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All products and services are sold to customers from physical stores. Example: McDonald’s

Brick and Mortar


All products and services are sold to customers through an online website.  Example: Amazon.com

Online or E-tailing


Products can be bought from a physical store or from an online system.  Example: Barnes and Noble and BN.com

Bricks and clicks


In addition to taking orders via the company website, some companies will also offer sales via the phone.  Examples:  Lands’ End and L.L. Bean

•  Clicks and calls


Retailers that are fully committed to engaging customers via catalogs, phone calls, websites, email, internet chatrooms, social media sites or mobile apps, and of course also in stores.

Omni-Channel Retailing


These are the companies that actually create the finished goods.  Retailers then buy the goods and that retailer is responsible for distribution and storage.



These organizations purchase goods from manufacturers.  Typicallythey purchase an assortment of goods from many manufacturers, thus a retail company could purchase all of their electronics from a single _____ versus having to purchase from each individual manufacturer.

•  Wholesalers


This one is not really a source of supply, but rather an organization that ties manufacturers and/or wholesalers directly to consumers.
These organizations never actually possess the product they simply take orders which are fulfilled by another party.

Drop Shippers


These are effectively penalties charged by retail organizations to their suppliers/vendors for any number of minor and major supply chain offenses.  The goal here is to motivate vendor compliance

on-time shipments, shipment accuracy, product quality, incorrect packaging, label errors, etc.




Collaborative, Planning, Forecasting and rescheduling


A formalized effort by supply chain partners to share data and collectively develop forecasts in an effort to reduce supply chain costs through better planning

Collaborative, Planning, Forecasting and rescheduling



An arrangement where retailers allow vendors to monitor in-store inventories, initiate orders/shipments to the store when inventories are low and also bring the items into the store and onto the shelf

Vendor Managed inventory


VMI stands for ??

Vendor Managed Inventory


Refers to the portion of the supply chain between the final inventory holding facility and the end consumer/ is not always necessarily home

Last mile

- Miles rom Amazon ceneter to you
-End consumer could be a office, mechanic, factory
-Variation in size, location and consumer expectations


One store, one owner,usually they are trying to satisfy a very specialized market or locale.
eX: family owned corner store. boutiques

Retailer Ownership


– Multiple stores/facilities, one owner/company.  Example: Home Depot, Wal-Mart, Costco, Gap, Macy’s, Safeway (Amazon.com probably best fits this category)

Retailer Ownership


–Retailer that is owned by its customer members.  These organizations typically try and fit the very special needs of the consumers that organized the cooperative.  Examples: REI (Recreational Equipment Inc.)

Retailor Ownership:


owns the rights to a company and the name.  A franchisee is allowed to open an outlet under that name.  The franchisee must abide by the rules and processes of the franchise. Examples: Jiffy Lube, McDonald’s, 7-eleven, Buffalo Wild Wings, Massage Envy

Retailer Ownership


A series of stores that have common design, construction and layout.

-Can help companies have a standardized plan
-Develop efficiencies across all stores

Prototype stores


This retail strategy has retail chains develop rigid control structures to develop and manage processes such that all the retail outlets are managed in the same way.
EX: a store manager or employee would easily be able to work at almost any store since everything is done the same way.

Rationalized Retailing



A map of where every product goes on a retail store shelf.



•  Hiring good and reliable people •  Hiring enough people
•  Training employees to do their job well – includes processes, product information, using equipment/technology
•  Scheduling employees for when they are needed most •  Taking care of your employees – Pay, benefits, schedule flexibility, etc.
•  Creating a friendly work environment

Store Personnel


Stores are responsible for protecting:
Types of store secuirity issues

Store assets
Costumers and their assets


Consistency in retail operations depends on the development and management of excellent in-store processes.  This aids the organization in training new employees, developing competencies, and also in sharing the benefits of best practices from other stores in the organization.

Retail Processes


•  The process of opening and closing the store
• Cleaning bathrooms
•  Processing a customer’s returned items
•  Stocking items on the shelves
•  Changing prices for sale items


Retail Processes


Balance the cost paid by the customers (time) with the cost paid by the company (money paid to maintain the system)

Goal of waiting line management


A waiting line system is made up of 3 parts:

-Input Source
-Waiting Line
-Service Facility


– This is the population of people that might want service

Input Source


The area in which customers wait for service

Waiting Line


The area in which customers actually receive service

Service Facility`


When a potential customer sees the line, but never joins the line because they think it looks too long and/or too slow



When a customer joins the line, gets frustrated and leaves the line.



What are the 4 retailing Options

Brick & Mortar
Online or E-tailing
Brick and clicks
Click and calls


What are the 3 sources of supply

Drop shippers





– Line.  Here it often refers to the number of lines available at each step.



A single step in a process.
Example: Phases in college enrollment might include: Application process, Registration,



Number of possible customers that may come in store is high or unlimited



The number of customers is limited



Ingredients of a good sales environment

Needs and wants now and in the future. The customers: Product selection, availability, convenience, value, the 5 senses. The organization: Controlling costs, shrinkage, profits.


Challenges of VMI?

Goal alignment, everything discussed prior to arrangement, process related, schedule, performance and quality, people, IT compability


value of VMI

Learning opportunities
Vendor and Retailer learn about each other and their needs.
Vendor has more interactions with end customers in the retail environment.
Retailer - Fewer responsibilities, Decreases costs
Vendor - Better understanding of demand rates, Fewer retailer errors, Responsive


Retail Layout Considerations

- Flow - How do customers navigate through a store and why?
- Considering the entrance and exits points
- Product Location - Customer convenience, planograms, perimeter vs. central, where do you want things located? (high profit items, high theft items, high turnover items)


Grocery store layouts

- Produce(Fruits & Vegetables) Section - Usually first thing you see upon entering
- Meat, Fish, and Poultry at the Rear of the Store
- Long Aisles hold smaller per unit profit items
- Dairy and Bakery at farthest point from main entrance


Grocery store layout: Dairy and Bakery location

at farthest point from main entrance


Grocery store layout: Meat, Fish, and Poultry location ?

at the Rear of the Store


4 elements of a waiting line

1.a customer population of potential customers
2.a waiting line of customers
3.the service facility with a crew or machine or both to assist customers
4.a priority rule that selects the next customer to be serves


Importance of waiting lines in running a business

People demand equality in America (First come first serve). Waiting times are indiciative of overall service


Goals and Trade-offs for Queuing system

- Goal: To serve people efficiently.
- Trade offs - Having too many staff and underutilizing them OR having too long a line, and angry customers. Both lose money


What do managers have control over in a queuing system?

