Chapter 12: Supply Chain Design

Question 1

Supply chain

Answer 1

The interrelated series of processes within a firm and across different firms that produces a service or product to the satisfaction of customers

Also
Network of service, material, monetary and information flows that link a firm’s customer relationship, order fulfillment and supplier relationship processes to those of it’s suppliers and customers

Question 2

Pressures on a supply chain

Answer 2

• dynamic sales volumes
• customer service and quality expectations
• service/product proliferation
• emerging markets

Question 3

Major areas of focus in creating an effective supply chain

Answer 3

Linking operations strategy and competitive priority to guide supply chain choices

• link services or products with internal processes
• link services or products with external supply chain (competitive priorities reflected in supplier network
• link services or products with customers, suppliers, and supply chain processes

Question 4

Supply chain management

Answer 4

The synchronization of a firm’s processes with those of it’s suppliers and customers to match the flow of materials, services, and information with demand

Question 5

Supply chain design

Answer 5

Designing a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy

Question 6

Efficiency curve

Answer 6

Graph of trade-off between costs and performance

Question 7

Categories of supply chain design options

Answer 7

• strategic options (linking design to competitive priorities)
• logistical network options
• integration options (supplier selection and collaboration)
• sustainability options

Question 8

Basic measures of inventory

Answer 8

• average aggregate inventory value
• weeks of supply
• inventory turnover

Question 9

Average aggregate inventory value

Answer 9

Total average value of all items held in inventory by the firm

Expressed at cost value

Usually averaged over a period of time

Sum of all (quantities*unit cost) for each SKU

Can be expressed as percentage of assets in inventory

Question 10

Weeks of supply

Answer 10

An inventory measure obtained by dividing the average aggregate inventory value by sales per week at cost (aka CoGS)

Shows how long the inventory resides in stock/ how long a periods inventory is in stock at any given time

Question 11

Inventory turnover

Answer 11

= annual sales (at cost) / average aggregate inventory value for year

How many time your whole inventory turns over in a year

Question 12

Cash-to-cash

Answer 12

The time lag between paying for the services and materials needed to produce a product and receiving payment for it

Shorter lag = better cash flow position (less working capital required)

Question 13

Working capital

Answer 13

Money used to finance operations

Increasing cash flow in
Decreasing inventory held (increased turns or lean operations)
All reduces needed working capital

Question 14

Effect of reduced inventory on ROA

Answer 14

Because reduces denominator increases ROA

Question 15

Distinct designs of supply chains

Answer 15

• efficient supply chains
• responsive supply chains

Question 16

Environments best suited for efficient supply chains

Answer 16

• predictable demand with low forecast errors
• competitive priorities like low cost, consistent quality, on time delivery
• infrequent new service or product introduction
• low contribution margins
• low product variety

Question 17

Environments best suited for responsive supply vhains

Answer 17

• unpredictable demand with potential for high forecast errors
• competitive priorities like development speed, fast delivery times, customization, variety, flexibility, high quality
• frequent new product/service introduction
• high contribution margins
• high product variety

Question 18

Make to stock

Answer 18

Most common design for efficient supply chains

Product is built to a sales forecast and sold to the customer as finished goods stock. Low to no customer input, no customization

Question 19

Focus of make to stock supply chains

Answer 19

Efficient service, material, monetary, and information flows
Low inventory
Long cycling products
Small variety
Low contribution margins

Question 20

Popular designs for responsive supply chains

Answer 20

• assemble to order
• make to order
• design to order

Question 21

Assemble to order supply chains

Answer 21

ATO

Product is built to customer specifications from a stock of existing components (can choose from standard set of options but cannot alter components)

Nothing assembled until order received

Lots of material flows only on an as needed basis

Question 22

Make to order supply chain

Answer 22

Product is based on a standard design but component production and manufacture are linked to customer specifications

Question 23

Design to order supply chains

Answer 23

Product is designed and built entirely to the customers specifications

Question 24

Design features for efficient supply chains

Answer 24

• Operations strategy emphasizes high volumes
• low capacity cushions
• low inventory investment aimed at high turns
• lead times as short as possible without increasing cost
• supplier selection focuses on low prices, consistent quality, on-time delivery

