Supply Chain Exam 2

4 broad ways product quality could be defined as

1. Product Quality
2. Design Quality
3. Conformance quality
4. Quality Management

Product Quality

Products fitness for consumption - how well it meets customers needs & desires, Determined by both a products design quality and its conformance quality

Design Quality

Measure of how well a products designed features match up to the requirements of a given customer group

Conformance Quality

Measure of whether or not a delivered product meets its design specifications

Quality Management

Management approach that establishes an organization wide focus on quality, merging the development of a quality-oriented corporate culture with intensive use of managerial and statistical tools.

Marketing Manager Decisions for product quality

- Choices of markets to pursue & product features to offer

- Design of advertising and other programs that communicate product attributes to customers 

- Development of new product testing programs

Supply Managers Decisions for product quality

- Description of purchase requirements 

- Selection of suppliers 

- Establishments of contracts and associated incentives and penalties

Logistics Managers

- Selection of transportation providers 

- Development of tracking/information systems 

- Design of packaging, storage, and material handling processes

Total Quality Management

* business strategy aimed at having awareness of quality in all organizational processes
* To make good decisions people from all effected functions should be aware, have decision making in cross-functional teams 

4 Major Contributors to TQM

Deming, Juran, Crosby, Imai

Demings - TQM

* All employees are responsible for quality, variability is the source of most problems, customer is the final arbiter of quality

Juran - TQM

* Quality has many dimensions, Quality management is change management, Cost of quality analysis highlights need for change

Crosby - TQM

* Quality is free, Zero defects is an appropriate goal, focus on incremental & continuous change

Imai - TQM

* Kaizen system of continuous improvement, Need a process-printed view, Frontline workers have important insights, Worker trainman and development are key

Cost of Quality

Helps clarify the cost impacts and total cost of quality-related efforts and deficiencies (poor product quality can have hidden or indirect effects, goes to overhead expenses)

Prevention Costs

costs associated with efforts to prevent product defects and associated failure and appraisal costs. (New-product reviews, training, quality improvement projects, investments in more capable processing equipment)

Appraisal Costs

Costs resulting from inspections used to assess quality levels (material expenses, product and process inspections, test equipment)

4 Major cost categories

1. Prevention Costs
2. Appraisal Costs
3. Internal Failure costs
4. External Failure costs

Internal failures costs

Result from defects that are found in products prior to their shipments to customers. (Scrapped materials, salvage and rework, excess material inventories, costs of corrections). 

External Failure Costs

Costs associated with quality features uncovered after the product reaches a customer. (Complaint settlements, returned materials, loss of future sales, warranty work, and field service of repairs).

Inverted View of Management

TQM Organizational view: Top - Bottom: Employees, Lower-Level Management & frontline supervisors, Middle Management, Top Management at Bottom. 

Traditional View of Management - TQM

Top Management, middle management, lower level management & frontline supervisors, employees

Why is variability a major source of problems in operational processes?

Variability causes unpredictability, which increases uncertainty and reduced control over processes and outputs.

* variability in the time it takes to complete a task disrupts work flows
* Variations in a purchased material characteristic can cause unreliability in product performance
* Variations in marketing promotions can cause large swings in product demand, which make production processes less stable

Values that characterize TQM

* Employee empowerment
* Top management support
* Supplier involvement
* Continuous improvement 
* Emphasis on prevention rather than inspection

Values that affect the success of TQM

* Strong, charismatic leadership
* Trust between labor and management
* Crisis situation or compelling reason for change
* Adequate resourcing of training and improvement projects
* Clear, well-communicated, uncomplicated change process

Guiding Methodologies for quality management

1. Plan Do Check Act Cycle (Deming wheel or Deming cycle)
2. Six Sigma
3. DMAIC process

Plan Do Check Act Cycle (Deming wheel)

A process for improving quality that describes the sequence used to solve problems and improve quality continuously over time. Guides problem identification and solution

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* Plan: identify a problem, Do: implement the plan, Check; analyze the results, Act: corrective actions to prevent reoccurring problems

Six Sigma

Management program that seeks to improve the quality of process outputs by identifying and removing the causes of defects and variation in the various processes

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* quality improvement through elimination of defects and variation 
* Business process for improving quality, reducing costs, and increasing customer satisfaction
* Sigma and standard deviation, measures inconsistency and variation (statistical) High(spread out data) Low (close data) as it increases theres becomes greater uncertainty about exact outcome

DMAIC Process

Acronym for the 5 steps at the heart of the 6 sigma process: define, measure, analyze, improve and control.

