Supply Chain Exam 1

Case Discussion: What was the driver behind Target's decision to do a massive rollout?

The retailer clinched a big real estate deal, locking itself into a rapid, coast-to-coast launch

Creating a supply chain: 2 costs

There are two basic types of costs a company incurs: - Variable costs - Fixed costs

Case Discussion: What did rivals do in response to the Target threat?

They focused on improving their store operations, offered better pricing and brought in new ranges

Case Discussion: What mistakes did their vendor-partners make?

They sent 4th of July merchandise to stores in Canada, not having any idea that it isn't a Canadian holiday

Artificial Intelligence in SCM (not memorizing this idk if I need to)

"What Needs to Be Improved in Supply Chains right now"/ how do we minimize these things?: - Hard to plan for demand - Excessive safety stocks and bullwhip effect - Supplier unreliability - Transport network unpredictability - Demand by customers and partners for access to a "real person" (or a very good imitation) - Seeing the real bottom line impact of supply chain decisions

Brewery with 5 recipes

- 25 different ingredients - 5 different yeasts - 15 different hops - Multiple processes (different processing times) - Different packing modes (bottles, cans, etc) PROCESS COMPLEXITY!! supply chain is all about managing complexity

Case Discussion: What kind of things could they have done to avoid the multi-billion dollar write down?

- A gradual launch of the chain, get its supply chain right - Creating a compelling reason to bring people, wow factor - Pay attention to local pricing

Pricing within a Supply Chain

- Assume there are 4 steps to your supply chain - Each step in the supply chain is typically a business that is trying to be profitable - They have costs (fixed and variable), they have demand, they have to decide how much profit they want to make - All of the above determines what they charge per unit to the next downstream operation Whatever you charge will be what the next step experiences

Non-Financial Location Factors (GAP PAQ)

- Availability of skilled labor - Proximity (customers, transportation, raw materials) - Proximity to industry centers of gravity (Silicon Valley Boulder Natural and Organic) - Government regulation (ex. regulation in boulder has everything to do with CU students living here) - Availability of education & training - Quality of life (Crime rate, Housing)

Financial Location Factors (CTT LUG)

- Cost of labor - Transportation costs (Proximity to the logistics carrier) - Taxes - Government incentives - Land & construction costs - Utility costs

Achieving Strategic Fit: Wishes vs. Capabilities

- Ex. Efficient low cost supply chain could be a restaurant that sells the same items everyday like the C4C; they know the demand already - Ex. of responsive high cost supply chain can be a gourmet dinner where you don't know what the demand will be because you don't know what people are going to order - potential wasting, so you need a higher cost - Ex. sushi is expensive in CO because nice sushi restaurants fly in fish everyday and also a lot of that will get thrown out because of the short shelf life

The most effective supply chain managers have the following traits to some degree or other (probs dont need to know this) - POCCC

- Excellent communication skills, both oral and written - Strong critical thinking skills - Strong problem solving skills - Excellent organizational skills - Great customer service skills

It's all about SC Decisions (not memorizing this either)

- Facilities location - Transportation - Demand forecasting - Inventory management - Aggregate planning - SC Risk pooling - SC Revenue management - SC Integration - SC Sourcing & contracting - Sustainable SC's There are countless different decisions you could make

Big data and analytics in SCM (not really memorizing this either)

- How do we get orders to customers most efficiently? - Where should we make particular products? - How many products should we make? - Where should inventory be? - From whom do we purchase raw materials? - What's the most efficient transportation mode to use? - What if demand increases x percent?

Example of a Good Map

- How much? demand is in $ and in # - Risks - Material flow - Info flow/ what info is needed - Transportation - Etc. - For citations, just need website link/ do not need to make actual citations - Wont be able to get all info probs - Just looking to see we're thinking through the process, not perfectionism - obvi dont copy supply chain from another project

Supply Chain Pricing (This is what you should take away from the pricing activity)

- Localized profit vs across the supply chain (ex. localized profits have a huge impact on everyone downstream) - Communication across the supply chain (ex. lack of or bad communication can have an effect on what happens overall) - Supply chain efficiency is a key driver in pricing

Types of Supply Chains: Market Responsive (on exam 1 review deck) - Purpose - Mfg - Inventory - Lead time focus - Suppliers - Product design

