SCM Final Exam Review

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Capacity Management when Available Service Capacity exceeds Demand- Instead of disposing of excess capacity, the following strategies deal with low demand

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Capacity Management when Demand Exceeds Capacity- to minimize cost of hiring and laying off employees, the following strategies deal with periods of high demand

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Capacity Planning

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Capacity requirements planning (CRP)- short-range capacity planning technique that is used to check the feasibility of the materials requirements plan.

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Capacity- refers to a firm's labor and machine resources. Maximum amount of output a organization is capable of completing in a given period of time.

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Capacity=Actual customers served per period/capacity

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Carbon footprint

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Cause and Effect Models

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Cause and effect forecasting- assumes that one or more factors (independent variables) are related to demand, therefore can be used to predict future demand

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Centralized purchasing- purchasing department located at firm's corporate office makes all purchasing decisions.

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Centralized-decentralized- centralized large national contracts at corporate level and decentralized items to specific business units.

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Challenges of implementing an ERP system

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Challenges- requires additional skills and knowledge to deal with international suppliers, logistics, communication, political environment, and other issues.

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Changes in cost and profit statistics may not accurately reflect the true capabilities of the firm.

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Chase Strategy- adjusts capacity to match demand. Firm hires and lays off workers to match demand. Finished goods inventory remains constant. Works well for make-to-order firms.

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Chase demand strategy- capacity varies with demand.

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Check chapter for forecasting technology

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Close cooperation, coordination, trust among clustered companies.

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Closed-loop MRP- incorporates the aggregate production plan, the master production schedule material requirements plan, and capacity requirements plan.

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Closer knowledge of requirements

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Cloud computing or Software-as-a-service (SaaS) models- use of subscription based ERP systems owned by a third party or provided over the Internet.

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Collaborative Planning, Forecasting, and replenishment (CPFR)- a business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of customer demands. Links sales and marketing best practices, such as category management, to supply chain-planning processes to increase availability while reducing inventory, transportation, and logistics costs.

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Commitment to customers & service quality

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Common Market of Eastern and Southern Africa (COMESA)- vision is to be a fully integrated, internationally competitive regional economic community with high standards of living for all its people, ready to merge into an African Economic Community.

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Common carriers- offers transportation services to all shippers at published rates between designated locations. Must offer services to the general public without discrimination. Most heavily regulated of all carrier classifications. Ex. Southwest Air, Amtrak, Greyhound, Carnival cruises.

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Common supply base

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Companies can locate anywhere in the world due to increased globalization, technology, transportation, and open markets.

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Companies recruit from local skilled workers.

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Companies using performance measurement are more likely to achieve leadership positions and twice as likely to handle a major change successfully

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Cost Leadership Strategy- requires large capital investment in state-of-the art equipment and significant efforts to control and reduce costs, doing things right the first time, standardizing services and aiming marketing efforts at cost-conscious consumers.

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Demand Forecasting- a forecast is an estimate of future demand and provides the basis for planning decisions. Important element of demand management.

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Demand Management tactics are also important, as services cannot be inventoried and customer demand must be met.

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Demand and delivery lead time are never certain and require safety stock.

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Demand driven supply networks are supply chains with enough flexibility to quickly respond to changes in the marketplace

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Demand must be known and constant

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Department of Homeland Security- (DHS) (2003) created to provide overall U.S security leadership.

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Department of Transportation Act 1966 - coordination of all transportation-related matters.

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Departmental layouts reduce distance traveled

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Departmental layouts to maximize closeness

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Dependent Demand- describes the internal demand for parts based on the demand of the final product in which the parts are used. Subassemblies, components, and raw materials are examples of dependent demand items.

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Dependent Demand- the internal demand for parts based on the demand of the final product in which the parts are used (e.g subassemblies).

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Dependent and Independent Demand

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Describes the relationship between the # of warehouses, inventory, & customer service.

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Design Chain Operations Reference model (DCOR)

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Design a Fair Waiting System

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Design and document performance measures for each functional area that adequately track each required capability.

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Design of products manufactured, mode of transportation

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Designing and Implementing a Successful CRM Program

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Desirability- a closeness desirability rating between departments used to design layout that maximizes a rating for the entire office.

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Employees should understand how it affects their jobs, Create a project team with members from all affected organization areas, Test with pilot application.

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Empowering employees to remedy customer problems

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Enables a firm to store purchases, WIP, and finished goods and perform break bulk assessment services. Provides faster and more frequent deliveries and better customer service. Becoming more prevalent in the U.S.

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Enterprise Resource Planning Systems (ERP)- information system connecting all functional areas and operations of an organization and in some cases suppliers and customers via common software infrastructure and database.

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Enterprise requirements planning (ERP)- an extension of MRP-II

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Entertailing entails retail locations with entertainment elements

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Environmental Issues

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Environmental Sustainability in Logistics

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Environmental sustainability

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Establish Performance Measures

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European Union (EU): (1950) set up after the WWII, the EU consists of 27 members, established single market in 1993 and introduced euro notes and coins in 2002.

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Event Based Marketing-offer the right products and services to customers at the right time.

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Excess (or insufficient) capacity- prevents firm from taking advantage or the efficiency of manufacturing planning and control system.

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Exempt carriers- also for-hire carriers but exempt from regulation of services and rates and if they transport certain exempt products like produce, livestock, coal, or newspapers. School buses, taxis and ambulances are also examples of exempt carriers. All carriers can also act as exempt carriers for specific commodities and routes.

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Explicit services (ex. storage and use of your money)

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Explosion - Process of converting a parent item's planned order releases into component gross requirements

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Exponential Smoothing Forecast- a type of weighted moving average where only two data points are needed. Formula in book.

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Extend Process Integration to 2nd Tier SC Partners

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Facilitating goods (ex. deposit forms, monthly statements)

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Facility location has a long-term impact on the supply chain and must be an integral part of the firm's supply chain strategy.

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Factors that influence demand must be considered when forecasting

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Firms successfully managing their supply chains must spend significant time influencing and increasing the capabilities of themselves and their partners.

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First & Second Laws of Service

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Lead factory- firm is source of product and process innovation and competitive advantage or the entire organization. Translates knowledge of the market, competitors and customers into new products.

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Lean Warehousing-Emphasis on warehousing to support responsive operations:

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Market size- the availability of domestic and international markets for firms.

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Market-positioned strategy - warehouses close to customers to maximize customer service levels. Recommended when high levels of distribution flexibility and customer service.

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Master Production Schedule (MPS)- is a detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period.

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Master Production Scheduling

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Matching Supply and Demand

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Material Requirements Planning

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Material User inputs a materials requisition (Relevant information such as quantity and date needed.)

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Materials Management- goods automatically counted and logged as they enter the supply warehouse

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Materials hauled in a liquid or gaseous state.

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Materials requisition submitted to buyer (At purchasing department (hardcopy or electronically).

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Maximize value to firm through negotiation to provide profit contribution.

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Mean absolute deviation (MAD)- a MAD of 0 indicates the forecast exactly predicted demand. E=forecast error for period t; a= actual demand for period t; n= number of periods of evaluation formula= sum of forecast error fore period

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Mean absolute percentage error (MAPE)- provides a perspective of the true magnitude of the forecast error. (1/n)* sum of absolute values of e/a*(100).

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Mean squared error (MSE)- analogous to variance, large forecast errors are heavily penalized. (sum of e squared/n).

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Measure performance and communicate via standardized method

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Measuring Customer Satisfaction

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Membership in WTO requires companies to open up their markets and reduce tariffs on imported goods.

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However, warehousing operating & inventory costs also increase. Trade-off between costs & customer service must be considered

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Human resource management

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Inventory builds up gradually during the production period rather than at once as in the EOQ model.

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Inventory can be one of the most expensive assets of an organization

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Inventory may account for more than 10% of total revenue or 20% of total assets.

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Inventory statues of final product and components

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Involve CRM users from Outset

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It may be necessary for a firm to certify its intermediate customers as to their ability to adequately represent their firm's products.

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Jury of executive opinion- group of senior management executives who are knowledgeable about the market, their competitors, and business environment collectively develop forecast. Long-range planning; new product introductions.

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Just do it: Simple start-sharing information

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Keep Customers Informed

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Keep Customers Occupied

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Keeping customers loyal & coming back serves as good word of mouth advertising

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Knowledge Management- enables quick decision-making, better customer service, and a better-equipped and happy sales staff.

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Labor Issues

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Labor availability, productivity, and skill

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Labor market efficiency- the environment for exchange of goods.

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Labor, facilities, and infrastructure support

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Lack of Knowledge

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Lack of Proper training

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Lack of Supply Chain Visibility

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Lack of Trust- Successful process integration requires trust and trust is earned over time. Collaboration and trust are based on:

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Lack of adequate resources

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Lack of communication

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Lack of top management commitment

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Lambert: * Key SC processes:

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Land Availability and Costs

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Layout Strategies

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Lead Management- sales reps can follow prescribed tactics when dealing with prospects to aid closing the deal.

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Many CRM programs fail because companies put no substantive effort to engender a customer's trust and loyalty- to build customer relationships.

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Many countries have foreign trade zones (FTZs) where materials are imported duty-free as inputs to production of goods eventually exported.

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Many retailers today sell products exclusively over the Internet (a pure strategy), while others use it as a supplemental distribution channel (a mixed strategy)

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Many services are pure services, offering few or no tangible products to customers. Ex. lawyers stockbrokers, consultants, entertainers.

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North American Free Trade Agreement (NAFTA): (1994) among the U.S, Canada, and Mexico, created world's largest free trade area, currently over 440 million people and $17 trillion of goods and services annually. Many tariffs were eliminated while others were phased out over periods from 5-15 years.

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Not all measures have improved security as envisioned.

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Note: for the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g, skilled labor or professional service) is balanced with demand.