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1. Define: set the context and objectives for improvement
2. Measure: determine the baseline performance and capability of the process 
3. Analyze: use data & tools to understand the cause-and-effect relationships of the process
4. Improve: develop the modification that lead to a validated improvement of the process
5. Control: Establish plans and procedures to ensure that improvements are sustained 

Can the same product be classified differently based on where in the supply chain it is being held?

YES, any given item can be classified as several different types of inventory, depending on who has it and for what purpose

Types of inventories in the supply chain

raw materials and purchased parts, work-in process, finish goods inventories or merchandise, Maintenance, repairs & operating (MRO) inventory

Raw Materials

* items that are bought from suppliers to use in the production of a product. Once they enter production processes they become work-in process inventory.

Work in process inventory

Inventory that is in the product process

Finished goods inventory

* items that are ready for sale to customers (retailers and wholesalers can hold finish goods inventory)

MRO inventory (Maintenance, repairs & operating inventory)

Office supplies, toilet paper/cleaning supplies, tools and parts, etc. need to manage MRO inventories properly so you aren’t running out of things you need. 

Why isn’t holding an inventory always bad?

holding allows you to produce batches of products, instead of having to product at exactly the same time and rate as demand. 

What are the different roles that inventories play?

* Balancing supply & demand: decouples differences in supply and demand requirements
* Buffering uncertainty in demand or supply: variation in supply & demand are managed with buffer(safety) stocks. Carry a little more inventory than the need.
* Enabling economies of buying: price discounts or reduced shipping costs. Offer discounts for customer to buy large quantities, on the other side buy more to fill the truck. Can also use speculative stock if you plan for disruptions or trends. 
* Enabling geographic specialization: Supply and demand locations vary. Distribution enters around demand zones. Transit stock is when you stock is being moved from plant to warehouse to retail store.

Cycle stock

Inventory repeatedly produced or order and then used to fill demand in normal replenishment cycles

* Enables firms to produce/ship inventory in batches (production cycles) to take advantages of economies of scale

Seasonal Stock

* additional inventories produced in advance of seasonal peak demands or held after seasonal peak supplies 
* EX: harvest potatoes once a year and store them, takes them out when there are purchases. 

Buffer Stock

* Extra inventory held to guard against uncertainty in demand or supply. 

Transit Inventory

* Items being transported from one location to another. 

What is the financial impact of inventory on the balance sheets of a company?

\- keep inventories low and keep investments and debt low as possible. Reduction in inventory frees up cash that can then be invested in projects and in other assets, used to reduce debt or retuned to shareholders.

What are the different costs related to inventory? 

* Product costs
* Carrying costs:
* Ordering and set-up costs
* Stockout cost

Product Costs

* amount paid to suppliers for the products that are purchased.

Carrying Costs

* several expenses that are incurred due to the fact that inventory is held
* Opportunity costs, storage and warehouse management, taxes & insurance, cost of loss and disposal. 

Ordering and set-up costs

* Ordering and set-up costs: the expenses incurred in placing and reciting orders from suppliers. 
* Purchased items: placing and receiving orders 
* Make items: change-over between items, 
* Setup costs: administrative expenses and the expenses of rearranging a work center to produce an item: changing over or rearranging a work center to get it ready to produce an item. Nut allergy people, clean the machines to make something different without nuts. 

Stockout Cost

* Cost incurred when inventory is not available to meet demand
* Lost sales or customer loyalty
* Expediting 
* Schedule disruption
* May never know the actual stockout cost because you dont know the actual amount of demand.

Approximately what portion of a company’s assets are typically in inventory? 

 30% or more

two basic categories of inventory performance metrics

* Asset productivity: Inventory turnover and days of supply 
* Demand requirements: service level

Inventory turnover

Ratio between average inventory and the level of sales

- inventory asset productivity 

- Backwards looking measure, looking at inventory performance during a previous time period

advantages of high turnover

fresh inventory, reduce risk from markdowns, reduced total carrying costs

Dangers of high turnover

stockout mean lower sales, increased costs from missing quantity requirements, increased ordering costs

Days of Supply

number of days business operations can be supported with inventory on hand

\- forward looking measure, daily rate of usage or future expected demand

What does Service level productivity measure? 

- Measure of how well customer demand is met and stockout are avoided

- tracks how well inventory is meeting demand

Stock-outs: demand for an item and they have no inventory. They result in lost sales and potential customer dissatisfaction. Stock-outs of MRO are bad with significant consequences. (No paper)

Independent Demand Inventory Systems

Inventory management systems used when the demand for an item is beyond the control of the organization. (End items or repair parts)

* uses 2 models: continuous review model & periodic review model

Continuous review model

inventory is constantly monitored to decide when a replenishment order needs to be placed. - reorder point, pricey

Periodic Review Model

Management system built around checking and ordering inventory at some regular interval, less costly 

Dependent Demand Inventory Systems

Management systems used when the demand for an item is derived from the demand for some other item.

