Supply Chain Management Task 1
A.
Fourth quarter cumulative balanced scorecard:

Cumulative industry results for last four quarters ending in quarter: 4| |Minimum|Maximum|Average|Mobile Office Computers|
Total Overall|0.00|444.77|7.74|0.50|
Financial Performance|-53.84|186.46|7.41|5.62|
Market Performance|0.00|0.67|0.09|0.26|
Marketing Effectiveness|0.00|0.82|0.17|0.67|
Investment in Future|0.00|267.79|0.70|1.14|
Wealth|-0.90|4.57|0.35|1.02|
Human Resource Management|0.00|0.81|0.17|0.68|
Asset Management|0.00|2.13|0.27|0.87|
Manufacturing Productivity|0.00|1.00|0.18|0.73|
Financial Risk|0.00|1.00|0.23|1.00|

Income statements for the four quarters:
Income Statement| |Quarter 1|Quarter 2|Quarter 3|Quarter 4|
'Gross Profit|
' Revenues|0|2,088,800|1,966,400|7,276,700|
'- Rebates|0|106,950|97,200|177,500|
'- Cost of Goods Sold|0|1,222,026|1,147,195|4,827,198|
'= Gross Profit|0|759,824|722,005|2,272,002| |||| |
'Expenses|
' Research and Development|120,000|0|60,000|60,000|
'+ Advertising|0|130,118|132,990|272,805|
'+ Sales Force Expense|0|163,914|163,914|175,122|
'+ Sales Office Expense|430,000|220,000|220,000|220,000|
'+ Marketing Research|0|15,000|15,000|15,000|
'+ Shipping|0|30,661|29,521|63,603|
'+ Inventory Holding Costs|0|61,969|98,790|0|
'+ Excess Capacity Cost|0|391,710|491,700|0|
'+ Depreciation|0|25,000|25,000|25,000|
'= Total Expenses|550,000|1,038,372|1,236,915|831,530| |||| |
' Operating Profit|-550,000|-278,548|-514,910|1,440,472| |||| |
'Miscellaneous Income and Expenses|
'+ Other Income|0|0|0|0|
'- Other Expenses|0|0|0|0|
'= Earnings Before Interest and Taxes|-550,000|-278,548|-514,910|1,440,472| |||| |
'+ Interest Income|0|0|0|0|
'- Interest Charges|0|0|0|0|
'= Income Before Taxes|-550,000|-278,548|-514,910|1,440,472| |||| |
'- Loss Carry Forward|0|0|0|1,343,458|
'= Taxable Income|0|0|0|97,014| |||| |
'- Income Taxes|0|0|0|29,104|
'= Net Income|-550,000|-278,548|-514,910|1,411,368| |||| |
'Earnings per Share|-28|-9|-13|35|

Balance sheets for the four quarters

Balance Sheet| |Quarter 1|Quarter 2|Quarter 3|Quarter 4|
Current Assets|
' Cash|850,000|976,766|1,118,642|3,542,910|
'+ 3 Month Certificate of Deposit|0|0|0|0|
'+ Finished Goods Inventory|0|619,686|987,900|0|
Long Term Assets|
'+ Net Fixed Assets|600,000|575,000|550,000|525,000| |
'= Total|1,450,000|2,171,452|2,656,542|4,067,910| |
Debt|
'+ Emergency Loan|0|0|0|0|
Equity|
'+ Common Stock|2,000,000|3,000,000|4,000,000|4,000,000|
'+ Retained Earnings|-550,000|-828,548|-1,343,458|67,910| |
'= Total|1,450,000|2,171,452|2,656,542|4,067,910|

B1) Evaluate how you utilized budgets and pro-forma statements to ensure adequacy of funds for providing the production capacity you needed to achieve your business goals.

