BAIS-302 Quiz 3

What is a supply chain? Give an example using any household item

• A supply chain is a series of activities that start from supplier to manufacturer to distributor to retailer to consumer

List 4 strategic importance of supply chain management

• To reduce operating costs

• Good supply chain management improves relationships and fosters partnerships between the supply chain entities 

• It improves customer services (i.e. helps customers get the right product at the  right place at the right time)

• SCM impacts the corporate and marketing strategy

What is the difference between make vs buy vs outsource

• Make - you make the supply components in your own manufacturing facility. Advantage: more control, disadvantage: need to have core competency and capital

• Buy - outright buy it from a third-party supplier at a fixed price and prespecified specification 

• Outsource - a hybrid between make and buy where you ask a third party to build components according to custom specifications and negotiated price. Advantage: more customization options than buying

List the 6 sourcing strategies

• Many suppliers

• Few suppliers

• Vertical integration

• Joint ventures

• Keiretsu networks

• Virtual companies

What are the advantages and disadvantages of many suppliers or few suppliers

• The advantages of many suppliers are having more options, higher negotiating power, and lower prices due to competition

• Advantages of few suppliers: Develop long-term partnerships with chosen suppliers, dealing with the same supplier helps you to communicate your specifications/requirements better

• The disadvantage of many suppliers is no long-term fostering of partnership or collaboration

• The disadvantages of few suppliers are fewer backup options in case something goes wrong, difficulty in untangling contract terms and high switching costs, privacy/intellectual property issues

What is vertical integration? Give real-life example

• Vertical integration is when companies start doing things by themselves. For example, Apple used to rely on 3rd parties for their electronic chips and displays. But now they manufacture them by themselves in their factories. This is known as backward integration. Similarly, Apple used to sell its products through 3rd party stores like Best Buy/Amazon but now they sell it through their own websites and Apples retail stores. This is known as forward manufacturing. 

• In other words when a supply chain entity like the manufacturer performs the duty of other supply chain entities like retailer or supplier, it is known as vertical integration

Write a short note on joint ventures

• Joint ventures are collaboration between 2 or more competing companies. In supply chain context, this is done to take advantage of economies of scale. For example, BMW and Mercedes-Benz sometime place joint orders for their components from their supplier. This allows them to get price reduction through quantity discount. It also saves money on transportation and shipment

What is a Keiretsu network?

• Japanese word associated with informal alliance or coalition. In supply chain, companies form informal networks/collaboration in order to improve overall supply chain performance. Typically, big manufacturers (Toyota, Honda)  will provide financial assistance, share resources, train and support smaller companies (suppliers and dealerships), so that all entities can benefit mutually

What are virtual companies?

• No physical manufacturing plant or location. For example Vizio, California based electronics company makes cheap/affordable TVs. They have a warehouse where they assemble generic components bought from China in bulk. Since there is no extensive capital investment needed, the cost of production is low. However quality concerns can aeries since VIzio has no direct oversight of components shipped from overseas. This is in contrast to LG, Samsung, etc who have their own manufacturing plant

Describe any 5 supply chain risks and their mitigation strategies:

• Supplier may fail to deliver: can mitigate by using multiple suppliers, build redundancy

• Suppliers may provide substandard items, quality issues: can be mitigated by performing proper screening of the suppliers before selecting them, verifying their reputation  and past performances

• Outsourcing issues (unable to supervise directly regarding quality):  can be mitigated by making the components yourself (make instead of outsource)

• Delays in shipment and transportation: can be mitigated by using multiple modes of transportation (railroad, air, sea) instead of just relying on one

•  can mitigate by installing firewalls, providing training to employees, backup servers, and database

• Political and economic threats:  can be mitigated by having manufacturing facilities in multiple locations (instead of manufacturing just in Mexico have 1 in China too)

• Natural disasters: can be mitigated by having manufacturing facilities in multiple locations (instead of manufacturing just in Mexico have 1 in China too)

• Theft, vandalism, and terrorism: can be mitigated by insurance, installing a security system

Describe the bullwhip effect and draw graph:

• It is the tendency for larger order size fluctuations as orders are relayed through the supply chain

• Creates unstable production schedules, expensive capacity change costs, longer lead times, obsolescence

• Damage can be minimized with supplier coordination and planning

List 4 reasons for the bullwhip effect and list their remedies

• Demand forecast errors (cumulative uncertainty in the supply chain): the remedy is to share demand info throughout the supply chain

• Order batching (large, infrequent orders leading suppliers to order even larger amounts): remedy is Channel coordination: determine lot sizes as though the full supply chain was one company

• Price fluctuation (buying in advance of demand to take advantage of low prices, discounts, or sales): the remedy is price stabilization (everyday low prices)

• Shortage gaming (hoarding supplies for fear of a supply shortage): the remedy is to allocate orders based on past demand

What is the difference between a “push” vs “pull” system?