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Objective of Transportation

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Objectives of the CRM program, CRM's fit with corporate strategy, new applications to be purchased or developed, Integration or replacement of existing legacy systems, Personnel Requirements, Costs and time frame for implementation

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Obstacles to Process Integration (PI) Along Sc

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Offshore factory- manufactures products at a low cost with minimum investment in technical and managerial resources. Products tend to be exported. Offshore factory typically imports or locally acquires parts then exports all the finished products. Objective; take advantage of low labor costs.

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Often is an unwanted SC activity

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Often, demand exceeds expectations & capacity

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On federal level, a tariff is a tax imposed by the government on imported goods to protect local industries, support the country's balance payments or raise revenues.

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One of the leading business strategies and potentially one of the most costly.

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One or several external variables are identified that are related to demand.

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Operate/partner with firms familiar with the region's markets, suppliers, infrastructure, government regulations, & customers.

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Operations Planning- usually hierarchical and can be divided into three broad categories:

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Opportunity to improve quality, cost and delivery performance

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Oracle

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Order batching occurs when sales reps fill end-of-period sales quotas, or when buyers spend end-of-year budgets

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Order cost the direct variable associated with placing an order.

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Order costs- direct variable costs for making an order. In manufacturing, setup costs are related to machine setups

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Order quantity & ROP models assume that the physical inventory is precisely known at every point in time

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Ordering cost is known and constant

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Organizational culture change

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Original SCOR model did not address sales & marketing processes, some aspects of service, & support processes (i.e., HR & technology development)

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Other small software firms provide applications (e.g., Sage's MAS 90) as well as full ERP solutions but lack applistructure - the merger of enterprise application and infrastructure technology

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Others services have end products with larger tangible component (ex. restaurants and repair facilities)

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Outpost factory- set up in a location with an abundance of advanced suppliers, competitors, research facilities, and knowledge centers to get access to the most current information on materials, components, technologies, and products.

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Outputs produced/inputs used=productivity

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Overall total productivity measures such as output/(costs of labor+capital+energy+material); and single-factor productivity measures such as output/cost of labor are potentially useful but have same problems as the use of costs and profits for performance measures.

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Overlay the entire supply chain to assure that all contribute to supply chain strategy

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Owned by the firm storing goods.

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Parent - Item generating demand for lower-level components.

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Parent-component relationships from the BOM

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Particularly important regarding airline security since Sept. 11, 2001

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Parts purchased and suppliers, shop layout and manufacturing process.

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Payment Bonds - protect buyer against 3rd party liens not fulfilled by bidder

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Pegging - Relates gross requirements for a part to the planned order releases

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Performance Bonds - incentive to fulfill contract

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Performance Bonds - work will be on time and meet specifications

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Performance Measurements must be visible and communicated to all participating members of supply chain.

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Performance measurement systems must -

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Performance measurements different between companies

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Performance measures are often designed around satisfying the seven Rs. These kinds of services can come at cost.

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Performance reviews of managers must include their ability to integrate processes internally and externally.

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Performance should be continuously measured

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Performance variance - created when standards are not met, the difference between the standard & actual performance

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Periodically re-evaluate the firm's performance measurement system as these trends and other environmental changes occur.

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Personalizing Customer Communications- understanding customer behaviors and preferences, firms customize communications. Clickstream- how customer navigates a Web site.

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Pipeline Carriers- very specialized with respect to the products they can carry, but once initial investment of pipeline is recovered, very little additional maintenance cost, long-term pipeline transportation trends tends to be very inexpensive.

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Place utility- created when customers get things delivered to their desired locations.

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Plan- demand and supply planning including balancing resources with requirements; establishing/communicating plans for the supply chain; management of business rules, supply chain performance, data collection, inventory, capital assets, transportation and regulatory requirements.

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Planned order release - Specific order to be released to the shop or to the supplier.

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Planned order releases (the output of the MRP system)

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Planning factor - Number of components needed to produce a unit of the parent item

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Planning horizon is shorter than APP, but longer than the lead-time to produce the item.

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Planning horizon of APP is at least one year and is usually rolled forward by three months every quarter.

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Poor reverse logistics can hurt firm

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Post-transaction elements-occur after the sale and refer to the after-sale services, include warranty repair capabilities, complaint resolution, product returns, and operating information.

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Pre-transaction elements- precede the sale (ex. customer service policies, mission statement, organization structure, system flexibility.)

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Services may provide state utility- they do something to things owned by the customer (ex. transport or store supplies, repair machines, cut hair, and provide healthcare.)

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Services performed require a larger labor component than manufactured product.

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Several levels of government must be considered when evaluating potential locations

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Several measures of forecasting accuracy follow-

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Share knowledge management solutions, such as forecast information, new products, and expansion plans.

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Sharing of environmental responsibility along the SC such that sound environmental practices predominate, & adverse global environmental effects are minimized.

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Shipper' Association- job is to consolidate only their members' shipments into full carloads, truckloads or container loads to achieve volume discounts for the members, and to negotiate for improved terms of service.

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Shipping Act of 1984 - allowed ocean carriers to pool shipments, assign ports, publish rates, & enter into contracts with shippers

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Shipping containers allow almost any packaged product to be shipped overseas and they add an element to the cargo.

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Short-Range- detailed planning process for components and parts to support the master production schedule (materials requirement planning).

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Shortage gaming- when production capacity equals demand, demand then drops, as the buyers try to unload excess inventories.

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Simple linear regression forecast- only one explanatory variable is used and is similar to the previous trend model. The difference is that the x variable is no longer time but an explanatory variable. Y=bo+b(1)x; y = forecast or dependent variable; x= explanatory or independent variable; bo=intercept of the line; b(1) = slope of the line.

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Simple moving average forecast- uses historical data generate a forecast. Works well when demand is stable over time. sum of actual demand for period t/number of periods to calculate moving average= forecast for period t+1.

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Since the mid 1990s productivity growth has been up and down leading to other theories; Wal-Mart effect- postulates that the booming growth in IT has allowed many big-box retailers such as Wal-Mart to realize large productivity growth rates.

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Single integrator solution- picks all the desired applications from a single vendor for the ERP system. Advantages: all applications should work well together, and getting the system up and running should be easier. As companies become more global and as firms desire to expand their systems with other compatible modules later on, the notion of using the single integrator solution becomes more attractive.

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Social Environment

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Solution is to use frequent and smaller order sizes. Firms can order smaller quantities of a variety of items from a supplier or use freight forwarder to consolidate small shipments.

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Solution: sellers should allocate short supplies based on the demand histories of their customers. Sharing future order plans with suppliers to increase capacity if needed.

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Solutions:

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Some firms outsource all of their logistics needs to a lead logistics provider or fourth party logistics provider (4PL)

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Source factory- has a broader strategic role than offshore factory with plant management heavily involved in supplier selection and production planning. Source factory location dictated by low production cost, fairly developed infrastructure and availability of skilled workers.

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Source- sourcing stocked, make-to-order and engineer-to-order products including scheduling deliveries, receiving, verifying, and transferring product, authorizing supplier payments, identifying and selecting suppliers, assessing supplier performance, managing incoming inventory and supplier agreements.

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Southern Common Market (MERCOSUR): (1991) among Argentina, Brazil, Paraguay, And Uruguay with signing of Treaty Asuncion. Agreement was created with goal of forming a common market/customs union between participating countries based on economic cooperation between Brazil and Argentina had been in place since 1986.

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Specialization

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Specialized carriers transport liquid petroleum, household goods, agricultural commodities, building materials, and other specialized items.

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Start Small

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Start the Service Quickly

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Statistical ROP with Probabilistic Demand and Constant Lead Time

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Step 1: Collaboration Arrangement

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Step 2: Joint Business Plan

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Step 3: Sales Forecasting

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Step 4: Order Planning/Forecasting

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Step 5: Order Generation

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Step 6: Order Fulfillment

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Step 7: Exception Management

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Step 8: Performance Assessment

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Stock-outs are not allowed

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Stockless buying/System contracting-an extension of the blanket purchase order requires supplier to maintain a minimum inventory level to ensure the required items are readily available for the buyer.

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Storage

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The firm seeks position as a value-enhancing supplier to its customers

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The formula for forecast error, defined as the difference between actual quantity and the forecast; e=forecast error for period t; A= actual demand for period t; F=forecast for period t; e=A-F

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The four primary activities of SRL

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The independent demand information

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The infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal—indeed to buy again."

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The lowest inventory level at which a new order must be placed to avoid a stockout.

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The management and coordination of the organization's services activities that occur while the service is being performed.

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The models used under uncertainty are -

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The service system should be audited often to assess performance

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The ultimate goal of supply chain management is to create value for end customers and firms in the supply chain.

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Work-in-process (WIP)- partially processed materials not yet ready for sales.

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Actively seeking better materials and reliable suppliers,

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BPO and OEPO- suitable for buying maintenance, repair and operating supplies and office supplies.

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Backward vertical integration- refers to acquiring upstream suppliers (sources of supply)

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Buyer assigns qualified suppliers to bid (Product description, closing date, and conditions are given).

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Buyer reviews closed bids and selects a supplier.

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Capacity

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Communication capability

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Cost advantage- especially for components that are non-vital to the organization's operations, suppliers may have economies of scale (saving in costs gained by increased level of production).

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Information on the supply market, such as shortages, price increases or political situations that may threaten supplies of vital materials.

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Involving suppliers and purchasing personnel in new product design and development efforts.

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Manuel Purchasing System- older system

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Mobility: buyer can submit, process and check status of bids as well as communicate with suppliers regardless of the buyers location and time of day.

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No competent supplier- suppliers do not have technology or capability to produce an item.

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Optimize customer satisfaction.

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Outsourcing- buying materials and components from suppliers instead of making them in-house. The trend has moved toward outsourcing.

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Petty Cash- small cash reserved maintained by a midlevel manager or clerk.

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Purchasing contributes to these objectives by:

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Roles of Supply Base

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Benefits from e-procurement system are:

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Improve quality of the finished goods produced, and

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Internal Control- prevents abuse of purchasing funds.

