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Project Management > Lecture 8 - Supply Chain Management > Flashcards

Lecture 8 - Supply Chain Management Flashcards

1
Q

Define ‘supply chain management’:

A

Managing supply chain flows (product, information and fund) to maximise supply chain value.

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2
Q

What are the 5 main components in a supply chain?

A

Suppliers –> Manufacturers –> Distributors –> Retailers –> Customers.

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3
Q

There are multiple tiers in a supply chain; draw an example one with two tiers…

A

…

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4
Q

How does money flow around a supply chain?

A

Anticlockwise.

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5
Q

How does information flow around a supply chain?

A
  • Both ways in order to minimise costs and increase revenues.
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6
Q

Describe the ‘supply chain management’ at AMAZON:

A
  • The largest electronic commerce retailer in US,
    surpassed Walmart as the most valuable retailer by
    market capitalisation in 2015.
  • Supply chain of Amazon consists of:

Manufacturers -> fulfilment centres -> customers.

  • Fulfilment centres lie at the core of Amazon.com’s
    business.
  1. Provide warehousing and order-fulfilment for Amazon.com
  2. Third-party sellers can also use fulfillment centers
    (Fulfillment by Amazon or FBA service) for an extra fee.
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7
Q

Describe the ‘supply chain management’ at ZARA:

A

A Spanish clothing and accessories (fast fashion) retailer.

Key competitive advantage: quick response!!

– Able to develop a new product and get it to stores in weeks,
compared to the six-month industry average

– Launches around 12,000 new designs each year,
compared with 2,000 to 4,000 items for its key competitors

Tailored supply chain to support the strategy

  1. Facilities and sourcing
    • Three-quarters of products are manufactured in Europe
    • Clothes with a longer shelf life, such as basic T-shirts, are
    outsourced to low-cost suppliers
  2. Inventory
    • Rapid replenishment of small batches of new goods
    • Unsold items account for less than 10% of stock.
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8
Q

Describe and explain the trend in logistic costs as a %GDP over the past decade:

A

Over the last ten years, the logistic costs as a percent of the GDP has decreased. This is a direct result of more efficient supply chain management being implemented.

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9
Q

Rank in order from highest to lowest the different costs experienced by a manufacturing firm:

  • Manufacturing costs.
  • Logistics Costs
  • Marketing Costs
  • Profit
A
  1. Manufacturing costs
  2. Marketing costs
  3. Logistics costs
  4. Profit
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10
Q

Define the ‘supply chain management framework’:

A
  1. Strategic position: how to compete & what value to
    provide to customers?
    • Implied uncertainty
  2. Supply chain capabilities: given strategic position,
    what must operations do very well?
    • Efficiency vs. responsiveness
  3. Supply chain design and operating policies: how to
    achieve the required capabilities to support the desired
    strategy?
    • Facilities, inventory, transportation
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11
Q

What is the first step to achieving strategic fit?

A

Understanding customers

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12
Q

What are the 6 most important customer needs which need to be addressed?

A
  • Order quantity
  • Response time
  • Service level
  • Product variety
  • Price
  • Innovation

Targeted customer needs determine implied demand
uncertainty the supply chain faces

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13
Q

Give examples of both low and high supply uncertainty:

A

Low supply uncertainty
• Detergent and other consumer goods

High supply uncertainty
• Semiconductor components
• Agriculture output
• Capacity constrained supply
• Poor and unpredictable quality
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14
Q

What is the second step to achieving strategic fit (hint: draw it out)?

A

The responsiveness efficient frontier.

DRAW IT!

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15
Q

What are the 6 cross-functional driers in the supply chain and what is their purpose?

A
  1. Facilities
  2. Inventory
  3. Transportation
  4. Information
  5. Sourcing
  6. Pricing

The purpose in identifying these drivers is so that they can make the supply chain more efficient at low costs.

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16
Q

What are the 6 common supply chain networks?

A
  • Manufacturer storage with direct ship
  • Manufacturer storage with in-transit merge
  • Manufacturer/distributor storage with local pickup
  • Distributor storage with package carrier delivery
  • Distributor storage with last-mile delivery
  • Local storage with pickup
17
Q

What is the role of inventory in the supply chain?

A

It is a buffer in the supply chain.

It the the main tradeoff.
– Overstocking: amount available exceeds demand
(Leads to liquidation, obsolescence, holding cost)

– Under-stocking: demand exceeds amount available
(Leads to lost margin and future sales)

Its goal is to match supply with demand.

18
Q

What are the five different types of cost in inventory?

A

Purchase cost, C (£ per unit).
– Referred to as material cost
– In many practical situations, material cost displays
economies of scale

Ordering cost, S (£ per order)
– All costs incurred each time an order is placed, regardless
of the size of the order
– May include transportation cost and receiving cost

• Physical holding cost
(out-of-pocket)
- Holding Cost, H
- Unit product cost, C (£ per unit)

• Financial holding cost
(opportunity cost)
- Annual holding cost as % of unit product cost, h (% per year)

• Obsolescence cost
(markdowns, discounts)
- Annual unit holding
cost, H (£ per unit per year)
- H=h.c
19
Q

What are the five different types of cost in inventory?