- Time in system
- time in queue
- Service utilization/service facility
- number of servers
- what people do while in the line, etc


Why do customers have some degree of control over service rates?

Some customers are unprepared, others are ready when they get to the counter.


Steady stream of customers? Busy and slow time periods? Busy and slow days of week? Seasonal trends

Arrival Rates


Lambda upside down Y;
Equation? What does Lambda mean?

arrival Rate
(# of customers arriving/Unit of time )


Are all servers equal? Are they motivated? Do they get tired/bored? Stressed?
What happens if we add more employees?
Full-time, part-time, seasonal? Experienced?
Type of customers - Prepared/unprepared customer, Big/small orders, high/low maintenance customers, Paying cash vs. check

Service Rates


reflects the percentage of time that they are busy. management's goal is to maintain high utilization and profitability without adversely affecting the other operating characteristics

service facility utilization


FCFS, sense of fairness
= First come firsts serve

Single Line


Multiple Line Systems

Jockeying (Line Jumping)


Discipline/ Priority Rules

1st Come - 1st Served (Burger King)
Earliest Due Date or Shortest Processing Time (Homework?)
Reservations or Appointments Possible? (Restaurants, Homework)
Emergency Situations? (Emergency Rooms)
Preemptive Discipline - Special Rules (VIP lines, Frequent Fliers)


Customer groups arrive to the check in station at a rate of about 15 groups per hour

Lambda (y) = 15 groups
Arrival rate:
# of customers/unit of time
15/60 ----> (60/15)
on avg a costumer group joins the line every 4 minutes


Mu (U)
What does it mean?

Service Rate
# of customer helped/ Unit of time


Customer representatives can help about 24 groups in an hour

(mU)= 24
Service Rate
# of cusotmers helped/ Unit of time
24/60 ---> (60/24)
= 2.5
On avg the representative takes about 2.5 minutes to help one group


p (Rho)
What does it mean?

Percentage of time worker is busy


What does it mean?

Avg # of customers in line
p [ Y/ ( U - Y) ]

Round if there are decimals


What does it mean?

Avg amount of time a customer waits in line
p [ 1 / ( U - Y) ]

*Multiply answer by 60


What does it mean?

Avg # of costumers in the system
Y / ( U - Y)
*System represents
-waiting line
-Where customer get services


What does it mean?

Avg amount of time a customer spends in the system
1 / ( U / Y )
*Multiply answer by 60


What does it mean?

Probability there are N customers in the system
Lowercase p = Rho
( 1 - p )p ^n
p(rho)= .625

P0 = (1-.625).625^0
= .375 or 37.5
P1 = (1-.625).625^1
= .234 or 23.4%
P2 = (1-.625).625^2
= .146 or 14.6%
P3 = (1-.625).625^3 = .92 or 9.2 %

There is a 9.2% chance that when you arrive at the airport there will be 1 person getting helped and two other groups in the line waiting for service.


What does it mean?

Probability system is empty
(1 - .625)
.375 or 37.5%


Probability Customer gets served immediately on 2 servers?

1 2
P0 0.400 0.523

P1 0.240 0.327



On average, how much time does the average customer spend in the SYSTEM when there is ONE SERVER in the SYSTEM?

number was given on graph
refer to study guide 05


What percentage of the time would a server be busy in a FIVE-server model?

Divide p (rho) by 5


What percentage of new arrivals are served immediately in a TWO-server model?

Add P0+P1 under server 2


If one server can help 35 customers per hour and a new customer arrives every 4 minutes, then what percentage of the time would the server be busy?

(U) 60/35 = 1.714
(Y) 60/4 = 15


Recap of supply chain basics

• Focus on People – Good supply chain decisions positively impact customers, employees, and investors.
• Competitive Priorities – Good supply chains deliver the right mix of cost, quality, speed, and flexibility to their target market.
• Measuring success – The best supply chains are effective, efficient, and adaptable. Effective - Creating and delivering great products and services customers want. Efficient – Using minimal resources and eliminating waste. Adaptable – Ready for change, constantly evolving.
• Maximize Value – Provide customers the best possible product and service bundle at the lowest possible cost and in the most convenient way possible.
• Productivity – Maximize a company’s high quality output using the fewest resources possible.”


In a 2004 who identified eight critical supply chain processes.

Dr. Douglas Lamber


What are the 8 processess

• Product development and commercialization: What does the customer want? When? Can we organize the right suppliers, manufacturers, distributors, and retail organizations to get the job done right?
• Supplier Relationship Management: Finding suppliers. Developing relationships. Managing present and future purchases from the suppliers. Working together to improve quality.
• Manufacturing Flow Management: Making the right items to meet customer expectations. Doing this using the least amount of resources possible.
• Demand Management: Utilize forecasting to understand likely demand. Once a forecast is available manage the firm’s facilities and resources to meet expected demand.
• Order Fulfillment: If proper demand management has taken place, then it will be time to fulfill orders. This might include picking, packing, and shipping items to the customer.
• Customer Relationship Management: Utilizing information to better understand the needs and desires of your customers today and into the future.
• Customer Service Management: Communication between customers and the supply chain. Providing customers with product availability details and tracking information. Providing customers with product assistance and maintenance opportunities.
• Returns Management: Dealing with reverse logistics issues such as damaged and unwanted products, product recalls, the return of pallets to the distribution center, etc. Understanding problems[…]”


The following calculation can help a supply chain manager estimate the number of products that are needed at each stage of the supply chain to account for problems such as defects, theft, damage, and other forms of loss.  This formula calculates the total number of inventory that will be input at each stage of the supply chain to account for the rate of loss.