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Inventory turnover- shows how many times a firm's inventory is utilized and replaced over an accounting period, such as a year. (COGS/average inventory).

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Lack of expertise- firm may not have the necessary technology and expertise.

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Location

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Open-end purchase order- difference in this is that additional items and expiration dates can be renegotiated.

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Order system and cycle time

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Protect proprietary technology- firm may have developed equipment, product or processes they need to be protected for sake of competitive advantage.

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Purchase requisition- used in some firms instead of materials requisition.

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Quality

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Reasons for Making

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Reliability

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Simplification refers to the reduction of components, supplies or standard materials used in the product or process.

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Total cost analysis page 60

Purchasing

- profession can be defined as the act of obtaining merchandise; capital equipment; raw materials; services; or maintenance; repair and operating (MRO) supplies in exchange for money or its equivalent. (Key business function) responsible for acquisition of materials, services, and equipment. Core activity of Supply Management.

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5 assumptions: all costs involved classified as fixed or variable, fixed cost remains same within range of analysis, linear variable cost relationship exists, fixed cost of the make option is higher because of initial capital investment in equipment, variable cost of buy option is higher bc of supplier profits.

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Accuracy: system eliminates double-key inputs, once by the materials users and once again by buyers.

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Benefits to the suppliers: lowers barriers to entry and transaction costs, access to more buyers and the ability to instantly adjust to market conditions.

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Blanket Purchase Order- covers a variety of items and its negotiated for repeated supply over a fixed time period, such as quarterly or yearly.

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Blanket order release- a mechanism that is used to release a specific quantity against the order.

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Electronic Data interchange (EDI) requires a high start up cost making it inaccessible to small firms with limited budgets.

The primary goals of purchasing are:

Ensure uninterrupted flows of raw materials at the lowest total cost,

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Firms should consider these factors while selecting suppliers:

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Information on the latest trends in materials, processes, or designs.

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Institute of Supply management defined supply management as the "Identification, acquisition, access, positioning, and management of resources an organization needs or potentially needs in the attainment of its strategic objectives."

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Insufficient capacity- A firm may be at or near capacity and subcontracting a supplier may make better sense.

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Make-or-Buy Break-Even Analysis

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Material Requisition- material user initiates a request for a material by issuing a material requisitions in duplicates. States product, quantity, and delivery date.

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Planned order releases- from the material requirements planning (MRP) system or a bill of materials (BOM) can also be used to release requisitions or to place orders directly with suppliers. Suitable for firms that use the same components to make standard goods over a relatively long period of time.

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Preferred Suppliers provide:

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Purchase Spend- is the money a firm spends on goods and services.

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Quality- suppliers have better technology, process, skilled labor, and the advantage of economy of scale.

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ROA- financial ratio of a firm's net income in relation to its total assets. (also referred to as ROI). Indicates how efficiently management is using total assets to generate profits.

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Reasons for buying or outsourcing

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Service

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Single-source- risky proposition. Current trends favor fewer sources.

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Supplier Selection-

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Supply Management - a newer term that encompasses all acquisition activities

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Uniform Commercial Code governs the purchase and sale of goods in the U.S except in Louisiana.

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Willingness to share technologies and info.- Vital firms seek suppliers that are willing to share technologies and info. Suppliers assist new product design and development thru ESI (early supplier involvement) ensure cost-effective design alternate conceptual solutions, best components and tech.

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Request for Proposal (RFP)- may be issued instead of RFQ for a complicated and highly technical component part especially if the complete specification if unknown (More demanding products). Enables firm to exploit technology and expertise of suppliers, by submitting RFP to propose new material and technology.

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Request for Quotation- if there is no current supplier for the item, the buyer identifies a pool of qualified suppliers and issues a request for quotation (RFQ) for routine items.

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Sales Order- supplier may offer goods at the supplier's terms and conditions especially when the supplier is the sole producer or holds patent to the product.

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Airlines cannot carry extremely heavy or bulky cargo.

3.

Align SC Strategies w/Key SC Process Objectives

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All are key factors in making facility location decisions

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Allows firm to determine if objectives have been met, Compare actual to planned variance

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Also referred to as scorecarding

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Also refers to automated transaction and communication applications, however this can cause problems for firms.

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As land and construction costs in big cities continue to escalate, the trend is located in suburbs and rural areas.

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As the # of warehouses increases, the system becomes more decentralized. Responsiveness & delivery service increase

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"... to keep track of customers, learning about each one's likes and dislikes from various sources like transaction records, call-center logs, web site clicks, and search engine queries."

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"...managing the relationships among people within an organization and between customers and the company's customer service representatives in order to improve the bottom line."

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"I win, you lose"

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"Seven Rs Rule", having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer, at the right costs.

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"You can't improve what you don't measure"

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Defines the customer part of the SC as the integration of Plan, Relate, Sell, Contract, Service, & Enable processes

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General freight carriers carry the majority of goods shipped and include common carriers

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12 Pillars of Competitiveness-

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3PL Supply Base Reduction- reducing the supply base has a number of advantages for the organization. With 3PL discussion is similar, using fewer 3PLs enables a firm to select and only use the best-performing 3PLs as well as to give these 3PLs a bigger share of the firm's logistics needs.

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6 Location Types (Suggested by Dr. Kasra Ferdows)

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A Continuous Review System is costly to conduct but requires less safety stock than the

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A items are given highest priority with larger safety stocks. A items, which account for approximately 20% of the total items, are about 80% of total inventory costs.

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Advantage of MRP- provides planning information

1.

Advantages

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Advantages

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Advantages and Disadvantages of ERP Systems

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Aggregate Production Plan

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Air Carriers- expensive relative to other modes of transportation, but they are fast. They transport about 15% of total annual U.S for-hire transportation expenditures.

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Air freight deregulated in 1977

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ABC Inventory control system- determines which inventories should be counted and managed more closely than others.

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Access and Proximity to Markets

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Access to Suppliers and Cost

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Accounting and finance

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Accurate attribution of cost, revenue, or profit contributions to the various functional or business units

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Accurate, realistic inputs

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Activities Casing the Bullwhip Effect

I.

Add the beginning inventory to the MPS for period 1, subtracting the Committed Customer Orders from period 1 up to but not including the period of the next scheduled MPS.

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Added visibility reduce supply chain inventories

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Additionally once goals are actually reached, there is no further incentive to improve.

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Additions have been made to the SCOR model

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Addressing the need for protecting the environment & reducing greenhouse gas emissions as well business & consumer needs

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Adjusting SC Member Capabilities

7.

Assess and Improve External Process Integration and Performance

5.

Assess and Improve Internal Integration of Key SC Processes

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Assigning few resources to new product and service design.

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Association of Southeast Asian Nations (ASEAN): (1967) in SE Asia. Primary objective of act was to accelerate economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community.

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Assumptions of EOQ Model

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Assurance - ability to convey trust & confidence to customers

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Assure the compatibility and strategic focus of the performance measures to be used.

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Attaining world-class competitive status requires managers to realize that making process decisions to create or purchase products and services customers want, and then to distribute them in ways that will satisfy customers, requires careful monitoring of cost, quality and customer service performance among all key supply chain trading partners.

•

Automated Sales Force Tools

•

Available-to-Promise (ATP) Quantity- the difference between confirmed customer orders and the quantity the firm planned to produce.

•

Aviation and Transportation Security Act- (2001) created transportation and security administration (TSA) to oversee transportation security with oversees 429 US airports.

4.

Avoid duplication

•

Generally recommended to use a combination of quantitative and qualitative techniques

➢

B and C items account for the other 80% of total items and only 20% of costs. The B items require closer management since they are relatively more expensive (per unit), require more effort to purchase/make, and may be more prone to obsolescence.

•

Defines the design portion of the SC as the integration of Plan, Research, Design, Integrate, Amend, & Enable processes

•

Back of house staff generally do not contact customers.

•

Backwards flow of goods from customers in SC when goods are returned by a customer in the supply chain

•

Baumol's disease- productivity growth problem where productivity tends to be low in service-oriented economies.

1.

Best-of-breed- pick the best application or module for each individual function in the supply chain. Resulting system includes several different applications that must be integrated to work as a single coordinated system to achieve the global scope required of the ERP. Disadvantage- multiple software infrastructures and data bases may have to be used to link the multiple applications obtained from different vendors. May severely affect the ability of the system to update the databases rapidly and efficiently.

•

Better quality control- firm has most direct control over design, manufacturing process; labor and other inputs to ensure high-quality components are built.

•

Bid or Surety Bonds - successful bidder will accept contract

•

Bill of Materials (BOM)- document that shows an inclusive listing of all component parts and assemblies making up the final product.

•

Blank Check Purchase order- special purchase order with a signed blank check attached, usually at bottom of the purchase order.

•

Breakbulk- shipments are broken down and items are combined into specific customer orders.

•

Buffer from uncertainty in the marketplace

➢

Build, maintain, and strengthen relationships

•

Bullwhip Effect- Demand Forecast Updating- fluctuations are magnified as orders vary from period to period and as the review periods change.

•

Bullwhip Effect- Order Batching- amplifies demand variability and adds to the use of safety stock, creating bullwhip effect.

•

Bullwhip Effect- Price Fluctuations

•

Bullwhip Effect- Rationing and Shortage Gaming

•

Bundle of the attributes (the combination of)-

•

Business Clusters- concept of business clusters represents a new way of thinking about location decisions, and challenges conventional logic on how companies should be configured and provides a different approach to organizing supply chain.

3.

Business efficiency (71 criteria)

11.

Business sophistication- the quality of the overall business networks and quality of individual firms' operations and strategies.

•

Business success depends on the firm's ability to turn internal competencies into products and services that customer's want, while providing desired environmental, quality and customer service levels at a reasonable price.

•

Buy American Act (1933) -

➢

C items have the lowest value and lowest priority.

