SCM Exam 3123

What is Quality?

The ability of the supplier to provide goods and services in conformance with specifications

Five Major Cost of Quality Categories

• Prevention costs

• Appraisal costs

• Internal failure costs

• External failure costs

• Morale costs

Methods of Improving Quality - Lean

A management philosophy focused on maximizing customer value while minimizing waste

Lean Supply Management

requires a long–term commitment from both buyers and suppliers for cooperative approaches of eliminating waste in the supply chain through joint problem–solving and collaboration

What is Total Quality Management?

A philosophy and system of management focused on long–term success through customer satisfaction

What is Kaizen?

Relentless pursuit of product and process improvement through a series of small, progressive steps

ISO 9001:2015

Provides a set of standardized requirements for a quality management system, regardless of what the user organization does, its size, or whether it is in the private or public sector

ISO 14001: 2015

Sets the requirements for an effective environmental management system

What is Forecasts

Purchase decisions made a long time before actual requirements are known

What is Costs?

Costs associated with placing orders, holding inventory, running out of materials, and having a service unavailable when needed

What is Forecasting Quantitative?

Use past data to predict the future

What is Forecasting Qualitative?

Gather opinions and use with judgment to forecast

What is an example of Dependent Demand?

demand for bottles and caps for an energy drink

What is an example of Independent Demand?

demand for an energy drink

What is Fixed Order Quantity System?

Event triggered: Initiates order when stock depleted to a specific level (reorder point)

Safety Stock

Trade–off: cost of stocking out versus cost of holding inventory

Fixed Time Period Systems

The passage of time triggers reorder

Key Inputs to MRP

• Master production schedule:

When do we need it?

• Bill of material (BOM):

What do we need to make one end product?

• Inventory record:

What do we have and what do we need?

What are The Functions of Inventory?

• To provide and maintain good customer service

• To smooth the flow of goods through the production process

• To provide protection against the uncertainties of supply and demand

• To obtain a reasonable utilization of people and equipment

Inventory Carrying Costs

• Capital costs

• Inventory service costs

• Storage space costs

• Inventory risk costs

Vendor or Supplier Managed Inventory

• Also called systems contracting or stockless buying

• Merges ordering and inventory functions

• Relies on periodic billing procedures

• Non purchasing personnel issue order releases

• Employs special catalogs

• Requires suppliers to maintain minimum inventory

• Normally does not specify volume

• Improves inventory turnover rates

What is Just–in–Time (JIT)

Providing the exact quantity needed at the precise moment it is required.

What do you need to have JIT?

• Short production lead times

• Economical small batch production

• Flexible resources (labor, material, and equipment)

• Exacting quality

JIT Imposed Supplier Activities

• Frequent deliveries

• Small lot sizes

• Exacting quality

• Long–term relationships/contracts

• Reduced number of suppliers

What are the Three Logistics Costs?

• Transportation (the bulk of the costs)

• Inventory carrying costs

• Administrative costs

What are the five Modes of Transportation?

• Truck/motor carrier

• Rail

• Pipeline

• Air

• Water

Transportation Carriers

Once a mode of transportation has been selected, the buyer must decide on a carrier (example, railroad) and a specific supplier (example, BNSF Railway)

What is Third–Party Logistics (3PL) Suppliers?

Integration of services desirable

• Transport and logistics

• Enable through development of supply chain information technology systems

What Is a Fair Price?

The lowest price that ensures a continuous supply of the proper quality where and when needed

What are Direct Costs?

Can be specifically and accurately assigned to a given unit of production of a product or service

• variable

What are Indirect Costs?

Incurred in the operation of a production plant or service process, but normally cannot be related directly to any given unit of production of a product or service

• overhead

What are Variable Costs?

Vary directly and proportionally with the units of products or services produced

What are Fixed Costs?

Generally remain the same regardless of the number of units of products or services produced

Requirement for Competitive Bidding

Bidders must be sufficiently reliable to warrant serious consideration as a supplier

Conditions for Successful Competitive Bidding

• There must be at least two, and preferably more, qualified bidders

• The suppliers must want the business

• A “buyer’s market”

• Specifications must be clear and unambiguous

• No collusion between bidders

What is Forward Buying?

the commitment of purchases in anticipation of future requirements beyond current lead times

What is Commodity Hedging?

allows the purchaser the opportunity to offset transactions, and thus to protect, to some extent, against price and currency exchange risks

What is Strategic Cost Management

An externally focused process of analyzing costs in terms of the overall supply chain

What is Pareto Analysis?

A decision making tool based largely on the 80-20 rule

• Assign items to A (high–dollar), B (medium–dollar), or C (low–dollar) spend categories

Bottleneck Items

High Risk and Low Value

• process and carrying costs

• value analysis

Strategic Items

High Risk and High Value

• internal cost structure

• supplier’s cost structure

Noncritical Items

Low Risk and Low Value

• acquisition process costs

• market competition and price analysis

Leverage Items

Low Risk and High Value

• Acquisition process costs

• Price per unit

• Total cost of ownership

Total Cost of Ownership (TCO)

The acquisition price plus all associated cost elements

Value engineering

in product or service design

Value analysis

in product or service redesign

Activity Based Costing

Tries to turn indirect costs into direct costs by tracking the cost drivers behind indirect costs

Current view of the quality cost trade off

While companies used to think that making things better always cost more money, but doing it right the first time is actually the cheapest way to run a business.

Instead of spending a fortune fixing mistakes, replacing broken products, or dealing with angry customers (the expensive stuff), a company should spend a little bit of money upfront on better training and better parts.

By investing in Prevention, the "total cost" of the product actually goes down because you aren't wasting money on "failure." Essentially, the slide is saying that being cheap with quality actually ends up being very expensive.