Shrinkage Calculations
Order Size Required = (Actual Demand) / (Proportion of Acceptable Product per Order)


Shrinkage Calculation
Consumers demand 300 units from a retail store.  The supply chain must account for 2% theft from the retail store, 1% damage rates from the distributor, 3% defects at the manufacturer.  How many units of inventory must be planned at the manufacturing facility in order to secure 300 units are available for the consumers?

Shrinkage calculation
Order Size Required= Actual demand / Proportion of acceptable product per order

Order size = (300) / (100% - 2%)
Order Size required= (300)/ (.98)
Order size required = 306.12
*Always round up in order to avoid shortages --> 307 units This number will be used for next stage

---------Distributor ------
Order Size Required = (307) / (100% - 1%)
Order Size Required = (307) / (0.99)
Order Size Required = 310.1
Always round up in order to avoid shortages – 311 units Use this number for the demand at the next stage

Order Size Required = (311) / (100% - 3%)
Order Size Required = (311) / (0.97)
Order Size Required = 320.6
Always round up in order to avoid shortages – 321 units

Therefore, 321 units must be planned at the manufacturing stage in order to bring 300 units to the consumer.


The following formula calculates the amount of total inventory required when a supply chain decides to change the number of storage facilities it utilizes.

Square root Rule
Risk Pooling

Inv Future = Inv Present [ (SqRt WH future) / (SqRt WH Present) ]


Example: A company presently maintains a 98% customer service level (2% stockout rate).  This company presently has 4 warehouses.  Each warehouse has 1,500 units.  They would like to reduce their total number of warehouses to 2.  How many units of inventory would be needed at each of the two warehouses under the proposed new system?

Inv Future = Inv Present [ (SqRt WH future) / (SqRt WH Present) ]

Inv Future =  Unknown
Inv Present =  4 * 1500 = 6000 units
WH Future =  2
WH Present =  4

Inv Future =  Inv Present [ (SqRt WH Future )  / (SqRt WH Present )  ]
Inv Future =  6000 [ (SqRt of 2)  / (SqRt of 4 )  ]
Inv Future =  6000 [ (1.41)  / (2.0 )  ]
Inv Future =  6000 *  0.705
Inv Future =  4,230 units of inventory


Importance of supply chain integration

Supply chain integration is the only way for supply chain partners to achieve effectiveness, efficiency, and adaptability.


Obstacles to Integration

obstacles to integration are all related to poor communication, an unwillingness to share, and/or lack of trust between supply chain partners.


is a supply chain phenomenon where fairly stable demand results in a proliferation in the amount of inventory that is carried as one travels upstream in the supply chain

Bullwhip effect


Distribution carries more inventory than retail.  Manufacturing carries more inventory than distribution.  Suppliers carry more inventory than manufacturers.  And so on, and so on.
Example of??

Bullwhip effect


4 causes of the bullwhip Effect

Order Batching
Forward Buying
Shortage Gaming


When companies place large and infrequent orders from their suppliers.  Typically this is done to take advantage of quantity discounts and economies of scale in purchasing and delivery.  The problem is that the infrequent orders leave large communication gaps (uncertainty) for suppliers and it may also require suppliers to carry large amounts of inventory so they can be prepared when those large orders are actually placed.

Order Batching


This is the result of suppliers offering sales.  Buyers are motivated to buy in large quantities to take advantage of low prices.  Buyers are not buying based on demand, but rather on price.  Therefore, true demand is unknown by sellers (uncertainty).  Sellers experience the uncertainty of demand due to their own short-term drops in price for their customers

Forward Buying


Sometimes, despite their best efforts, suppliers do not have enough inventory to satisfy the demand of all of their customers.  If this is the case, suppliers may ration their inventory and send each of their customers only a fraction of the inventory that was ordered.  For example, if a company receives orders for 1,000 total units from their customers, but only has 800 units of inventory available, that company might only send each of their customers 80% of their orders.  These smaller than expected deliveries introduce doubt into the system and thus may trigger negative behaviors in the future.



In rationing, customers only receive a fraction of their placed order.  This leaves the customer short of their desired inventory level.   If customers feel that this rationing may occur again, customers may try to “game” the system by placing an order larger than their expected demand.  For example, if their demand is 80 units, they may place an order 100 units instead of the 80 units needed.  The rationale is that when the supplier sends them only 80% of their placed order, they will get exactly the demand needed.

Shortage Gaming


5 Mehtods for controlling the bullwhip effect

-Every day low pricing (EDLP)
- Vendor Management Inventory systems (VMI)
-Information sharing between supply chain partners.
-• Develop strong buyer-supplier relationships that result in the sharing of supply chain
-responsibilities and even strategy and planning.
-• Practicing lean manufacturing across the supply chain. Defects, waste, and a general lack of supply chain stability results in higher levels of uncertainty. Sound supply chain practices result in good products produced with minimal resources. These positive results require less safety stock to meet a much lower level of uncertainty.


When suppliers resist the urge to have sales promotions and instead offer their lowest (and most competitive) prices each day, buyers do not see an advantage to buying in bulk. Instead buyers are more likely to purchase at levels that are closer to their actual demand levels. This is a positive two-way communication. Suppliers are saying “these are our best prices”. Customers are saying “at these stable prices we will buying only what is needed. These are our actual demand levels.”

• Every day low pricing (EDLP)


These are systems where buyers share inventory information with suppliers. Suppliers in turn take on the responsibility of managing inventory levels for the buyer by placing, delivering, and sometimes even stock the buyer’s shelves. This system benefits all parties: Shelves are full so customers are satisfied, suppliers know the sales patterns of their product from each store, the store is less likely to experience stock outs since suppliers can better plan demand and deliveries.