•

Call Centers- can categorize calls, determine average resolution time, forecast future demand, and improve the overall productivity of the staff, increasing customer satisfaction levels.

•

Inventory Management models- generally classified as dependent and independent demand models

•

CPFR Model

•

CPFR provides the supply chain with a plethora of benefits but requires a fundamental change in the way that buyers & sellers work together

•

CRM collection of various applications implemented over time. Customer contact mechanisms need to be coordinated so that every CRM user in the firm knows about all of the activity associated with each customer. Centralized database or data warehouse containing all customer information.

•

CRM must still include talking to customers, understanding their behavior and their requirements, and then building a system to satisfy those requirements.

•

CRM's Role In Supply Chain Management

➢

CRM, Cust. Serivce Man., Demand Man., Order Fulfillment, Manufacturing Flow Man., Supplier Relationship Man. Product Develop. & Commercialization, Returns Management.

•

CRM- simple definition- building and maintaining profitable long-term customer relationships.

•

Inventory Models

•

Competitive bidding - contract is usually awarded to lowest priced responsive & responsible bidder

•

Competitiveness of Nations- Degree to which a country produces goods and services which meet the needs of international markets, while maintaining or expanding personal real incomes of its people over long term. Made up of 323 criteria grouped into 4 factors:

•

Complexity

➢

Components - parts demanded by a parent.

•

Components of Time Series- Data should be plotted to detect for the following components-

•

Computer Based "push" resource systems:

•

Computer support

•

Con- deregulation encourages competition and allows prices to adjust as demand and negotiations dictate.

•

Con- lack of control

•

Con- owning a private warehouse represents a financial risk & loss of flexibility.

2.

Concentrated volume

•

Concepts and Tools of Inventory Management

•

Considers the tradeoff between purchasing in large quantity to take advantage of the price discount and issuing fewer orders, against holding higher inventory

4.

Consumer Survey - questionnaire that is developed and seeks input from customers on important issues; future buying habits, new product ideas, and opinions about existing products.

➢

Continuous nature of pipeline flow is what makes it unique.

•

Contract carriers- may also be common carriers, not bound to serve the general public. They serve specific customers under contractual agreements.

•

Contributor factory- plays a greater strategic role than a server factory by getting involved in product development and engineering, production planning, making critical procurement decisions and developing suppliers.

•

Coordination on environmental issues will mitigate- greenhouse gas production and ozone depletion, production of Nitrogen and Sulfur Dioxide, Deforestation.

•

Cost

•

Firms in the supply chain must integrate their process activities internally and then with their trading partners to achieve this goal.

•

Cost of service pricing- varies based on fixed and variable costs.

1.

Creating the CRM plan

•

Critical Location Factors- Basically three levels of location decisions: the global market or country selection, the sub-region or state selection and the community and site selection.

•

Cross selling- additional products are sold as the result of an initial purchase (ex. e-mails from Amazon.com describing other books bought by people)

➢

Cross-Training and Sharing Employees

•

Crossdocking

•

Culture/recreation

3.

Cumulative available-to-promise with look ahead

2.

Cumulative available-to-promise without look ahead

•

Currency Stability

•

Customer Chain Operations Reference model (CCOR)

•

Customer Defection Analysis- finding methods to retain customers. Chum reduction- reducing customer defections

•

Customer Privacy Capabilities

•

Customer Service Elements

•

Customer Value Determination (customer profitability)-verify the customer lifetime value for individuals or segments.

•

Customer perspective- measures that focus on customer requirements and satisfaction including customer satisfaction ratings, reliability and responsiveness, customer retention, new customer acquisition, customer valued attributes and customer profitability.

•

Customer relationship management

•

Customer relationship management means focusing on customer requirements, then delivering products and services in a manner resulting in high levels of customer satisfaction.

•

Customer satisfaction with the service depends not only on the ability of the firm to deliver what customers want, but on the customers' perceptions of the quality of the service received

•

Customers are frequently given opportunities to provide feedback about a product, service, or organization

•

Customers are often directly or indirectly involved in production of service

•

Customers can communicate directly with product specialists using wireless devices & the right diagnosis can be made quickly

•

Customers have no idea how things actually get to the destination. They notice when the shipment is late.

•

Customs Brokers- move through customs & handle documentation.

➢

Cyclical variations: wavelike movements that are longer than a year influenced by macroeconomic and political factors. (Business cycle- recession or expansion).

•

Firms must create methods for becoming and staying good suppliers themselves

•

Firms must strive to align SC goals and the goal and incentives of the firm

•

Deliver- order, warehouse, transportation and installation management for stocked, make-to-order and engineer-to-order product including all management steps from order inquiries and quotes to routing shipments and selecting carriers, warehouse management, invoicing customer, managing finished product inventories and import/export requirements.

•

Delivery time is known and constant

2.

Delphi method- group of internal and external experts are surveyed during several rounds in terms of future events and long-term forecasts of demand. Group members do not physically meet, avoid where one or few experts can dominate.

•

Decentralized purchasing- individual, local purchasing departments, such as plant level, make their own purchasing decisions.

•

Decentralized-centralized- decentralized corporate and centralized at business unit.

•

Decision should consider relevant factors and reduce intuitive decisions.

•

Decisions to maximize current stock prices do not necessarily reflect that the firm is performing well

•

Decouple dependencies in the supply chain (e.g, safety stock).

4.

Develop Internal Performance Measures for Key Processes

6.

Develop SC Performance Measures for Key Processes

•

Develop a formal risk management program

•

Develop an understanding of each functional area's role & the required capabilities

➢

Develop an understanding of the internal supply chain

•

Developing World Class Performance Measures- an effective performance measurement system should consist of the traditional financial information for external reporting purposes along with tactical-level performance criteria used to asses the firm's competitive capabilities while directing efforts to attain other desired capabilities.

➢

Developing recovery procedures

➢

Development in deep-sea transportation made water transportation cheaper and more desirable, even with slow transportation times.

•

Difference between MRP and DRP is that while MRP is driven by the production schedule specified in the MPS to compute the time-phased requirements of components, DRP is driven by customer demand of the finished goods. MRP operates in dependent demand situation; DRP operates in an independent demand setting.

•

Differences between goods and services

•

Differentiation Strategy- based on creating a service that is considered unique. Uniqueness can take many forms including customer service excellence, brand image, variety and use of technology. These strategies are often created as the result of companies listening to their customers.

•

Direct costs- directly traceable to unit produced (e.g, labor)

•

Disadvantage of MRP- loss of visibility, especially acute for products with a deep BOM and ignores capacity and shop floor conditions

•

Disadvantages

1.

Discrete available-to-promise

•

Distribution Center- shipment leaving DC automatically updates ERP to trigger a replenishment order and notify customer for delivery tracking.

•

Distribution Requirements Planning- time-phased finished-goods inventory replenishment plan in a distribution network. DRP is a logical extension of the MRP system, and its logic is analogous to MRP. Ties physical distribution to manufacturing planning and control system by determining the aggregate time-phased net requirements of the finished goods, and provide demand information for adjusting the MPS.

•

Employees & managers do whatever it takes to reach the goal, even if it means producing shoddy work & "Cooking the books"

➢

Distribution channels- since services are usually decentralized to attract customers and provide adequate service delivery times, use of various-distribution channels also becomes important to the delivery of service products.

➢

Distribution requirement planning (DRP)- describes the time-phased net requirements from warehouses and distribution centers customer demand minus any on hand in-transit inventories.

•

Diversify the supply base

•

Do not give away the store: Some information should remain proprietary

•

Does away with the shifting of inventories among trading partners that sub optimizes the supply chain.

•

Domestic competitors and the economic climate: Managers must be aware of local competition and their environment.

•

Due to the step-wise shape of the total inventory cost curve, the optimal order quantity lies on either one of the feasible EOQs or at the price break point.

•

ERP provides means for supply chain members to share information so that scare resources can be fully utilized to meet demand, while minimizing supply chain inventories.

➢

ERP system

➢

ERP systems support measures

•

Eatertainment combines restaurant & entertainment elements

•

Economic Manufacturing Quantity Model or Production Order Quantity Model

1.

Economic Performance (79 criteria)

•

Economy

•

Edgar Hoover recommended -

•

Education

•

Edutainment (infotainment) combines learning with entertainment to appeal to customers looking for substance along with play

•

Eliminate price discounting. Many retailers have adopted everyday low prices (EDLP).

➢

Empathy - providing caring attention to customers

•

Favored by small businesses

•

Federal Acquisition Streamlining Act (1994) -

•

Federal Aviation Act of 1958 - created air traffic & safety regulations & national airport system.

•

Field Service Management

➢

Fierce competition among rival companies

8.

Financial market sophistication- how resources are channeled to businesses.

•

Financial performance measures, while important, cannot adequately capture a firm's ability to excel in these areas

•

Financial perspective- measures that address revenue and profitability growth, product mix, cost reduction, productivity, asset utilization and investment strategies.

•

Financial statements and other cost-based information don't necessarily reflect the underlying performance of the productive systems of an organization.

•

Find an appropriate application and determine the extent of customization. Compare based on performance, security, reporting, capabilities, system availability, etc.

➢

Finding other uses for service capacity

•

Finished goods- products ready for shipment

➢

Firm is able to track progress in each key processes

•

Firm uses a time fence to deal with nervousness by separating the planning horizon into:

1.

Firmed Segment (AKA demand time fence)- from current period to several weeks into future. Can only be altered by senior management

➢

Firmed planned order - Planned order that the MRP computer logic system does not automatically change when conditions change to prevent system nervousness

•

Firms & their partners must continually reassess performance with respect to requirements

•

Firms adapt processes to meet ERP system

•

Firms create methods for finding and developing good suppliers

•

Focus Strategy- incorporates the idea that a service can serve a narrow target market or niche better than other firms that are trying to serve a broader market. Companies that specialize in these market niches can provide customer services and expertise to suit the needs of these customers. Firms can exhibit characteristics of differentiation or cost leadership.

