SCM 300 Exam 2 ASU Davila

Brick-and-Mortar Business

a business that operates in a physical store without an internet presence

Online or E-tailing

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

Brick and Clicks

Companies that use both a physical store and the Web to sell their products and services.

Clicks and Calls

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

Omni-channel retailing

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

Retail sources of supply

manufacturers, wholesalers, drop shippers

drop shippers

An organization that ties manufactures and/or wholesalers directly to consumers. They never posses the product, they just take orders to fulfill by another party.

Chargebacks

effectively penalties charged by retail organizations to their suppliers/vendors for any number of minor and major supply chain offenses

Collaborative Planning, Forecasting, and Replenishment (CPFR)

A formalized effort by supply chain partners to share data and collectively develop forecast in an attempt to reduce supply chain cost through better planning

vendor-managed inventory (VMI)

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

Last Mile

the portion of the supply chain between the final inventory holding facility and the end consumer

Prototype Stores

A series of stores that have common design, construction and layout. Standardized plans that will work across many stores for chain retailers.

Rationalized Retailing

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

Planogram

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

Customers cost for waiting lines

Time

Company cost for waiting line

Money paid to maintain the line (employees)

Waiting line Input Source

The population of people that might want service

Waiting Line

The area in which customers wait for service

Waiting line Service Facility

The area in which customers actually receive service

Infinite population of customers

The number of possible customers that may come into the store is very high (or unlimited). When a customer enters the system, the odds of another entering the system are not impacted in any significant manner.

Finite Population of Customers

number of customers is limited

Balking

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

Reneging

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

λ

Lambda

Lambda

Number of customers arriving/unit of time
ex. 15 customers per hour

μ

Mu

Mu

Number of customers helped/unit of time
ex. 24 customers per hour

ρ

Rho

ρ=λ/μ

Percentage of time worker is busy

n1=ρ[λ/(μ-λ)]

Average number of customers in the line

t l =ρ[1/(μ-λ)

Average amount of time a customer waits in the line

n s =λ/(μ-λ)

Average number of customers in the system

ρn=(1-ρ)ρ^n

Probability there are n customers in the system

Order size required=(Actual Demand)/(Proportion of Acceptable Product per Order)

Shrinkage Calculation. Must be performed at every stage of the supply chain in upstream direction (customer back to manufacturer)

Consumer demands 300 units. Retail store allows 2% theft shrinkage

300/(1-.002)=300/.98=306.12 or 300/(100%-2%)=300/98%, always round up, in this case 307

Inventory future= inventory present[(√warehouse future)/(√warehouse present)]

Square Root Rule

bullwhip effect

the phenomenon in supply chains whereby ordering patterns experience increasing variance as you proceed upstream in the chain

Causes of Bullwhip Effect

order batching, forward buying, rationing, shortage gaming

Everyday Low Pricing (EDLP)

When suppliers resist the urge to have sales promotions and instead offer their lowest prices each day, buyers do not see an advantage to buying in bulk

vendor managed inventory system (VMI)

Buyers share inventory information with suppliers. Suppliers in turn take on the responsibility of managing inventory levels for buyer by placing deliveries

Push System

A system in which consumer demand is known and expected. As a result a supply chain will preemptively buy materials, manufacture finished goods, and even deliver them to a store or a picking and packing facility where consumers can buy them at a later date. Inventory is "pushed" toward the consumer in anticipation of consumer demand.

Characteristics of push system

• A desire for finished goods to be immediately and readily available
• Opportunities to take advantage of quantity discount
• End item are standardize with little opportunity for customization
• Vulnerable to obsolescence of inventory, high holding cost, and poor demand forecasts that may result in stock outs or massive overstocks

Pull System

A system that is activated by consumer demand. As a result a supply chain will not make and store finished goods inventory. Instead, the supply chain will wait for the consumer to place a specific order and only then will the supply chain react by perhaps buying raw materials and/or parts, and then assembling the desired goods, before quickly delivering them to the consumer. Inventory is "pulled" by the consumer by communicating a specific desire to those in the supply chain.

Characteristics of pull system

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

postponement

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

Lean Manufacturing

A production philosophy that strives to meet consumer demand and desires but with minimal inventory levels and minimal supply chain waste.
Also called just-in-time (JIT) manufacturing and Toyota Production System (TPS)

Keys to Lean Manufacturing

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

Keys to Assessing the Global Landscape

• Local Competition
• Established supply chain systems
• Advantage of local business clusters
• Exchange rates
• Climate
• Population-size, demographics, density, language
• Real Estate
• Geography
• Transportation issues
• Fuel and energy cost
• Laws and taxes
• Local Culture
• Political stability
• Work ethics, employee motivation and labor unions
• Protection of intellectual property

Benefit of Utilizing External Partners

• Speed
• Expertise
• Resource Utilization
• Focus on Core Competencies

Risk of Utilizing External Partners

• Quality Control
• Intellectual Property
• Business Practices
• Loss of Strategic Flexibility

Offshoring

Strategy where a company moves manufacturing out of its "home" country to another country.