• Vendor Management Inventory systems (VMI) –


System that is activated by consumer demand as a result a supply chain will not make and store finished goods inventory until someone wants something
Other supply chains wait for the customers to place their orders.

Pull System


strategy: push
inventory: necessary: high
quality control: defects inspected out
supplier relations: suppliers are opponent
supply chain communication: don't want to share
consumer market: company dictates what market will offer
business practices: best is always best

Old School Manufacturing


strategy: pull
inventory: evil: minimize it
quality control: quality at the source
supplier relations: suppliers are partners
supply chain communication: open communication required
consumer market: customer dictates what supply chain must produce
business practices: best today won't be best tomorow

Lean manufacturing


A system in which consumer demand is known and expected.  As a result a supply chain will preemptively buy materials, manufacture finished goods, and even deliver them to a store or a picking and packing facility where consumers can buy them at a later date.
Supply chains are quite similar.  Some supply chains proactively begin manufacturing and delivering products to stores before customers even know they want them.

Push system


A system that combines push and pull - pushing product elements that are considered standard and then allowing customers to pull product elements that can be customized. Those product elements that are standard will be produced in advanced, and then final production will be delayed until the consumer places an order that specifies the customized elements.



Rocks and Water Analogy

• rock represented a different supply chain weakness: poor forecasting, high defect rates, unreliable suppliers, theft, unreliable shippers, etc. In each case more inventory might help hide these weaknesses.
• Imagine if instead a company decided to remove the rock instead of hiding it with more water. In other words, imagine if they fixed the problem instead of hiding it with inventory. This is what companies that embrace lean systems try and do everyday.”


• A production philosophy that strives to meet consumer demand and desires but with minimal inventory levels and minimal supply chain waste.
• Ex. TPS(Toyota Production System/ Just- In Time)

Lean manufacturing


– Mistake-proofing. Lean companies will find ways to completely eliminate certain types of errors.

Poka Yoke


•  High finished goods demand readily available for buyers
•  Opportunities to take advantage of quantity discounts
•  End-items are standardized with little opportunity for customization •  Vulnerable to obsolescence of inventory, high holding costs, and poor demand forecasts that may result in stockouts or massive overstocks.

Push System characteristics


•  High raw materials inventory readily available to produce a specific consumer order
•  End-items are very likely offer a range of customization options •  Vulnerable to sudden increases in demand, poor forecasts that may result in poorly planned production systems/facilities

Pull System Characteristics


focus on productivity and value, an irresistible combination for any supply chain manager.

Lean system


Keys to lean manufacturing

• High Performance Quality
• Consistent Quality
• Quality at the source – Empowering every employee to be a quality inspector and manager
• Continuous Improvement - Being lean means being devoted to the consumer.
• Poka-yoke – Mistake-proofing. Lean companies will find ways to completely eliminate certain types of errors.
• Close supplier ties – Good relationships, trust, and information sharing reduce uncertainty and thus will result in fewer unwanted supply chain surprises.
• Small lot sizes
• Standardized components and work method
• Dedication to the Workforce – Lean systems require finding errors, fixing errors, identifying opportunities for improvement, and relationship management with supply chain partners.”
• Using Automation when Appropriate
• Short Set-up/Change-over – Set-up time is the amount of time it takes to change a system from producing one product to producing a different item. Keeping short set-up times allows systems to run “leaner”.
o Consider the EOQ formula for manufacturing: EOQ = Sqrt [(2*Demand* Set-up Costs) / Holding cost]”


the amount of time it takes to change a system from producing one product to producing a different item.

Short set up time
Consider the EOQ formula for manufacturing: EOQ = Sqrt [(2*Demand* Set-up Costs) / Holding cost]”


When a company moves manufacturing out of its “home” country to another country.



Ford Motors is an American company that has manufacturing plants in the United States, it also has plants around the world in many countries including China, Germany, Brazil, Russia, and South Africa. this is an example of?



When a company contracts an outside firm to perform services, operations, or business processes that were previously performed in-house.



A company that produces goods on behalf of another organization

Contract manufacturer


Apple designs numerous digital devices but they outsource manufacturing to companies like Foxconn and Pegatron. Foxconn and Pegatron would therefore be considered Apple’s ________

contract manufacturers


The outsourcing of office activities like accounting, human resources, customer service activities (like call centers and customer chat). Sometimes these types of outsourced activities are referred to as back office activities.

Business process outsourcing


IBM offers companies help in the areas of employee recruitment, supply chain services, customer care and management of financial data. If you owned a small company you might consider having IBM help manage these types activities rather than developing departments internally. IBM is an example of

Business Process Outsourcing


how do the drawings help understand the tradeoff stretegy

By showing each problem each trade-of creates


Lean manufacturing and Japan

JIT is an american philosophy that japan adapted. Japan has limited space and limited values.


scm goals and trade-offs

Amount of Automation? Maximum Output/Capacity Required?
Line Balancing, Bottlenecks, Lead Times

Volume flexibility vs. Customization flexibility?
Automation and/or Workforce Capabilities - Postponement

Consistency and High Performance - Training, Automation
Jidoka - Everyone is Responsible for Quality

Inventory, Defects, Loss, Damage, Labor, Facilities, Packaging...
Product, Service, Support system


impact of shrinkage and other operational shortcomings on supply chains

inefficiencies start at the FRONT END of supply chain and move back (upstream) progressively. losses cary out through out the supply chain.


pros and cons of centralizing your warehouse

PROS - Lower required stock levels. Less likely to stock out. Warehouse operating costs decrease.

CONS - Distance/Responsiveness, Transportation costs


Shrinkage Calculation
Order Size Required = (Actual Demand)/(Proportion of Acceptable Product per Order). Example: Demand 300 light bulbs. 1% defective. Order

Size = 300/(1-.01) = 303.