II.

For all subsequent periods there are two possibilities. 1) If no MPS had been scheduled for the period, the ATP is 0. 2) If an MPS has been scheduled for the period, the ATP is the MPS minus the sum of all the CCOs from that period up to the period of the next scheduled MPS.

➢

For light, high value goods over long distances quickly. Limited in terms of geographic coverage; most small cities and towns do not have airports.

•

Forecast Accuracy

•

Forecasting Techniques

•

Forecasts and corresponding orders along the supply chain can become amplified and accumulate, causing the bullwhip effect

•

Four Qualitative models used are:

•

Four broad categories of inventories

•

Franchising

•

Freight Forwarders- consolidates large #s of small shipments to fill entire truck trailers or rail cars to achieve truckload or carload transportation rates. Can also provide air transportation consolidation services. Provide valuable services to both the shipper (lower shipping prices) and carrier (extra business and higher equipment utilization).

•

Front house staff tend to be customer centric

•

Functions and basic types of inventory are to-

•

Gather round and meet face-to-face

•

Geographic concentrations of interconnected companies and institutions.

•

Global Location Strategies- global decisions are made to optimize the performance of the supply chain and be consistent with the firm's competitive strategy.

•

Global Logistics Intermediaries

•

Global Services Issues

•

Global Services are increasing all over the world and managing them involves a number of issues.

•

Global location decisions involve location of the facility, defining its strategic role, and identifying the markets it serves.

•

Global trade management systems- (GTM) provides global visibility, standardization, & documentation of product returns, while minimizing reverse logistics costs.

•

Go for the win-win

•

Goal to minimize forecast error (deviation between actual demand and forecast).

•

Good forecasting provides reduced inventories, costs, and stockouts, and improved production plans and customer service.

•

Good performance measurement system should include measures that assess what is important to customers.

6.

Goods market efficiency- overall environment for exchange of goods.

•

Government Taxes and Incentives

2.

Government efficiency (72 criteria)

•

Government/politics

•

Granger laws (1870s) - regulate the RRs.

•

Greater emphasis on cross docking

•

Green Development- prioritizes what its proponents consider to be environmental sustainable over economic and cultural considerations.

•

Green Purchases - Variety of federal, state, and local initiatives to include environmental and human health considerations when making purchases

•

Green reverse logistics programs - designed to return unneeded products for recycling. These programs reduce environmental impact on landfills & deal with dangerous contaminants.

•

Green supply chain management (GSCM)- ultimately the objective of an effective supply chain environmental performance system.

•

Greenhut - based on profit instead of transportation costs. The optimum location is one that maximizes profits, which may not be min. cost location

➢

Gross requirement - A time-phased requirement prior to netting out on-hand inventory & lead-time

•

Group Customers Together

•

Groups inventory as A, B, and C items

➢

Half of goods transported by air are carried by freight only airlines, ex. FedEx.

•

Have a long term $ impact on the company

4.

Health and primary education- investment in health services and quantity and quality of basic education.

•

Healthcare

•

Helps to standardize manufacturing processes

•

Hierarchical Planning- process that translates annual business and marketing plans and demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility leading to the Aggregate Production Plan (APP).

•

High tariffs encourage multinational corporations to produce locally

5.

Higher education and training- amount of secondary, tertiary, vocational, and on the job training in the workforce.

•

Holding cost is known and constant

➢

Holding cost or carrying cost the cost incurred for holding inventory in storage

•

Holding or carrying costs- incurred for holding inventory in storage.

•

How are customer arrival & service times distributed?

•

How can customers wait even longer without lowering their perceptions of service quality?

•

How long will customers wait before they either leave or lower their perceptions of service quality?

•

Hybrid purchasing organization

•

ICC Termination Act of 1995 & the Ocean Shipping Reform Act of 1998 - ICC was eliminated, requirement for ocean carriers to file rates also came to an end

1.

Identify Critical SC Trading Partners

•

Identify backup suppliers and logistics services which may emergency sourcing and multiple sourcing

•

Identify internal & external trends likely to affect the firm & its performance over time

•

Identify the firm's strategic objectives

•

Identifying global customers.

➢

Identifying primary (key trading partners) trading partners allows the firm to concentrate on these links.

III.

If an ATP for any period is negative, the deficit must be subtracted from the most recent positive ATP, and the ATP quantities must then be revised to reflect these changes.

➢

Ignoring customers

•

Impact of poor communication and inaccurate forecasts resonates all along supply chain; results in bullwhip effect.

•

Impacts business costs and consequently location decisions is any instability in currency exchange rates. Orgs. That are involved with international business are subjected to risk of currency fluctuation.

•

Implement the new performance monitoring system.

➢

Implicit services (ex. security provided, the atmosphere in the bank, privacy, and convenience.)

•

Importance of warehouses: Support purchasing, production, and distribution. Consolidation warehouses-collect large number of LTL shipments from nearby regional sources of supply, for transport in TL or CL quantities. Allows a firm to realize both purchase economies and transportation economies.

•

Improving Service productivity is challenging due to: High labor content, individual customized services, difficulty automating services, and problem of assessing service quality.

•

In a successful chain, members jointly agree on a SC performance measurement system

•

In heavy industries the availability and cost of energy are critical considerations

•

In many cases lowering carbon footprint will also mean lower costs.

•

In past years technology caught up, enabling process integration across extended supply chains

•

In recent survey, 1/3 pharmaceutical manufacturers provided adequate information visibility

•

In the service industry, proximity to customers is even more critical; convenience is a factor in customer choice.

•

In what order will customers be serviced?

➢

Includes cost relevant to the aggregate planning decision, include inventory, setup, machine operation, hiring, firing, training, and overtime costs.

•

Incompatible system environment

•

Increase safety stocks also known as stockpiling and forward buying.

•

Increased assembly operations

•

Increased automation

•

Independent Demand- demand for final products affected by trends, seasonal patterns, and general market conditions.

•

Independent demand- the demand for final products and has a demand pattern affected by trends, seasonal patterns, and general market conditions.

•

Indirect Costs- cannot be traced directly to unit produced (ex. overhead)

4.

Infrastructure (101 criteria)

2.

Infrastructure- the transportation, telecommunications and power networks.

➢

Inland water way transportation is used for heavy, bulky, low-value materials (ex. coal, grain); Competes with rail and pipeline

➢

Inland waterways have less environmental impact when compared to motor fright carriers.

12.

Innovation- overall support for innovative activities.

1.

Institutions- legal and administrative work

4.

Integrate Existing CRM Applications

➢

Integrate process to 2nd tier partners and beyond

•

Intermediate- shows the quantity and timing of end items (master production schedule-MPS)

➢

Intermediately positioned strategy - midway between supply source & customers. Recommended when distribution requirements are high & customers order products assortments from many suppliers.

•

Intermodal Marketing Companies- companies that act as intermediaries between intermodals railroad companies and shippers. Typically purchase large blocks of flatcars for piggyback services and then find shippers to fill containers, or motor carriers with truckloads to load the flatcars.

•

Intermodal- use of combinations of the various transportation modes becoming extremely popular transportation arrangement and makes the movement of goods more convenient and efficient.

•

Internal business process perspective- focuses on performance of the most critical internal business processes of the organization including quality, new product development, flexibility, innovative elements of processes and time based measures.

•

International Expansion

•

International Freight Forwarders- move goods to foreign destination

•

Internet Distribution Strategies

➢

Internet retailing is growing faster than traditional retailing

•

Interstate Commerce Act of 1887 - created the Interstate Commerce Commission (ICC).

•

Introduction

•

Introduction- scheduling and inventory management influence how assets are deployed. Problem: a missed due date or stock-out may cascade downstream, magnifying the bullwhip effect. Operations managers are continuously involved in balancing capacity and output.

•

Inventory Costs

•

Inventory Investment- firms should diligently measure inventory investment to ensure that it does not adversely affect competitiveness. Measures include: absolute value of inventory (found on balance sheet), and Inventory turnover or turnover-ratio- how many times inventory "turns" in an accounting period. More is better, means it's faster. Inventory turnover ratio= Cost of revenue/Average Inventory.

•

Learning & growth perspective- measures concentrating on the organization's people, systems, external environment, and including retaining and training employees, enhancing information technology and systems, employee safety and health and environmental sustainability issues.

•

Legacy MRP system- broad label used to describe an older information system that usually works at an operational level to schedule production within an organization. Continuous improvements made systems complex and cumbersome to work with, not designed to be user friendly. Designed to perform a very specific operational function and cannot coordinate with other functional areas.

•

Legal and political issue: Laws may restrict foreign competitors

•

Legal forms of Transportation- transportation service companies are classified legally as common, contract, exempt, or private carriers.

•

Less bureaucracy

•

Less time is spent doing preventive maintenance & training for greater performance & profits in future

➢

Less-than-truckload (LTL) and truck-load (TL) carriers- move small shipments and packages that take up less than one truckload. For limited shippers using LTL is much less expensive than TL carriers.

•

Level Demand strategy- capacity remains constant regardless of demand. When demand exceeds capacity, queue management tactics deal with excess customers.

2.

Level Strategy- relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for made-to-stock firms.

3.

Leveraging purchase volume

•

Linear Trend Forecast- trend can be estimated using simple linear regression to fit a line to a time series. Y= bo + b(1)x; y= forecast or dependent value; x=time variable; bo= intercept of the line; b(1)= slope of the line. (regression)

•

Link SC trading partners to achieve breakthrough performance in satisfying the end users

➢

Little maintenance once pipeline is running

•

Load Brokers (Transportation Brokers)- bring shippers and transportation companies (mainly trucks) together.

•

Local sourcing

•

Location Strategies

•

Location decisions extremely important for most services because they have a significant impact on customer's visits and, consequently, the long-term profits of the company.

•

Location still matters- industry clusters show that innovation and competition are geographically concentrated.

