Deze samenvatting is gebaseerd op collegejaar 2012-2013.
Interest in logistics and supply chain management has grown explosively in the last few years. This has led many companies to analyze their supply chains. Meanwhile analysis and insight in supply chain management have improved, and effective models and decision-support systems have been developed.
Supply Chain Management is defined as: a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right location, and at the right time, in order to minimize systemwide costs while satisfying service level requirements.
In contrast the Development Chain is the set of activities and processes associated with new product introduction, it includes the product design phase, the associated capabilities and knowledge that need to be developed internally, and production plans. The Development and Supply Chains interact at the production point.
The last couple of years industry recognized that trends (outsourcing, offshoring JIT, etc) that focus on reducing manufacturing and supply chain costs significantly increase the level of risk in the supply chain. As a result, over the pas several years, progressive firms have started to focus on strategies that find the right balance between cost reduction and risk management. Several approaches to manage risk in the supply chain are: building redundancy in to the supply chain, using information to better sense and respond to disruptive events, incorporating flexibility into supply contracts, and improving supply chain processes by including risk assessment measures.
Effective inventory management in the supply chain is to have the correct inventory at the right place at the right time, to minimize system costs while satisfying customer service requirements. Inventory Policy is the strategy, approach, or set of techniques used to determine how to manage inventory.
The economic lot-size model
The economic lot-size model (EOQ) is a simplified model that illustrates the trade-offs between ordering and storage (holding) costs. The model assumes that the new order is received to the warehouse at the point when the inventory drops down to zero, thus called zero inventory ordering property. Two important insights of this model are: (1) An optimal policy balances inventory holding cost per unit time with setup cost per unit time. Thus the optimal order quantity is achieved when the inventory setup cost (KD/Q) is equal to the inventory holding cost (hQ/2). (2) Total inventory cost is insensitive to order quantities, as changes in order quantities have a relatively small impact on annual setup costs and inventory holding costs.
The economic lot-size model ignores issues such as demand uncertainty and forecasting. EOQ isn’t necessarily the same as the forecasted demand. Instead, the order quantity is based on the relationship between marginal profit achieved from selling an additional unit, and the marginal cost of ordering/producing an additional unit. Average profit increases with the order quantity until the production quantity reaches a certain value, after which the average profit will decrease. Whenever the inventory level is below a certain limit s (reorder point), we order up to the point S (order-up-to-level).
There are two ways in which companies review the inventory: Continuous Review Policy (Inventory is reviewed continuously and an order is placed when the inventory reaches the reorder point) and Periodic Review Policy (Investment is reviewed at regular intervals and an appropriate quantity is ordered after each review).
Risk pooling is an important concept in SCM. It suggests that aggregating demand across locations can reduce demand variability, because shortage in demand of one location/ customer is offset by an increase in demand of another.
Three critical points of risk pooling are the following:
1. Centralizing inventory reduces safety stock and average inventory in the system, due to the possibility of reallocation;
2. The higher the coefficient of variation, the greater the benefit from risk pooling;
3. The benefits of risk pooling depend on the behavior of demand in one market relative to another. Thus, if there is an increased demand in one market and increased demand in another (i.e. positive correlation), the benefits of risk pooling are likely to be smaller.
Forecasting rules of inventory management are as follows:
Forecasts are always wrong.
2. The longer the forecast period, the less accurate the forecasts.
3. Aggregate forecasts are always more accurate than disaggregate data.
However, firms still use forecasts because they need to manage inventory. There are four forecasting categories:
Judgment methods (assembles expert opinions);
Market research analysis (qualitative studies of consumer behavior); examples are market testing and market surveys
Time-series methods (future performance is forecasted by the past performance, by evaluating results, patterns and trends of the past);
Causal methods (forecasts are based on the data that is not being predicted, but other data that does influence the predicted data).
Network planning is the process of managing the Supply Chain to:
Balance inventory, transportation, and manufacturing costs
Match supply and demand under uncertainty
Utilize resources effectively by sourcing from the most appropriate facility
Network planning consists of three steps: (1) Network design; involves decisions relating to plant and warehouse locations as well as distributing and sourcing, it therefore entails strategic decisions with long-lasting effects. The objective of network design is to reconfigure the logistics network in order to minimize annual systemwide costs, while being subject to a variety of service level requirements. (2) Inventory positioning; identification of stocking points and selection of facilities that will produce to stock and facilities that well produce to order, (3) Resource allocation; to determine whether production and packaging of different products is done at the right facility.
Buyers and suppliers agree on supply contracts, as they need to make sure goods are delivered on time and in the exact quantity the manufacturer ordered. The retailer will make a decision to optimize his own profit and the manufacturer will react to that decision. This is called sequential supply chain where each party determines its own course of action independent of the other parties, in which each partner optimizes its own profit. This is not an effective strategy. Now firms are moving towards optimal globalization, where supply chain profits are maximized. This is precisely why supply contracts are so important; they enable firms to achieve global optimization, without the need for an unbiased decision maker, by allowing buyers and suppliers to share risks and benefits. In addition, effective supply contracts allocate profit to each partner in such a way that there is no incentive to deviate from the set of actions that will achieve the global optimal solutions. Four different types of supply contracts exist: (1) Buy-back contracts, (2) Revenue-sharing contracts, (3) Quantity-flexibility contracts, (4) Sales-rebate contracts.
Several contracts for make-to-stock/ make-to-order supply chains also exist. Under make-to-order conditions, the buyer bears the risks, whereas under make-to-stock conditions, the supplier bears the risks. A variety of contracts exist to reduce the risk for the supplier: (1) Pay-back contracts, (2) Cost-sharing contracts
Subsequently, supply contracts exist that are specially designed for supply chains with asymmetric information, which means that both the supplier and distributor have different forecasts of future demand. These contracts exist to prevent a buyer from purposefully inflating demand forecasts, so that their manufacturer will increase their capacity. Hence two contracts exist to achieve credible information sharing: (1) Capacity reservation contracts, (2) Advance purchase contracts.
Finally, there are supply contracts that are specially designed for nonstrategic components. These contracts are special, as they concern (commodity) products that can be purchased from a variety of suppliers, and flexibility to market conditions is more important than a relationship with the supplier. The objective is to reduce cost by hedging against unfavorable situations. Thus the focus is on driving down cost and reducing risks (inventory risk, financial/price risk, shortage risk): (1) Long-Term contracts, (2) Flexible, or option, contract, (3) Spot purchase, (4) Portfolio contract.
Information changes the way supply chains are and should be managed, and these changes lead to, among other things, lower inventory. Many suppliers and retailers have observed that while the customer demand is relatively stable, inventory and back-order levels fluctuate a lot. This is due to the bullwhip effect - the increase of variability as we travel up the supply chain.
Demand forecasting. One cause of the bullwhip effect is the standard forecast smoothing techniques used by the managers. As more data is observed, the more the estimates of the average customer demand and of the variations therein are modified. The user is forced to alter order quantities due to the fact that safety stock and the order-up-to level strongly depend on these estimates. This causes variability in orders to increase.
Lead time. It is easy to see that the increase in variability is magnified with increasing lead time. This is due to the fact that to calculate safety stock levels and reorder points, we multiply estimates of the average and standard deviation of the daily customer demands by the lead-time.
Batch ordering. If the retailer uses batch ordering, as happens when using a min-max inventory policy, then the wholesaler will observe a large order, followed by several periods of no orders, followed by another large order, and so on. Thus, the wholesaler sees a distorted and highly variable pattern of orders.
Price fluctuation. Price fluctuation can also lead to the bullwhip effect. If prices fluctuate, retailers often attempt to stock up when prices are lower.