Global Profit Motivations

Cost opportunities
-Reach new consumers
-Manage risk of low sales in one market by selling in multiple markets abroad
-Taking your supply chain to new locations may allow your company to learn about alternative sale and distribution options that might be useful in other markets
-Taking your supply chain to new locations may allow your company to learn about new product, service, or business trends that can be adopted in other markets.


Global Brand Strategy

As companies expand their supply chains globally, especially to new consumer markets, these companies must be prepared to deal with differences in: Packaging laws, Accepted packaging conventions, Environmental requirements, Different distribution and retail systems, Different consumer tastes and needs, Laws that impact truck size, Label requirements


Copyrights, patents, trademarks, and other designations that protect creative ideas of the creator.
a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc

Intellectual Property


Benefits and Risks of External Partners

Benefits: Speed - Outside partners already have employees, facilities, and machines in place
Expertise - The firm has been doing this for years
Resource Utilization - They are more efficient and have more buying power
Focus on Core Competencies - Allows your company to focus on its strengths

Risks: Quality Control - Is their product good enough?
Intellectual Property - Will they divulge your secrets?
Business Practices - Are they legal and ethical?
Loss of Strategic Flexibility - You give up some supply chain control


A type of offshoring where the manufacturing facility is relatively close to the consumer

Near sourcing
Near source offshoring
Near source offshoring and outsourcing


A strategy where a company utilizes a contractor in another country to perform services and/or operations.

Offshoring and outsourcing


The business behaviors of a manufacturer associated with following the regulations, practices, and other requirements that their clients have established.

Manufacturing compliance


A process whereby companies examine whether or not their manufacturing contractors are abiding by the legal and agreed upon regulations, business practices, and other established manufacturing requirements.

Manufacturing audits


Exchange rate scenerios

Scenario A – September 1 Exchange rate: $1.00 = 1 Euro (No Change) Finished goods are sold in Europe for 5,000 Euros Those 5,000 Euros = $5,000 Total Profit = $1,000 Scenario B – September 1 Exchange rate: $1.00 = 1.50 Euro (Strong dollar) Finished goods are sold in Europe for 5,000 Euros Those 5,000 Euros = $3,333 Total Loss = $667 Scenario C – September 1 Exchange rate: $1.50 = 1.00 Euro (Weak dollar) Finished goods are sold in Europe for 5,000 Euros Those 5,000 Euros = $7,500 Total Profit= $3,500

Left multiply by 5000
right divide by 5000


physical structures and equipment utilized to move goods. In addition, it could also refer to the organizations that support the movement of goods.




often refers to roads, railways, ocean ports, airports, bridges, and other major structures that make the movement of goods possible. It could also include the available trucks, trains, planes, forklifts, loading cranes, and ships. Extended further it could also include the energy and fuel systems, security, skilled labor and many other logistics related systems and organizations.



Customs and Regulations Considerations

Governments establish customs agencies to control the goods that enter and leave a country, i.e. imports and exports. These customs agencies monitor whether importers and exports are adhering to the customs regulations established by the government. Customs agencies assist in the following areas: • Classifying goods and services according to the government’s classification system • Assessing and collecting the appropriate tariffs, enforcing quotas • Aiding in issues related to national security, illegal narcotics, weapons, etc. • Aid in issues related to commerce control, intellectual property, etc. • Collecting information about goods imported and exported


A voluntary program developed by US Customs and Border Protection for companies importing goods into the US. The program requires member organizations to report a significant level of detail related to supply chain partners and actions for each imported shipment. In exchange for providing this information to US Customs, member companies are allowed opportunities for speedier and more hassle-free customs clearance.


Customs-Trade Partnership Against Terrorism (C-TPAT)


A contractor that performs one or more logistics functions for their client in an effort to facilitate effective and efficient movement in the supply chain.
(procurement, assembly, etc.). Below is a short list of the types of services that might be performed by a 3PL: • Arranging shipping itineraries, in some cases taking over all the client’s logistics responsibilities • Aiding in the import and/or export process • Warehousing, Distribution, Picking and Packing • Containerization and Transportation • Packaging • Documentation • Product tracking, Logistics data and information management • Logistics specific financial services • Management of digital marketplaces for logistics services

Third party Logistucs


A contractor (company or person) that helps companies organize the efficient and effective shipment of goods from one point in the supply chain to another.
do not actually transport the goods, instead they negotiate and arrange for one or more logistics companies to prepare, secure, store, track, and move the cargo.

Freight Forwarder


A contractor (company or person) that helps a client’s goods clear customs in a foreign country.
• Before goods reach the border: Preparation of documents, issues relating to import fees and taxes • During inspection: Answers the customs agents’ questions in an effort to facilitate customs clearance.

Customs House Broker


A geographic area sanctioned by the government where items are not under the control of customs authorities. As such, goods can be imported into a country, brought into an FTZ and then stored, displayed, and/or manipulated before being re-exported without ever being inspected or taxed by customs officials.

Free Trade Zone
(In some countries these types of areas go under different names – free economic zone, free zone, export processing zone, special economic zone)


Upon export of the finished good the company may be able to request a refund of most of the tariffs paid

Duty Drawback


A series of commercial terms, often depicted as three letter acronyms, established by the International Chamber of Commerce (ICC) to facilitate communication in commercial transactions.

Often seen on logistic documentation
Export customs declaration
• Payment of import taxes
• Loading and unloading responsibilities
• Insurance



Why are shipping documents needed?

-International Shipments


A vital document that provides a reasonable summation of the items being shipped, the parties involved, cargo values, and other information important to supply chain members and customs officials.

Commercial invoice


Describes all items in a box, including dimensions and weight. In some cases it may even provide location of items in a box or container. Prices are typically not provided on a packing list.

Packing List


Serves three main purposes: contract between shipper and carrier, receipt of goods for the shipper, and it acts as the certificate of ownership.

