660final review

What is a common consequence of incentive conflicts?

Downstream firms order less than what is best for the whole supply chain.

What type of supply chain should functional products use?

Efficient

Physically Efficient Supply Chains Primary Purpose: Manufacturing Focus: Inventory Strategy: Lead-time focus: Supplier Selection: Product-design Strategy:

Primary Purpose: Supply predictable demand efficiently at the lowest possible cost Manufacturing Focus: High utilization Inventory Strategy: High inventory turns and low inventory level Lead-time focus: Shorten lead-time without increasing cost Supplier Selection: Based on cost and quality Product-design Strategy: Maximize performance minimize cost

What is a buy-back contract?

When a manufacturer agrees to buy back unsold inventory for a reduced price. These affect supply chain performance by reducing overage costs.

How do you avoid uncertainty?

- Cut lead time - Make-to-order products

What are some examples of risk pooling?

- Location and lead time pooling (centralize warehouses, add distribution centers) - Component commonality and postponement of product differentiation (modularity for mass production) - Portfolio effects on finance

What are some of the strategies/actions an efficient supply chain should adopt?

- Manufacture large quantities for economies of scale - Buy large batches for discounts and to reduce order frequency - Full truckload shipments

How do you reduce uncertainty?

- Use better forecasting methods - Gather better information - Risk pooling

How do you hedge against uncertainty?

- Use capacity buffers - Use reactive capacity wisely

What are some of the strategies/actions a responsive supply chain should adopt?

-Pay a premium for flexibility in the form of: - Faster transportation - lower transportation and factory utilization - smaller batches - Postpone production differentiation as much as possible (to maximize demand) - Reduce low value added variety (find sucky products)

What are the ways of managing uncertainty?

1. Reduce uncertainty 2. Avoid uncertainty 3. Hedge against uncertainty

What are some ways to mitigate the bullwhip effect?

1. Share information -IT -Vendor-Managed Inventory (VMI): Vendors take control of inventory management for the retailers 2. Eliminate direct causes -coordinate with other retailers -reduce ordering costs -eliminate trade promotions -allocate inventory to retailers proportional to past sales ("turn-and-earn")

What are some of the causes of the bullwhip effect?

1. Trade promotion and forward buying - Retailers respond to price/quantity discounts by stocking up, in some cases buying a year's supply 2. Order synchronization - Refers to the variability of when different retailers order the same product (same day, different day) 3. Order batching - When you batch orders of small quantities to a large order. Induced by the desire to achieve economies of scale 4. Shorting gaming - During peak times, suppliers will hold different amounts of supply to meet demand. some retailers could over-order to secure a larger percentage.

What is a responsive supply chain?

A SC that utilizes strategies aimed at being responsive and flexible.

What is an efficient supply chain?

A SC that utilizes strategies aimed at creating the highest cost efficiency.

What is risk pooling?

Achieve the same service level (probability of satisfying demand) with lower inventory level. OR Offer better service level with the same inventory level. Theoretical support: The standard deviation of the sum of a few independent random variables is smaller than the sum of the standard deviation of those independent random variables.

What is revenue sharing?

Blockbuster example: agreed to share rental revenues with film makers to reduce the cost of each tape. This helps meet demand and give customers more availability.

How do you utilize reactive capacity?

Order in stages, one that predicts demand and is a small "test" run, next reacts to that demand and is less risky. If product is risky, devote reactive capacity to them. If product is not risky, devote non-reactive capacity to them.

What is reactive capacity?

The ability to use real time demand to make production decisions and product changes in real time to meet demand.

What is the supply chain or value chain and why is it important?

The overall customer-supplier network. The performance of this network affects the competitive advantage of every company.

What is the bullwhip effect?

The phenomenon of variability magnification as we move from a customer to a supplier in a supply chain. Refers to the increased demand variability from downstream to upstream in a supply chain, reflecting information distortion.

What are Functional Products?

The staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations

What are the four types of supply chains?

1. Efficient Supply Chains 2. Risk-Hedging Supply Chains 3. Responsive Supply Chains 4. Agile Supply Chains

Market Responsive Supply Chains Primary Purpose: Manufacturing Focus: Inventory Strategy: Lead-time focus: Supplier Selection: Product-design Strategy:

Primary Purpose: Primary purpose is to respond quickly to unpredictable demand in order to minimize market mediation cost. Manufacturing Focus: Deploy buffer capacity Inventory Strategy: Deploy buffer stocks of parts or finished goods Lead-time focus: Invest aggressively to reduce lead time Supplier Selection: Based on speed, flexibility, and quality Product-design Strategy: Modular design in order to postpone product differentiation

What are the characteristics of innovative products?

Product life cycle: 3-12 months Contribution margin: 20-60% Product Variety: Millions Forecast Error: 40-100% Stock-out Rate: 10-40% Forced Markdowns: 10-25% Lead time for MTO: 1-14 days

What are the characteristics of functional products?

Product life cycle: More than 2 years Contribution margin: 5-20% Product Variety: 10-20 variants per category Forecast Error: 10% Stock-out Rate: 1-2% Forced Markdowns: 0% Lead time for MTO: 6-12 months

What are Innovative Products?

Products such as fashionable clothes and personal computers that typically have a life cycle of just a few months. - Can enable companies to achieve higher profit margins. - Newness creates demand, unpredictable Imitators erode competitive advantage. - Companies forced to introduce a steady stream of innovations

What type of supply chain should innovative products use?

Responsive

What is Supply Chain Management?

SCM is primarily concerned with the efficient coordination of suppliers, factories, warehouses and stores, so that merchandise is distributed in the right quantities, to the right locations at the right time.

What are incentive conflicts?

When the profits of one firm come at the expense of the profits of another firm. The total profit of a supply chain could be lower than the maximum profit if some firms mess it up.