Inflated orders. Such orders are common when retailers and distributors suspect that a product will be in short supply, and therefore anticipate receiving supply proportional to the amount ordered. So during a period of shortage, retailers order more. When the period of shortage is over, they go to back to normal quantity orders, leading to all kinds of distortions and variations in demand estimates.
Strategies to efficiently cope with the Bullwhip Effect are: Reducing uncertainty, Reducing variability, Reducing lead-time, Strategic partnerships
Information is the key enabler of integrating the different supply chain stages and can be used to reduce the necessity of many of these trade-offs. Information replaces inventory in modern supply chains. The more factors that predictions of future demand can take into account, the more accurate these predictions can be. It should also be pointed out that the marginal value of sharing information is decreasing with the number of times information is shared and with the level of detail of the exchanged information.
In this case, manufacturers base long-term demand forecasts on orders received from the retailers’ warehouses. In this system it takes longer to react to changing market needs. This leads to the inability to meet changing demand patterns and obsolete supply chain inventory as demand for certain products disappears. To summarize, here we can see increased inventory level cost, transportation costs, and/ or high manufacturing cost due to the need for emergency production changeovers.
In this case, manufacturers react to the real demand from customers, not forecasts. Here, goods are put into production when the customer needs it. The firm does not hold any inventory and only responds to specific orders.
The two above are combined. This strategy involves push strategy in the first stages of production (raw materials upwards). The production stops at some point and is being pulled beyond that by customer demand. The point where push and pull system cross is called the push-pull boundary. An example of the push-pull strategy is postponement, or delayed differentiation, where the product and manufacturing process are designed such that decisions about which specific product is being manufactured can be delayed as long as possible.
The Internet and the associated new supply chain paradigms introduce a shift in fulfillment strategies: from cases and bulk shipments to single items and smaller-size shipments, and from shipping to a small number of stores to serving highly geographically dispersed customers. This shift also increased the importance and complexity of reverse logistics.
SCM revolves around efficient integration of the various entities of the supply chain in order to improve performance, in this chapter the focus is on distribution strategies that support such efficient integration. These strategies are:
1. Direct shipment - directly from suppliers to retail stores (no distribution centers).
2. Intermediate inventory point strategies. The most fundamental characteristic that distinguishes between different intermediate inventory storage point strategies involves the length of time that inventory is stored at warehouses and distribution centers (traditional warehousing strategy vs. cross-docking). ). In a traditional warehousing strategy, the distribution centers and warehouses hold stock inventory and provide their downstream customers with inventory as needed. Cross-docking is a strategy where warehouses function as inventory coordination point rather than as inventory storage points. Here, goods arrive at warehouses from the manufacturer, are transferred to vehicles serving the retailers, and are delivered to retailers as rapidly as possible.
3. Transshipment - this is the shipment of items between different facilities at the same level in the supply chain to meet some immediate need. Transshipment is most commonly considered on the retail level. Transshipment capability allows the retailer to meet customer demand from the inventory of other retailers.
Which distribution strategy to select depends on customer demand and location, service level, and costs (including transportation and inventory costs) all play a role.
There are a few ways in which alliances can help an organization, namely:
- They can add value to products by for example improving time to market, distribution times or help get a better perception of a firm;
- They improve market access- there could be a better advertising or increased access to market channels (e.g. complementary goods)
- Alliances can strengthen operations by lowering system costs or cycle times; facilities and resources can be used more efficiently and effectively
- They can also add technical strength- improve technology base for both firms, also the difficult transition between old and new technologies can be facilitated by the expertise of one of these partners
- Alliances can enhance strategic growth (overcome high entry barriers) and pool expertise and resources to overcome these barriers and explore new opportunities (organizational learning)
- Strategic alliances can enhance organizational skills; it is an opportunity for organizational learning from one another and about oneself to become more flexible in order to make the alliance work
- They build financial strength; income can be increased and administrative costs can be shared between partners or even reduced owing to the expertise of one or both of the partners, in addition investment exposure is limited due to risk sharing
We distinguish three types of strategic alliances: third party logistics (3PL), retailer-supplier partnerships (RSP) and distributor integration (DI). We will now examine each one more closely.
A lot of companies are able to reduce their costs through outsourcing. However, it is difficult to manage the outsourced activities because of inefficiencies created by the spread of the supply chain over various locations. The advantages of outsourcing include: economies of scale, risk pooling, reduced capital investment, focus on core competencies, increased flexibility. The disadvantages of outsourcing include: loss of competitive advantage, and conflicting objectives between suppliers and buyers.
A framework developed by Fine& Whitney classifies the reasons for outsourcing into two categories, namely:
Dependency of capacity: refers to a company who has the necessary knowledge but out sources for other reasons.
Dependency of knowledge: refers to the company, which doesn’t have the knowledge/ skills/ people necessary to produce a component.
Note, products are categorized as either modular or integral products and in addition Professor Fisher distinguishes between two extreme product types, innovative products and functional products.
A variety of e-markets have appeared, and each of these types addresses a different business need. Depending on the type of component being procured, a different type of e-market is appropriate. Recent years the following types were introduced:
Value-Added Independent E-Market: Provides besides the procurement services also additional services to its clients.
Consortia-based E-Markets: Established by a number of companies within the same industry. Aims at providing suppliers a standard system in order to reduce costs.
Content-based E-Markets: Focuses on content, by integrating catalogs from different suppliers
International supply chains can vary from a primarily domestic business with some international suppliers to a truly integrated global supply chain. Various types of international supply chains include:
International distribution systems: manufacturing still occurs domestically, but distribution and typically some marketing take place overseas.
International suppliers: raw materials and components are furnished by foreign suppliers, but final assembly is performed domestically. In some cases, the final product is then shipped to foreign markets.
Offshore manufacturing: the product is typically sourced and manufactured in a single foreign location, and then shipped back to domestic warehouses for sale and distribution.
Fully integrated global supply chain: products are supplied, manufactured, and distributed from various facilities located throughout the world. In a truly global supply chain it may appear that the supply chain was designed without regard to national boundaries. On the contrary, the true value of a global supply chain is realized by taking advantage of these national boundaries!
The following forces that collectively drive the trend toward globalization: Global market forces, technological forces, global cost forces, political and economic forces.
The book discusses two types of risks, which are the unknown-unknown and the known-unknown risks. Unknown-unknown risks refer to natural disasters, geopolitical risks, epidemics, or terrorist attacks. While the known-unknown risks refer to risks such as supplier performance, forecast accuracy, and operational problems. The latter are risks that can be quantified. Strategies to manage the unknown-unknown risks are: (1) Building redundancy, (2) Increase velocity in sensing and responding, (3) Adaptability. There are three ways a global supply chain can be employed to address global risks, including the known-unknown risks: (1) Speculative Strategies, (2) Hedge Strategies, (3) Flexible Strategies.
Several approaches can be utilized to implement flexible strategies effectively if the supply chain is appropriately designed: Production shifting, Information sharing, Global coordination, Political leverage.
The five basic functions of firms are: product development, purchasing, production, demand management, and order fulfillment.
Region-specific products have to be designed and manufactured specifically for certain regions (effective SCM can still take advantage of common components or subassemblies within the different designs). True global products are truly global, in the sense that no modification is necessary for global sales. The difference between region-specific products and global products does not imply that one is inherently better than the other.
Cultural differences can critically affect the way international subsidiaries interpret the goals and pronouncements of management. Beliefs, values, customs, and language all play a big role in global business and can strongly affect negotiation and communication.
In many organizations we find two interacting chains, which are the supply chain and the development chain (see chapter 1 for definitions).
