MGMT 430 Final Study Guide

Water

- Limited to certain geographic areas - Ocean, inland waterway system, coastal waters - Water transport is ideally suited for carrying large loads at low cost - Slowest - Dominant in global trade - Using containers has led to a demand for larger, faster, and more specialized vessels to improve the economics of container transport.

Key Pillars of Sustainability

- Measuring performance along all three pillars: economic, environment, and social, may be required to evaluate the impact of sustainability-related efforts

Total Cost of Ownership when selecting suppliers

Supplier performance should be compared based on the impact on total cost of ownership. In addition to acquisition costs, ownership and post-ownership costs should also be considered. In many instances, a higher acquisition cost is more than compensated for by lower ownership and post-ownership costs.

What is the role of IT in inventory management?

IT systems can help -Improve inventory visibility -Coordination in the supply chain -Track inventory (QR's, RFID) However, the potential value is tightly linked to the accuracy of the inventory information -Having effective processes in place to ensure that book count vs actual count match is fundamental to inventory management (internal inventory management and control).

Calculations

Calculations

Modes of transportation

- Air - Package carriers - Truck (LTL, FTL/OTR) -Rail - Water -Pipeline - Intermodal - For all; "Asset" vs "non-Asset" based

How are auctions used when it comes to supplier selection?

- Auctions are best used when the quantifiable acquisition cost is the primary component of total cost (looking for best price on a standardized item) - Auctions are not appropriate if ownership or post-ownership costs are significant - Direct negotiations often lead to the best outcome

Tragedy of the Commons

- A dilemma arising when the common good does not align perfectly with the good of individual entities. - Situation in which people acting individually and in their own interest use up commonly available but limited resources, creating disaster for the entire community - Every company and supply chain faces the challenge of the tragedy of the commons as it operates in a global environment- - Just because you have access to, and consume a resource, does not mean that you should to an excess.

EOQ (Economic Order Quantity)

The square root of [(2DS) / (hC)]

What are all of the costs that must be considered in any lot sizing decision?

• Average price per unit purchased, $C/unit • Fixed ordering cost incurred per lot, $S/lot • Holding cost incurred per unit per year,$H/unit/year=hC

Solutions to this Tragedy

- Choose from options that are unlikely to be supported by all of their own free will -Mutual coercion: social arrangements or mechanisms coerce all participants to behave in a way that helps the common good -Command-and-control approach • Government/regulators set standards -Market mechanisms • Cap-and-trade: constrains the aggregate emissions by creating a limited number of tradable emission allowances that emission sources must secure and surrender in proportion to their emissions • Must be fair and globally enforceable, otherwise abusers will dominate the market.

What are the inventory holding cost elements?

- Cost of capital - Obsolescence cost - Handling cost - Occupancy cost (facility/warehousing) - Miscellaneous cost (theft, security, damage, tax, insurance)

Supply Chain Drivers: Facilities

- Facilities tend to be significant consumers of energy and water and emitters of waste and green- house gases and thus offer significant opportunities for profitable improvement. - Separate the improvement opportunities into those that generate positive cash flows and those that do not - Facilities often offer the best opportunity to simultaneously improve the environmental and financial performances through innovation

Pricing Emissions

- Firms will not put sufficient effort into reducing GHGs unless they are "forced" to reduce emissions or required to pay for the social cost of their emission - Two approaches - Carbon tax: "... a charge placed on greenhouse gas pollution mainly from burning fossil fuels." - Cap-and-trade system: "... a government regulatory program designed to limit, or cap, the total level of emissions of certain chemicals, particularly carbon dioxide, as a result of industrial activity."

Transportation Infrastructure and Policies

- Government has either taken full responsibility or played a significant role in building and managing these infrastructure elements. Improved infrastructure has played a significant role in the development of transportation and the resulting growth of trade. - Transportation infrastructures often require government ownership or regulation because of their inherently monopolistic nature. Without a monopoly, deregulation and market forces help create an effective industry structure -Truck is more open and competitive than rail - Pricing should reflect the marginal impact on the cost to society

Supply Chain Drivers: Sourcing

- Greatest social and environmental impact occurs in the extended supply chain - Impact has grown with increased global sourcing (lengthens the supply chain) - Verifying and tracking supplier performance with regard to sustainability a major challenge (how do you monitor the practices of a distant provider?)

Pipeline

- High fixed cost - Primarily for crude petroleum, refined petroleum products, natural gas - Best for large and stable flows - Pricing structure encourages use for predicable component of demand - Pipeline pricing usually consists of two components: a fixed component related to the shipper's peak usage and a second charge relating to the actual quantity transported

What are the benefits of effective sourcing decisions?