- Purpose: Respond quickly to unpredictable demand to minimize stock-outs, markdown and obsolete inventory - Mfg: Deploy excess buffer capacity - Inventory: Buffer stock and finished goods inventory (need buffer stock for fluctuations in demand) - Lead time focus: reduce lead time aggressively - Suppliers: Speed, flexibility, and quality - Product design: Modular design to postpone differentiation as late as possible - for innovative products

Types of Supply Chains: Physically Efficient (on exam 1 review deck) - Purpose - Mfg - Inventory - Lead time focus - Suppliers - Product design

- Purpose: Supply predictable demand efficiently at lowest cost - Mfg: Maintain high average utilization rate - Inventory: High turns minimize inventory - Lead time focus: Shorten lead time as long as cost does not increase - Suppliers: Select for cost and quality - Product design: Maximize performance and minimize cost - ex. supply chain of milk (question on exam might be what is the supply chain type for milk?)

Supply Chain Considerations (MMM LRC)

- Raw materials - Customer preferences (variety, pricing, packaging) - Managing demand variations - Logistics costs (Trucking, shipping) - Managing inventory - Managing the production process Process starts early and gets very complex; theres many things that you may think will happen that don't actually happen

Data representation

- Reports - Spreadsheets - Graphical representation - Dashboards

Supply Chain Within a Company

- Supply chain includes all functions involved in fulfilling a customer request - Product development, sales marketing, operations, distribution, finance, customer service

Practice Assignment Data: Things to remember about real life

- There is a fixed total demand that is distributed amongst all the choices - If your price is too high, your demand will likely be lower than someone else who is charging less - If you charge too little then you don't make as much profit - The different players in the supply chain don't reveal what their costs and margins are

Weighted Scoring Example: Samson Ltd. is considering three alternative sites for its new facility After evaluating the firm's needs, managers have narrowed the list of selection criteria down into three major factors: - Availability of skilled labor - Availability of raw materials, and - Proximity to the firm's markets

- Weights reflect relative importance - Remember, relative weights (weights can't all be 1)

Functions of a Supply Chain (on exam 1 review deck)

1. Market Mediation - Ensuring the variety of products reaching the marketplace matches what the customer desires 2. Physical Function - Transforming raw materials into finished goods and transportation between points in the supply chain (and getting it into the hands of the consumer) - dont confuse these with types of supply chain (physically efficient and market responsiveness)

Important Factors in Location Decisions

1. The Factor must be sensitive to location 2. The Factor must have a high impact on the Company's ability to meet its goals

What is a Supply Chain?

A supply chain is the network of all the individuals, organizations, resources, activities, and technology involved in the creation and sale of a product (or service), from the delivery of source materials from the supplier to the manufacturer, through to its eventual delivery to the end user - includes manufacturers, suppliers, transporters, warehouses, retailers, and customers - Basically just all people involved in the fulfillment of the product

The Project

A visual representation of any food service supply chain (ex. potatoes, chipotle burritos, etc) Communicate the important elements that any new VP of Supply Chain would want to know about the supply chain - Put yourself in their shoes - What would they need to know - What decisions do they have to make - Address the elements listed in slides 3-5

What do we need to make beer? (probs dont need this)

A. Hops B. Water C. Alcohol D. Sodium Hydroxide

Reports: Advantages & Disadvantages

Advantages - Easily understood - Combines data types - Simple or complex - Portable Disadvantages - Static - Cumbersome (can be super long and thick) - Language dependent (huge cost of publishing reports in different languages and important if going over seas) - Different versions can lead to misunderstanding (language translation mistakes can also cause misunderstanding)

Graphical: Advantages & Disadvantages

Advantages - Language independent - Easy to grasp - Numeric or non-numeric - Can express complex data Disadvantages - Static - Version control limitations - Limited portable - Complex ideas can be shown in a graphical representation (ex. 3 ven diagram)

Dashboards: Advantages & Disadvantages

Advantages - Language independent - Single view of many things - Numeric or non-numeric - Can express complex data - Scalable - Can be real time (ex. Tableau) Disadvantages - Complex backend system required - Requires technical skills to create and manipulate - Portability limited by the technology - Ex. dashboard on a car *Dashboards communicate vital information

Spreadsheets: Advantages & Disadvantages

Advantages - Precision in data - Easy to manipulate - Easy to analyze - Simple charts - Portable Disadvantages - Errors can propagate (ex. careful of dragging formulas in excel) - Cumbersome - Scalability is limited - Version control limitations

What is Supply Chain?

Another way of thinking about it is the chain of supplies That said, let's say we are getting into the beer business

Why is it done?