Design for Logistics addresses the issue of transportation and inventory costs as critical supply chain cost drivers, particularly when inventory levels must be kept fairly high to ensure high service levels. Three components of DFL are used to address this issue: (1) Economic packaging and transportation, (2) Concurrent and parallel processing, (3) Standardization; there are four different strategies to achieve standardization: Part standardization, Process standardization, Product standardization, Procurement standardization.
Since there is no such thing as an “appropriate level of supplier integration”, the notion of a spectrum of supplier integration was developed, which identifies a series of steps from least to most supplier responsibility as follows:
- None; the supplier is not involved in design
- White box; informal level of integration, the buyer consults with the supplier informally when designing products and specifications (without a formal collaboration).
- Grey box; represents formal supplier integration. Collaborative teams are formed between the buyer’s and supplier’s engineers, and joint development occurs.
- Black box; the buyer gives the supplier a set of interface requirements and the supplier independently designs and develops the required component.
Once suppliers are identified, it is critical to work on building relationships with them.
Mass customization involves the delivery of a wide variety of customized goods or services quickly and efficiently at low cost. The key to making mass customization work is highly skilled and autonomous workers, processes, and modular units, so that managers can coordinate and reconfigure the modules to meet specific customer requests and demands. Obviously, this approach helps to provide firms with important competitive advantages and, just as obviously, effective supply chain management is critical if mass customization is to be successful.
The current emphasis on Customer Value tries to establish the reasons of a customer choosing one company's product over another's, and looks at the entire range of product, services, and intangibles that constitute the company's product and image. Customer value drives changes and improvements in the supply chain, some forced by customer and competitor activities and others undertaken to achieve competitive advantage. Furthermore, large manufacturers, distributors, or retailers place certain requirements on their suppliers that force them to adopt supply chains that will make these requests feasible.
Companies need to select their customer value goals since the supply chain, market segmentation, and skill sets required to succeed, depend on this choice. In order to succeed, a company needs to be dominating in one attribute, differentiate itself on another, and be adequate in all the rest, but not below that.
Customer value is also important for determining the type of supply chain required to serve the customer and what services are required to retain customers. Creating customer value is the driving force behind a company's goals, and supply chain management is one of the means of achieving customer value.
The customer perception can be broken into several dimensions: Conformance to requirements, Product selection, Price and brand, Value-added services, Relationships and experiences. The list of dimensions starts with the essentials -the first three items- and goes on to more sophisticated types of features that may not always be critical.
Customer value measures are based on customer perceptions; this requires measures to start with the customer. Two customer value measures are: (1) Service level, (2) Customer satisfaction. Supply chain performance measures are also important, since supply chain performance is an important contributor to customer value. Supply chain performance can be measured by looking at: Total supply chain management costs, Cash-to-cash cycle time, Upside production flexibility, and Delivery performance to request.
Pricing is an important tool to impact demand level to some extent. By increasing the number of different prices charged to the customers (=price differentiation), a company can increase the revenue through the use of Revenue Management. Revenue management, which integrates pricing and inventory strategies to influence market demand, provide controls for companies to improve the bottom line. Revenue Management is frequently described as “selling the right inventory unit to the right type of customer, at the right time, and for the right price”. A number of characteristics are common to Revenue Management applications, these are the existence of perishable products, fluctuating demand, fixed capacity of the system, segmentation of the market bases on sensitivity to price or service time, and products sold in advance.
Two different but complementing pricing approaches are used:
1. Differential Pricing: the objective is to distinguish between customers according to their price sensitivity. This can be done via: Mail-in rebates, Group pricing, Channel pricing, Regional pricing, Time-based differentiation, and Product versioning.
2. Dynamic Pricing: changing prices over time without necessarily distinguishing between different types of customers. The Internet made the following developments possible in dynamic pricing:
A) Menu cost; the cost that retailers incur when changing the posted price is much lower on the Internet than in the offline world.
B) Lower buyer search price, which is the cost that buyers incur when looking for a product. The lower buyer search forces competition between sellers, and hence leads to a focus on smart pricing strategies.
C) Visibility to the back-end of the supply chain, makes it possible to coordinate pricing, inventory, and production decisions.
D) Customer segmentation. Using buyers’ historical data is possible on the Internet and very difficult in conventional stores.
E) Testing capability. Testing pricing strategies is possible, due to low menu costs an online seller may test a higher price on a small group of the site visitors and use those data to determine a pricing strategy.
There are four categories of business processes:
Level 1. Disconnected processes are characterized by the proliferation of many independent processes. Companies are organized functionally with no or a low degree of integration. Supply chain planning is typically done for each site independently of other sites.
Level 2. Internal integration occurs if companies are organized functionally, with a high degree of integration. Decisions are made through the integration of key functional areas. Common forecasts are applied through the organization.
Level 3. Intracompany integration and limited external integration. At this level, companies are cross-functionally organized. Organizations at this stage involve key suppliers and customers in decision-making processes.
Level 4. Multi-enterprise integration. Organizations at this level apply multi-enterprise processes, use common business objectives and have an extensive knowledge of the suppliers’ and customers’ environments. Collaboration links trading partners and enables them to operate as one virtual corporation.
These four different categories need to be supported by a corresponding information technology infrastructure; these are the four different categories of IT systems applied in the study:
Level 1. Batch processes, independent systems, and redundant data across the organization.
Level 2. Shared data across the supply chain. Decisions are made using planning tools that apply data across the supply chain.
Level 3. Complete visibility of internal data. Key suppliers and customers have access to some of these data.
Level 4. Data and processes are shared internally and externally.
Supply chain management system goals for IT are as follows:
1. Collect information on each product from production to delivery or purchase point, and provide complete visibility for all parties involved.
2. Access any data in the system from a single point of contact.
3. Analysis based on supply chain data.
4. Collaborate with supply chain partners.
The main IT capabilities required for supply chain excellence as well as the relationships between them, are grouped into four layers:
1. Strategic network design allows planners to pick the optimal number, location, and size of warehouses and/or plants, to determine optimal sourcing strategy and the best distribution channels.
2. Tactical planning determines resource allocation over shorter planning periods such as weeks or months. These systems include supply chain master planning and inventory planning.
Strategic network design and tactical planning collectively represent the network planning process.
3. Operational planning systems enable efficiencies in procurement, production, distribution, inventory, and transportation for short-term planning. These systems focus on generating feasible strategies, not optimized solutions, because of the lack of integration with other functions, the detailed level of the analysis, and the short planning horizon. This system includes four components: demand planning, production scheduling, inventory management, and transportation planning.
4. Operational execution systems provide the data, transaction processing, user access, and infrastructure for running a company. These systems tend to be real-time and include the following five components: ERP, customer relationship management, supplier relationship management, supply chain management systems, and transportation systems.
Sales and operation planning (S&OP) is a business process that continuously balances supply and demand. It is cross-functional integrating sales, marketing, new product launch, manufacturing, and distribution into a single plan and typically involves analysis of aggregated volume such as product families. The key is the integration of the different activities into the S&OP process.
Supply chain IT solutions consist of many pieces that need to be assembled in order to achieve a competitive edge (they include infrastructure (ERP) and various systems to support decision making (DSS)). Two extreme approaches can be taken: the first is to purchase the ERP and supply chain DSS as a total solution from one vendor; the second is to build a “best of breed” solution, which purchases the best-fit solution in each category from a different vendor, thus producing a system that better fits each function in the company.
A – Introduction to Supply Chain Management
What is Supply Chain Management?
What does global optimization mean?
What is the development chain?
Where do the development and supply chain intersect?
What is the impact of the recent trends in SCM on risk?
List the approaches that can be applied by industry to manage risk in their supply chains?