Bill of Lading


3 main porpuses of Bill of Lading

Serves three main purposes:
-contract between shipper and carrier,
-receipt of goods for the shipper,
- acts as the certificate of ownership.


A document used by the US government to track all items that exported from the US in order to develop a census of US exports each year. It also provides the appropriate export license information for the goods being shipped.

Shipper Export Declaration


– A special export license required for items that are heavily policed by the US government, such as weapons, advanced technologies, goods related to nuclear technology, and even goods related to the agricultural industry.

Validated Export License


Certifies that the goods were in fact manufactured in the country specified. Important for legal purposes and to assess duties.

Certificate of Origin


Organizations that provide data on suppliers in a region or country.

They may be able to report on product quality, reliability, and even on the financial stability of the suppliers.

For certain industries, these types of organizations may even be able to aid in choosing suppliers, manufacturing contractors, and logistics partners.

Custom Manufacturing Org

Suppose a small 25-employee company develops a new digital device. The company would like to get their item manufactured, but they do not know where to begin. Where will this item be manufactured? Which companies should be contacted first? How can we establish meeting with the top suppliers?

Establishing a global supply chain can be expensive and time consuming. How can an organization minimize waste in developing their new global supply chain? By reaching out to different types of custom manufacturing service organizations, this small company might be able to quickly identify top candidates to perform the supply, operations, and logistics activities required to produce and bring to market this new digital device.


describe the EMS industry and how they can be beneficial

Companies that can take on numerous primary supply chain responsibilities associated with the manufacturing of electronic components assembled end-items

cost advantages, total supply chain services, higher quality, flexibility, focus on your strengths


Provide examples of why foreign companies would want to manufacture in the United States.

Avoid import taxes, closer distribution, nearness to markets, etc.


utilizing mexican ports to bring products into the US

oyota, Mazda, and Isuzu shipping to US via Lazaro Cardenas port
Wal-Mart and Target have considered similar alternatives
Affordable and dependable workforce - Strikes rare
US Gov't working to facilitate "no-hassle" imports via Mexican border
NAFTA - Super Railway (Mexico/US/Canada)
Can't really hold containers though


importing and exporting tricks

Third part importer
shipping unassembled parts
ship only required parts
domesticating products
alter product to reclassify item (ex. minivan/ truck)


what were some of the general lessons learned from the procurement perceptions study discussed in class?

Most factors pointed to the Overall reliablity of a company. All except low cost and high intel property protection - these two were polar opposites.


what are some of the challenges of procuring products and services at the global level?

Building relationships, certifying suppliers and second tier suppliers, risks and trade-offs understanding, legal issues, financial issues, difference between materials and services purchasing.


`Manufactorer responsible for excessive use of lead paint?

Lee der used unapproved paint supplier that used lead paint in products


Paint supplier not on Mattels approved list?

Dongxing New Energy 2002


How many Mattel products were recalled

83 products under fisher price
1.5 million toys recalled


Pressures in Chinese manufactoreres for Mattel case

Lower price to maintain good relationship with suppliers
Lower costs


Reasons for toy recalls - Mattel

- excessive use of lead paint
- defects in product design
- potential for misuse


Recall incidents on Mattel Case

Lee Der Industrial was responsible for the first set of recalled toys due to the use of an unapproved paint supplier that used an excessive amount of lead paint on the products.
Magnet Recalls – 18.2 million toys were recalled worldwide due to small magnets that are unsafe for children. Mattel improved the magnet retention design and relaunched the product


Lead Paint Incident

The lead paint incident occurred when Lee Der began to use an approved paint supplier, Dongxing New
Energy. there had been no quality problems until in April 2007 when Dongxing ran out of yellow pigment and bough a supply of 200 kilograms from a company they found over the internet. This company provided a certificate that the pigment was lead free – a certificate that turned out to be false.


2nd Mattel Incident

Second recall on lead paint that involved die-cast toys based on Sarge from cars. Traces of lead paint came from Early Light. More recalls due to magnets and melamine in dog treats


What were the key lessons Ortega took away from his early scare?

To be successful, “you need to have 5 fingers touching the factory and 5 touching the customer.”
Translation: Control what happens to your product until the customer buys it.


2. What are some of the things Zara can do because of the super-responsive supply chain it has built?

can put a new garmet on dispay in just 15 days
They can ramp up or down production of specific garments quickly and conveniently because it normally operates many of its factories for only a single shift.


How is Zara’s supply chain different from most other supply chains in their industry?

- keeps almost half of its production in-house
- Far from pushing its factories to maximize output, Zara intentionally leaves extra capacity.
- Rather than chase economies of scale, Zara manufactures and distributes products in small batches.
- Instead of relying on outside partners, Zara manages all design, warehousing, distribution, and logistics functions itself.
- Zara puts price tags on items before they’re shipped, rather than at each store.
- Zara tolerates, even encourages, occasional stock-outs.


What are the three principles Zara lives by?

Close the communication loop – goal is to close information loop between the end users and the upstream operations of design, procurement, production, and distribution as quickly and directly as possible

Stick to a rhythm across the entire chain – spends money on anything that helps to increase and enforce the speed and responsiveness of the chain as a whole

Leverage your capital assets to increase supply chain flexibility – make capital investments in production and distribution facilities and use them to increase the supply chain’s responsiveness to new and fluctuating demands


Describe Zara’s Design and Production center in La Coruna.

Her design and production center is attached to Inditex headquarters in La Coruna. It consists of three halls: one for women’s clothing lines, one for men’s, and one for children’s.


6. How does Zara control the bullwhip effect?

the constant flow of updated data

In an industry that allows retailers to change a maximum of 20% of their orders once the season has started, Zara lets them adjust 40% to 50% to avoid costly overproduction and the subsequent sales and discounting prevalent in the industry.


Why does Zara prefer to own production assets?

Owning production assets gives Zara a level of control over schedules and capacities that would be impossible to achieve if the company were entirely dependent on outside suppliers.