As the percentage of sales coming from foreign operations grows relative to domestic operations, the company will find itself paying more U.S. taxes because of where it incorporated (ex. if you make things abroad you can avoid U.S. taxes) In addition, its U.S. income is taxed at a high domestic rate. If it incorporates abroad, it can bypass having to pay higher U.S. taxes on income that is not generate in the U.S.

Weighted Location Scoring

Balance objective and subjective factors Rational means of comparing diverse criteria - weighted scoring is basically just scoring categories and giving categories weights and multiplying and adding

Where do the weights and scored come from?

Careful analysis based on: - Financial and cost calculations - Customer and market service considerations - Past experience with similar decisions - Business analytics Subjective judgement and opinion - Based on experience, insights, personal preferences & prejudices - basically just what you think is best

Answer to example

Choose Location A!

Answer to above

Choose Location C!

What is Corporate Inversion?(on exam 1 review deck)

Corporate inversion is the process by which companies, especially U.S. -based companies, move overseas to reduce the tax burden on income Companies that receive a significant portion of their income from foreign sources employ corporate inversion as a strategy, since that income is taxed both abroad and in the country of incorporation - Just relocating headquarters overseas for tax advantages because in the U.S., you're taxed on both (The only requirement is that the company is incorporated in the foreign country and effectively owns all the assets, the daily operations remain unchanged.)

Detergent Supply Chain

DC = distribution center

Decisions

Decisions around locations are hugely important

Weighted Scoring Method

Determine important decision variables for the location decisions - Labor costs, proximity to customers, available transportation (could be a bunch of things) Give each variable a relative weight Score each location on each variable Multiply scores by weights Add each weighted scores for each location Rank locations by their weighted scores - Location factor must be dependent on location - Weight x factor score and add

Factors in Location Decisions: Dominant Factors in Manufacturing (FU PP II)

Dominant Factors in Manufacturing - Favorable Labor Climate - Proximity to Markets - Infrastructure (Power, water, communications) - Impact on Environment - Proximity to Suppliers and Resources - Utilities, Taxes, and Real Estate Costs (don't have to memorize these, just think about it)

Factors in Location Decisions: Dominant Factors in Services (T LIPS)

Dominant Factors in Services - Proximity to Customers - Transportation Costs and Proximity to Markets - Infrastructure (Reliability of power, internet etc) - Location of Competitors - Skill set of potential employees

Pricing Products $/unit : Downstream

Downstream operations have to consider the variable cost units being provided to them from upstream Example: If Manufacturer assumes demand is 100 Supplier provides the materials at a cost of $1.21/unit Manufacturer Total Cost = FC + VC = 10+(1+1.21)(Demand) - Ex. the $1 could be for printing and the $1.21 could be for buying a blank marker Manufacturer cost per unit = (FC+VC)/Demand = 231/100 = $2.31 Every downstream operation needs to consider the cost of purchasing the materials from the upstream provider

Location Decisions

Facility Location Decisions - Facility location decision variables - Qualitative location methods: subjective and weighted scoring

Notes from above pic

Facility location decisions are important and expensive because once you do it, you're locked in - Where? which country? etc. Transportation - once you have a facility you need to move things in/out Inventory is basically just money tied up - decisions impact people Info/sourcing - where and how do you buy stuff? Contracts? - Sometimes need to make decisions about switching - Careful about how you make those decisions because competitors, suppliers, and/or customers will react and it'll impact the company Ex. sending a letter that we won't be buying from a supplier anymore as of x date - Supplier sends letter back increasing prices and increasing lead time which was a massive issue for the company Need to assume suppliers/competitors will react and there will be implications - How will they react? Need to think through this!!

Supply Chain Decisions

Focus of this course = learning how to make decisions off of uncertain conditions

Case Discussion: What was Target's single biggest headache? What were the causes of it?

Insufficient stocking was Target Canada's single biggest headache In-store merchandise management system that left shelves bare. The barcodes on many items did not match what was in the computer system

Another pricing activity example

Need to understand how these calculations work

Why are location decisions important?

