MGT 6201 Supply Chain Exam

Supply Chain Management (SCM)

Developing capabilities to design, produce, and deliver products and services in a competitive market.

Operations and Supply Chain Management (OSCM)

Interchangeable term with SCM; covers the full path from raw materials to final customer.

Upstream

Moving backward in the supply chain toward raw material sources and suppliers.

Downstream

Moving forward in the supply chain toward the end customer.

Six Primary SCM Processes (Supply Chain Council)

Plan, Source, Make, Deliver, Return, and Engage.

Linear Supply Chain

A simplified supply chain model showing a single path from raw material to final customer.

Golden Equation of Profit

Profit = Revenue - Costs.

Time to Market

The speed at which a company can get a new product or service to customers.

Product Life Cycle

The time from when a product is introduced until it becomes obsolete.

Strategic Decisions

Long-term (2+ years) supply chain decisions such as network configuration, outsourcing, and vertical integration.

Tactical Decisions

Medium-term (about a year) supply chain decisions focused on optimization, such as lean manufacturing and S&OP.

Operational Decisions

Short-term, real-time supply chain decisions such as scheduling and inventory control.

Vertical Integration

A company becoming its own supplier or distributor by integrating up or down its supply chain.

Efficient Supply Chain

A supply chain model focused on minimizing cost and maximizing asset utilization.

Responsive Supply Chain

A supply chain model focused on speed and flexibility to meet demand quickly.

Capacity

The rate at which a company can produce or serve customers.

Utilization Rate

The percentage of available capacity that is actually being used.

Inventory Turns

The number of times inventory is replaced or sold through in a given period.

Pipeline Inventory

Inventory that is in transit within the supply chain.

Safety Stock

Extra inventory kept to guard against uncertainty in demand or supply.

Lead Time

The time elapsed from when an order is placed to when it is received.

Functional Products

Products with stable, predictable demand, long life cycles, and low profit margins.

Innovative Products

Products with unpredictable demand, short life cycles, and higher profit margins.

Agile Supply Chain

A hybrid supply chain model combining elements of both responsive and efficient strategies.

Vendor Managed Inventory (VMI)

A practice where the supplier is responsible for managing and restocking inventory at the customer's location.

Direct Store Delivery

A distribution method that bypasses warehouses and delivers directly to stores.

Full Truckload

Maximizing truck capacity to reduce transportation cost per unit.

Network Configuration

The strategic decision of where to locate warehouses, factories, and suppliers relative to markets.

Centralized Network Configuration

A network with a single location for sourcing, manufacturing, or distribution.

Decentralized Network Configuration

A network with sourcing, manufacturing, and distribution spread across multiple regions.

Pooling Effect

The reduction in total required safety stock when inventory is consolidated across regions rather than kept separately.

Third-Party Logistics (3PL)

An external company that provides outsourced logistics services.

Economies of Scale

Cost advantages gained through increased production or shipping volume.

Outsourcing

Obtaining any resource or process external to your company.

Offshoring

Obtaining a resource or process from across an ocean, whether from an external company or your own operations.

Captive Offshore

Offshoring a process to a facility that is still owned by the same company.

Nearshoring

Sending work to a nearby country rather than across an ocean.

Reshoring

Bringing a previously offshored process back to the home country.

Core Competency

A capability central to a company's competitive advantage that should generally not be outsourced.

FOB (Free on Board)

The price to get a product to the shore or port of origin.

Exchange Rate Exposure

The risk of financial loss due to fluctuations in currency exchange rates.

Risk of Obsolescence

The risk that a product becomes outdated before it reaches the customer, especially relevant with slow shipping methods.

Globalization

The trend of markets and business operations expanding across national borders.

Market Drivers

Factors such as foreign competition and shorter product lifecycles that push companies toward globalization.

Technology Drivers

Advances such as improved communication and dispersed R&D that enable globalization.

Cost Drivers

Differences in labor and material costs between countries that drive offshoring decisions.

Macroeconomic Drivers

Political and economic factors, such as reduced tariffs, that enable global trade.

Lean Operations

A management philosophy focused on the elimination of waste, originating from the Toyota Production System.

Toyota Production System

The origin of lean manufacturing principles, developed in Japan.

Value (in Lean)

What the customer is willing to pay for, as defined by the customer, not the company.

Value Stream Mapping (VSM)

An exercise that maps all product and information flows in a company to identify waste.