Budgets are an important part of any successful business. A budget is defined as “the formal expression of plans, goals, and objectives of management that covers all aspects of operations for a designated time period.” (Shim & Siegel, 2009). Budgets may be short term (one year or less), intermediate term (two or three years), or long term (three years or more).
If used effectively, budgets can be very advantageous. They can show upcoming threats or opportunities within a company. Effective budgets can lead to a reduction in costs and can identify weaknesses in organizational structure. They can also communicate to management and other employees what is expected of them to make the business successful.
In the Marketplace simulation, a budget was used to establish guidelines as to what could be spent in certain areas of my computer business, Mobile Office Computers. Budgeting was used when deciding how much could be spent on marketing, how much would be spent when adding new components to new products, and how much to spend when paying salaries and insurance costs for employees. Knowing how much money the company could spend when making these choices helped the company become profitable at the end of the fourth quarter. For example, in the first through third quarters, I was paying my employees $45,000 per year, with only expanded health coverage. After the third quarter, I realized my competitors were offering more, and that they would be recruiting the best salespeople if I didn’t change my offering. I checked my budget, and saw that I could pay my employees more and offer better health coverage, which would help me to recruit and retain the best employees with the most potential to increase sales. That in turn lead to better sales the fourth quarter.
A pro forma statement is “a financial statement prepared on the basis of some assumed events and transactions that have not yet occurred.”(Rollins, 2011) Pro forma statements are historical statements that provide statements; the most common are the income statement, balance sheet, and the statement of changes in financial position. They give management the opportunity to show the progress a company has made from each financial planning cycle to the next financial planning cycle. They also help to forecast what the company will need in upcoming cycles. In the Marketplace simulation, I used my income statement (an example of a pro forma statement) to analyze my company’s inventory, and how much it was costing when I created too much inventory. For example, in quarter 2, it was costing me $61,969 for inventory holding costs, and in quarter 3, it cost $98,790. My costs were increasing, so during the fourth quarter I decided to liquidate the inventory of some of my older products that were not selling well. This helped to decrease my holding costs to $0. I noticed the same thing was happening in my excess capacity costs. In the second quarter, I was spending $391,710, and it increased to $491,700 in the third quarter. I was able to decrease the cost in the fourth quarter, which saved my company a lot of money and helped it to become profitable for the first time in the fourth quarter.

'+ Inventory Holding Costs|0|61,969|98,790|0|
'+ Excess Capacity Cost|0|391,710|491,700|0|

B2. Evaluate how you employed each of the following strategies to improve operating efficiency in your manufacturing facility:
B2a: Just-in-time
Just-In-Time (JIT) is defined as “an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in case higher demand had to be met.” (Investopedia, 2012)
In the case of my company, I had a hard time forecasting the demand for my products. The company would try to base the numbers off of previous quarter’s sales and competitor’s sales, but with less than one year in business, it was hard to make an accurate forecast. Unfortunately, products were overproduced every quarter except the fourth quarter, where I under produced both of my best selling products. We tried using JIT during the fourth quarter to ensure we were producing only what we needed, and not much more. In the simulation, my most reliable product, “Office Laptops”, was not selling as much as the company was creating the first through third quarters; so less stock was created for the fourth quarter. However, during the fourth quarter, there were only 482 units available, with a demand of 579 units. The company had 97 lost sales due to stock outs with this product. In the case of my newest and most innovative product, the “I Performance”, the product is more advanced than the others, and the company was unsure of how the public would receive the new product with new perks as well as a much higher price. Without previous sales from a similar product like this, I used the “Creative Power” from Creative Computers Inc. as a gage to see how many items the company might sale. We chose this company because they were the market’s leading sellers. Unfortunately, the company produced only 1,293 units with a demand of 2,249, losing 474 sales to stock outs. While it was unfortunate to lose sales because we under produced, it benefited the company more than overproducing because we did not have to pay to create and store items that were not sold. Inventory positions for the fourth quarter are listed below:
Inventory Position - Number of Units|
Brand|Inventory Available at Start of Quarter|Number of Units Produced|Net Demand|Number of Units Sold|Lost Sales Due to Stock Outs|Ending Inventory|
Office Laptops|150|332|579|482|97|0|
Travel Companio|0|0|0|0|0|0|
Deluxe Design|0|0|0|0|0|0|
I Performance|0|1,293|1,670|1,293|377|0|
Total|150|1,625|2,249|1,775|474|0|

B2b: Lean operations Lean operations are defined as, “supplying the customer with exactly what the customer wants when the customer wants it, without waste, with continuous improvement. Lean operations are driven by workflow initiated by the “pull” of the customer’s order.” (Heizer, 2011) During the simulation, my company used lean operations by improving our company’s products as time went forward. We analyzed the customer needs and wants, and ensured our products made it a prioroity when creating new products tailored to each type of customer. If a product was not selling well, the product was pulled from production. This happened twice, when both the Deluxe Design and Travel Companio models were pulled from production. The table below shows the needs of each type of customer.
Top of Form
Customer Needs And Wants|.|Workhorse[->0]|Mercedes[->1]|Traveler[->2]|Engineering applications|58|132|73|Office applications|125|100|117|Easy on eyes|97|116|113|Fun to use|105|70|104|Portability|53|79|129|Fast and powerful|103|135|104|After-sale service and support|123|109|111|Can link with other computers|109|127|121|Easy to use|132|102|109|Low price|128|81|115||

TBottom of Form

Though the company was not successful at utilizing lean operations at first, as time went on we were able to analyze what the customers wanted and how other companies were using this knowledge to improve my sales.