•

Logistics Management Software Applications

•

Logistics ensures

•

Logistics is necessary to: Move goods from suppliers to buyers and move finished goods to the customer.

•

Logistics is: "...that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information form point of origin to point of consumption in order to meet customer requirements." Council of Supply Chain Management Professionals.

•

Long-range- Aggregate Production Plan (APP)- involves the construction of facilities and major equipment purchase.

•

Look inward

➢

Lot size - order size for MRP logic

➢

Low-level coding - assigns the lowest level on BOM to all common components to avoid duplicate MRP computations

6.

Lower transportation costs

•

MRP- a computer-based materials management system that calculates the exact quantities, need dates, and planned order releases for subassemblies and materials required to manufacture a final product. MRP requires-

3.

Macroeconomic stability- the level of debt and interest rates on debt.

•

Maintenance, repair, and operating (MRO)- materials used in production (e.g, cleaners and brooms)

•

Major ERP applications include -

•

Make actual demand data available to suppliers

•

Make sure service is provided effectively

•

Make- make-to-stock, make-to-order and engineer-to-order production execution including scheduling production activities, producing, testing, packaging, testing, packaging, staging, and releasing product delivery, finalizing engineering for engineer-to-order products, managing work-in-process, equipment, facilities and the production network.

•

Management must reduce inventory levels yet avoid stock outs and other problems

➢

Management support and resources

•

Managers can be pressured to find ways to make up these variances, resulting in poor decisions

•

Managing Customer Service Capabilities

•

Managing Distribution Channels-Distribution channels involve traditional methods & new channels that incorporate new Internet technologies

•

Managing Perceived Waiting Times

•

Managing Queue Times- Consists of the management of actual waiting time & perceived waiting time

•

Managing Service Capacity- Service Capacity is the number of customers per day the firm's service is designed to serve. When demand exceeds capacity, firms turn away customers or hire personnel. Hiring, training, supervising, and equipping (=75% of ops. Costs). Therefore, service managers must focus demand and provide capacity to meet the forecast demand.

•

Managing Supply Chain Risk

•

Managing Supply Chain Security

•

Managing demand requires timely and accurate forecasting

•

Manufacturing

•

Manufacturing Resource Planning (MRP-II)- attempt to further develop the MRP system into a formal explicit manufacturing planning and control system by adding capacity requirements planning and feedback to describe the progress of orders being manufactured.

➢

Manufacturing resource planning (MRP II)- incorporates the business and sales plans with the closed-loop MRP system.

•

Manufacturing-assembly instructions encoded on RFID tag provide information to computer controlled assembly devices.

•

Microsoft

3.

Mixed Production Strategy- maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand.

•

Mobility

•

Modes of Transportation

➢

Monitor links with trading partners in key SCM processes

•

More detailed than APP and easier to plan under stable demand

•

More tiers of suppliers and customers complicates Performance management

•

Most ERP systems are written on the best practices of selected firms, therefore a condition required for implementation of the system is that the user's business processes must conform to the approaches used in the software logic. Processes can be significantly different from those used within the company. Adapting a company's business processes to conform to a software program is a radical departure from the conventional business practice (requiring software to be designed around business process.)

•

Motor Carrier Act of 1935 - brought motor carriers under ICC control.

•

Motor Carriers- (trucks)- most flexible mode of transportation and carries over 80% of U.S freight. Competes with rail and air for short-to-medium hauls. Very low fixed and variable costs, Compete favorably with rail and air carriers for short to medium hauls. (Distance<1000 miles)

•

Motor carriers deregulated in 1980 to promote competitive, safe & efficient motor transportation

•

Multilevel Bill of Materials- shows the parent-component relationships and the specific units of components known as the planning factor. Often presented as an indented bill of materials.

•

Multiple regression- several explanatory variables are used to make forecast. (check slides for formula)

➢

Must address language & cultural barriers

•

Natural Environment

•

Naïve Forecast- the estimate of the next period is equal to the demand in the past period. F(t+1) = Actual demand for period t

➢

Net requirement - The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.

7.

No competition within units

•

Non-Vessel-Operating Common Carriers- operate like freight forwarders but use scheduled ocean liners.

•

Predicting Customer Behaviors- firms forecast likelihood of customers' purchases

•

Price is constant

•

Price of the products

•

Pricing Negotiation- since deregulation, negotiating prices has become more common. Shippers today inclined to develop alliances with logistics companies bc of the key role they play in allowing firms and their SC to be more responsive to changing demand.

➢

Primary advantages of the Internet - ability to offer convenient sources of real-time information, integration, feedback, & comparison shopping

•

Private Warehouses

•

Private carriers- not subject to economic regulations and typically transports goods for the company owning the carrier. Firms who transport their own products typically own and operate fleets large enough to make cost of transportation less than if they hired a transportation provider.

•

Pro- Reduces the cost, offers greater control, provides better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation.

•

Pro- provides flexibility and investment cost savings

•

Pro- regulation tends to assure adequate transportation service throughout the country while protecting consumers from monopoly pricing, safety, and liability.

•

Problems that affect product and delivery will have ramifications throughout the chain.

•

Process integration- means sharing information and coordinating resources to jointly manage a process or processes.

➢

Product positioned strategy - locates warehouses close to the sources of supply to enable the firm to collect various goods while minimizing inbound transportation costs. This strategy works well when there are large numbers of goods purchased from many sources of supply and assortments of goods while minimizing inbound transportation costs. Strategy works well when there are large numbers of goods purchased from many sources of supply and assortments of goods ordered by customers.

•

Product quality desired

•

Productivity decisions may actually increase costs & reduce quality

•

Products have little value to the customer until they are moved to the customer's point of consumption.

➢

Rail companies use each other's rail cars. Makes keeping track of rail cars and getting them where needed problematic. Real-time location systems (RTLS) on railcars use active Wi-Fi-enabled radio frequency identification (RFID) tags; tracks rail cars in real time.

➢

Projected on-hand inventory - Projected closing inventory at end of period. Beginning inventory minus gross requirement, plus scheduled receipt & planned receipt & planned receipt from planned order releases.

6.

Provide CRM training for All Users

•

Provide and require training for all of the initial users and then provide training on an ongoing basis as applications are added, Training can also help convince key users like sales, call center, and marketing personnel of the benefits and uses of CRM applications.

•

Provide managers a way to see real-time progress toward organizational milestones & help to ensure that decisions remain in sync with the firm's overall strategies.

•

Provide reliable & timely delivery required by SCM

•

Public Procurement is characterized by:

•

Public Procurement or Public Purchasing - purchasing & supply function for government & non-profit sector.

•

Public Safety

•

Public Warehouses

•

Public warehouses are for-profit organizations that contract or lease a wide range of light manufacturing, warehousing and distribution services to other companies.

•

Qualitative Forecasting- base on opinion and intuition

•

Qualitative forecasting methods- generally used when data is limited, unavailable, or not currently relevant. Forecast depends on skill and experience of forecasters and available information.

•

Quality

•

Quality-of-Life Issues- Quality-of-life defined as; a feeling of well-being, fulfillment or satisfaction from factors in the external environments.

•

Quantitative Methods

•

Quantitative forecasting- uses mathematical models and historical data to make forecasts.

•

Quantity

•

Quantity Discount Model or price-break model

•

Quantity and delivery frequency needed

•

RFID technology promises to add real-time information visibility to supply chains

•

RFID- Automates the supply chain

➢

RO-ROS or roll-on-roll-off containerships truck trailers and containers to be directly driven on and off the ship without use of cranes.

•

Radio Frequency Identification (RFID)- Successor to the barcode for tracking individual unit of goods. RFID does not require direct line of sight to read a tag and information on the tag is updateable.

➢

Radio-frequency identification (RFID) tag- relays product's location as it moves through the supply chain. Passive RFID tags don't contain internal power. Active RFID tags use battery powered and are very expensive.

•

Rail Carriers- competes most favorably when distance is long and the shipments are heavy or bulky. Since WW11 share of transportation market fallen. Less expensive than motor and air carriers and can compete fairly well on long hauls.

➢

Rail and motor carriers can offer point-to-point pickup and delivery service known as trailer-on-flatcar (TOFC) service, container-on-flatcar (COFC), or piggyback service.

•

SAP

➢

Rail is slow and inflexible, to better compete they have begun purchasing motor carriers companies and can offer point-to-point pickup and delivery service known as trailer-on-flatcar (TOFC) service.

•

Railroad Revitalization & Regulatory Reform Act (1976) - RRs could change rates w/o ICC approval

➢

Railroad infrastructure and aging equipment are also problems for the railroads

➢

Random variations: due to unexpected or unpredictable events, ex. natural disasters.

•

Rate Categories- classified in # of different ways. Line haul rates- charges for moving goods to nonlocal destination (ex. between cities). Can be classified as class rates, exception rates commodity rates and miscellaneous rates. Class rates standards called National Motor Freight Classification based on the value of type of freight, ease of handling, weight and dimensions. Exception Rates rates are lower than the NMFC class rates for specific origin-destination locations or volumes and generally are established on an account-by-account basis. Commodity rates apply to minimum quantities of products that are shipped between two specified locations. Miscellaneous Rates apply to contract rates that are negotiated between two parties and to shipments containing a variety of products. Today, many rate carriers charge are classified as miscellaneous.

•

Rationing- when demand exceeds the availability, suppler provides partial supply to customers, who also intend to inflate orders.

•

Raw Materials- unprocessed purchase inputs

•

Real value of CPFR comes from sharing of forecasts among firms rather than sophisticated algorithms from only one firm.

•

Reality shows that stock records and actual quantity are different & requires continuous review of inventory to determine when to reorder

•

Reasons Implementing ERP systems fail

•

Reasons for global sourcing-

•

Reasons for success-

•

Recovering from Poor Service Quality

•

Reduce price fluctuations through forward buying activities to take advantage of the low price offers between: retailers and consumers, distributors and retailers, manufacturers and distribution

•

Reduce the lead times from order to delivery

•

Reduce the length of the supply chain

•

Reduced lot sizes & shipping quantities

9.

