Logistics L5

Question 1

Supply chain management

Answer 1

Strategic coordination of business functions within a business organization & throughout its supply chain for the purpose of integrating supply and demand management

Supply:
• From the beginning of the chain to the internal operations of the organization
Demand:
• From the organization’s output delivery to its immediate customer to the final customer

Question 2

Supply chain strategy alignment

Answer 2

● Aligning supply and distribution strategies with organizational strategy
● Deciding on the degree to which outsourcing will be employed

Question 3

Network configuration

Answer 3

Determining the number and location of suppliers, warehouses, production/operations facilities,
distribution centers

Question 4

Why so much interest in SCM?

Answer 4

As manufacturing becomes more efficient (or is
outsourced), companies look for ways to reduce costs

Several significant success stories.

Web-based models for supply chains:
• Online retailers
• B2B business models

Question 5

Key Supply-Chain Management Issues:

The goal of SCM is to match supply to demand as
effectively and efficiently as possible

Answer 5

• Determining appropriate levels of outsourcing
• Managing procurement
• Managing suppliers
• Managing customer relationships
• Being able to quickly identify problems and respond to them
• Managing risk

Question 6

Three types of flow management

product and service flow
information flow
financial flow

Answer 6

1. Product and service flow
   Involves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns
2. Information flow
   Involves sharing forecasts and sales data, transmitting orders, tracking shipments, and updating order status
3. Financial flow
   involves credit terms, payments, and consignment and title ownership arrangements

Question 7

product and service flow

Answer 7

movement of goods from suppliers to customers

handling customer service needs / product returns

Question 8

information flow

Answer 8

share forecasts and sales data, transmit orders, track shipments and update order status

Question 9

financial flow

Answer 9

involves credit terms, payment, consignment ownership arrangement

Question 10

Outsourcing

Answer 10

Transfer or contracting non productive internal activities to outside vendors.

• Paying for recycling, using market research companies
• Hiring a law firm, Buying software etc.

Question 11

In-sourcing

Answer 11

your own employees do the work (‘functions in-house’)

Question 12

Make-or-buy decision

➔ The act of choosing between manufacturing a product or purchasing it from a supplier.

Answer 12

● Factors to consider
○ Part of quantitative analysis
○ Associated costs of production
○ Capacity to produce at required levels

Question 13

Make versus buy

Answer 13

● outsourcing has become a competitive weapon
● It is no easy task for management to decide
● The decision to outsource has led to a need for strategic partnerships

Question 14

Benefits of outsourcing

Answer 14

• Lower prices may result from lower labor costs
• The ability of the organization to focus on its core strengths
• Permits the conversion of some fixed costs to variable costs
• It can free up capital to address other needs
• Some risks can be shifted to the supplier
• The ability to take advantage of a supplier’s expertise
• Makes it easier to expand outside of the home country

Question 15

Risks of outsourcing

Answer 15

● Inflexibility due to longer lead times
● Increased transportation costs
● Language and cultural differences
● Loss of jobs
● Loss of control
● Lower productivity
● Loss of business knowledge
● Knowledge transfer and intellectual property concerns
● Increased effort required to manage the supply chain

Question 16

Cost to make?

total cost of production

Answer 16

fixed cost + (variable cost x quantity)

Question 17

Cost to buy?

Answer 17

price x quantity

Question 18

Supply Chain Risks

• Supply chain disruption
• Quality issues
• Loss of control of sensitive information

Answer 18

• Supply chain disruption (Natural disasters, Supplier problems)
• Quality issues (disrupt supplies and lead to product recalls, liability claims, and negative publicity)
• Loss of control of sensitive information (if suppliers divulge sensitive information to competitors, it can weaken a firm’s competitive position)

Question 19

Risk management

Answer 19

identifying risks
assessing likelihood of occurring/ potential impact
developing strategies for addressing those risks.

Question 20

Strategies for addressing risk

Answer 20

• Risk avoidance
• Risk reduction
• Risk sharing

Question 21

Key elements of successful risk management

Answer 21

• Know your suppliers
• Provide supply chain visibility
• Develop event-response capability

Question 22

Global supply chains

Answer 22

• Product design uses inputs from around the world
• outsourced to countries where labor and/or materials costs are lower
• Products are sold globally

Question 23

Complexities in global supply chains

Answer 23

• Language and cultural differences
• Currency fluctuations
• Political instability
• Increasing transportation costs and lead times
• Increased need for trust among supply chain partners

Question 24

Management Responsibility

Tactical

Answer 24

• Forecasting
• Sourcing
• Operations Planning
• Managing inventory
• Transportation planning
• Collaborating

Question 25

Management Responsibility Operational

Answer 25

* Scheduling * Receiving * Transforming * Order fulfilling * Managing inventory * Shipping * Information sharing * Controlling

Question 26

Supplier Management

Answer 26

Vendor analysis Supplier audit Supplier certification

Question 27

Vendor analysis

Answer 27

• Evaluating the sources of supply in terms of price, quality, reputation, and service

Question 28

supplier audit

Answer 28

• A means of keeping current on suppliers’ production capabilities, quality and delivery problems and resolutions, and performance on other criteria

