MGT 301 Exam 3 (TFC Based)

Primary supplier selection criteria for low cost strategy

cost

Primary supplier selection criteria for response strategy

capacity, speed, flexibility

Supply chain inventory for low cost strategy

minimize inventory to hold down costs

Supply chain inventory for response strategy

use buffer stocks to ensure speedy supply

Distribution network for low cost strategy

inexpensive transportation, and sell through discount distributors/ retailers

Distribution network for response strategy

fast transportation, and provide premium customer service

Product design characteristics for low cost strategy

maximize performance, and minimize cost

Product design characteristics for response strategy

low setup time, and rapid production ramp-up

Outsourcing

transferring internal activities or services to external suppliers who can perform them more efficiently or at lower cost

Outsourcing examples:

hiring an outside firm to handle payroll processing or contracting a manufacturer to produce components previously made in‑house.

Outsourcing is used when

suppliers have specialized expertise, economies of scale, or lower labor costs.

Vendor-managed inventory (VMI)

system in which the supplier maintains inventory levels for the buyer and replenishes stock as needed

The supplier in VMI

monitors usage and delivers materials directly to the point of use

VMI example

fastener supplier restocking bins on a factory floor without the buyer issuing purchase orders.

Postponement

delays final product customization until the latest possible point in the supply chain

Postponement will

reduce inventory of finished goods and allow products to be tailored to customer preferences.

Postponement example

paint stores mixing colors only after the customer selects the shade.

Blanket orders

long-term purchase commitments with suppliers that allow multiple deliveries over time without issuing new purchase orders

Blanket orders reduce

paperwork and ensure steady supply

Blanket orders example

manufacturer issuing a blanket order for bolts or packaging materials for the entire year.

Drop shipping

logistics method where the supplier ships goods directly to the end customer instead of sending them to the retailer first.

Drop shipping reduces

handling, inventory, and shipping time for the retailer

Drop shipping example

online retailer forwarding customer orders to a wholesaler who ships directly to the buyer.

Reverse logistics

manages the flow of returned products, recycling, repairs, and disposal back through the supply chain.

Reverse logistics characteristics

less time-sensitive than forward logistics and often more complex due to uncertain return quantities and conditions.

Reverse logistics examples

processing product returns, recycling electronics, or refurbishing used equipment.

Strategy is important because it affects

purchasing and supply chain activities, represent a large portion of total costs, influencing profitability.

Integrated supplier relationships improve

innovation, reduce costs, and speed product development.

Supply chain coordination increases

competitiveness for all partners.

Make vs. buy decisions determine

whether a firm should produce goods internally or purchase them from suppliers.

When deciding make vs buy,

firms consider cost, capacity, expertise, quality, and strategic control.

Buying is preferred when

suppliers can produce at lower cost or higher quality

Making is preferred when

control, intellectual property, or reliability is critical.

Many suppliers emphasize

price competition and short-term contracts

Few suppliers emphasize

long-term relationships, trust, and supplier involvement in design.

Vertical integration

producing goods or services previously purchased, either backward toward raw materials or forward toward distribution.

Virtual companies

rely on a network of suppliers and partners to provide services and manufacturing while the firm focuses on core competencies.

Joint ventures involve

shared ownership or collaboration to secure technology, capacity, or market access

Keiretsu networks combine

long-term partnerships, financial ties, and supplier loyalty, often including cross-ownership

Supply chain risks arise from

supplier failures, quality issues, natural disasters, political instability, and logistics disruptions

Global supply chains increase

exposure to currency fluctuations, transportation delays, and regulatory differences.

Risk mitigation includes

multiple suppliers, safety stock, early supplier involvement, and strong communication systems.

Bullwhip effect occurs when

small changes in customer demand create increasingly larger fluctuations in orders upstream in the supply chain.

Bullwhip effect causes include

order batching, price promotions, demand forecasting errors, and lack of information sharing.

Bullwhip effect consequences include

excess inventory, stockouts, and inefficiencies.

Supplier development involves

training, sharing technology, and improving processes to enhance supplier performance.

Supplier evaluation includes

assessing quality, delivery reliability, cost, and capability.

Ongoing evaluation ensures

suppliers support the firm’s strategy and performance goals.