Outsourcing

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

Offshoring and Outsourcing

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

Contract Manufacturing

A company the produces goods n behalf of another organization

Near-sourcing

A type of offshoring or offshoring and outsourcing where the location of the manufacturing facility is relatively close to the location of the consumer

Manufacturing Compliance

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

Manufacturing Audits

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

Infrasture

The physical structures and equipment utilized to move goods or organizations that support the movement of goods.
ex. roads, railways, oceans ports, airports, bridges
ex. Trucks, trains, planes, forklifts, loading cranes, ships

Customs-Trade Partnership Against Terrorism (C-TPAT)

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

Third Party Logistics Company (3PL)

Contractor that performs one or more logistics functions for their client in order to facilitate effective and efficient movement in the supply chain.
>>can neither be a buyer or seller of the items being moved.

Freight Forwarder

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

Customs House Broker

A contractor (company or person) that helps a client's goods clear customs in a foreign country.

Free Trade Zone (FTZ)

Geographic area sanctioned by the government where items are not under control of customs and authorities.

Incoterms

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

Shipping Documentation

• Transportation
• Financial
• International Shipments
• Commercial Invoice
• Packing List
• Bill of Lading
• Shipper's Export Declaration
• Validated Export License
• Certificated of Orgin

Bill of Lading: Serves three main purposes

• Contract between shipper and carrier
• Receipt of goods for the shipper
• Acts as the certificate of ownership

Shipper's Export Declaration

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

Validated Export License

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

Three values in Social Responsibility

• Legal and Ethical Behavior
• Sustainability
• Commitment to the Community

SA8000

• Developed by Social Accountability International, SA8000 is certification that focuses on social responsibility in the work place. May be of value to companies seeking the approval of customers and/or present and prospective supply chain partners.
o Child labor
o Health and Safety
o Discrimination of any type
o Payment/Compensation - Fair and legal pay. Workers are provided a living wage.
o Unionization Rights - Freedom to form and join labor unions and also the right to collective bargaining
o Forced labor - Includes prison labor. Organization does not motivate employees to stay by withholding payment or driving workers into debt.
o Disciplinary practices - Fair treatment of all workers. No mental or physical punishment. No abuse of any type.
o Working hours - Abides by laws of the state. Also complies with work weeks of no more than 48 hours. No more than 6 consecutive days of work.
o Ethical Management Systems- Being a complaint organization is not enough. Companies must have a standardized system that supports and nurtures a social responsible work place."

Sustainability

"sustainable development is development that meets the needs of the resent without compromising the ability of future generations to meet their needs" - Bruntland Commission in 1987

Sustainability Framework

•Triple bottom line
•Reduce, reuse, recycle
•Cradle to grave design vs. cradle to cradle design
•Closed loop supply chains

Triple Bottom Line (TBL)

The 3 ways that company sustainability is measured: Economic - the organization is self funding; Social - The organization makes the lives of affected individuals and communities better; and Environmental - The organization leaves no negative "footprint" on the land, air, water.

Reduce, Reuse, Recycle (three Rs)

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

Cradle to Grave Design

Items designed to e purchase and used for some purpose with little thought devoted to what would happen when item was no longer useful. I sum, all items were destined for landfills

Cradle to Cradle Design

Expanded the minds of designers so that they would consider how the parts in the item might be repurposed once the item was no longer useful to the user.

Closed-loop supply chain

Utilize the idea of cradle to cradle, seek to create a loop of materials through sustainable procurement, manufacturing, logistics, and reverse logistics

ISO 14000 series

A series of certifications offered by the International Organization for Standardization in the are of sustainable business practices and management

Inditex Sales Growth

From 1991 to 2003, Inditex's sales—70% of which spring from Zara—grew more than 12-fold from €367 million to €4.6 billion, and net profits ballooned 14-fold from €31 million to €447 million.

The lesson Ortega learned from his early scare was this:

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

Zara's Supply Chain

The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days.

Zara's Margins

Because Zara can offer a large variety of the latest designs quickly and in limited quantities, it collects 85% of the full ticket price on its retail clothing, while the industry average is 60% to 70%. As a result, it achieves a higher net margin on sales than its competitors; in 2001, for example, when Inditex's net margin was 10.5%, Benetton's was only 7%, H&M's was 9.5%, and Gap's was near zero.

Zara's Supply Chain Strategy

• Close the communication loop
• Stick to a rhythm across the entire chain
• Leverage you capital assets to increase supple chain flexibility

Zara Close the Loop

• Small Batches of new goods
• Few Items on display
• A customer thinks, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance."

Inditex headquarters in La Coruña consists of three spacious halls

one for women's clothing lines, one for men's, and one for children's. Unlike most companies, which try to excise redundant labor to cut costs, Zara makes a point of running three parallel, but operationally distinct, product families. Accordingly, separate design, sales, and procurement and production-planning staffs are dedicated to each clothing line.