What are the key SCM issues and which chain do they affect?
What is the difference between a vertically integrated company and a horizontally integrated company?
B – Inventory Management and Risk Pooling
Why and where do one hold inventory?
What are the types of inventory?
What is inventory policy?
Which characteristics of the supply chain are taken into account to decide on an effective inventory policy?
What are the type of costs incurred in the inventory?
What is the economic lot size model? What is its assumption?
What is zero inventory ordering property?
Which statement is correct?
The higher the product margin, the more warehouses; and the higher the importance of service, the more warehouses.
The lower the product margin, the more warehouses; and the higher the importance of service, the more warehouses.
The higher the product margin, the more warehouses; and the lower the importance of service, the more warehouses.
The lower the product margin, the more warehouses; and the lower the importance of service, the more warehouses
Suppose that for a given logistics network configuration we increase the number of warehouses. Among other effects, this typically yields
An improvement in customer service level, but an increase in inventory costs
An increase in overhead costs but a decrease in inventory costs
An increase in the transportation costs from the suppliers and/or manufacturers to the
warehouses, but a decrease in inventory costs
A decrease in the transportation costs from the warehouses to the customers and a decrease in inventory costs.
What are the principles of inventory management?
What are the forecast methods?
What is risk pooling and what are its three critical points?
C – Network Planning
What is network planning and what for is it used?
What are the three steps of the network planning process?
What is network design model and its inputs?
What is inventory positioning and management?
What is resource allocation?
Which are the three product categories?
What are the Supply Chain Strategies for the different product categories?
D – Supply Contracts
What approach should an OEM apply for its strategic components and for its nonstrategic components?
On what will the buyer and the supplier typically agree in a supply contract?
What is a sequential supply chain and what are its implications?
What happens if the supplier shares some of the risk with the buyer?
What are the types of supply contracts for strategic components with Make-to-Order supply chains and with Make-to-Stock supply chains?
What is a Buy-Back Contract?
What is Revenue Sharing Contract?
What is a Quantity-Flexibility Contract?
What is a Sales Rebate Contract?
List some of the drawbacks of supply contacts with Make-to-Order supply chains.
What is a Pay-Back Contract?
What is a Cost-Sharing Contract?
What are the types of supply contracts for purchasing non-strategic components?
What is a Long-Term Contract?
What is a Flexible or Option Contract?
What is a Spot Purchase?
What is a Portfolio Contract?
E – The Value of Information
What is the Bullwhip Effect?
Which are the main factors that contribute to the increase in variability in the supply chain?
What does Demand Forecasting do?
What does Lead time do?
What does Batch Ordering do?
What do Price Fluctuations do?
What do Inflated Orders do?
What is the effect of the centralize demand information on the Bullwhip effect within a supply chain?
How does Variance increase?
What are the methods to cope up with the Bullwhip effect?
What happens if demand information is centralized?
How can one address the Bullwhip effect?
What type of contracts can provide incentives for the buyers to reveal their true forecasts?
F – Supply Chain Integration
What types of (Key) Performance Indicators are there?
What are the characteristics of a Push-based supply chain?
How can a company successfully use a Push-based supply chain?
What are the characteristics of a Pull-based supply chain?
To what portions of the supply chain are the push and the pull strategies applied?
What is the Push-Pull strategy?
What is the difference between demand forecast and demand shaping?
Explain the process called balancing supply and demand.
G – Distribution Strategies
What integration does an effective supply chain require?
Which are the two distribution strategies?
What are the advantages and the disadvantages of the direct shipment distribution strategy?
What is the difference between a traditional warehousing strategy and a cross-docking strategy?
To what kind of optimization does a centralized and a decentralized system lead?
What are the characteristics of a cross-docking strategy?
What is transshipment?
When transshipment is appropriate?
H – Strategic Alliances
Which are the four basic ways for a firm to ensure that a logistics-related business function is completed?
What is Third Party Logistics (3PL)?
What are the advantages and disadvantages of 3PL?
What is the difference between a modern 3PL arrangement and the old one?
What is a Retailer-Supplier Partnering? What types of RSP are there?
What are the characteristics of a Quick Response system?
What are the characteristics of a Continuous Replenishment system and of its advanced form?
What are the characteristics of a Vendor Managed Inventory (VMI) system?
What are the requirements for effective RSP?
Which are the steps in the RSP Implementation?
What are the advantages and disadvantages of the RSP?
I- Procurement and Outsourcing Strategies
What are some of the motivations for outsourcing and some of the risks involved?
What is a modular product and its characteristics?
What is an integral product and its characteristics?
What does the Kraljik’s supply matrix include and how does it look like?
What do the four boxes in the Kraljik’s supply matrix represent?
What should managers do when they want to reduce complexity due to product proliferation?
J – Global Logistics & Risk Management
Which are the forces driving globalization?
Which are the Global Cost forces?
What are the Political and Economic forces?
What is Operational Flexibility and what does a flexible supply chain require?
List some of the international issues in the implementation of a Global SCM?
K - Coordinated Product & Supply Chain Design
What processes do Functional products and Innovative products require?
Which are the reasons behind keeping low or keeping high levels of inventory?
What is Modularity in Product and Process?
What types of standardization are there and briefly describe them?
What is the difference between supply chain and the development chain?
What is mass customization and what is necessary to be successful implemented within the company?
L - Customer value
What is customer value from the buyers’ perspective and from the sellers’ perspective?
What are dimensions of customer value?
How are customer values measured?
M – Smart Pricing
What is Revenue Management?
What are the two goals of Revenue management?
What is Smart Pricing and what types of Smart Pricing exist?
What is Customized/Differential Pricing?
What is Dynamic pricing?
When can Dynamic Pricing provide a significant profit benefit?
How does the Internet make Smart Pricing possible and easier?
N - IT, processes and standards
How does the Information technology affect the supply chain?
What is the basis of a successful investment: technology or business processes?
Which are the four categories of business processes?
Which are the SCM System Goals?
Which are the SCM System Components?
Explain what the ERP systems and the DSSs?
List several technology standards.
What is a Radio Frequency Identification (RFID) and how does it differ from the Bar code?
Answers
A – Introduction to Supply Chain Management
What is Supply Chain Management?
Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right location, and at the right time, in order to minimize system wide costs while satisfying service level requirements.
What does global optimization mean?
Global optimization is the process of finding the best system wide strategy so that total system wide costs are minimized and system wide service levels are maintained. The focus of this strategy should not be simply on minimizing transportation cost or reducing inventories, but, rather on taking a systems approach to supply chain management.
What is the development chain?
The development chain is the set of activities and processes associated with new product innovation. It includes the product design phase, the associated capabilities and knowledge that need to be developed internally, sourcing decisions and production plans. It includes decisions such as product architecture, make/buy decisions, supplier selection, strategic partnerships.
Where do the development and supply chain intersect?
They intersect at the production point. The characteristics of and decisions made in the development chain have an impact on the supply chain. Also, in many organizations additional chains intersect with both of them like the reverse logistics chains or shape-parts chain.
Global optimization implies that it is not only important to optimize across supply chain facilities, but also across processes associated with the development and supply chains.
What is the impact of the recent trends in SCM on risk?
Recent trends such as lean manufacturing, outsourcing, just-in-time management and offshoring that focus on cost reduction increase risks significantly. These trends imply that the supply chains are more geographically diverse, and as a result, natural and man-made disasters can have a tremendous negative impact.
List the approaches that can be applied by industry to manage risk in their supply chains?
Building redundancy into the supply chain so that if one portion fails, the supply chain can still satisfy demand.
Using information to better sense and respond to disruptive events.
Incorporating flexibility into supply contracts to better match supply and demand.