- Higher quality and lower cost. - Better economies of scale can be achieved if orders within a firm are aggregated. - More efficient procurement transactions can significantly reduce the overall cost of purchasing. - Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. - Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning. Better coordination lowers inventories and improves the matching of supply and demand. - Appropriate sharing of risk and benefits can result in higher profits for both the supplier and the buyer. - Firms can achieve a lower purchase price by increasing competition through the use of auctions

Supply Chain Drivers: Transportation

- Improve environmental performance through resource and emission reduction - Product design can play a significant role -Reducing size and weight reduces the impact from transportation -Consolidated shipments and delivery (Amazon) -Move product closer to market?

Closed-Loop Supply Chains

- Improve sustainability by designing products that use fewer resources and can be recycled and remanufactured - Depends on: - The incentive to recycle or remanufacture - The cost to recycle or remanufacture - Cannibalization of demand for new products - Cost of recycling or remanufacturing has a significant impact on the extent of recycling

Risk management in sourcing

- Inability to meet demand on time: Having what you need, when you need it - An increase in procurement costs: Maintaining costs at or under budget - Loss of intellectual property: Outsourcing can result in proprietary advantages getting outside of the company

Intermodal

- Intermodal transportation is the use of more than one mode of transport to move a shipment to its destination. - Grown considerably with increased use of containers - May be the only option for global trade - More convenient for shippers - one entity - Key issue - exchange of information to facilitate transfer between different modes

Pricing of Sustainability

- Internalize the "monetary value" of the social or environmental cost -Not only the cost of the product, but the total cost over the life of the product, to end of life - Incorporate suitable prices for the social and environmental impacts of different actions -How do you enforce this with foreign manufacturers?• - Significant challenges to setting these prices

Designing a Sourcing Portfolio: Tailored Sourcing

- Most companies need to tailor their supplier portfolio based on a variety of product and market characteristics. - Options with regard to whom and where to source from -Produce in-house or outsource to a third party -Will the source be cost efficient or responsive -Onshoring, near-shoring, and offshoring - Firms must consider a tailored sourcing strategy that couples responsive onshore or near-shore sources with low-cost offshore sources. -The responsive onshore sources should focus on high-value products with high demand volatility. - Whereas the low-cost, offshore sources should focus on lower-value, high-volume products with high labor content.

Supply Chain Drivers: Inventory

- Most supply chains focus on raw materials, work in process, finished goods. Consider end of life (Inventory in a landfill) - Cost borne collectively by society - Reduce harmful inventory, unlock unused value - "Cradle to cradle" design: that, when their useful life is over, do not become useless waste but can be tossed onto the ground to decompose and become food for plants and animals and nutrients for soil; or, alternately, they can return to industrial cycles to supply high quality raw materials for new products.

Rail

- Move commodities over large distances - Fuel efficient based on cost per volume moved - High fixed costs in equipment and facilities - Scheduled to maximize utilization - Transportation time can be long-Trains 'built' not scheduled - The price structure and heavy load capability make rail an ideal mode for carrying large, heavy, or high-density products over long distances.

What are the basic principles of negotiation?

- Negotiation is likely to result in a positive outcome only if the value the buyer places on outsourcing the supply chain function to a supplier is at least as large as the value the supplier places on performing the function for the buyer. - The difference between the values of the buyer and seller is the bargaining surplus - The goal of each negotiating party is to capture as much of the bargaining surplus as possible -Have a clear idea of your own value and as good an estimate of the third party's value as possible -Look for a fair outcome based on equally or equitably dividing the bargaining surplus -A win-win outcome

Supply Chain Drivers: Information

- One of the biggest challenges to improved supply chain sustainability - Absence of standards for measurement and reporting means that some claims of improvement are not verifiable - Many foreign governments talk "green", but their practices are not.

What is information centralization?

- Online systems (IT) that allow customers or stores to locate stock -Especially in the E-com world, product can be sourced from any location - Improves product availability without adding to inventories - Reduces the amount of safety inventory - Should all products be stocked at every location? - Consider e-com vs retail channels - Required level of safety inventory to stock all locations

Package Carriers

- Package carriers are transportation companies such as FedEx, UPS, and the U.S. Postal Service, which carry small packages ranging from letters to shipments weighing about 150 pounds. - Package carriers are expensive and cannot compete with LTL carriers on price for large shipments. - Rapid and reliable delivery - Small and time-sensitive shipments - Provide other value-added services - Given the small size of packages and several delivery points, consolidation of shipments is a key factor in increasing utilization and decreasing costs for package carriers.

What is the role of procurement/sourcing in a supply chain?