Economic Order Quantity; EOQ

The order quantity that minimizes the sum of annual inventory carrying cost and annual ordering cost

\- minimizes total acquisition costs, point at which holding and order costs are equal. 

* basic EOQ is used o find a fixed order quantity that will minimize total annual inventory costs
* reorder point: when the quantity hand of an item drops to this level, the item is reordered

Total Acquisition Costs (TAC)

The Sum of all relevant inventory costs incurred each year

* product costs, stockout costs, the quantity you order will impact your TAC - if you buy more will you get a discount?
* Holding/carrying costs; storing costs & risk of inventory

Reorder point

when the quantity hand of an item drops to this level, the item is reordered

Quantity Discounts

discounted price for ordering larger quantities each time, transportation discounts

Periodic Inventory Model

Management system built around checking and ordering inventory at some regular interval - systems get a trigger from the reorder point. 

Single Review Inventory model

Model used to determine the order size for a 1-time purchase - think newspapers

Concept of safety stocks

Extra inventory held to guard against uncertainty in demand and supply

* reason for safety stock is uncertainty for demand and lead time, better forecasting prevents this.

Bullwhip effect

A small disturbance generated by a customer produces successively larger disturbances at each upstream stage in the supply chain

* incite excessive expediting, increased levels of inventory, uneven levels of capacity utilization, and increased costs.

Supply Management

The identification, acquisition, and management of inputs and supplier relationships. 

* It is important to work with the right partners, as cost, quality, delivery and degree of innovation depends on the suppliers. 

What are the factors that contribute to risk in a supply chain?

Supplier financial problems, labor disputes, major increases or decreases in demand, lack of transparency in the supply chain, political instability, natural disasters (fires, earthquakes, hurricanes, floods)

How do companies build resilience in their supply chain?

Use machine learning software for continuous monitoring of supply chain risk

* holding higher inventory levels of critical materials for more time to react if there is a disruption
* using more than 1 supplier for critical purchases so that there is “backup”
* working closely with suppliers to improve their capabilities,
* equiring suppliers to have geographical dispersed operations.

What are some of the factors that contribute to the Total Cost of Ownership?

Sourcing costs, purchase price, transportation, handling, inspection, quality, rework, maintenance, and disposal

Name one major quality management certification that is expected of suppliers

\- ISO 9000 & statistical process control, continuous improvement

What are the steps in the decision-making process of analyzing costs?

Step 1. Assess fit with the firms core competencies

Step 2. Evaluate the Suitability for outsourcing

Step 3. Evaluate the reasons for outsourcing

Step 4: Assess all relevant qualitative costs

Step 5: Assess all qualitative factors

Step 6: Review the capabilities of suppliers

Step 7: Make and implement a decision

Outsourcing Advantages

Reduces assets, increases flexibility, and can lower costs

Outsourcing Disadvantages

problems communicating and coordinating with suppliers and poor supplier performance.

* Supplier can steal intellectual property or become direct competitor,

What are some of the costs involved when performing a quantitative analysis?

Fixed costs per contract (1 time costs like buying equipment, at the start of production or beginning of new contract), Fixed Costs per order (costs that happen each time an order is placed, refurbished tools) , Variable costs (costs associated with each unit produced, labor, materials depreciation, energy or purchase price)

What are the some of the factors to be considered when performing a qualitative analysis?

Suppliers labor management climate, suppliers warranty, repair and support systems, the suppliers location, logistics and travel, quality of the suppliers management team, suppliers flexibility for changes

What are the different categories of purchases and how does each one need to be handled? 

1. Spend Analysis
2. Enterprise resource planning (ERP) system

Spend Analysis

A process that identifies what purchases are being made in an organization. Shows what is being purchased at what prices and from which suppliers. Done by either specialized software or modules in ERP systems.

Enterprise resource planning (ERP) system

Software that consolidates all of the business planning systems and data throughout an organization. Procure to pay systems, purchasing cards or other systems are combined, cleansed and analyzed. Done by modules.

What is supply base optimization?

\- The number of suppliers to use

- too many: increase complexity & administration costs an makes communication & control difficult 

- too few: increase supply chain risk from disruption, may increase prices, and may limit access to innovation

Types of supplier relationships (transaction oriented to collaborative)

1\. __Adversarial Relationship:__ relationships characterized by distrust and limited communications. 