Improving supply chain processes by including risk assessment measures.
What are the key SCM issues and which chain do they affect?
Distribution network configuration Inventory Control Production sourcing Supply Contracts Distribution Strategies Strategic Partnering Outsourcing and Offshoring Product design Information technology Customer value Smart pricing | Supply chain Supply chain Supply chain Both Supply chain Development Chain Development Chain Development Chain Supply chain Both Supply chain |
What is the difference between a vertically integrated company and a horizontally integrated company?
A vertically integrated company is a company that owns, manages, and operates all its business functions. A horizontally integrated company is a corporation consisting of a number of companies, each of which is acting independently. The corporation provides branding, direction, and general strategy.
B – Inventory Management and Risk Pooling
Why and where do one hold inventory?
A company holds inventory o hedge against uncertainty in supply and demand; to make use of economies of scale and due to lead time and capacity limitations. It can hold inventory with suppliers and manufacturers, warehouses and distribution centers and retailers.
What are the types of inventory?
The types of inventory are raw materials; WIP (work-in-process) and finished goods.
What is inventory policy?
The strategy, approach, or set of techniques used to determine how to manage inventory.
Which characteristics of the supply chain are taken into account to decide on an effective inventory policy?
Customer demand (known in advance or random); Replenishment lead time (known, uncertain); Number of different products considered; Length of the planning horizon; Costs; Service level requirements.
What are the type of costs incurred in the inventory?
Costs include order cost and inventory holding cost. Order cost consists of two components: the cost of the product and the transportation cost. The inventory holding costs (or inventory carrying cost) consists of taxes, insurance on inventories, maintenance and handling costs, obsolescence cost and opportunity costs. The obsolescence cost consists of mark down costs and liquidation costs.
What is the economic lot size model? What is its assumption?
The economic lot size model illustrates the trade-offs between ordering and storage costs. It assumes that there is a known fixed demand over a long planning horizon and the supplier has an unlimited quantity of the product.
What is zero inventory ordering property?
A policy in which orders are placed and received when the inventory level is not zero.
Which statement is correct?
The higher the product margin, the more warehouses; and the higher the importance of service, the more warehouses.
The lower the product margin, the more warehouses; and the higher the importance of service, the more warehouses.
The higher the product margin, the more warehouses; and the lower the importance of service, the more warehouses.
The lower the product margin, the more warehouses; and the lower the importance of service, the more warehouses
Answer: b
Suppose that for a given logistics network configuration we increase the number of warehouses. Among other effects, this typically yields
An improvement in customer service level, but an increase in inventory costs
An increase in overhead costs but a decrease in inventory costs
An increase in the transportation costs from the suppliers and/or manufacturers to the
warehouses, but a decrease in inventory costs
A decrease in the transportation costs from the warehouses to the customers and a decrease in inventory costs.
Answer: a
What are the principles of inventory management?
The forecast is always wrong, since it is difficult to match supply and demand.
The longer the forecast horizon, the worse the forecast. It is even more difficult if one needs to predict customer demand for a long period of time
Aggregate forecasts are more accurate. It is more difficult to predict customer demand for individual SKUs and much easier to predict demand across all SKUs within one product family
What are the forecast methods?
The forecast methods are judgment methods, market research methods, time series methods, and causal methods.
What is risk pooling and what are its three critical points?
Risk pooling suggests that demand variability is reduced if one aggregates demand across locations. The aggregation of demand stemming from risk pooling leads to reduction in demand variability, and thus a decrease in safety stock and average inventory.
Centralizing inventory reduces both safety stock and average inventory in the system.
The higher the coefficient of variation, the greater the benefit obtained from centralized systems (that is, the greater the benefit from risk pooling).
The benefits from risk pooling depend on the behavior of demand from one market relative to demand from another.
C – Network Planning
What is network planning and what for is it used?
The process by which firm structures and manages the supply chain in order to find the right balance between inventory, transportation and manufacturing costs; match supply and demand under uncertainty and utilize resources effectively.
What are the three steps of the network planning process?
The three steps of the network planning process include network design, inventory positioning and resource allocation.
What is network design model and its inputs?
Network design determines the physical configuration and infrastructure of the supply chain. It is a strategic decision that has a long-lasting effect on the firm.
The inputs and steps for constructing an effective network design model are Data collection, Data aggregation, Transportation rates, Mileage Estimation. Warehouse costs, Warehouse capacity, Potential Warehouse locations, Service level requirements, Future Demand, Model and Data validation, Solution Technique.
The Warehouse costs include Handling costs, Fixed costs, Storage costs.
What is inventory positioning and management?
Inventory positioning and management is focused on short-term uncertainty in demand, lead time, processing time, or supply. The frequency of replanning is high, for example, monthly planning to determine appropriate safety stock based on the latest forecast and forecast errors. Also can be used more strategically to identify locations in the supply chain where the firm can be used more strategically to identify locations in the supply chain where the firm keeps inventory, as well as identify stages that produce to stock and those that produce to order.
What is resource allocation?
Resource allocation is also called supply chain master planning and is defined as the process of coordinating and allocating production and distribution strategies and resources to maximize profit or minimize system wide cost. Its planning horizon is months or quarter, the frequency of replanning is high.
Which are the three product categories?
The three product categories are high variability - low volume products; low variability - high volume products and low variability - low volume products.
What are the Supply Chain Strategies for the different product categories?
For High variability-low volume products: the main challenge is the inventory risk. Therefore, position them mainly at the primary warehouses because demand from many retail outlets can be aggregated reducing inventory costs.
For Low variability-high volume products: One should position them close to the retail outlets at the secondary warehouses and one can ship fully loaded trucks as close as possible to the customers reducing transportation costs.
For Low variability-low volume products: this strategy requires more analysis since other characteristics are important, such as profit margins, etc.
D – Supply Contracts
What approach should an OEM apply for its strategic components and for its nonstrategic components?
Many OEM focus on closely collaborating with the suppliers of their strategic components or products, which in most cases requires effective supply contracts that try to coordinate the supply chain. For nonstrategic components OEMs can buy their products from a variety of suppliers, and flexibility to market conditions is perceived as more important than a permanent relationship with the suppliers. For example, commodity products (like electricity, oil, cotton) are typically available from a large number of suppliers and can be purchased in spot markets.
On what will the buyer and the supplier typically agree in a supply contract?
Supply contract can include pricing and volume discounts; minimum and maximum purchase quantities; delivery lead times; product or material quality; and product return policies.
What is a sequential supply chain and what are its implications?
In a sequential supply chain, each party determines tits own course of action independent of the impact of its decisions on other parties. This cannot be an effective strategy for supply chain partners since it does not identify what’s best for the entire supply chain.
The implications of a sequential supply chain are that the buyer assumes all of the risk of having more inventory than sales. Eventually, the buyer limits his order quantity because of the huge financial risk. The supplier takes no risk and he would like the buyer to order as much as possible.
What happens if the supplier shares some of the risk with the buyer?
It may be profitable for buyer to order more, which reduces the out of stock probability. The supply contracts enable this risk sharing and thus, they increase profit for both the supplier and the buyer.
What are the types of supply contracts for strategic components with Make-to-Order supply chains and with Make-to-Stock supply chains?
The types of supply contracts with Make-to-Order supply chains are Buy-Back Contract; Revenue Sharing Contract; Quantity-Flexibility Contract; Sales Rebate Contract.
The types of supply contracts with Make-to-Stock supply chains are a Pay-Back Contract and a Cost-Sharing Contract.
What is a Buy-Back Contract?