Logistics management coordinates

movement of materials, information, and products through the supply chain.

Third-party logistics (3PL) providers handle

transportation, warehousing, and distribution for firms seeking cost savings and expertise.

Warehousing supports

storage, consolidation, and distribution activities

Trucking offers

flexibility and fast point-to-point delivery

Rail is a

cost-effective for large, heavy shipments over long distances.

Airfreight is

fastest but most expensive option, used for high-value or time-sensitive goods.

Waterways

low-cost, slow, and used for bulk commodities.

Pipelines transport liquids and gases

efficiently and continuously

Multi-modal shipping combines multiple

transportation modes to optimize cost and speed.

Sales is concerned with

service level, demand pattern, and shelf life

Operations is concerned with

capacity improvements

Supply chain is concerned with

frequencies, stock level, and frozen period

Purchasing is concerned with

lead times, quality, reliability, and trade unit

Penalties & bonuses

bad! penalties mean we did not mean contract expectations. bonuses show that you could’ve made more money than you actually did. Both should be 0.

Component availability

less than 99.9% means product components are not readily available. 99.9% is perfect. greater than 99.9% will not show in the simulation & means money is being wasted.

Obsoletes

expensive. we need to remake an obsolete product, meaning we are making it 2x but only getting paid once for them. 0-10% is a ‘good’ amount of obsolete products.

Production plan adherence

should be greater than 90%.

Frozen period is in what unit?

weeks

Frozen period is when

a schedule is set for a certain period of time

Short frozen period (1 week)

schedule is changed frequently

Long frozen period

schedule is changed less frequently

A short frozen period

harder for suppliers, easier on customers, more responsive, but more variability

A longer frozen period

harder for customers, easier on suppliers

Which costs go up if quality increases?

Prevention & appraisal

As quality increases, internal and external failure costs

decrease

Increasing intake time will _______ the peak labor requirements

decrease

Short intake time will ________ variability

increase

For the customer, the payment terms relate to the period in which _____________________________. The customer would naturally like to have ________ payment terms.

the customer pays for the products received, generous

For the supplier, the payment terms are the period within which ____________________. Suppliers want the payment terms to be as _____ as possible.

the supplier must be paid, short

In which ways can you transport goods?

Truck, rail, water, air

In TFC, what 3 things are we mainly concerned for?

Inbound warehouse, outbound warehouse, and production. Each have its own capacity

Only with _____ and ______ are we concerned with employees.

Inbound and outbound warehouses

Only with production are we concerned with

bottling line

Safety stock and production interval determine what go into

outbound warehouse capacity

To have component availability, raise

safety stock

Why have component availability?

Variability. Machines may break down, customer demand may be randomly high, etc

ROI

operating profit as a percentage of the investment

Rejection components

number of rejected components as a percentage of the purchased components

Raw material cost

purchase costs as a percentage of total revenue

Delivery reliability suppliers

performance criterion, expressed here as a percentage, that measures how consistently goods and services are delivered on, or before, the promised time

Purchasing: supplier/component; delivery reliability

percentage of all the items or liters delivered on, or before, the promised time

Purchasing: supplier/component; rejection (%)

Rejected material as a percentage of the total value of delivered material

Purchasing: supplier; deliveries

number of shipments delivered by the supplier during the previous round

Purchasing: supplier; order lines

Number of times a replenishment order is issued during the previous round

Purchasing: supplier/component; purchase value

total purchasing value, including transport costs, in the previous round

Purchasing: supplier/component; transport costs

transport costs made in the previous round to transport the purchased components to The Fresh Connection

Purchasing: supplier/component; demand per week (piece or liter)

average demand per week

Purchasing: supplier/Supply chain: component; ; amount purchased (pieces or liters)

total number of items or liters purchased during the previous round, including rejected items and obsoletes

Purchasing: supplier/component; purchase price (per piece or liter)

average purchase price per item or liter, including transport costs

Purchasing: supplier/component/Supply chain: component; order size (pieces or liters)

Average size of the individual orders

Purchasing: component; purchases

Number of times a replenishment order is issued during the previous round

Operations: Cube utilization raw materials warehouse

measurement of the average utilization of the total storage capacity of the raw materials warehouse (as a percentage of total capacity)