Lecture 7: Supply chain and logistics Flashcards Preview

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Flashcards in Lecture 7: Supply chain and logistics Deck (13):

What is a supply chain?

What is a supply network?

Supply chain: set of three or more companies linked by one or more upstream/downstream flows of products, services etc.


Supply network: a network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and info from suppliers to end users


What is supply chain management?

SCM refers to processes and exchanges across MULTIPLE firms.


Sourcing/purchasing: includes identifying needs, locating and selecting suppliers, negotiating contracts

  • Make or buy?

Logistics: manages the efficient, effective flow and storage of goods

  • Where?
  • How much should be distributed where?


What is the difference between OM and SCM?

OM: main concern is to maximise the efficiency of the internal processes of the firm


SCM: main concern is to manage inter-firm networks to maximise the value to the ultimate customer


What are the "design" decisions in a supply network?

  • How should the network be configured?
    • No. of tiers, alternate suppliers, control over tiers: resilient vs. efficient
  • Make or Buy?
    • Vertical integration
    • Offshoring
  • Where should each part of network be located?
    • Country
    • Multi attribute utility analysis
    • Centre of Gravity method
    • Load distance 
  • How much to distribute and to where?
    • NorthWest Corner Method
  • What distribution strategy to use?
    • Direct shipping
    • Warehousing
    • Cross docking


What are the extra costs associated with outsourcing?




Asset specific investments



What are the worries of the buyer and seller in outsourcing?


1.   They might not pay

Hence become reluctant to invest

2.   They might quibble about the spec

Contractual pendantry

3.   Project may be impossible

Buck passing



1.  They might rip me off

Hence expensive tendering exercises

2.   They might not fulfil the brief

Expensive contracts/monitoring

3.   They might be no good

Expensive contingency plans



What are the pros and cons of outsourcing?


  • Focus on core competences
  • Harness lower labour cost at supplier
  • Access to technology
  • Stable and predictable financial planning in fee-for-transaction services
  • Less investment risk



  • Loss of control over process
  • Limited ability to improve processes

  • Risk of opportunistic behaviour of supplier

  • Loss of human capital and tacit knowledge


What are the pros and cons of offshoring?


  • Lower labour costs
  • Development of new markets
  • Offset requirements


  • Distance to existing customers
  • Customer perception
  • Not all jobs can be relocated
  • Long lead times, transportation and inventory costs
  • Strategic risks: political, currency, IP


Factors that influence choice of country






Explain the best uses for direct shipping

Point to point delivery

Mostly used for perishable items, specialty products

Trucks may not be full, best for high volume goods

Might not be best option if factory is remote


Explain the advantages and disadvantages of warehousing

Warehousing: remote production and variable finished goods demand

  • Storage until demand
  • Companies share same resources
  • Some goods may require this e.g. maturation point
  • Allows companies to work with optimal transport and order quantities
  • Obsolescnece
  • Handling errors
  • Inventory costs


What is cross docking? What does it need?

  • Items distributed continuously from suppliers through warehouses to customers
  • Warehouse rarely keeps items for more than 10-15 hours - minimal storage costs
  • Better quality due to less handling
  • Requires
    • Close linkages between all participants in the supply chain
    • Fast transportation
    • Large distribution volumes to justify cost