A Buy-Back Contract happens when the seller agrees to buy back unsold goods from the buyer for some agreed-upon price. Thus, the buyer has incentive to order more and the supplier’s risk clearly increases. The contract is designed such that the increase in buyer’s order quantity and hence the decrease in the likelihood of out of stock, more than compensates the supplier for the higher risk.
What is Revenue Sharing Contract?
A Revenue Sharing Contract happens when the buyer shares some of its revenue with the supplier in return for a discount on the wholesale price. Buyer transfers a portion of the revenue from each unit sold back to the supplier.
What is a Quantity-Flexibility Contract?
A Quantity-Flexibility Contract happens when the supplier provides full refund for returned (unsold) items as long as the number of returns is no larger than a certain quantity.
What is a Sales Rebate Contract?
A Sales Rebate Contract provides a direct incentive to the retailer to increase sales by means of a rebate paid by the supplier for any item sold above a certain quantity.
List some of the drawbacks of supply contacts with Make-to-Order supply chains.
The Buy-back contracts require suppliers to have an effective reverse logistics system and may increase logistics costs. Retailers have an incentive to push the products not under the buy back contract
The Revenue sharing contracts require suppliers to monitor the buyer’s revenue and thus increases administrative cost. Buyers have an incentive to push competing products with higher profit margins.
What is a Pay-Back Contract?
In a Pay-Back Contract the buyer agrees to pay some agreed-upon price for any unit produced by the manufacturer but not purchased. The manufacturer has an incentive to produce more units and the buyer’s risk clearly increases. Therefore, the increase in production quantities has to compensate the distributor for the increase in risk.
What is a Cost-Sharing Contract?
In a Cost-Sharing Contract the buyer shares some of the production cost with the manufacturer, in return for a discount on the wholesale price. This reduces effective production cost for the manufacturer and gives an incentive to produce more units
What are the types of supply contracts for purchasing non-strategic components?
The types of contracts for non-strategic components are a Long-Term Contract; a Flexible or Option Contract; a Spot Purchase and a Portfolio Contract.
What is a Long-Term Contract?
A Long-Term Contract is also called forward or fixed commitment contracts and it specifies a fixed amount of supply to be delivered at some point in the future. The supplier and the buyer agree on both price and quantity. The buyer bears no financial risk and he takes huge inventory risks due to uncertainty in demand and inability to adjust order quantities.
What is a Flexible or Option Contract?
In a Flexible or Option Contract the buyer pre-pays a relatively small fraction of the product price up-front and the supplier commits to reserve capacity up to a certain level. The initial payment is the reservation price or premium. If buyer does not exercise option, the initial payment is lost. This type of contract provides the buyer with flexibility to adjust order quantities depending on realized demand and reduces buyer’s inventory risks. It shifts risks from buyer to supplier and now the supplier is exposed to customer demand uncertainty.
What is a Spot Purchase?
The Spot Purchase happens when the buyers look for additional supply in the open market. They use the marketplace to find new suppliers and this forces competition to reduce product price
What is a Portfolio Contract?
In a Portfolio Contract the buyer signs multiple contracts at the same time to optimize expected profit and to reduce risk. These contracts differ in price and level of flexibility to hedge against inventory, shortage and spot price risk.
E – The Value of Information
What is the Bullwhip Effect?
In recent years, many suppliers and retailers have observed that while customer demand for specific products does not vary much, Inventory and back-order levels fluctuate considerably across their supply chain. To control the bullwhip effect means to control the increase in variability in the supply chain.
Which are the main factors that contribute to the increase in variability in the supply chain?
Ones of the main causes are demand forecasting, batch ordering, price fluctuations, lead time, inflated orders and rationing within the supply chain.
What does Demand Forecasting do?
The demand forecasting is an estimation of average demand and demand variability done using standard forecast techniques. The estimates get modified as more data becomes available and the safety stock and base-stock level depends on these estimates. Then the order quantities are changed accordingly increasing variability
What does Lead time do?
An increase in variability is magnified with increasing lead time. With longer lead times a small change in the estimate of demand variability implies, a significant change in safety stock and base-stock level, which implies significant changes in order quantities and leads to an increase in variability.
What does Batch Ordering do?
If a retailer uses batch ordering, as with a (Q,R) or a min-max policy, the wholesaler observes a large order, followed by several periods of no orders, followed by another large order, and so on. Therefore, the wholesaler sees a distorted and highly variable pattern of orders. Such pattern may also be a result of transportation discounts with large orders or periodic sales quotas/incentives.
What do Price Fluctuations do?
Retailers often attempt to stock up when prices are lower, accentuated by promotions and discounts at certain times or for certain quantities. Such forward buying results in large order during the discounts and relatively small orders at other time periods. This results in a “feast or famine” environment for manufacturers and requires overtime work to keep-up with orders or downtime due to lack of demand
What do Inflated Orders do?
Inflated orders are common during shortage periods when retailers and distributors suspect that a product will be in short supply and therefore anticipate receiving supply proportional to the amount ordered. When the period of shortage is over, the retailer goes back to its standard orders, leading all kinds of distortions and variations in demand estimates.
What is the effect of the centralize demand information on the Bullwhip effect within a supply chain?
It provides each stage of supply chain with complete information on the actual customer demand and creates more accurate forecasts rather than orders received from the previous stage.
How does Variance increase?
Variance increase additively with centralized case and multiplicatively with decentralized case.
Centralizing demand information can significantly reduce the bullwhip effect
Although not eliminate it completely!!
What are the methods to cope up with the Bullwhip effect?
One can reduce uncertainty by centralizing the information or reduce variability by reducing variability inherent in the customer demand process or by using an “Everyday low pricing” (EDLP) strategy.
Also, the company can do a lead-time reduction through the use of electronic data interchange (EDI) or through the use of cross-docking.
It can form strategic partnerships and thus, change the way information is shared and inventory is managed.
What happens if demand information is centralized?
If demand information is centralized, each stage of the supply chain can use the actual consumer demand data to create more accurate forecasts, rather than relying on the orders received from previous stage, which can vary significantly more than the actual customer demand.
How can one address the Bullwhip effect?
The strategic moves a company can take to address the Bullwhip effect are: to place frequent orders, spread evenly throughout the year; to increase supply chain visibility; to break order batches or to stabilize prices.
What type of contracts can provide incentives for the buyers to reveal their true forecasts?
These contracts are the Capacity reservation contract and the Advance purchase contract. In the former the supplier provides the OEM with a menu specifying different level of capacities he is willing to build and the corresponding price for each one. In the latter the contract manufacturer charges an advanced purchase price for orders placed prior to building capacity and a different (higher) price for any additional order placed when demand is realized.
F – Supply Chain Integration
What types of (Key) Performance Indicators are there?
KPI are Product Quality, Customer Service Related (order lead time and customer satisfaction); Operational (capacity utilization and workload balancing) and Financial (costs of goods sold, sales and profit).
What are the characteristics of a Push-based supply chain?
In a Push-based supply chain the production decisions based on long-term forecasts and the ordering decisions based on inventory & forecasts. Main problems that come with push strategies are obsolescence & stock-outs and the inability to meet changing demand patterns.
How can a company successfully use a Push-based supply chain?
It can reduce product variety, which will reduce the risk of obsolescence and stock-outs and at the same time, it will reduce the choice of products. Sequentially, customers need to be compensated for this reduction: they expect a lower price. The company can introduce the concept of “Specialty of the day” or Loyalty programs to get to know their customers.
What are the characteristics of a Pull-based supply chain?
In a Pull-based supply chain the production is demand driven since the production and distribution are coordinated with true customer demand and firms respond to specific orders. Pull Strategies result in reduced lead times, decreased inventory levels at retailers and manufacturers and better response to changing markets. However, with a pull-based strategy it is harder to leverage economies of scale and it is not applicable to all companies. Also, often the firm has smaller transportation quantities.