What are some positive customer behaviors Zara sees because of its operational plan?

There is a sense of tantalizing exclusivity, since only a few items are on display. A customer thinks, “This green shirt fits me, and there is only one on the rack. If I don’t buy it now, I’ll lose my chance.

customers vist the shop 17 times a year


9. What types of products does Zara produce themselves? Which items do they outsource?

The simpler products, like sweaters in classic colors, are outsourced to suppliers in Europe, Africa, and Asia.
Zara reserves the manufacturer for more complicated products, like women’s suits in new seasonal colors, for their own factories.


3 parts of social responsibility

Legal &Ethical behavior
Commitment to the Community


– Acting within the law in all of the nations in which they conduct business. It might also include treating stakeholders well - employees, business partners, and customers.

Legal and Ethical Behavior


Earth-friendly business practices. Having business practices, products, and services that do not harm the environment in the present nor in the future.



Investing in the well-being of the communities in which the business operates as well as the greater world.

Commitment to the Community


4 Reasons to be Socially Responsible

• Avoid government fines and regulation – Governments are moving toward making many forms of social responsibility the law. Some companies seek to change before change is imposed upon them.
• Seek positive public image – Being seen as a socially progressive company may expand your market and dissuade regulation that might directly impact your organization.
• Demonstrate to customers and employees the company’s goals and values – Customers and some of a company’s best employees may value social responsibility. They might prefer if the company had similar values.
• Protect the company’s interests – Some would argue that being good has many long-term rewards, even in business.


3 Links between SCM and SR

• Eliminate waste – Good supply chain and business sustainability both value efficiency.
• Legal and Ethical Business Practices – Treating customers, employees, and supply chain partners well is vital to controlling costs, maximizing productivity, and increasing sales.
• Improve quality of life – While supply chains are supposed to efficiently deliver valuable products and services to customers, we can also extend this point to say that the best supply chain practices in business, government, and military can be useful to organizations that seek to save lives


Challenges of being SR

• What’s the right thing to do? – Throughout history companies and activists have developed programs and practices intended to result in better social outcomes. Some of the most logical ideas have turned out to result in poor if not dangerous outcomes. Even in our modern society with some much knowledge about commerce, culture, and science, sometimes finding good answers can be extremely difficult? Investigate almost any socially responsible product or business practice and you are likely to find detractors that will argue it causes more harm than good.
• Monitoring supply chain partners (and yourself) – Companies in aerospace and automobile manufacturing may have over 1,000 first-tier suppliers. Can any company feel truly confident that all business practices at every organization on every single day are socially responsible? It’s difficult to guarantee that every one of your employees is acting in a socially responsible manner everyday. Imagine the difficulty in monitoring behaviors at all levels of your supply chain.
• Tracking outcomes across the supply chain– Can you really fix problems across your supply chain without tracking employee behaviors, customer behaviors, resource usage, government fines, etc.


Examples of Ethical Issues in SCM

• Obey laws – Whether in your country or abroad.
• Choosing ethical business partners – Some companies may seek to pass on the responsibility of unethical business practices to their supply chain partners. In this way they can hide behind excuses and lies.
• Do not bully supply chain partners and/or employees – Large companies with lots of power may use their influence to abuse
companies and/or people. They may also force them to do things that are illegal or unethical.
• Conflicts of interest – Some suppliers may seek to ensure a contract with your company by giving expensive and/or inappropriate gifts to your procurement manager. Other types of conflicts of interest may include special favors for family members or capitalizing on financial insider information.
• Protect the environment, workers, and consumers – Causing harm to people or our planet is unacceptable.
• Breaches in intellectual property, consumer and employee personal data, and confidential business information


4 Tools for managing Ethical SC

• Continuous Education and Awareness Programs– Everyone thinks they know how to be ethical. Don’t take their word for it, provide opportunities for people to learn about how to identify and avoid unethical behavior.
• Security across the supply chain – In our modern world, a company that does not protect its products, people, and data is creating an unsafe environment.
• Establish a whistleblower program – If an employee discovers an ethical breach who can they tell? Will this employee be safe if their superiors are perpetrating the unethical behavior being reported?
• Monitoring and Auditing Programs – While these types of programs have their limitations, not attempting to monitor and/or audit supply chain partner and employee behavior?


• Developed by Social Accountability International, certification that focuses on social responsibility in the work place. May be of value to companies seeking the approval of customers and/or present and prospective supply chain partners.
o Child labor
o Health and Safety
o Discrimination of any type
o Payment/Compensation – Fair and legal pay. Workers are provided a living wage.
o Unionization Rights – Freedom to form and join labor unions and also the right to collective bargaining
o Forced labor – Includes prison labor. Organization does not motivate employees to stay by withholding payment or driving workers into debt.
o Disciplinary practices – Fair treatment of all workers. No mental or physical punishment. No abuse of any type.
o Working hours – Abides by laws of the state. Also complies with work weeks of no more than 48 hours. No more than 6 consecutive days of work.
o Ethical Management Systems– Being a complaint organization is not enough. Companies must have a standardized system that supports and nurtures a social responsible work place.”



is development that meets the needs of the present without compromising the ability of future generations to meet their needs.

Sustainable development

BY Bruntland Commision 1987


– Companies should consider the possible economic, environmental, and social outcomes associated with business decisions.

• Triple bottom line


– Rather than have everything end up in a landfill as garbage, companies should consider ways to conserve materials and energy, maximize the use of their resources, and find new uses for items that are no longer valuable.

• Reduce, reuse, recycle


Items that were produced for one use and were destined for the landfill

• Cradle to grave design


Idea used to consider what could be done with products once they were no longer needed. Could they be repurposed?

Cradle to Cradle


Supply chains that seek to create a loop of materials through sustainable procurement, manufacturing, logistics, as well as reverse logistics.”