- Purchasing, also procurement, is the process by which companies acquire raw materials, components, products, services, or other resources from suppliers to execute their operations (Inputs) - Sourcing: entire set of business processes required to purchase goods and services (who/where from) - Outsourcing: supply chain function being performed by a third party (product or services)

What are the elements of auctions?

- Qualify potential suppliers - Suppliers bid on requirements - When unit price is important, buyer must specify performance expectations - Setting up auctions when not all attributes can be quantified is difficult - When there are many important non-price attributes, use direct negotiations - Collusion among bidders

Aggregating Multiple Products in single order

- Savings in transportation costs - Reduces fixed cost for each product - Lot size for each product can be reduced - Cycle inventory is reduced - Single delivery from multiple suppliers or single truck delivering to multiple retailers - Receiving and loading costs reduced Aggregating replenishment across products, retailers, or suppliers in a single order allows for a reduction in lot size for individual products......Because fixed ordering and transportation costs are spread across multiple products, retailers, or suppliers.

What are the benefits of lower cycle inventory?

- Shorter average flow time - Lower working capital requirement s - Lower inventory holding costs

Trucks

- Significant fraction of the goods moved Truckload (TL) -Dedicated truck moving point to point -Low fixed cost -Imbalance between flows Less than truckload (LTL) -Small lots -Hub and spoke system -May take longer than TL Trucking is more expensive than rail but offers the advantage of door-to-door shipment and a shorter delivery time. It also has the advantage of requiring no transfer between pickup and delivery.

How do firms share risk and reward in the supply chain?

- Stronger firms tend to push risk on to supply chain partners -Whether the supplier or customer, the party in the strongest position has the advantage in negotiations - Many firms care less about growing the surplus and more about what share of the surplus they are able to capture. As firms gain greater power in a supply chain, they often attempt to capture a greater share of the surplus while pushing more risk onto their supply chain partners.

All Shipments via Intermediate Transit Point with Storage

- Suppliers send their shipments to a central distribution center - Stored until needed by buyers - Shipped to each buyer location

All Shipments via Intermediate Transit Point with Cross-Docking

- Suppliers send their shipments to an intermediate transit point (which could be a DC), where they are cross-docked and sent to buyer locations without storing them. - Major benefits of cross-docking are that little inventory needs to be held and product flows faster in the supply chain. Cross-docking also saves on handling cost because product does not have to be moved into and out of storage.

Why is cycle inventory held?

- Take advantage of economies of scale - Reduce costs in the supply chain

Role of IT in Transportation

- The complexity of transportation decisions demands use of IT systems IT software can assist in: - TMS; Transportation Management Systems -Identification of optimal routes by minimizing costs subject to delivery constraints -Optimal fleet utilization -GPS applications

Environmental Pillar

- The environmental pillar measures a firm's impact on the environment, including air, land, water, and ecosystems. - Firm activities that improve the environmental pillar can be categorized as resource reduction, emission reduction, and product innovation. - The term greenwashing is often used to refer to products and practices that seem green but fundamentally aim to grow profits.

Role of Sustainability in a Supply Chain

- The health and survival of every supply chain depends on the health of the surrounding world (we all live in the same fish bowl) - Expand the goal of a supply chain beyond the interests of its participants (it's everyone) - Sustainable development: development that meets the needs of the present without compromising the ability of future generations to meet their own needs (renewable) - Most effort is expended in reducing risk - Activity slows as actions may require upfront investment (additional costs to the supply chain)

Trade-off between Transportation Cost and Customer Responsiveness

- The transportation cost a supply chain incurs is closely linked to the degree of responsiveness the supply chain aims to provide. -High responsiveness, high transportation costs -Decreased responsiveness, lower transportation costs - Temporal aggregation is the process of combining orders across time. Temporal aggregation decreases a firm's responsiveness because of shipping delay, but also decreases transportation costs because of economies of scale that result from larger ship- ments.

What are the factors affecting the level of safety stock?

- The uncertainty of both demand and supply. As the uncertainty of supply or demand grows, the required level of safety inventories increases. - The desired level of product availability. As the desired level of product availability increases, the required level of safety inventory also increases.

Request for Proposal (RFP)

A type of procurement document used to request proposals from prospective sellers of products or services. In some application areas, it may have a narrower or more specific meaning.