A

Purchase cost, C (£ per unit).
– Referred to as material cost
– In many practical situations, material cost displays
economies of scale

Ordering cost, S (£ per order)
– All costs incurred each time an order is placed, regardless
of the size of the order
– May include transportation cost and receiving cost

• Physical holding cost
(out-of-pocket)
- Holding Cost, H
- Unit product cost, C (£ per unit)

• Financial holding cost
(opportunity cost)
- Annual holding cost as % of unit product cost, h (% per year)

• Obsolescence cost
(markdowns, discounts)
- Annual unit holding
cost, H (£ per unit per year)
- H=h.c
20
Q

What are the 7 variables in the EOQ?

A 
D:
S:
H:
TC:
Q*:
T*:
21
Q

What are the 7 variables in the EOQ?

A

D: Annual Demand

S: Ordering Costs

H: Holding cost per unit per year

TC: Total annual cost

Q: Optimal order quantity
Q = rt(2DS / H)

T: Optimal reorder interval (or cycle time)
T = rt(2S / DH)

TC = CD +(D/Q)S + (Q/2)H

CEOQ = rt(2SDH)

22
Q

What managerial insights can be taken when it comes to EOQ?

A

How to cut cycle inventories (economically smart)?

  • Lowering the ordering cost is the only smart idea.
  • Could possibly move to a local pick up centre.

How to manage growth?
- EOQ = k rt(D)

Centralised inventory management?
- Requires calculations of the two different scenarios to see which offers the best CEOQ.

23
Q

What lessons can be taken when it comes to EOQ?

A

In deciding the optimal order quantity, the trade off is
between fixed ordering cost and holding cost.
– Aim for smaller order quantities for products that become obsolete quickly
– Low cycle inventory and hence small order quantity are desirable, but economies of scale ‘stand in the way’ of this goal

If demand increases by a factor of k, it is optimal to
increase order quantity by a factor of rt(𝑘) and produce
(order) rt(𝑘) as often.

24
Q

Name the five inventory management models which rely on time varying demand and which type of heuristics they belong to?

A

• Simple heuristics
– Fixed order quantity (FOQ)
– Periodic order quantity (POQ)

• Specialty heuristics
– Silver-Meal algorithm (SM)
– Least unit cost (LUC)
– Part-period balancing (PPB)

25
Q

What assumptions are made when using time varying demand inventory models?

A
  • Demand is required and consumed on first day of the period.
  • Holding costs are not charged on items used in that period.
  • Holding costs are charged for inventory ordered in advance of need (i.e. ordered 300, used 200; holding cost applied to 100)
26
Q

Describe the ‘Fixed Order Quantity’ approach:

A

Policy: Order Q* (EOQ quantity) if D(t) > inventory on hand

Simple method is that only when the demand at that period of time is greater than the resources in the inventory, is the ‘Economic Order Quantity’ is ordered.

27
Q

Describe the ‘Periodic Order Quantity’ approach:

A

Similar to EOQ!
– Find the optimal cycle time, T, for EOQ using annual
demand
– Set POQ = round up of T to nearest integer
– Every POQ time periods, order enough to satisfy demand for that POQ periods in the future

28
Q

Describe the ‘Silver-Meal Algorithm’ approach:

A

Let C(T) = (Ordering cost + Holding cost)/T
– The average holding and ordering cost per period if the current order spans the next T periods
– The objective is to minimise C(T) for each replenishment

Decision rule
– Add next period’s demand to the order if the average order per period is reduced

Algorithm

  1. Start with the first period
  2. Set T = 1
  3. If C(T+1) > C(T) then
    - Previous order goes for T periods with 𝑄 = T, i=1 Σ 𝐷(𝑇)
    - Go to 2 and begin the process again starting from period T+1
  4. Else, T = T + 1, and go to 3
29
Q

Describe the ‘Least Unit Cost’ approach:

A

Let CD(T) = (Ordering cost + Holding cost)/ T, i=1 Σ 𝐷(𝑇)
– The average holding and ordering cost per item if the current order spans the next T periods
– The objective is to minimise CD(T) for each replenishment

Decision rule
– Add next period’s demand to the order if the average order per item is reduced

Algorithm
1. Start with the first period
2. Set T = 1
3. If CD(T+1) > CD(T) then
• Previous order goes for T periods with 𝑄 = T, i=1 Σ 𝐷(𝑇)
• Go to 2 and begin the process again starting from period T+1
4. Else, T = T + 1, and go to 3

30
Q

Describe the ‘Part Period Balancing’ approach:

A 
Let H(T) = the total holding cost if the current order spans the next T periods
– The objective is to minimise the (absolute) difference between H(T) and S for each replenishment.

Algorithm
1. Start with the first period
2. Set T = 1
3. If |H(T+1) - S| > |H(T)-S| then
• Previous order goes for T periods with 𝑄 = T, i=1 Σ 𝐷(𝑇)
• Go to 2 and begin the process again starting from period T+1
4. Else, T = T + 1, and go to 3

31
Q

Compare and contrast the different varying time demand inventory models:

A

Many ways to solve the problem with implicit trade-offs
– Heuristics: fast, simple, not always good
– Specialty heuristics: more focused, harder to set up, better “real-world” results

  • Silver-Meal algorithm, LUC and PPB are similar
  • Silver-Meal algorithm and LUC perform best if the costs change over time
  • PPB perform best if the costs do not change over time

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