• Closed loop supply chains


Challenges of being sustainable

• Motivating supply chain partners – Some companies still do not see value in sustainable programs.
• Customers want things that last – More durable items often don’t break while you own them. That’s the problem; they may not easily breakdown once tossed into a landfill.
• Local versus Global management– If every city, state, province, and country has different
sustainability laws and programs, your company may need to create a different sustainability plan for each region.
• Lack of understanding/knowledge – Some companies realize they have problems and are very willing to fix the problem. The only problem they may face is confusion. Global supply chains are extremely complex. Changing something in procurement may have unforeseen impacts on distribution. Companies want to change but don’t know how.
• Metrics – You can’t fix a problem unless you can find it and measure how bad the problem is. Similarly, you can’t prove the problem has been solved unless you can measure the level of improvement
• Managerial support – Is your boss willing to fund and support new technologies, materials, and business practices in an effort to make your company greener?”


Ways SC can be more sustainable

• Procurement – Purchasing better materials, fewer materials, safer materials
• Logistics – Transportation efficiencies, reduce fuel consumption
• Manufacturing and Operations, Facilities – Energy consumption, defect reduction, minimize emissions
• Reverse logistics – Recovery of packaging, damaged items, parts, etc. for reuse, refurbishing, re-sale, recycling
• Supply chain sustainability catalysts – Large powerful companies can become catalysts often have the power to motivate thousands of suppliers to become sustainable. This not only impacts the catalyst’s supply chain, it impacts every other company that buys material from that supplier.
• Rethink design – Poor design will always yield poor outcomes. Sometimes companies need to start from scratch and develop a new design. Example: Electric car engines instead of gasoline powered engines
• Sustainability Accounting – Companies cannot fix a problem until they can find the source. With the help of accounting supply chains can identify primary areas of costs related to unsustainable business practices.
• Develop Sustainability Metrics – Metrics help companies find problems, track improvement, and they can also motivate employees to change their behavior.


– A systematic approach that attempts to quantify the environmental impact of every step in the supply chain. This helps companies identify different types of problems in different parts of the supply chain.

• Life Cycle Analysis


Certification rewarded to companies that are committed to sustainability at an organizational level.

• ISO 14000 certification


Humanitarian challenges that can be aided by good SCM

1) Feed the hungry - Purchasing and logistics

2) Aid to the sick and suffering - Purchasing and logistics

3) Developing regions - Materials, operations, and logistics in the development of Infrastructure, homes, buildings, agriculture...


Ties between SR and SCM

Eliminate waste
o Proliferation of legal and ethical business practices
Make life better for humans --> products, services, save lives, better organizational operations


Humanitarian and Global Health SC Issues

o SCM Talent Pool - Who is working in these organizations?

o Logistics - Infrastructure challenges, Storage, Demand forecasting

o Procurement Challenges - Low Cost, Financing, and Negotiations

o Donations - Operational metrics, Today versus long-term, Mandated spend challenges
♣ Global Disasters
• Mandated spend- being specific on how you want your donation to be used
• Downside: having too much money in one category then another
• Useless items
• Legal issues- rules and regulations, monitoring what items can be donated

o Media and Social Media Coverage - Bad messages, Impact on donations

o Broken Communication, Lack or Coordination - Organizations do not work together, Inability to communicate with those in need


Global Health; in class examples

o In class ex: Chemonics. USAID gave $10 billion to go to 4 task orders; HIV/Aids, Malaria, Family planning, Maternal

o Kenya and Malaria - deliver the nets, some people were not using the nets properly some used them for fishing

o Clinton/Gates Recognition
- went after Malaria because they saw it was not being solved properly, could save them money, and affect the most amount of people.
- Clinton Foundation helps with anti-retro viral (ARV) drugs
- Dissected their SC for ARVs and negotiated the drug price from $500 to $140 per person
• CIPLA before: low volume, high margin, uncertain payment system
• CIPLA After: high volume, low margin

o Charity Water


Examples Provided in lecture of Legal and Ethical Supply Chains

o Child labor Nike even though that was 25 years ago we still think about it today

o Challenges of Monitoring- making sure your suppliers are following your guidelines

o "Fast Fashion"
- Zara case
- What is going on in your SCM that makes you get your inventory so fast?

o Compliance training - required for some jobs to teach their employees about ethics

o Social Media Challenges- releasing information that should not be released

o Employee Abuse- if your supplier's employees are being abused, what should your company do?
- Keep the supplier but tell them they need to change these things or you are out, media might not perceive it this way
- Making ethical decisions is not easy

o Promoting Sustainability- how hard can you push your supplier to adopt sustainable business practices?

o Humanitarian Programs- is it ever acceptable to utilize the black market or a corrupt government as a business partner in the distribution of humanitarian aid?


Why is the supply chain a logical place to look to when trying to "green up" a company?

Supply Chain Management's main goal is to eliminate waste... therefore this is a logical place to look...A good Supply Chain Focuses on Natural Resources - Air, Water, Soil, Fuels, Materials in an efficient way.


8. From which parts of the world is coffee sourced? Why is that a concern for Starbucks?

50% from Latin America
35% from Pacific Rim
15% from East Africa
Most of the coffee producers were small to medium-sized family- owned farms.


was a set of coffee buying guidelines designed to support coffee buyers and coffee farmers, ensure high quality coffee and promote equitabkle relations with farmers, workers, and communities, as well as to protect the environment.

The program strengthened Starbucks’ supply base, improved its marketing ability, and increased its visibility into the supply chain.

Cafe Prcatices


11. How does a company join CAFÉ practices (requirements)? What are the benefits once they join?

suppliers have to be independently verified and meet minimum social responsibility criteria


12. What are some of the challenges Starbucks faced in implementing CAFÉ practices?

First, since some members of the supply chain had very poor information systems, it could be very difficult to gain economic transparency from these members. Second, as C.A.F.E. Practices were updated and refined, it became a daunting job to effectively communicate the revised requirements and practices to farmers, suppliers, and other members of the industry.