To what portions of the supply chain are the push and the pull strategies applied?
The push strategy is applied to that portion of the supply chain where demand uncertainty is relatively small and, thus, managing this portion based on long-term forecast is appropriate. The pull strategy is applied to that portion of the supply chain time line where uncertainty is high and, hence, it its important to manage this portion based on realized demand.
What is the Push-Pull strategy?
With a push-pull strategy an initial portion of the supply chain is replenished based on long-term forecasts and the final supply chain stages based on actual customer demand. Also, the push-pull system takes advantage of the rules of forecasting.
What is the difference between demand forecast and demand shaping?
Demand forecast is a process in which historical demand data are used to develop long-term estimates of the expected demand, that is, forecasts. Demand shaping is a process in which the firm determines the impact of various marketing plans such as promotion, pricing discounts, rebates, new product introduction, and product withdrawal on demand forecasts.
Explain the process called balancing supply and demand.
The balancing supply and demand process involves matching supply and demand by identifying a strategy tat minimizes total production, transportation, and inventory costs, or a strategy that maximizes profits.
G – Distribution Strategies
What integration does an effective supply chain require?
An effective supply chain requires the integration of the frond end of the supply chain, customer demand, with the back end of the supply chain, the production and manufacturing processes.
Which are the two distribution strategies?
The first one is the direct shipment distribution strategy, where items can be directly shipped from the supplier or manufacturer to the retail stores or end customer. The second is an intermediate inventory storage point strategy, where one or more intermediate inventory storage points (typically warehouses and/or distribution centers) can be used.
What are the advantages and the disadvantages of the direct shipment distribution strategy?
The advantages are that the retailer avoids the expenses of operating a distribution center and lead times are reduced. The disadvantages are that the risk-pooling effects are negated because there is no central warehouse and the manufacturer and distributor transportation costs increase because it must send smaller trucks to more locations.
What is the difference between a traditional warehousing strategy and a cross-docking strategy?
In a traditional warehousing strategy, the distribution centers and warehouses hold stock inventory and provide their downstream customers with inventory as needed. In a cross-docking strategy, warehouses and distribution centers serve as transfer points for inventory, but no inventory is held at these transfer points.
To what kind of optimization does a centralized and a decentralized system lead?
A centralized system leads to global optimization, while decentralized system lead to local optimization.
What are the characteristics of a cross-docking strategy?
Cross-docking strategies are effective only for large distribution systems, forecasts are critical and a fast and responsive transportation system is necessary. This system requires a significant start-up investment and is very difficult to manage. The advantages are that it limits inventory costs and decreases lead times by decreasing storage time.
What is transshipment?
Transshipment is the shipment of items between different facilities at the same level in the supply chain to meet some immediate need. Most often transshipment is considered at the retail level.
When transshipment is appropriate?
When the appropriate information systems exist, shipment costs are reasonable and all of the retailers have the same owner.
H – Strategic Alliances
Which are the four basic ways for a firm to ensure that a logistics-related business function is completed?
The four basic ways are Internal activities, Acquisitions, Arm’s-length transactions and Strategic alliances.
What is Third Party Logistics (3PL)?
3PL is the use of an outside company to perform all or part of the firm’s materials management and product distribution functions. 3PL happens when outside firms perform materials management and logistics functions and there is long term commitments and multiple functions in the firm.
What are the advantages and disadvantages of 3PL?
3PL focuses on core strengths. It provides technological (IT) flexibility and it provides flexibility in resource and service. The disadvantages of 3PL are the loss of control and the involved sharing of confidential information.
What is the difference between a modern 3PL arrangement and the old one?
For many years, the 3PL relationships had two typical characteristics: they were transaction based and the companies hired were often single-function specific. Modern 3PL arrangements involve long-term commitment and often multiple functions or process management.
What is a Retailer-Supplier Partnering? What types of RSP are there?
RSP happens when there are cooperative efforts between suppliers and retailers in order to leverage the knowledge of both parties. There are three types of RSP, namely the continuous replenishment strategy, the basic quick response strategy and the vendor-management inventory system.
What are the characteristics of a Quick Response system?
In a Quick Response system, the vendors receive point-of-sales (POS) data from retailers, and use this information to synchronize production and inventory activities. The retailer still prepares individual orders, but the POS data is used by the supplier to improve forecasting and scheduling.
What are the characteristics of a Continuous Replenishment system and of its advanced form?
In a Continuous Replenishment system, the vendors receive POS data and use it to prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory. In an Advanced Continuous Replenishment system, the suppliers may gradually decrease inventory levels at the retailer’s store or distribution center as long as service levels are met and thus, inventory levels are continuously improved in a structured way.
What are the characteristics of a Vendor Managed Inventory (VMI) system?
In a VMI system, the vendor decides on the appropriate inventory levels of each product and the appropriate inventory policies to maintain these levels.
What are the requirements for effective RSP?
For an effective RSP, advanced information systems (EDI, RFID, bar coding, scanning) between supplier and retailer must be present, as well as top management commitment and mutual trust.
Which are the steps in the RSP Implementation?
Initially, the contractual terms of the agreement must be negotiated, including the ownership, credit terms, ordering decisions and performance measures. Then the following three tasks are executed: the development or integration of information systems, the development of effective forecasting techniques and the development of a tactical decision support tool to assist in coordinating inventory management and transportation policies.
What are the advantages and disadvantages of the RSP?
The advantages of the RSP are that it decreases required inventory levels, improves service levels, decreases work duplication, improves forecasts. It also leads to an overall system efficiency and reduced control steps. Furthermore, the knowledge of the supplier about order quantities implies an ability to control the bullwhip effect.
The disadvantages of the RSP include the expenses involved for the implementation of the necessary advanced technology and the increase of the supplier responsibilities. The supplier/retailer trust must be developed. Often also the expenses at the supplier increase as managerial responsibilities increase.
I- Procurement and Outsourcing Strategies
What are some of the motivations for outsourcing and some of the risks involved?
Motivations for outsourcing are economies of scale, risk pooling, reduce capital investment, focus on core competencies and increase in flexibility. Some of the risks involved are loss of competitive knowledge and conflicting objectives between suppliers and buyers.
What is a modular product and its characteristics?
A modular product can be made by combining different components, which are independent of each other and interchangeable. Standard interfaces are used and the customer preference determines the product configuration.
What is an integral product and its characteristics?
An integral product is a product made up from components whose functionalities are tightly related. Thus, integral products are not made from off-the-shelf components and are designed as a system by taking a top-down design approach.
What does the Kraljik’s supply matrix include and how does it look like?
The matrix has four boxes, namely Non-critical items, Leverage items, Bottleneck items and Strategic items. The two dimensions are profit impact and supply risk.
What do the four boxes in the Kraljik’s supply matrix represent?
The strategic items have the highest impact on customer experience, their price depends on system cost and typically have a single supplier. The firm should focus on long-term partnerships with suppliers.
The Leverage items have low supply risk and are items with high impact on profit. There are many suppliers. The firm should focus on cost reduction by competition between suppliers
The bottleneck items have high supply risk but low profit impact . They do not contribute a large portion of the product cost and their suppliers have power position. The firm should focus on long-term contracts or by carrying stock (or both).
With the non-critical items both the supply risk and the profit impact are low. The firm should use a decentralized procurement policy with no formal requisition and approval process.
What should managers do when they want to reduce complexity due to product proliferation?
These managers should proactively manage the breadth versus depth decision; using total cost analysis to eliminate unprofitable SKUs; institute policies to reduce proliferation; and use database and data mining tools.