Reevaluate the integration model annually

•

Regional Trade Agreements (RTA) and WTO

•

Relationship marketing or permission marketing- customers select the type and time of communication. Requires software and customer participation.

•

Relaxes the constant price assumption by allowing purchase quantity discounts

•

Relaxes the instantaneous replenishment assumption by allowing usage during production or partial delivery.

➢

Reliability - consistently performing the service correctly & dependably

•

Relieve Customer Anxiety

•

Relocation to China not just for cheap labor but for access to the local markets

•

Removed restrictions on bids less than $100,000. Micro purchases (less than $2,500) can be made without bidding

•

Repackaging, assembly, incoming and outgoing quality inspections, material handling, equipment maintenance, and documentation services.

•

Replenishment is instantaneous

•

Research parks and special economic/industrial zones as magnets for business clusters.

•

Resource ranking and technology innovation are keys to reducing cost and increasing competitiveness

•

Resource requirements planning (RRP)- long-range capacity planning module, is used to check whether aggregate resources are capable of satisfying the aggregate production plan.

➢

Responsiveness - promptly & timely service

•

Retail Store- no check out lines as scanners link RFID tagged good in shopping cart with buyers credit card.

•

Retail returns range 6% to 40% of sales

•

Return- returns of purchased materials to suppliers and receipt of finished goods from customers, including authorizing and scheduling returns, verifying, and disposition of defective or excess products, return replacement, or credit, and managing return inventories.

•

Reverse Logistics

•

Reverse logistics aka backhauling is a response to the need for reducing carbon emissions and by ensuring trucks move loaded rather than empty

2.

Review and Establish SC Strategies for:

•

Right-to-work laws.

•

Risk Pooling

•

Risk Pooling & Warehouse Location

•

Risk pooling is estimated by square-root rule

•

Rough-cut capacity plan (RCCP)- medium ranged capacity plan, used to check the feasibility of the master production schedule.

•

Rule 1: Satisfaction = perception - expectation

•

Rule 2: It is hard to play catch-up ball

•

Rules that often govern Government & Non-Profit Procurement:

•

Running sum of forecast Errors (RSFE)- indicates a bias in the forecasts or the tendency of a forecast to be consistently higher or lower than actual demand. =Sum of errors; e=errors for period t

•

SC Performance Measurement Systems- focus of the system should be on value creation for end customers, since customer satisfaction drives sales for all of the supply chain's members.

2.

SC cash to cash cycle time is the avg. # of days between paying for materials & getting paid by SC partners

4.

SC delivery performance is the avg. % of orders filled by requested delivery date

•

SC members audit their capabilities & partners' to determine consistency with needs of end customers & SC

5.

SC perfect order fulfillment performance is the average % of orders that arrive on time, complete, & undamaged.

3.

SC production flexibility is the avg. time required to provide an unplanned 20% increase in production

➢

Safety Stock - Protects against uncertainties in demand supply, quality, & lead time

•

Sales Force Administration (SFA)- tool offering sales reps a guided sequence of sales activities.

•

Sales Territory Management- sales managers obtain information of each sales rep's activities (ex. total sales per sales reps).

3.

Sales force composite- forecast generated based on sale's force knowledge of the market and estimates of customer needs.

•

Satisfy customer needs.

➢

Scheduled receipt - A committed order awaiting delivery for a specific period.

•

Sealed Bids are used to satisfy the Invitation for Bid (IFB) and are opened in public display

➢

Seasonal Variations: show peaks and valleys that repeat over a consistent interval such as hours, days, weeks, months, seasons, or years.

•

Security management collaboration should include, ex., contractual requirements for secure systems.

•

Segmenting Customers- grouping customers to create specialized communications about products

3.

Select the Right Application and Provider

➢

Sell and deliver products to final customers

•

Server Factory- set up primarily to take advantage of government incentives, minimize exchange risk, avoid tariff barriers and reduce taxes and logistics costs to supply the regional market where factory is located.

•

Service

➢

Service Capacity- most often defined as the numbers of customers per day the firm's delivery systems are designed to serve, although it could also be some other period of time such as customers per hour or customers per shift.

•

Service Delivery System- customers actually purchase a bundle of attributes when purchasing services, including the explicit service itself along with the supporting facility; facilitating goods; and implicit services. Successful services deliver this bundle of attributes in the most efficient way, while still satisfying customer requirements. Services must therefore define the service bundle and design an effective delivery system with it in mind.

•

Service Delivery Systems (a continuum) with mass-produced, low-customer contact systems at one end and highly customized, high-customer contact systems at the other.

•

Service Location and Layout Strategies

•

Service Productivity

•

Service Recovery Systems require -

•

Service Response Logistics (SRL)

•

Service Strategy Development

•

Service level desired

•

Service quality depends on the firm's employees to satisfy customers varying expectations

➢

Service quality-

•

Services also require use of facilitating products that are not part of the services sold.

•

Services are decentralized due to inability to inventory and transport service products.

•

Services are often unique (ex. insurance policies and legal services)

•

Services cannot be inventoried

•

Services have high customer-service interaction

•

Substantial time and capital investment

•

Super Bill of Materials (AKA planning BOM, pseudo BOM, phantom BOM, or family BOM)- enables the firm to forecast the total demand end products.

➢

Super tankers are +1,500ft long and 200 ft. wide.

•

Supplier proximity influences the delivery of materials and effectiveness of the supply chain

•

Supplier relationship management

•

Suppliers must accurately forecast demand so they can produce and deliver the right quantities at the right time at the right cost

•

Suppliers must find ways to better match supply and demand to achieve optimal levels of cost, quality, and customer service to enable them to complete with other supply chains.

7.

Supply Chain Environmental Performance is the % of SC w/ISO 14000 partners; avg. % environmental goals met.

•

Supply Chain Management in Services

•

Supply Chain Operations Reference (SCOR) Model- SCOR model developed by the Supply Chain Council (now CSCMP) for SCM diagnostic benchmarking & process improvement

•

Supply Chain Performance Measures

•

Supply Chain Security Management- concerned with reducing the risk of intentionally created disruptions in supply chain operations including product and information theft and activities seeking to endanger personnel or sabotage supply chain infrastructure

6.

Supply chain e-business performance is the avg. % of electronic orders received for all SC members.

•

Supply chain is only as secure as its weakest link

•

Supply chain management:

•

Supply chains evaluate design configurations and various options for reducing total carbon emissions

•

Supply of electricity has not kept pace with the high speed of development

➢

Supporting facility (ex. bank w/drive-up tellers)

•

Sustainable Development- development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

•

System nervousness- small changes in the upper-level-production plan cause major changes in the lower-level production plan.

➢

Tangibles - the physical characteristics of the service including e.g. facilities, servers, equip., & other customers

•

Target marketing efforts- e-mail or direct mail saves labor and postage, reduces chances of being a nuisance.

➢

Team cooperation across all functions

9.

Technological readiness- how readily the economy adapts to new technologies.

•

Technology boards and user boards are being formed now to develop standards and electronic product codes (ePCs) for the RFID industry.

•

Telecommunication costs have dropped dramatically, many organizations now have back office operations and call centers internationally to serve the U.S market.

•

Tendency to continue producing & adding to inventory to keep machines & people busy

2.

Tentative segment (AKA planning time fence)- from end of firmed segment to several weeks into the future.

•

Terms of sale- when products purchased from a supplier, they may quote a price that includes transportation to the buyer's location known as FOB destination pricing or free-on-board to shipments location. Also means supplier is legal owner of the product until it safely reaches its destination. When buyer has little transportation expertise FOB destination is preferred. FOB origination pricing- buyer decides to purchase goods and supply own transportation to shipping destination. Goods legally become buyers at shipment pickup location.

•

Terms used in MRP:

•

The 3 major ERP providers are now -

•

The Balanced Scorecard- Kaplan & Norton created BSC to align an organization's performance measures with its strategic plan & goals. The BSC framework consists of four perspectives -

•

The Continuous Review System versus The Periodic Review System

•

The EMQ model is especially appropriate for a manufacturing environment with simultaneous manufacture and consumption.

•

The EOQ model seeks to determine an optimal order quantity, where the sum of the annual order cost and the annual inventory holding cost is minimized.

•

The Economic Order Quantity (EOQ) Model- a quantitative decision model based on the trade-off between annual inventory holding costs and annual order costs.

•

The Five Dimensions of Service Quality

•

The MPS- the production quantity to meet demand from all sources and is used for computing the requirements of all time-phased end items.

•

The Periodic Review System, which reviews physical inventory at specific points in time and requires higher level of safety stock

•

The SCM Integration Model

•

The SCOR model separates supply chain operations into 5 process categories

•

The Silo Mentality

•

The Statistical ROP when Demand and Lead Time are both Probabilistic

•

The Statistical ROP with Constant Demand and Probabilistic Lead Time

•

The Statistical Reorder Point (ROP)

•

The best SC performers are more responsive to customer needs, quicker to anticipate changes in the markets, & control costs much better

•

Third Party Logistics (3PL)

•

Three Basic Production Strategies:

•

Three methods of calculating the available-to-promise quantities-

•

Thus countries with high tariffs discourage importing goods into the country

•

Time Series Forecasting Models

➢

Time bucket - Time period used on the MRP. Days or weeks

•

Time series forecasting- based on the assumption that the future is an extension of the past. Historical data is used to predict future demand.

•

Time series- models are the most frequently used among all forecasting models.

•

Time utility- is created when customers get products delivered at precisely the right time.

•

To receive, breakdown, repackage, and distribute components to a manufacturing location or finished products to customers warehouse. This description more accurately refers to a distribution center. Firms are moving warehouses closer to suppliers, closer to customers, or to more centralized locations, depending on the storage objectives and customer service requirements.