Question 29

supplier certification

Answer 29

* Involves a detailed examination of a supplier’s policies and capabilities * The process verifies the supplier meets or exceeds the requirements of a buyer

Question 30

Supplier Relationship Management

Answer 30

Short-term • involves competitive bidding • Minimal interaction Medium-term • involves an ongoing relationship Long-term • involves greater cooperation that evolves into a partnership

Question 31

Choosing Suppliers

Answer 31

``` Quality and quality assurance Flexibility (for changes) Location Price Reputation and Financial Stability Lead times and on-time delivery Other accounts (Dependence on other customers and their priority) ```

Question 32

inventory issues in SCM

Answer 32

Inventory location Inventory velocity The bullwhip effect

Question 33

Inventory location

Answer 33

Centralized inventories • Lower overall inventory, lower cost, lower stock-out risk Decentralized inventories • Faster delivery, lower shipping cost

Question 34

inventory velocity

Answer 34

* The speed at which goods move through a supply chain * The greater the velocity the lower the holding cost and the faster orders are fulfilled and goods are turned into cash.

Question 35

The bullwhip effect

Answer 35

Inventory oscillations that become increasingly larger looking backward through the supply chain

Question 36

effective supply chain

Answer 36

begins with strategic sourcing: analyzing the procurement process ``` There must be : • Trust • Effective communication • Information velocity • Supply chain visibility • Event management capability • Performance metrics ```

Question 37

inventory trade-offs

Answer 37

1. Lot-size-inventory trade-off 2. Inventory-transportation cost trade-off 3. Lead time-transportation costs trade-off 4. Product variety-inventory trade-off 5. Cost-customer service trade-off

Question 38

lot-size inventory trade-off

Answer 38

Large lot sizes have benefits of quantity discounts and lower annual setup costs, but increases the amount of safety stock (and inventory carrying costs) carried by suppliers

Question 39

inventory-transportation cost trade-off

Answer 39

Suppliers prefer to ship full truckloads instead of partial loads to spread shipping costs. This leads to greater holding costs for customers Cross-docking • A technique whereby goods arriving at a warehouse are unloaded from suppliers truck onto outbound truck, thereby avoiding warehouse storage

Question 40

lead time transportation cost trade-off

Answer 40

Suppliers like to ship in full loads, but waiting for sufficient orders and/or production to achieve a full load may increase lead time

Question 41

product variety inventory trade off

Answer 41

Greater product variety means smaller lot sizes and higher setup costs, higher transportation and inventory management costs Delayed differentiation Production of standard components and sub assemblies, which are held until late in the process to add differentiating features

Question 42

cost customer service trade off

Answer 42

• Producing and shipping in large lots reduces costs, but increases lead time • Disinter mediation Reducing one or more steps in a supply chain by cutting out one or more intermediaries

Question 43

Good supply chain management can overcome the bullwhip effect

Answer 43

``` 1. Information sharing • Replenishment based on need Vendor-managed inventory Vendors monitor goods and replenish retail inventories when supplies are low • Lower ordering costs ``` 2. Short lead times 3. Cooperation

Question 44

problems of the bullwhip effect

Answer 44

High demand fluctuations. Variation in demand along the supply chain requires Shipment, Production and Inventory capacity to cope with peaks. Most of the time this capacity will be idle. There’s significant cost and investments attached! Low service level (back orders) High cost In the end: high overall cost in the supply chain

Question 45

Order fulfillment

Answer 45

• Engineer-to-Order (ETO) Products are designed and built according to customer specifications. • Make-to-Order (MTO) A standard product design is used, but production of the final product is linked to the final customer's specifications. Fulfillment time is less than with ETO fulfillment, but still fairly long. • Assemble-to-Order (ATO) Products are assembled to customer specifications from a stock of standard and modular components. Fulfillment times are fairly short, often a week or less. • Make-to-Stock (MTS) Production is based on a forecast, and products are sold to the customer from finished goods stock. The order fulfillment time is immediate

Question 46

Small businesses do not always give adequate attention to their supply chains Three aspects of supply chain management that are often of concern to small businesses are:

Answer 46

1. Inventory management 2. Reducing risks 3. International trade

Question 47

Products are returned to companies or third-party handlers for a variety of reasons, and in a variety of conditions. Among them are the following:

Answer 47

* Defective products * Recalled products * Obsolete products * Unsold products returned from retailers * Parts replaced in the field * Items for recycling * Waste

Question 48

Reverse logistics

Answer 48

is the process of physically transporting returned items

Question 49

Two key elements of managing returns

Answer 49

• Gate keeping oversees the acceptance of returned goods with the intent of reducing the cost of returns by screening returns at the point of entry into the system and refusing to accept goods that should not be returned or goods that are returned to the wrong destination. • Avoidance refers to finding ways to minimize the number of items that are returned.

Question 50

Trends affecting supply chain design & management

Answer 50

``` Measuring supply chain performance “Greening” the supply chain Re-evaluating outsourcing Integrating IT Managing risks Adopting lean principles ```