Supply Chain Exam 2

Prevention

Attacks the root causes before waste occurs

Inspection

Catches defects already created

Act

Standardize success or revise and repeat

Plan

Identify the problem and hypothesize cause

Do

Run a small-scale, controlled experiment

Check

Measure results against initial baseline data

Master black belt

Organizational leader coaching other belts

Black belt

Full time professional solving complex defects at amazon/GE

Green belt

Part-time leader of functional products

Highly relevant for supply chain

Commands notable salary premiums

Yellow belt

Team member with basic awareness

Value

Defined strictly from the end customer’s perspective

Value stream

Mapping every action from raw material to delivery

Flow

Moving products continuously without waiting or batching

Pull

Producing only when triggered by actual downstream demand

Perfection

Continuously repeating the cycle to eliminate newly exposed waste

Push systems

Build to forecast, creating inventory and waste

Pull systems

Produce when triggered by actual demand

Reduces forecast dependence and minimizes the bullwhip effect

Replenishment driven by actual consumption, not monthly guesses

Overproduction

Producing more than needed generates all other forms of waste

Requires transportation, storage, and unnecessary human motion

Freezes working capital and hides critical quality defects

Equivalent of upstream bullwhip effect amplification

A true pull system structurally prevents overproduction from occurring

Just in time(JIT) Foundations

Synchronizes production and delivery tightly with actual customer demand

Eliminates inventory buffers to expose hidden process inefficiencies

Demands exceptional quality, as defects immediately stop the flow

Assumes a fundamentally stable and predictable supply chain environment

Eliminates the exact buffers that protect against unexpected shocks

Dominates low-risk, high-velocity, commodity operations

Relies on stable, predictable supply environments

Just in case(JIC) Foundations

Holds strategic buffer inventory to absorb unexpected supply disruptions

Prioritizes supply chain resilience over pure capital efficiency

Protects against volatile demand and geographically concentrated supply risks

Accepts higher carrying costs as a necessary insurance policy

Acknowledge that perfect flow is impossible in extreme uncertainty

Protects critical, high-risk, single-source components

Toyota Production System(TPS)

The absolute foundation of modern lean thinking

Kanban

Visual signals triggering pull-based inventory replenishment

Replaces forecast-based push pull with pure consumption-based pull

Nothing is produced without explicit ________ authorization

Restricts work-in-progress inventory to strict, manageable limits

Drastically reduced overproduction and the dreaded Bullwhip Effect

Jidoka

Embedding quality directly at the production source

Halts production immediately when any defects occur

Poka-yoke

Mistake-proofing operations to physically prevent errors

Physically prevents human errors from happening entirely

Andon Cord

Empowers every worker to stop lines

Prevents defective units from advancing and accumulating value

Value Stream Mapping

Maps material and info flow across the supply chain

Visualizes both value-adding activities and hidden systemic waste

Current state maps reveal massive non-value-adding waiting times

Future state maps provide precise blueprints for lean transformation

Cycle stock

Averages accumulated from ordering in large batches

Safety stock

Buffers protecting against demand and lead-time uncertainty

Anticipation

Pre-built stock for known future demand peaks

Pipeline

Goods physically in transit between supply chain nodes

Decoupling

Buffers isolating process stages with different operating speeds

Holding costs

Capital, space, insurance, and obsolescence expenses

Punish excess inventory and infrequent bulk ordering

Ordering cost

Fixed expenses per purchase order placed

Punish overly frequent, small-batch replenishment cycles

Stockout cost

Lot sales, expedited freight, and brand damage

Trigger bullwhip effect, amplifying supply chain instability

Purchase cost

Unit price paid to the supplier

Basic EOQ(Fixed Price)

Assumes the purchase price remains fixed

The optimal decision requires a mathematical trade-off analysis

Discount EOQ(Variable Price)

Suppliers often reduce unit prices for large orders

Purchase cost becomes a dynamic decision variable

Larger orders yield savings but drive up holding

All-units discount logic

Reduced prices apply to the entire order quantity

Crossing a threshold triggers immediate purchase savings

Holding costs must be recalculated for each tier

Lower unit prices inherently lower per-unit holding cost

Independent demand

External

Must be forecasted

Dependent

Internal

Can be mathematically calculated

Bill of materials

Provides the exact structured recipe for each finished product

Lists all sub-assemblies, components, and raw materials needed

Specifies the exact quantity required per parent item

Maps the precise manufacturing sequence for production

Ensures calculations match the physical assembly requirements

BOM Explosion

Multiplying requirements down through the product recipe

Netting

Subtracting existing on hand inventory from total gross requirements

Time-phasing

Offsetting order dates backward by supplier lead times

Planned order releases

The system schedule for placing exact purchase orders

Enterprise Resource Planning(ERP)

Acts as a single database for the entire firm

Eliminates disconnected functional data silos

Integrates MRP directly with finance and procurement

Ensures all departments plan from identical inventory reality

Automates cross-functional workflows instantly

Electronic Data Interchange(EDI)

Enables standardized computer-to-computer business communication

Eliminates manual re-entry between buyer and supplier systems

Transmits automated purchase orders directly to suppliers

Sends advanced ship notices prior to physical delivery

Accelerates supply chain info flow in real time

Vendor Managed Inventory(VMI)

Transfer replenishment responsibility directly to the supplier

Suppliers actively monitor buyer inventory levels using shared data

Reduces the bullwhip effect by eliminating demand signal distortion

Decreases ordering workload and transaction costs for buyers

Places inventory decisions with the most informed supply chain partner

Consignment Inventory

Supplier physically places inventory at the buyer location and legally retains ownership until the moment of consumption

Buyer only pays for inventory once it is used

Shifts working capital investment from buyer to supplier

Guarantees immediate availability at the physical point of use