•

Today U.S transportation industry remains essentially deregulated.

1.

Total SCM costs are the costs to process orders; purchase & manage inventories; & information systems

•

Tracking signal- determines if the forecast is within acceptable control limits. If the tracking signal falls outside the preset control limits, there is a bias problem with the forecasting method and an evaluation of the way forecasts are generated is warranted. =RSFE/MAD

•

Trade liberalization creates need for environmental cooperation NAAEC- North American Agreement on Environmental Cooperation- key objectives to foster protection and improvement of environmental territories of all parties for the well being of present and future generations and promote sustainable development based on cooperation and mutually supportive environmental and economic policies.

•

Trading Companies- Put buyers & sellers together & handle export/import arrangements.

➢

Trading partners should monitor measures across member firms for each of the SC processes

➢

Trading partners should revisit the integration model annually for changes within supply chains and to assess the impact of these on integration efforts.

•

Traditional Performance Measures

•

Traditional cost-based information does not reflect the underlying performance of an organization's productive systems; costs & profits can be hidden or manipulated

•

Traditional measures favor the short-term

•

Training

➢

Training employees in these procedures

•

Training of supply chain partner employees is known as collaborative education, and can result in more successful supply chains.

•

Transaction elements-occur during the sale and include order lead time, the order processing capabilities, and the distribution system accuracy.

•

Transportation Act of 1920 - changes to IC Act.

•

Transportation Act of 1940 - established ICC control over domestic water transportation.

•

Transportation Deregulation

•

Transportation Intermediaries- companies utilize transportation intermediaries, which may not own any significant logistics capital assets, to find the most appropriate transportation mode or 3PL service.

•

Transportation Pricing

•

Transportation Regulation

•

Transportation Regulation and Deregulation

•

Transportation Security

•

Transportation management systems- used to select the best mix of transportation services & pricing.

➢

Trend Variations: increasing or decreasing movements over many years, due to pop. Growth, pop. Shifts, cultural changes, income shifts.

➢

Trend in rail transportation- high-speed trains.

•

Trends in CRM (SEE LAST SLIDE).

•

Trust

•

Two Primary requirements of Successful Implementation of ERP

•

Two important issues are ability to assure privacy & ability to minimize customer harassment

•

Two types of ERP implementation

➢

Types of information technologies used

•

US government purchases and 3rd party purchases using federal funds must buy if the US good is not more than a certain differential above the foreign good

•

Uncontrollable environmental forces (e.g., windfall profits that occur when prices rise due to supply interruptions)

•

Understanding End Customers- supply chains need to look at each segment of the market they serve and determine the needs of those customers

•

Understanding SC Partner Requirements- supply chain strategies must consider the potential trade-offs existing between

•

Unemployment and underemployment rates

•

United Nations Framework Convention on Climate Change (UNFCCC)

•

Willing and competent partners

•

Use of Firm-Wide Productivity & Utilization Measures- These measures are useful but have the same problems as revenues, costs, & profits

•

Use of Organization Costs, Revenue, & Profitability Measures- Problems associated with using costs & profits to gauge performance -

•

Use of Performance Standards & Variances- Establishing standards for comparison purposes can be troublesome

•

Used to significant degree by international logistics

➢

Using Customers- "Hidden employees"

➢

Using Employee Scheduling Policies

➢

Using Part-Time Employees

➢

Using Technology

➢

Using demand management techniques

➢

Using the cheapest suppliers

•

Utility Availability and Cost

•

Utilize a supply chain IT system

•

Value of service pricing- services priced at market bearing competitive levels.

•

Variable costs- vary with output level (materials)

•

Variations in demand lead to problems in capacity planning, inventory control, workforce and production scheduling resulting in reduced customer service, increased safety stock, and higher SC costs

•

Variety of products required

•

Vendor-managed inventory (VMI)

•

Viewing the SC as Competitive Weapon- the eventual and ultimate goal of a supply chain is to successfully deliver products and services to end customers.

•

Von Thunen - transportation costs should be minimized when considering facility location. Market prices & production costs would be identical regardless of warehouse location

•

Wage Rates; turnover rates; labor force competitors

•

Waiting time management techniques

➢

Waiting times- customer waiting times are closely related to the customer's view of service, and, ultimately customer satisfaction.

•

Warehouse Location

•

Warehouse management- track & control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking.

•

Warehousing

•

Warehousing and Distribution

➢

Warranty and return services, employee trainings methods

•

Water Carriers- very inexpensive, but very slow and inflexible. Included inland waterway, coastal, and intercostal, and deep sea.

➢

Water and motor can offer point-to-point service for overseas manufacturers.

➢

Water carries are paired with trucks for door-to-door pick-up and delivery service.

•

Web sites act as support mechanisms for call centers. Customers can access their account information & operating hours, contact information, etc.

•

Web-Based Scorecards & Dashboards

•

Web-based software applications used to design scorecards, which also link via the Web to a firm's enterprise software system.

•

Website Self-Service

•

Weighted Moving Average Forecast- is based on n-period weighted moving average. Sum of weight assigned to period*actual demand for period I, n equals number of periods to calculate moving average. F(t+1)=forecast for period t+1.

•

What is the average arrival rate of the customers?

•

What is the average service rate of providers?

•

World Trade Organization (WTO) successor to the General Agreement on Tariffs/Trade (GATT). Functions: Administering agreements, forum for trade negotiations, trade disputes, monitor trade policies, aid for developing countries, international organizations.

➢

build market share & when owners have limited financial resources.

➢

expand quickly in dispersed geographic markets

➢

protect existing markets

•

Follow-up- a proactive approach to prevent late delivery, whereas Expediting is considered a reactive approach to speed up an overdue shipment.

➢

Management: system can be designed to store important supplier information including whether suppliers are locally owned etc. Allows buyers to support such businesses.

4.

Capacity for meeting unexpected demand

•

Control of lead-time, transportation, and warehousing cost- Management controls all phases of the design, manufacturing, and delivery process, in turn provides better control of lead-time and logistical costs.

5.

Cost efficiency due to economies of scale, since the supplier is likely to produce the same item for multiple buyers.

➢

Cost savings: can handle more purchases and manual task of matching bids to purchase requisitions is reduced. More suppliers can be contacted= cost savings bc of lower prices

4.

Cost- total cost of ownership/total cost of acquisition includes unit price, payment terms, cash discount, ordering costs, carrying costs, logistical costs, maintenance costs and qualitative costs.

•

Reasons for favoring multiple suppliers- needs capacity spread risk of supply interruption; create competition, information, dealing with special kinds of business.

•

Firms emphasize long-term strategic supplier alliances consolidating volume into one or fewer suppliers, resulting in a smaller supply base.

•

Firms should require supplier to acknowledge and return a copy of the PO to indicate acceptance of order.

•

Forward vertical integration- refers to acquiring downstream customers (customer's operations)

•

Handy tool for computing the cost-effectiveness of sourcing decisions when cost is the most important criterion.

•

Lower cost- If technology, capacity, and managerial labor skills are available, make option may be more economical if large quantities of the component are needed on a continuing basis.

•Purchasing: 2 categories

Merchants- includes wholesalers and retailers, primarily purchase for resale purposes. Generally purchase in volume, take advantage of quantity discounts and incentives, such as transportation economy and storage efficiency. Industrial Buyers- purchase raw materials for conversion purposes. Industrial buyers purchase services, capital equipment, maintenance, repair, and operating supplies. (Typically manufacturers) Acquisition of services widely called contracting.

1.

Process and Product technologies- Suppliers have competent process technologies to produce superior products at reasonable cost; enhance buyer's competitive edge.

•

Procurement Credit Cards or corporate purchasing cards (P-Cards)- credit cards with a predetermined credit limit, used to control purchasing.

1.

Product and process technology and expertise to support the buyer's operations, particularly in new product design and value analysis.

•

Profit-leverage effect- of purchasing means the impacts of a change in purchase spend on a firm's profit before taxes, assuming gross sales and other expenses remain unchanged. Used to demonstrate that dollar decrease in purchase spend directly increases profit before taxes by the same amount.

•

Purchase order- buyer issues a PO in duplicates to the supplier when a suitable supplier is identified, or qualified one is on file. Purchase order is buyers offer and becomes a legally binding contract (via Terms and condition of purchase) when accepted by supplier.

•

Purchasing Process-e-Procurement

•

Purchasing is the crucial link between the sources of supply and the organization itself, with support coming from overlapping activities to enhance manufacturability for both the customer and the supplier.

•

Purchasing organization- the responsibilities of the purchasing function changed from a clerical, supporting role to an integral part of corporate strategy that directly affects the competitiveness of the firms.

➢

Real time: buyers have real time access to the purchase requisition once it is prepared. Buyer can post bid instantly instead of waiting to contact all of the suppliers individually.

•

Reasons for favoring a Single supplier- establishes a good relationship, less quality variability, lower cost, transportation economies, proprietary product or process, volume to small to split.

•

Supplier development- when there is a lack of suitable suppliers, firms may assist existing or new suppliers to improve processing capabilities, quality, delivery, and cost performance by provided needed technical and financial assistance (Used to develop supplier capabilities). Allows a firm to focus on core competencies, while outsourcing noncore activities to suppliers.

•

Supply base (supplier base)- refers to list of suppliers that a firm uses to acquire its materials, services, supplies and equipment.

➢

Time savings: more efficient when selecting and maintaining list of potential suppliers, processing requests for quotation and purchase orders, and making repeat purchases.

➢

Trackability: allows buyers and submitters to track each purchase requisition electronically through process.

•

Traveling requisition- used for materials and standard parts that are requested on a recurring basis. Product description and other information such as, delivery lead-time and lot size, are preprinted on this.

•

Use existing idle capacity- short-term solution for firm to use the excess capacity to make some of its components. Strategy valuable for firms that produce seasonal products.

•

Work closely with and exploiting the expertise of strategic suppliers to improve quality and materials