J – Global Logistics & Risk Management
Which are the forces driving globalization?
The forces driving globalization are the Global Market forces, the Technological forces, the Global Cost forces and the Political and Economic forces.
Which are the Global Cost forces?
The enormous differences in labor costs and the opportunity to take advantage of low labor cost. Furthermore, globalization can bring more skilled labor and integrated supplier infrastructure. If appropriately used, there are several capital intensive facilities such as governments, suppliers and cost sharing/
What are the Political and Economic forces?
The Political and Economic forces include Trade protection mechanisms like Tariffs and Quotas; Voluntary export restrictions and Local content requirements
What is Operational Flexibility and what does a flexible supply chain require?
Operational Flexibility is the flexibility to take advantages of operational exposure. A flexible supply chain demands multiple suppliers, flexible manufacturing facilities with excess capacity and various distribution channels. It can be expensive to implement due to difficult to implement coordination mechanisms, huge capital investments and the disadvantage of the loss of economies of scale.
List some of the international issues in the implementation of a Global SCM?
The decision to produce regional or international products is one of the issues. Another issue is the dilemma for the choice between using local autonomy vs. central control. Also, a treat exists that collaborators may become competitors in the future.
K - Coordinated Product & Supply Chain Design
What processes do Functional products and Innovative products require?
Functional products require an efficient process, while innovative products require a responsive process
Which are the reasons behind keeping low or keeping high levels of inventory?
The forces for keeping low inventory are that inventory is expensive and there are low salvage values, while forces for keeping high inventory are that the demand is hard to predict and it leads reduction in transportation quantity.
What is Modularity in Product and Process?
A modular product can be made by appropriately combining the different modules and it entails providing customers a number of options for each module, while enabling different inventory levels for different parts. In a modular process each product undergoes a discrete set of operations making it possible to store inventory in semi-finished form and the products differ from each other in terms of the subset of operations that are performed on them.
What types of standardization are there and briefly describe them?
Standardization can be part standardization, where common parts are used across many processes and product redesign might be necessary or process standardization, where the goal is to standardize as much of the process as possible by first making a generic or family product. There are also product standardization, where the company carries a limited number of products in inventory and procurement standardization, where exists a leverage equipment and part commonality across products.
What is the difference between supply chain and the development chain?
The supply chain focuses on the flow of physical products from supplier through manufacturing and distribution all the way to retail outlets and customers. The development chain focuses on new product introduction and involves product architecture, make/buy decisions, earlier supplier involvement, strategic partnering, supplier footprint, and supply contracts.
What is mass customization and what is necessary to be successful implemented within the company?
Mass customization is the delivery of a wide variety of customized goods at low cost. The key for successful implementation of mass customization is the usage of modular products and processes, so that customer requests can be met. Therefore, companies need to evolve towards “modular companies”. Furthermore, an advanced supply chain is essential especially when modules extend beyond a single company.
L - Customer value
What is customer value from the buyers’ perspective and from the sellers’ perspective?
From the buyers’ perspective customer value is the way the customer perceives the entire company’s offerings, including products, services, and other intangibles. From the sellers’ perspective it goes beyond the “traditional” dimension of customer value: quality and availability
What are dimensions of customer value?
The dimensions of customer value are: conformance to requirements; product selection features; price and brand; value-added services and relationships and experiences.
How are customer values measured?
Customer values can be measured by looking at the service level (which depends on cost & performance of SC) , the customer satisfaction or the employee retention. However, the company should keep in mind that surveys could be misleading.
M – Smart Pricing
What is Revenue Management?
Revenue Management is allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield. It integrates pricing and inventory strategies to influence market demand and it provides controls for companies to improve the bottom line.
What are the two goals of Revenue management?
The goals of Revenue management are to differentiate demand and to use pricing to adjust aggregate demand. This is achieved by two main techniques: the Customized or Differential pricing and the Dynamic pricing.
What is Smart Pricing and what types of Smart Pricing exist?
Smart Pricing happens when companies start adjusting their prices and thus, demand, to increase their profitability. There are Customized/Differential Pricing and Dynamic pricing.
What is Customized/Differential Pricing?
This pricing happens when the charge uses Price Sensitivity (Technique of Revenue Management). For example, there exist differentiations based on the channel, the group, the location or the delivery time. Also, differentiation can come from innovative product visioning and the use of coupons & mail-in rebates.
What is Dynamic pricing?
Dynamic pricing happens when prices change over time without necessarily distinguishing between different customers. The company should find the optimal trade-off between high price and low demand versus low price and high demand.
When can Dynamic Pricing provide a significant profit benefit?
Dynamic pricing is most appropriate to be used when one of these situations takes place: limited capacity; demand variability; seasonality in the demand pattern or short planning horizon.
How does the Internet make Smart Pricing possible and easier?
Internet makes the implementation of Smart Pricing possible because it provides low menu cost, low buyer search cost. It also makes customer segmentation more accessible since segmentation is difficult in conventional stores and easier on the Internet. Furthermore, the Internet gives visibility to the company since it allows easier coordination of pricing, production and distribution.
N - IT, business processes and technology standards
How does the Information technology affect the supply chain?
Information technology (IT) an important enabler of effective supply chain management. It typically spans the entire enterprise and beyond, encompassing suppliers on one end and customers on the other. The IT includes systems that are internal to an individual company or external, which facilitate information transfer between various companies and individuals.
What is the basis of a successful investment: technology or business processes?
Companies that invest mostly in business processes do better than those who invest in IT only and lack the appropriate business processes. Investments only in technology without the appropriate business processes lead to negative returns. Therefore, business processes are always the basis. Furthermore, IT systems can be bought and are usually quite standard across companies.
Which are the four categories of business processes?
The four categories in a ascending order are: Level I: Disconnected Processes; Level II: Internal Integration; Level III: Intra-Company Integration and Limited External Integration and Level IV: Multi-Enterprise Integration.
Which are the SCM System Goals?
The goals are firstly, to collect information on each product from production to delivery or purchase point in order to provide complete visibility for all parties involved. Secondly, to be able to access any data in the system from a single point of contact. Third, to be able to collaborate with supply chain partners, which allows companies to manage uncertainty. Last but not least, to be able to analyze, plan activities, and make trade-offs based on information from the entire supply chain.
Which are the SCM System Components?
The SCM system components are Enterprise Resource Planning (ERP), Decision Support Systems (DSS). They also may include specific systems for manufacturing and assembly such as process control or robotics.
Explain what the ERP systems and the DSSs?
The Enterprise Resource Planning (ERP) systems link the point of production seamlessly with the point of delivery or purchase and have an information trail that follows the product’s physical trail. ERP allows planning, tracking, and estimating lead times based on real data and any party that has an interest in the whereabouts of the product should be able to have access to this information.
The Decision Support Systems (DSSs) range from spreadsheets to expert systems. The appropriate DSS depends on the nature of the problem, the planning horizon, and the type of decisions that need to be made
List several technology standards.
Some of the technology standards are: Service-oriented architecture (SOA); Electronic data interchange (EDI); Collaborative planning, forecasting and replenishment (CPFR) and the Radio frequency identification (RFID)
What is a Radio Frequency Identification (RFID) and how does it differ from the Bar code?
The RFID is a technology that deploys tags emitting radio signals and devices, called readers, which pick up the signal. It an be used to read an Electronic Product Code (EPC). It differs from the traditional Bar code because it provides more insight in logistics processes since tags automatically scanned during transit from factory to warehouse and retailer. Also, the RFID finds it easier to cope with errors like wrong shipments or stolen items because it knows exactly when shelves are empty.
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