Location decisions affect: - Marketing - Human resources - Accounting and finance - Operations - International operations Location decisions are vitally important

Drivers of SC Performance (FIT SIP)

Logistical Drivers - Inventory - Transportation - Facilities Cross-Functional Drivers: - Information - Sourcing - Pricing Supply chain structure in pic The range between efficiency and responsiveness are driven by all 6 of these factors! - influence ability to be responsive and efficient - pricing also has an impact on all these things

Visual Maps

Lots of info packed inside a visual map: - Connecting GDP/ person to health measured by life expectancy at birth - Log scale - As GDP increases, health increases - Size and color relate to population and location of country - Etc etc

What should you think about

Material: - From where to where? - Suppliers - Transportation modes - Inventory - Packaging - Risks - Waste (can cause lots of problems, ex. rocky flats) Information: - What information is needed? - Who needs the information? - How is it communicated? - What decisions are made? - Demand - Quantities and rates - Risks

What is the value created by SCM?

Minimizing supply chain costs While keeping a reasonable service level Ensuring customer satisfaction (quality, on time delivery, etc)

Experience & Judgement

Most widely used method of facility location - In the end all decisions are subjective and heavily dependent on experience and judgement Pros? - Myriad qualitative and quantitative factors considered and evaluated (many things need to be considered) Cons? - Ad hoc; may be heavily swayed by personal bias and preference

Calculate Weighted Scores

Multiply each score by its corresponding factor weight: Calculate weighted scores (Location Score)x(Factor Weight)

How is it done?

One way that a company can re-incorporate abroad is by having a foreign company buy its current operations The foreign company then owns the assets, the old corporation is dissolved, and the business - while it remains the same in its daily operations - is now effectively domiciled in a new country

The project format

PDF doc Filename: SCXX_project1.pdf Replace XX with your team number Due by midnight on Sept 26th Upload under Project 1

Case Discussion: What assumptions did Target make that were flawed?

People would pay more, misjudged customer loyalty in the "value" retail sector thought they would switch

Innovation: Kiva Robot for Pickers

Picks Amazon items for packaging to minimize the workload on people

Case Discussion: What were other factors contributing to customer dissatisfaction?

Prices at noticeably higher levels than they were accustomed to

Functional Product Supply Chains

Primary Characteristic: - Demand is stable and well understood SC Goal: - Maximize efficiency of supply chain - Minimize physical costs - High scale efficiencies - Long range planning for supply - Optimize information flow through the chain Commodities Detergent Sugar Nuts and Bolts - Trying to have an efficient supply chain because you know the demand/ you can plan far out when you know what the demand will be

Innovative Product Supply Chains (WAMSA)

Primary Characteristic: - Unpredictable or highly variable demand - Lost sales are expensive SC Goals: - Maximize product availability - Speed and flexibility is critical - Where and how much inventory to position is critical - Ability to react to market - Availability of production capacity and ramp capabilities Customized products High fashion Emergency supplies Novel products - Lost sales expensive because if they're not buying from you they're buying from someone else - also because the margin is super high for unpredictable products - Ex. unpredictable because you don't know that someone is going to destroy your phone and the margin is super high so they don't want to lose the sale

Experience and Judgement

Qualitative Location Methods

Location Decision Methods (on exam 1 review deck)

Qualitative Methods 1. Judgement & experience 2. Weighted scoring method Quantitative Methods 1. Load-distance method 2. Center of gravity method 3. Break-even analysis

Longmont Supply Chain Issue

Removed flourine in water because or a shortage of flourine in Longmont (not sure if this is really important)

Understanding the Supply Chain: Cost-Responsiveness Tradeoff (on exam 1 review deck)

Responsive (in time, high service level and product variety) - Short responses get expensive - If you want cheap, longer response time - Ex. shipping - overnight vs. ground shipping - Direction of improvement is moving inward because they want to get low cost and short response time - Ex. can compete at the same price point with one giving a shorter response

Total Cost - what is the slope of the line?

Slope of line is the variable cost per unit - For every increase in x (units), cost goes up by the variable cost per unit

Promise of RFID

Storing info about a product on a tag/ keeping track of what is where Ex. drones that locate items and take inventory so things don't get lost

Achieving Strategic Fit

Supply chain needs to fit the competitive strategy It also needs to fit the customer/market that you are trying to serve -Ex. If you're trying to sell into a particular market, you need to understand the market

Practicing Pricing Data

Take on the different roles within your team: Suppliers/Manufacturers/Wholesalers/Retailers - Everyone has a fixed cost of $10 - Everyone has a variable (activity) cost of $1 - The total market demand is 100 units. Maximum retail price customer is willing to pay is $10 The following assumptions/decisions have to be made - Customer demand (at each step) - How much profit do you want to make (at each step) which has an impact on the price you charge the next downstream step

Case Discussion: What location selection mistake did Target make?