B3: Analyze the applicability of work cells to the type of manufacturing facility involved in the simulation. Work cells are defined as “The logical and strategic arrangement of resources in a business environment, organized so as to improve process flow, increase efficiency and eliminate wastage. The concept of work cells is based on the platform of lean manufacturing, which focuses on value-creation for the end customer and reduction of wastage. Work cells are typically found in the manufacturing and office environments.” (Investopedia, 2012) Work cells are advantageous because work flows move seamlessly and smoothly from one stage of production to the next. In the case of the manufacturing facility involved in the simulation, work cells would be used when manufacturing desktop and laptop computers. Desktops would be manufactured in a separate area from laptops, and the assembly of each item would be completed start to finish in one area, rather than being moved from department to department. Work cells often make it easier for companies to hold employee’s accountable for their actions, as well as taking up less space for production.
B4: Evaluate your decisions involving inventory management (e.g., did you have inventory when you needed it without incurring unnecessary inventory carrying costs?). Inventory management is defined as, “Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory.” (Barcodes Inc., 2012). In the Marketplace Simulation, I had way to much inventory at first. I was anticipating much higher sales until the fourth quarter, when I did not have enough of my products to meet demand. For example, at the beginning of the second quarter, I was able to analyze the inventory that was left over from the first quarter. I had projected to sell 350 more computers then I actually sold. The table below shows that the excess capacity at the end of the first quarter cost my company $391,708.
First Quarter Results
Operating Capacity Utilization|
Operating Capacity|
Scheduled operating capacity [->3]|1,625|
Used operating capacity [->4]|1,063|
Operating capacity utilization [->5]|65%|
|
|
Excess Capacity|
Unused operating capacity [->6]|562|
Excess operating capacity [->7]|35%|
Overhead costs and labor charged to excess operating capacity|391,708|

At the beginning of the third quarter, I was able to analyze my excess capacity for the second quarter.
Operating Capacity Utilization|
Operating Capacity|
Scheduled operating capacity [->8]|1,625|
Used operating capacity [->9]|880|
Operating capacity utilization [->10]|54%|
|
|
Excess Capacity|
Unused operating capacity [->11]|745|
Excess operating capacity [->12]|46%|
Overhead costs and labor charged to excess operating capacity|491,700| I saw that my excess operating capacity was 46%, which was costing my company $491,700 for that quarter. I decided to sell my unwanted inventory, which gave my company an extra $367,040. This extra money gave me what I needed to stay in the black for the next quarter.
Sell Unwanted Inventory|
Brand|Inventory Units|Salvage Price|Number of Units to Sell|Total Price|
Office Laptops|150|797.60|0|0.00|
Travel Companio|200|889.60|200|177,920.00|
Deluxe Design|200|945.60|200|189,120.00|

Total Price = |367,040.00|
B5: Explain how you could meet the need for a continuous improvement program to achieve quality assurance goals.
While work cells and inventory management are both effective methods in creating a great company, every aspect of an operation can be improved. One great continuous improvement program that could be used as a continuous improvement program is Six Sigma. Six Sigma is a program created in 1986 by telecommunications company Motorola. At first Six Sigma stressed cycle-time improvement and cutting manufacturing defects to less than 3.4 defects per million items. Now Six Sigma has evolved into a more general business-management philosophy focused on meeting customer needs, retaining customers, and improving business products and services. Six Sigma is applicable to all businesses, including the microcomputer industry. Six Sigma would be a great tool for Mobile Computers because it emphasizes quality and places an emphasis on eliminating rework. While Mobile Computers did make a profit during the fourth quarter, using Six Sigma could potentially increase production to increase profits even more.
Bibliography
Barcodes Inc. (2012). Retrieved June 10, 2012, from Barcodes Inc.: http://www.barcodesinc.com/articles/what-is-inventory-mangement.htm
Heizer, J. &. (2011). Operations management (10th ed.). Boston: Prentice Hall.
Investopedia. (n.d.). Retrieved June 08, 2012, from http://www.investopedia.com/terms/j/jit.asp#axzz1xPztNnNu
Rollins, J. (2011, February 25). Yale University Press. Retrieved June 06, 2012, from Proforma Financial Statements: http://aaupwiki.princeton.edu/index.php/Proforma_Financial_Statements
Shim, J. K., & Siegel, J. G. (2009). Budgeting basics and beyond, Third Edition. Hoboken: John Wiley and Sons Inc.