5S

A lean tool for creating an orderly, clean, and organized manufacturing workspace.

Kanban

A visual card-based system used to control inventory and signal production in a pull system.

Kaizen

A continuous improvement technique, often conducted as a focused improvement event called a Kaizen blitz.

Just In Time (JIT)

A production approach where materials arrive exactly when needed, often associated with lean manufacturing.

Push System

A manufacturing approach where production is driven by pushing raw materials through each step as fast as possible.

Pull System

A manufacturing approach where production is driven by actual customer demand signals from downstream.

Finished Goods Inventory (FGI)

Inventory of completed products ready for sale.

Work In Process (WIP)

Inventory of items that are partially completed in the production process.

Throughput Time

The time it takes for raw material to move through the entire production process and become a finished good.

Withdrawal Kanban

A card indicating that materials have been taken from storage in a pull system.

Production Kanban

A card that signals a work center to produce more units to replace what was withdrawn.

Sales and Operations Planning (S&OP)

A formal process for aligning sales forecasts with production plans and labor schedules.

Aggregate Demand

The combined demand for all individual products or services considered together.

Hire/Fire Strategy

Adjusting workforce size up or down to match changes in demand.

Overtime

Extra work hours beyond the standard work week used to increase output temporarily.

Subcontracting

Assigning part or all of an activity to another company to meet demand.

Excess Inventory Strategy

Producing more than needed during low-demand periods to build stock for high-demand periods.

Backlog

Unfulfilled demand that a company chooses to work through over time rather than immediately meet.

Demand Shaping

Using price, promotions, advertising, or bundling to influence demand to match available supply.

Inventory

Any raw material, component, work in process, or finished good held at some point in the supply chain.

Raw Materials

Basic inputs that have not yet been processed by a company.

Component Parts

Externally purchased parts used in the assembly of a finished product.

Holding Cost

The cost of storing and maintaining inventory over time, including warehousing, insurance, and spoilage risk.

Obsolescence Cost

The cost incurred when inventory loses value because it becomes outdated.

Shrinkage

The loss of inventory over time due to theft, loss, or damage.

Opportunity Cost (of Inventory)

The lost potential returns from capital tied up in inventory instead of used elsewhere.

Inventory Management Policy

A policy defining how much to order and when to order to replenish inventory.

Economic Order Quantity (EOQ)

The order quantity that minimizes total inventory costs by balancing ordering and holding costs.

Ordering Cost (S)

The fixed cost incurred each time an order is placed.

Annual Holding Cost (H)

The cost to hold one unit of inventory for one year.

Average Inventory

In the EOQ model, equal to half the order quantity (Q/2).

Reorder Point (ROP)

The inventory level at which a new order should be placed, equal to average daily demand times lead time.

EOQ Formula

Q* = the square root of (2 × Demand × Ordering Cost) divided by Holding Cost.

Bullwhip Effect

The phenomenon where small changes in customer demand cause progressively larger fluctuations in orders moving upstream.

Multi-Echelon Supply Chain

A supply chain with multiple levels, such as supplier, manufacturer, wholesaler, and retailer.

Artificial Demand

Demand increases caused by promotions or price cuts rather than genuine changes in customer need.

Order Batching

Placing large, infrequent orders that mask true demand signals from upstream partners.

Shortage Gaming

Ordering more than needed out of fear of shortages, then canceling orders once the fear subsides.

Forecasting Inaccuracies

Poor demand predictions that lead companies to over-order and amplify the bullwhip effect.

Point of Sale (POS) Data

Actual sales data at the retail level, used to reduce the bullwhip effect when shared upstream.

Newsvendor Model

A model for deciding a single order quantity when demand is uncertain but follows a known probability distribution.

Marginal Profit (Underage Cost)

The lost profit from not having enough inventory to meet demand for one additional unit.

Marginal Loss (Overage Cost)

The cost incurred for each unit of inventory left unsold.

Salvage Value

The value recovered for unsold inventory at the end of a selling period.

Critical Fractile

The ratio of underage cost to the sum of underage and overage cost, used to find the optimal order quantity.

Cumulative Distribution Function (CDF)

A function that gives the probability that demand is less than or equal to a given quantity.

Z-Score (Newsvendor Context)

A value derived from the critical fractile used to calculate the optimal order quantity under a normal distribution.

NORM.S.INV

An Excel function used to convert a critical fractile probability into a corresponding z-score.

Forecasting

A prediction of future events used for planning purposes.