Target's stores are mostly in "poky" locations vacated by the foundering Zeller's chain, they don't reflect the Target brand

Growth in Technological Innovation

Tech trying to improve the supply chain

The Project: Why is it important?

Time: people don't have time to read reports Language barriers: Global supply chains, information is lost in transaction Quality and quantity of information: Providing more with less Decision Making: Practice deciding what is important and why

Fit the SC to the customer or vice versa?

Understand the customer Wishes (what does the customer want?) Understand the Capabilities of your SC Match Wishes with the Capabilities Challenge: How to meet extensive Wishes with limited Capabilities Types of Supply Chain must address the spectrum of PRODUCTS that meet customer needs. Types of supply chain PRODUCTS: Functional vs. Innovative (types of supply chain are physically efficient and responsive)

Case Discussion: Why did Target think they would be successful in Canada?

Wal-Mart had successfully pushed into Canada years earlier; Target brand was already beloved by Canadians

What is the supply chain? (not memorizing)

What and where are the links in the chain? What are the steps within the process? How do the 'raw materials' get transformed into the finished product? - If there's a chain, there are links

What is the flow of materials? (not memorizing)

What are materials needed? Who provides them? in what quantities? (ex. how many sections and how many open seats?) What happens to the materials along the way? How are they transported? How is it packaged? (Ex. packaged by roll and packaged around rolls) Is there waste? Are there costs associated with the waste? (waste is expensive) How does it make its way to the end consumer? What are the risks associated with different elements? - Often many steps before raw materials can be used (ex. cotton only grows in hot climates and there's many steps before it can be used)

How should you think about this

What happens from start to finish? What is the overall process? What are the different process steps? What material is needed and what information is needed at each step? What decisions are made along the way? - You get to decide what the start and finish of the chain is *Do not forget information flow

Sensitivity Analysis

What happens if factor weights change? Suppose we change factor weights: - Skilled labor: 45% (was 50%) - Raw Materials: 40% (was 30%) - Market: 15% (was 20%) - because factors are subjective, need to do sensitivity analysis of "what happens if I change weights?" - always do sensitivity analysis to see what happens with result

How does information flow? (not memorizing)

What is the flow of information? - What data is needed? (ex. what kind of trash, how much, where) - Who provides it? in what form? (ex. CU provides trash info to WM) - Who uses it? (ex. WM) - What decisions are made with the information? (ex. How many trucks, when, where, etc. to ultimately figure out pricing)

Pricing Products $/unit

You are the Supplier: You need to know (or estimate) - Fixed cost (assume it is $10) - Current variable (activity) cost/unit (Assume it is $1/unit) - Actual demand or best estimate of demand (assume 100) Total Cost = FC + VC = 10+1*(Demand) = 10+1*100=110 Cost per unit = (FC+VC)/Demand = 110/100 = $1.1 If you assume different values for demand the cost/unit will change If you want to make a profit then Price/unit = $1.1 + ?(profit) You have to decide how much profit you want to make

Purpose of Pricing Activity

You need to make decisions off of conditions of uncertainty Make sure you understand the math in the example

Variable Costs

are costs that change with changes in volume - Costs of materials used in the production of the goods, - Tons transported, number of trips, etc

Total Costs

is simply Fixed Costs and Variable Costs added together TC = FC + VC - Remember, variable costs will depend on volume

A supply chain achieves (PPT SQC) (on exam 1 review deck)

everything needs to work just right

Delivery Innovation

ex. self driving pizza delivery car

Jeans: From Factory to Floor

increase in price with every step in the supply chain

Importance of ethical behavior

individuals and businesses develop reputations based on their actions and decisions that they make Once you develop a reputation for unethical behavior, others will be reluctant to trust you or work with you Without trust it is virtually impossible for you to succeed in the long run

Supply chain aims to (on exam 1 review deck)

match supply and demand, profitability for products and services - balance supply and demand

Fixed Costs

remain roughly the same regardless of volume levels. - Examples include: Rent, Insurance and Wages, Set-up costs, etc.

Ethics definition

the principles of conduct governing an individual or a group "Doing well over the long term requires more than bright people working hard. It requires intuition, effort, determination, and flexibility, and few people have those qualities in agreeable portions. Above all it requires ethics"

A supply chain consists of (on exam 1 review deck)

upstream/downstream has to do with where you are located in the model