• Push system: producing without actual demand, keep producing regardless of actual demand. In other words it is the “make-to-stock” strategy. Advantage: high service level. Disadvantage: huge inventory cost

• Pull system: implement “just-in-time” philosophy. This is where the manufacturer wiats for the actual customer order to come then produce the item as quickly as possible. In other words, this is the “make/engineer/assemble-to-order strategy. The manufacturer needs to have fast production capabilities to successfully implement the pull system. Advantage: low inventory cost, disadvantage: low service level

What is a JIT? 

• Stands for just in time. Similar to Kanban system in Japan. The idea is to implement lean manufacturing meaning low inventory and fast production. Ex: fast food

What is VMI? 

• Vendor Managed Inventory: The manufacturer (Pepsi) instead of the retailer (Kroger) takes care of the inventory. So the restocking of shelves (when and with which product) is done by the vendors/manufacturers instead of the retailer. 

What is a blanket order?

• The buyer makes a large purchase (ex for 1 year) from the supplier. But instead of sending whole shipment at once to the buyer, seller stores or keeps the product at their location. So the buyer benefits from not having to store the inventory. Seller benefits because seller got a guaranteed purchase. Win/win scenario

Write a short note on postponement? 

• Postponement is the strategy to delay customization and withhold modifications as long as possible. For example, HP printers make all their printers in the US but don't include the electric cable/adapter because different countries have different socket shapes. So they ship it to different countries and once it reaches there, a local adapter supplier from that country will add it to the printer.

What are the 4 steps in supplier selection?

• Supplier evaluation

• Supplier development 

• Price negotiation

• Contracting

Describe the 3 types of price negotiation

• Cost-based pricing: The supplier is willing to disclose the cost of manufacturing the components/supplies. Depending on the cost incurred by the supplier, the manufacturer recommends a buying price. The negotiation continues until a mutually agreed buying price is reached

• Market-based pricing: If the supplier is unwilling to show the cost incurred to produce the supplies, the buyer may obtain the market price from sources such as internet (publicly available data). This is common in commodities market (crude oil, rubber, sugar)

• Competitive bidding: if there are multiple potential suppliers, the buyer asks them to compete/bid among themselves and decide the price

Describe the 3 common contract types in supply chain management

• Quantity discount: The supplier provides a discount for buying in bulk to the manufacturer

• Buyback contract: if the manufacturer has not used all the supplies, it can send them back to the supplier. The supplier reimburses a percentage of the original buying price (contract between Barnes & Nobles and book publishing companies)

• Revenue sharing contract: the manufacturer does not pay the supplier at the time of purchase. Instead, the buyer (manufacturer) shares a percentage of the revenue with the seller (supplier). This incentivizes the supplier to provide high quality supplies and deliver them at the right time at the right place. Otherwise the manufacturer cannot produce its goods efficiently which in turn leads to poor revenue generation

Give any 4 advantages of centralized purchasing over decentralized purchasing

• Central purchasing department orders in bulk for multiple retailers. Hence they can get a lower price due to quantity discount. 

• If the same personnel are making the purchase decisions, they form better relationship with the supplier

• Removes duplication of tasks

• Promotes standardization of purchase activities

• Helps develop specialized staff

List 5 uses of warehouse

• Used to store inventory

• Consolidation of multiple smaller inventory into one large shipment

• Break-bulk of one large shipment into multiple smaller batches of inventory

• Cross-docking

• Postponement

What is a 3PL? 

• (third party logistics): Outsourcing logistics can reduce inventory and costs (FedEx or UPS)

Describe any three inventory related financial metrics

• Assets committed to inventory = average inventory investment / total assets

• Inventory turnover ratio = COGS / average inventory

• Time of supply = 1 / inventory turnover ratio

Design capacity = the max theoretical output of a system, usually expressed as a rate

Effective capacity = the capacity a firm expects to achieve given current operating constraints, often lower than design capacity

Capacity = 1 / bottleneck time (always units / unit of time)

Throughput time = sum of time of each process

When you have identical parallel machines, divide the time by the number of machines when calculating capacity

When you have non-identical parallel machines, take the max of machine’s time when calculating capacity

Utilization will be less than or equal to efficiency

When you have multiple assembly lines, divide capacity by that number

Bottleneck analysis :Bottleneck time is the time of the slowest workstation in a production system. Bottleneck is limiting factor or constraint. Bottleneck has the lowest effective capacity in a system. Capacity of the entire system = capacity of its bottleneck