2. __Arms - length relationship:__ relationships limited to simple purchasing transactions

3. __Cooperative Relationships:__ Seek to attain mutual goals but lack the commitment of full partnerships. 

4. __**Full partnerships:**__ Close working relations, trust, mutual respect, and highly integrated operations. 

What are the steps involved in assessing and selecting suppliers

 1. Describe purchase requirements, if supplier wants to do business, there is a proposal, suppliers must be able to meet the proposal requirements, then you can use the types of bidding like competitive or online reverse auctions. 

Methods used for assessing & selecting suppliers

1. Request for proposal or request for quotation
2. Competitive Bidding
3. Online Reverse Auctions

Request for proposal or request for quotation

Documents sent to suppliers to request bids. These must descent the purchase requirements and specifically as possible

Competitive Bidding

A selection process in which suppliers submit bids to win buyers business

Online Reverse Auctions

competitive bidding systems that allow suppliers to submit multiple bids within a fixed time. 

When is a competitive bidding the best option?

When purchase price is the most important factor, suppliers are selected using competitive bidding (suppliers submit bids to win buyers business) or online reverse auctions (competitive bidding systems that allow suppliers to submit multiple bids within a fixed time.

What benefits does a negotiation bring to the table?

Both the supplier and buyer benefit, and can build close cooperative relationships. Outcome of a good negation should be a contract and a good working relationship between the buyer and supplier

Supplier relationship management

 A comprehensive system, facilitated by software that works on managing the sims interactions with its supply base. 

* identify suppliers, works with suppliers, placing orders and postorder contract activities (inventory management and warranty recoveries)

What is Vendor Managed Inventory (VMI)

Suppliers manage customers inventory and restocks as needed, these upper regular reviews the customers inventory and restocks as needed, suppliers understand what their customers are actually using and can plan their own operations effectively, which reduced excess inventory and waste in the supply chain. 

What part does a scorecard play in supplier performance monitoring

* Used to report a suppliers key performance indicators
* red, green, yellow scorecards then you can improve your scorecard.
* It helps companies know what to fix, give performance results and feedback, some firms categorizes suppliers based on an overall score using the colors.

Role and process of Sales and Operations Planning

\- S&OP ensures that the planning process continually generates realistic and credible commitments.

* gives regular opportunities for for cross functional teams to review data, creates opportunities to confirm or change election plans for the goals fo the firm, provides a forum so all can discuss issues and arrive at critical decisions. 

What does an SOP do? Names some of its benefits.

\- Sales & operations planning: A process to develop tactical plans by integrating customer focused, marketing plans for new and existing products with the operational management of the supply chain. 

Benefits of S&OP

Hard/Quantifiable: improved forecast accuracy. Higher customer service, more stable supply rates

SOFT/QUALITATIVE: enhanced teamwork, better decisions with less time, better alignment of plans, greater accountability for results, can see future problems.

Why is the SOP considered a dynamic process

They hold monthly or quarterly review meetings. You can’t make the plan and follow it for the whole year as things change

What is a rolling planning horizon? When and why is this used

Re-plan each period (month or quarter) for a given number of periods into the future. It updates the S&OP sales plan and aggregate production plan as conditions change. Unexpected machine breakdowns, employee strikes etc.

What is an aggregate production plan?

* Specifies the production rates, inventory, employment levels, backlogs, possible subcontracting, and the other resources needed to meet the sales plan.
* GOAL: to set targets for inventory and various sources of capacity so that supply will match demand over the intermediate time frame in the most efficient way possible.

7 different costs in aggregate production plan

__Inventory Holding Costs:__ maintaining inventory involves expenses related to the cost of capital 

__Regular Production Costs:__ average labor costs

__Overtime Costs:__ 

__Hiring Costs:__ costs of advertising for hiring, interviewing them, training, taking away workers from doing their jobs to look after other new people.

__Firing/laying off costs__: unemployment compensation or lump sum separation payments. 

__Backorder/lost sales costs:__ backorder a demand or lose the sales for that demand. Penalties for late deliveries

__Subcontracting Costs:__ outsource production to another firm.

3 types of production strategies

1. Level production Strategy
2. Chase strategy
3. Hybrid strategy

Level Production Strategy

The firm produces at a constant rate over the year

* Used when the costs of ramping up production up and down are high and inventory costs are relatively low. Constant rate of output over the entire planning time period & requires no overtime, no changes in the workforce level and no subcontracting. Can cause inventory levels to be high following low demand seasons. Results in the highest investment in inventory. High inventory carrying costs and risk of inventory obsolesces and requires store space capacity. Requires the least overall investment in plant & equipment.