Zara Market Price Points

Designers can quickly and informally check initial sketches with colleagues. Market specialists, who are in constant touch with store managers (and many of whom have been store managers themselves), provide quick feedback about the look of the new designs (style, color, fabric, and so on) and suggest possible market price points.

Zara avoids overproduction by

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

Zara's out of stock idea

Empty racks at Zara don't drive customers to other stores. Being out of stock in one item helps sell another.

Zara's shipments

A central warehouse in La Coruña prepares the shipments for every store, usually overnight. Once loaded onto a truck, the boxes and racks are either rushed to a nearby airport or routed directly to the European stores. All trucks and connecting airfreights run on established schedules—like a bus service—to match the retailers' twice-weekly orders. Shipments reach most European stores in 24 hours, U.S. stores in 48 hours, and Japanese shops in 72 hours, so store managers know exactly when the shipments will come in.

Zara Leverage you Assets

In a volatile market where product life cycles are short, it's better to own fewer assets—thus goes the conventional wisdom shared by many senior managers, stock analysts, and management gurus. Zara subverts this logic. It produces roughly half of its products in its own factories. It buys 40% of its fabric from another Inditex firm, Comditel (accounting for almost 90% of Comditel's total sales), and it purchases its dyestuff from yet another Inditex company.

Zara Production

Zara's factories use sophisticated just-in-time systems that allow the company to customize its processes and exploit innovations. Zara uses "postponement" to gain more speed and flexibility, purchasing more than 50% of its fabrics undyed so that it can react faster to midseason color changes.

Zara Factories

Zara's senior managers follow a fundamental rule of queuing models, which holds that waiting time shoots up exponentially when capacity is tight and demand is variable. By tolerating lower capacity utilization in its factories and distribution centers, Zara can react to peak or unexpected demands faster than its rivals.

Starbuck's Coffee and Farmer Euity Practices (C.A.F.E)

(1) a sustainable supply of high quality coffee beans, provided by a stable source of
coffee farms with farmers who were not exploited by their trading partners
(2) lands farmed
with environmentally sound methods
(3) families that live in healthy, secure and supportive
societies.

percentage of adults in the U.S. that consumed Starbucks's specialty coffee daily

The percentage of adults in the U.S. that
consumed specialty coffee daily increased from 9 percent in 2000 to 16 percent in 2004, and 56
percent of adults claimed to be occasional consumers. The total specialty coffee market was
estimated to be $9.62 billion in 2004

Where would coffee come from?

Coffee beans could come from all over the worldóabout 50 percent came from Latin America,
35 percent from the Pacific Rim, and 15 percent from East Africa. Most of the coffee producers
were small to medium-sized family-owned farms.

Starbucks' C.A.F.E. has 6 practices

1. Increase economic, social, and environmental sustainability in the specialty coffee industry,
including conservation of biodiversity.
2. Encourage Starbucks suppliers to implement C.A.F.E. Practices through economic incentives
and preferential buying status.
3. Purchase the majority of Starbucks coffee under C.A.F.E. Practices guidelines by 2007.
4. Negotiate mutually beneficial long-term contracts with suppliers to support Starbucks
growth.
5. Build mutually beneficial and increasingly direct relationships with suppliers.
6. Promote transparency and economic fairness within the coffee supply chain.

Starbucks' C.A.F.E. Prerequisites

These prerequisites set a minimum standard for Starbucks
suppliers, including coffee quality and economic transparency. The transparency prerequisite
meant that suppliers were expected to illustrate economic transparency on the amount of money
that was ultimately paid to farmers.

Starbucks grades suppliers based on

a set of environmental and social criteria. All suppliers were evaluated not just on their performance, but also on their supply networks of farms. Farmers were rewarded for coffee growing and
processing practices that contributed positively to the conservation of soil, water, energy, and biological diversity, and had minimal impact on the environment

How does Starbucks verify their suppliers?

Scores were audited by an independent
verifier, and licensed by Scientific Certification Systems, a third-party certification company that
provided independent analysis and certification of a wide range of environment sustainability
and food safety achievements. Under C.A.F.E. Practices, farms, mills, and suppliers had to illustrate equitable payments to
those who worked for them or sold to them. They had to demonstrate economic accountability
and document their hiring and employment practices.

How does Starbucks scores supplier and reward them?

Based on their performance, as measured against the environmental and social criteria, suppliers might earn up to 100 percentage points in C.A.F.E. Practices. Points above 60 percent increased the
status of the supplier. For scores above 60 percent, the supplier qualified as a Preferred supplier
and would gain preference in future Starbucks coffee purchases. Additionally, suppliers who earned scores above 80 percent would qualify as Strategic suppliers and would earn a Sustainability Conversion Premium of $0.05 per pound of coffee for one year. In order to
encourage continued improvement, Starbucks also offered an additional Sustainability Performance Premium of $0.05 per pound of coffee to suppliers who were able to achieve a 10-point increase above 80 percent over the course of a year.