years old. From this fairy tale, you would be able to learn that our issues of Supply Chain Management in current modern world are as old as our civilization…
In our current days, this fairy tale is told by grandmothers and professors to their children and students all around the world before going to sleep (in a lecture)…
Here the fairy tale goes…
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Once upon a time, there was a strong kingdom in the West called LALIMA, which located in the middle of nowhere. People of LALIMA lived happily and wealthily, but under tight control of LALIMA Royal Family.
The people of LALIMA were very proud of their kingdom, as they have the cleanest city in the world, and the citizens of LALIMA were all smart people. 3
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The LALIMA Royal Family controlled all the economy in the country. One day, after reading clever books from the East, King Paul the Daru III, King of LALIMA, declared a new concept of “Free Market”.
People of LALIMA did not know what that was, but they felt very proud of the idea, as they loved their King and Queen very much.
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In Southern city of LALIMA, lived a smart dude called Mr. Smarty. Mr. Smarty worked as the Purchaser for Royal Palace. He loved his job very much. This job gave him a lot of satisfaction – The Royal Palace granted him power to dictate all delivery conditions and prices, because he was good at negotiations with suppliers. He could not always get goods from the suppliers on time, but he had a good punishment system that worked very well.
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In one beautiful morning, while Mr. Smarty was having his LALIMA smart coffee at home, Mr. Smarty received a letter from State Water Supply Company of LALIMA “Justwater”:
After introducing a new technology of recycling domestic water from sewage water it is decided that every citizen of LALIMA should order water in necessary amount in advance.
We request that citizens of LALIMA send their order for their monthly demand at the end of each month.
Every citizen should go and pick up the ordered amount within 3 days after placing an order.
JUSTWATER
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“There is no other country like ours in the whole wide world! This is an ultimate free country”, thought Mr. Smarty. “Even water we can order in the amount that we really needed – no more, no less. Who knows better than us the actual demand for water? In our country there is no pressure on individual.”
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Upon agreement with Mr. Smarty’s thought, the State radio “SHALALA” made a public announcement:
Минск
“You are free to order NOW!”, came a voice from radio – “Without a piping system it will be much more difficult for our neighboring country, MALILA, to spy on us. Use your rights and enjoy living in our beautiful country of LALIMA!”
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Mr. Smarty was very optimistic. After all, he is one of the best Purchasers in the Kingdom. The King himself respected Mr. Smarty a lot. Now, Mr. Smarty had a chance to improve his face among neighbors and relatives. But most importantly – to all his 3 wives – already for years they were not happy with a husband that is spending too much time at work. “I will prove to all of them – I am a person to respect and honor”
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Mr. Smarty bought an old water reservoir and installed on top of the roof at his house.
“This volume should be enough for the whole month!”, thought Mr. Smarty.
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Mr. Smarty graduated from Smart University, Clever Faculty. So it was not difficult for him to calculate the necessary amount of water needed. Mr. Smarty calculated, and then placed an order.
Within two days, Mr. Smarty received all the water he ordered.
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To be continue....
Well, let’s have a break for a while from the fairy tale.
Let’s show to Mr. Smarty how you can order (or purchase) goods better than him, if you know the history of real consumption.
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Simulation No.1 (Beginner Level)
This is a task for beginners. If you think you have more experience, please work on Simulation No. 2.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45
Week
Quantity
Product “LaLiMa”
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Here is the situation:
I. The above graph shows the statistics of yearly sales (for the last 45 weeks) of product “LALIMA”.
II. Product is sold to retail shops.III. You are in the beginning of week 46.IV. Order Lead-time is 2 weeks (time from
placing an order till receiving goods)V. The Producer (manufacturing plant) is
located in India.VI. Current inventory in your warehouse
is 140 pcs. 14
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Here is your Task:
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1. How much will you order?2. When will be your next order and
how much?3. Provide your formula for
calculations.
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Simulation No.2 (Advanced Level)
Here is the situation:
• Refer to the above graph. Graph shows statistics of yearly sales of product “LALIMA” for the last 45 weeks.
• Product is sold to retail shops.• You are in the beginning of week 46.• Order Lead-time is 2 weeks (time from placing an
order till receiving goods).• The Producer (manufacturing plant) is located in
India.• Your current inventory in the warehouse is 140 pcs.• You are preparing a Sales Campaign for this product
in 4-week time. Sales Campaign will start from week 50.
• The duration for the Sales Campaign is 4 weeks (week 50, 51, 52, and 53)
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Here is your Task:1.Make a forecast on how much will be
the Sales during the Campaign.2.Make a schedule for orders (when
should you place the order, and how much is the order amount).
3.Calculate what is the amount of inventory you want to hold a night before the Campaign (at the end of week 49).
4.Provide your formula for calculations.
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Please send your answers on Simulations (either one or both) to [email protected]
We will summarize all answers and post them in the next publication. The answers will be anonymous. This will help you to compare your answers with others and solve even more difficult Simulations.
On the next publication:1. Analysis of Simulations No.1 and No.2.2. … to be continue the LALIMA fairy tale.3. New Simulations.
Please fill free to forward this article to your colleagues, friends and business partners.
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! Important)Note:)The)fairy)tale)original)author)is)–)Rinardas)Goda))This)article)authors)are:)Darius)Radkevicius,)Pauls)Irbins,)Yin)Li)Chua)
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Author of “God, Quantum physics, Organizational structure and
Management style”
http://www.amazon.co.uk/Quantum-Physics-Organizational-Structure-Management/dp/9955689234/ref=sr_1_1?
ie=UTF8&s=books&qid=1266446827&sr=1-1
You can order a book, workshop, analysis or lecture, or just a dream
at:
+37069841027 Darius Radkevičius
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www.god-‐physics-‐management.com
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