Question 25

Design features for responsive supply chains

Answer 25

- operations strategy emphasizes variety - high capacity cushion - inventory investment is as needed to enable fast delivery times (high WIP inventory, low finished goods) - lead times are shortened aggressively - supplier selection emphasis fast delivery time, customization, variety, volume flexibility, high quality

Question 26

Best supply chain design for high volume, low demand variability

Answer 26

Efficient supply chain

Question 27

Best supply chain design for low volume, high demand variability

Answer 27

Responsive supply chain

Question 28

Autonomous supply chain

Answer 28

Using the latest digital technology to facilitate and automate decision making up and down supply chains

Question 29

Independent demand inventory systems

Answer 29

Technology that monitors inventory levels and is programmed to reorder at a certain point (or decides based on information)

Question 30

Mass customization

Answer 30

A strategy whereby a firm's highly divergent processes generate a wide variety of customized services or products and reasonably low costs. Allows customer to select from a variety of standard options to create the service or product of their choice

Question 31

Competitive advantages of mass customization

Answer 31

- improved management of customer relationship due to extensive interaction and collecting of data - elimination of finished goods inventory (just have all the assembly bits) - increasing perceived value of services or products (allows for price increases)

Question 32

Configurator

Answer 32

A software system that gives firms and customers easy access to data relevant to the options available for the service or product

Question 33

Process design for mass customization

Answer 33

- uses assemble-to-order process design and may be able to keep component inventory in large volumes for low costs /quick production Two stage - production of standard components (inexpensive, standardize) - assembly to customer order (more flexible process than production and must be fast)

Question 34

Supply chain design for mass customization

Answer 34

- assemble-to-order process strategy - modular design of service or product to allow for assemble to order customization - postponement of differentiating the service or product for the end customer

Question 35

Postponement

Answer 35

Concept whereby some of the final activities in the provision of a service or product are delayed until the order is received to allow for greatest amount of standardizing before customizing Postponement specifies where standardized is separated from customized

Question 36

Channel assembly

Answer 36

Where members of the distribution channel act as if they were assembly stations in the factory. Only last minute customization necessary at final distribution center Good when parts of customizing have geographic rational (like language of instructions)

Question 37

Strategic advantage of postponement

Answer 37

plants focus on standardized aspects of products while distribution focuses on customization

Question 38

Vertical integration

Answer 38

Sections on a supply chain coming under same ownership

Question 39

Outsourcing

Answer 39

Paying suppliers and distributors to preform processes and provide needed services and materials May allow for efficiencies but also firm can lose skills and knowledge

Question 40

Offshoring

Answer 40

A supply chain strategy that involves moving processes to another country May be motivated by market potential and cost advantages

Question 41

Next-shoring

Answer 41

A supply chain strategy that involves locating processes in close proximity to customer demand or R&D Useful when there is a premium on the ability to adapt products to different regions or reduce logistics cost

Question 42

Decision factors for outsourcing

Answer 42

- comparative labor cost - Potential for rework and product returns - logistics costs - tariffs and taxes - market effects - labor laws and unions - internet reduces cost of managing from a distance - comparative energy costs - access to low-cost capital - supply chain complexity

Question 43

Potential pitfalls of outsourcing

Answer 43

- "pulling the plug too quickly" (deciding to outsource before seriously attempting to fix a problem) - technology transfer (potentially setting other firm up to be a competitor if sharing tech) - process integration between firms

Question 44

Backwards integration

Answer 44

Vertical integration where a firm moves (acquires control of processes) "upward" in the supply chain towards the source of raw materials, parts, and services Reduces risk of supply

Question 45

Forward integration

Answer 45

Vertical integration where a firm acquires more channels of distribution for it's products and services, such as distribution centers, retail stores, its own business customers.

Question 46

Why a firm chooses vertical integration

Answer 46

- it has the skills, volume, and resources to hit competitive priorities better than outsiders can - better control over processes - potential for economies of scale

Question 47

Make-or-buy decision

Answer 47

A managerial choice between whether to outsource a process or do it in-house

Question 48

Equation for make-or-buy break-even quantity

Answer 48

Quantity where costs the same to make or to buy the product or service = (Fixed costs to make - fixed costs to buy) / (variable cost to make - variable cost to buy)