Bus 355 exam 2 (Walsh)

Insourcing Advantages

-High degree of control -Ability to oversee the entire program -Economies of scale and/or scope

Outsourcing Advantages

-High strategic flexibility -Low investment risk -Improved cash flow -Access to state-of-the-art products and services

Outsourcing Disadvantages

-Possibility of choosing a bad supplier -Loss of control over the process and core technologies -Communication and coordination challenges "Hollowing out" of the corporation

direct costs-outsourcing

-Price (from invoice) -Freight costs

indirect costs-insourcing

-Supervision -Administrative support -Supplies -Maintenance costs -Equipment depreciation -Utilities -Building lease -Fixed overhead

direct costs- insourcing

-direct material -direct labor -freight costs -variable overhead

indirect costs-outsourcing

-purchasing -receiving -quality control

Insourcing Disadvantages

-reduced strategic flexibility -required high investment -potential suppliers may offer superior products and services

Lead Capacity Strategy

A capacity strategy in which capacity is added in anticipation of demand. -ensures adequate capacity to meet all demand even during periods of high growth, important if availability of product is crucial. -can preempt competitors that might be planning to expand their own capacity

Match Capacity Strategy

A capacity strategy in which capacity is added only after demand has materialized.

Lag Capacity Strategy

A capacity strategy in which capacity is added only after demand has materialized. -reduced risk of over building, greater productivity due to higher utilization levels and the ability to put off large capital investments forms long as possible

Reverse logistics system

A complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling.

hub-and-spoke system

A form of warehousing in which strategically placed hubs are used as sorting or transfer facilities

spot stock warehousing

A form of warehousing that attempts to position seasonal goods close to the marketplace. ex: sunscreen

Postponement warehousing

A form of warehousing that combines classic warehouse operations with light manufacturing and packaging duties to allow firms to put off final assembly or packaging of goods until the last possible moment ex: drop a plug adaptor in a widget box at last moment before shipment

consolidation warehousing

A form of warehousing that pulls together shipments from a number of sources in the same geographic area and combines them into larger and more economical loads

make or buy decision

A high-level, often strategic, decision regarding which products or services will be provided internally and which will be provided by external supply chain partners

weighted center of gravity method

A logistics decision modeling technique that attempts to identify the "best" location for a single warehouse, store, or plant given multiple demand points that differ in location and importance.

multimodal solutions

A transportation solution that seeks to exploit the strengths of multiple transportation modes through physical, information and monetary flows that are as seamless as possible

Theory of Constraints

An approach to visualizing and managing capacity which recognizes that nearly all products and services are created through a series of linked processes, and in every case, there is at least one process step that limits throughput for the entire chain. -Determined by the smallest pipeline

Weighted Point Evaluation System

An evaluation system to evaluate potential suppliers, track supplier's performance over time, and rank current suppliers.

Forecasting moving average

F=.4(60)+.35(73)+.25(55)=63.3

Cost-based contract

Price of the good or service is tied to the cost of some other key input(s) or other economic factors. (price of oil)

direct truck

Shipment made with no stops

Less-than-truckload (LTL)

Smaller shipment combined with other loads

Profit margin

Te ratio of earnings to sales for a given time period 100%X earnings/sales

Spend Analysis

The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement.

single sourcing

The buying firm depends on a single company for all or nearly all of an item or service. (a lot of eggs in one basket or stronger relationships with access to engineering capabilities)

multiple sourcing

The buying firm shares its business across multiple suppliers. (Spreads the risk or may reduce supplier loyalty and increase costs over time)

capacity

The capability of a worker, a machine, a work center, a plant, or an organization to produce output in a time period.

Landed Cost

The cost of a product plus all costs driven by logistics activities, such as transportation, warehousing, handling, customs fees, and the like. usually associated with imported goods

Rated Capacity

The long-term, expected output capability of a resource or system

Theoretical Capacity

The maximum output capability, allowing for no adjustments for preventive maintenance, unplanned downtime, or the like. Everything goes right

What does COGS mean

The purchased cost of goods from outside suppliers

Measures of Capacity

Theoretical and Rated ex: hoe many seats are on an airplane

market demand

US demand for hybrid vehicles to reach 20 million in 2019

cross sourcing

Using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part. (new business can be awarded based on performance or held as a back up supplier)

dual sourcing

Using two suppliers for the same purchased product or service. (one is threatened not to mess up while the other stays hungry for more)

Return on Assets

a measure of financial performance generally defines as earnings/total assets X 100%

total costs analysis

a process by which a firm seeks to identify and quantify all the major costs associated with various sourcing options

mean absolute percentage error (MAPE)

absolute value of the forecast errors

3rd party logistics provider (3PL)

an independent logistics provider that performs any or all of the functions required to get a client's product to market

indirect costs

costs that are not tied directly to the level of operations or supply chain activity

