Quantifying the impact of customer allocations on supply chain performance
Leaders for Global Operations Program.
Donald Rosenfield and Tomàs Palacios.
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This project investigates the impact that customer allocations have on key cost and service indicators at Intel Corporation. Allocations provide a method to fill orders during constrained supply, when total demand for a given product exceeds available supply. It is hypothesized that allocations increase inventory levels since customers may not always take the supply that is reserved for them in allocations. Also, if the total number of allocation groupings could be reduced, it is thought that the total inventory needed to adequately service the same customer base could be reduced due to the increased potential for pooling. To test these hypotheses, historical data on allocations and product shipments were analyzed to assess how much inventory on hand could be attributed to using allocations. A model was built to calculate safety stock using historical allocations data as a demand indicator. Using this model, we simulate how much safety stock would be sufficient to meet expected demand as we reduce the number of allocations groups and pool risk across larger groups of customers. We also interview various supply managers to understand the impact allocations has on headcount, factoring in the geographical differences in managing allocations across a global supply chain. The results suggest that customer allocations are a complex yet necessary process at a large manufacturing firm. A moderate amount of extra inventory is carried since there is no penalty to customers for inflating forecasts, but relative to safety stock already kept on hand it is nominal. Strategically reducing allocations groupings in key product lines that are likely to be significantly constrained can provide a way to operate efficiently with less inventory on hand. Longer term, products can feasibly be taken off allocations when it is determined that supply is healthy enough to do so, but a robust process needs to be in place to handle this.
Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science; in conjunction with the Leaders for Global Operations Program at MIT, 2012.Cataloged from PDF version of thesis.Includes bibliographical references (p. 69-70).
DepartmentSloan School of Management.; Massachusetts Institute of Technology. Dept. of Electrical Engineering and Computer Science.; Leaders for Global Operations Program.
Massachusetts Institute of Technology
Sloan School of Management., Electrical Engineering and Computer Science., Leaders for Global Operations Program.