Direct Costs

costs tied directly to the level of operations or supply chain activities, such as the production of a good or service, or transportation

variable costs

expenses directly tied to the level of business activity (material and component costs) ex: maintenance and gas for a car

Who do firms compete against?

firms do no only compete against global competitors, but against competitors of their Supply Chain

Given a business scenario, be able to calculate Total cost

o A B C D · F 0 50 25 100 · V 50 10 26 16 · ____________________________ o 0+50x 50+10x 25+26x 100+16x 0+50x=50+10x25+26x=100+16x o X=1.25 x=7.5

CPFR (Collaborative Planning, Forecasting, and Replenishment)

o A set of business processes, backed up by information technology, in which supply chain partners agree to mutual business objectives and measures, develop joint sales and operational plans, and collaborate to generate and update sales forecasts and replenishment plans.

Break-even point Business scenario

o Ellison makes a $1,000 profit on each shipment before transportation costs are considered. o What is the break-even point for each shipping option? o Contracting: BEP = $5,000 /(1000-300) $700 = 7.1 or 8 shipments o Common: BEP = $0 / (1000-750)$250 = 0 shipments o Leasing: BEP = $21,000 / (1000-500 $950 = 22.1 or 23 shipments

Profit Leverage Effect

o Every dollar saved in purchasing lowers COGS by $1 and increases pretax profit by $1. a term used to describe the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin o Every dollar saved in purchasing lowers the merchandise inventory figure - and as a result, total assets - by $1.

Quantitative forecasting models

o Forecasting models that use measurable or historical data to generate forecasts.

Qualitative forecasting techniques

o Forecasting techniques based on intuition or informed opinion.

4 main transportation mode and their dollar volume of freight

o Highway- dominates $9,539 billion o Water- $115 billion o Rail- $436 billion o Air- $252 billion

4 Laws of Forecasting

o Law 1: Forecasts Are Almost Always Wrong (But They Are Still Useful). Goal is to get a close estimate o Law 2: Forecasts for the Near Term Tend To Be More Accurate. Just like the weather o Law 3: Forecasts for Groups of Products or Services Tend to Be More Accurate. Total car sales vs. sales for each particular color

5 Types of Qualitative forecasting

o Market surveys -structured questions submitted to potential customers to solicit opinions (can be expensive and time consuming but if structured correctly and sent to a representative sample of the target population, you can get good data) o Build-up forecasts - individual market segments aggregated up o Life-cycle analogy method - Often used with NEWitems. Base the forecast of the NEWoff of the actual history of a similar product o Panel consensus forecasting - panel of experts working together jointly o Delphi method - panel of experts working independently and then the results shared, the process is then repeated until a consensus is reached

factors that affect capacity

o Number of lines used o Number of shifts operating o Number of temporary workers used o Number of public storage facilities used o Product variations on line o Conformance quality Quality improvement

Weighted Point Evaluation System example

o ScoreAardvark= (4 x 0.3) + (3 x 0.4) + (4 x 0.3) = 3.6 o ScoreBeverly = (3 x 0.3) + (5 x 0.4) + (2 x 0.3) = 3.5 o Score Conan = (5 x 0.3) + (1 x 0.4) + (1 x 0.3) = 2.2

highway

o Strengths: highly cost-effective for bulky items o Weaknesses: limited locations

water

o Strengths: highly cost-effective for bulky items o Weaknesses: limited locations

rail

o Strengths: most cost effective for bulky items, can be most effective when linked to a multimodal system o Weaknesses: limited locations, although less than with water, not as fast as highway, but improving over time

air

o Strengths: quickest mode of delivery, flexible, especially when linked to the highway mode o Weaknesses: often the most expensive on a per pound basis

Total Costs (TC)

o TC = FC + VC * X o TC = Total Cost o FC = Fixed Cost o VC = Variable cost per unit of business activity o X = amount of business activity

6 activities that make up logistics

o Transportation o Warehousing o Material handling o Packaging o Inventory management o Logistics information systems

seasonality

repeated pattern or drops in a time eerie associated with certain times of the year

fixed costs

the expenses an organization incurs regardless of the level of business activity ex: car payment each month

fixed-price contract

the process of creating a detailed purchasing contract to formalize the buyer-supplier relationship

Insourcing

the use of resources within the firm to provide products or services

Outsourcing

the use of supply chain partners to provide products or services (companies mainly outsource)

break-even point

the volume level for a business at which total revenues cover total costs

frim level demand

what is your share...vehicles, components, spare parts

Mean Absolute Deviation (MAD)

zero is a really good number. tracks the size of the errors regardless of direction, a much better indicator

percentage of perfect order

· 5.4 million orders processed · 30,000 orders delivered late · 25,000 orders incomplete · 25,000 orders damaged · 20,000 orders billed incorrectly 100%(5,400,000-90,000/5,400,00)=98