Inventory Profile

A visual representation of the inventory level over time Order > Receive > Consume > Reorder

Determining the appropriate level of safety inventory

Evaluating Safety Inventory Given a Replenishment Policy Expected demand during lead time = D x L Safety inventory, ss = ROP - D x L Cycle inventory = Q/2 Average inventory = cycle inventory (Q/2) + safety inventory Average flow time = average inventory/throughput

Dimensions which emissions pricing mechanism should be evaluated:

-Cost of administration: The cost of administering an emissions pricing policy depends on the number of sources that need to be monitored -Price volatility: Businesses tend to prefer low price volatility because it allows them to better plan their sustainability activities. A carbon tax fixes the price of emissions, whereas a cap-and-trade system displays price volatility. -Emission uncertainty: A cap-and-trade system caps the emissions, whereas a carbon tax can potentially have high emissions if the cost of reducing emissions is greater than the tax. -New information uncertainty: As new information becomes available about the costs and benefits of emission reduction, the price of emissions should adjust accordingly -Industry competitiveness: A country or state that is further along on emission pricing can potentially hurt the competitiveness of its own emission intensive firms relative to firms operating outside its borders. -Wealth transfer to energy exporting countries: For a country that imports most of its energy supplies, a cap-and-trade system has the potential to shift wealth to energy- exporting countries. The price on emissions is designed to encourage lower consumption of fuels like crude oil. -Revenue neutrality: Several studies have indicated that the costs of emission pricing policies are minimized if any government revenue from these policies is returned to the consumers in the form of a reduction in the marginal rates of pre-existing income or sales taxes.

Barriers to increased sustainability

-Insufficient return on investment (economic) -Customers' unwillingness to pay a premium for green products (Support of the customer base. Supply will always follow demand) -Difficulty evaluating sustainability across a product life cycle (what are total costs and long term effects?)

Role of Transportation in a Supply Chain

-Movement of product from one location to another, connects dots within the supply chain -Products rarely produced and consumed in the same location -Significant cost component -Shipper requires the movement of the product -Carrier moves or transports the product

What must be considered when planning safety inventory?

1. What is the appropriate level of product availability? 2. How much safety inventory is needed for the desired level of product availability (what are the risks and consequences of a disruption?)? 3. What actions can be taken to reduce safety inventory without hurting product availability?

Total Cost (TC)

1) Total Cost (TC) = CD + (D/Q)S + (Q/2)hC C = Cost per unit D = Demand Q = Order Quantity S = Fixed Order Cost h= Holding cost (percentage)

What are typical situations where the supply chain exploits economies of scale?

1. A fixed cost is incurred each time an order is placed or produced. 2. The supplier offers price discounts based on the quantity purchased per lot. 3. The supplier offers short-term price discounts or holds trade promotions.

Questions to ask before outsourcing

1. Will the third party increase the supply chain surplus relative to performing the activity in-house? (which is more cost effective?) 2. To what extent do risks grow upon outsourcing? (give up some control of the process/function) 3. Are there strategic reasons to outsource? (free up internal resources, or is outside party more efficient?)

Making Transportation Decisions in Practice

1. Align transportation strategy with competitive strategy 2. Consider both in-house and outsourced transportation 3. Use technology to improve transportation performance 4. Design flexibility into the transportation network

What are replenishment policies?

1. Continuous review: Inventory is continuously tracked, and an order for a lot size Q is placed when the inventory declines to the reorder point (ROP). 2. Periodic review: Inventory status is checked at regular periodic intervals, and an order is placed to raise the inventory level to a specified threshold. Periodic review replenishment policies require more safety inventory than continuous review policies for the same lead time and level of product availability.

The three pillars of sustainable development

1. Economic growth 2. Environmental protection 3. Social progress All three pillars must be reconciled for sustainability to occur.

What are the strategic factors in sourcing?

1. Support the business strategy: Link business strategy to the make or buy decision. Your firm becomes stronger with the outsourced relationship 2. Improve firm focus: A firm must identify core competencies and provide a strategic advantage. Outsourcing all other activities helps improve focus and performance.

What are the risks of using a third party?

1. The process is broken to start with: The biggest problems arise when a firm outsources supply chain functions simply because it has lost control of the process. 2. Underestimation of the cost/effort of coordination with outside party (managing an outside relationship) 3. Reduced customer/supplier contact: The loss of customer contact is particularly significant for firms that sell directly to consumers but decide to use a third party 4. Loss of internal capability and growth in third-party power 5. Leakage of sensitive data and information 6. Ineffective contracts: Contracts with performance metrics that distort the third party's incentives often significantly reduce any gains from outsourcing 7. Loss of supply chain visibility: makes it harder for the firm to respond quickly to local customer and market demands. 8. Negative reputation impact: Actions regarding labor or the environment taken by the third party can have a significant negative impact on the reputation of the firm

Making Sourcing Decisions in Practice

1. Use multifunction teams: Effective strategies for sourcing result from multifunctional collaboration within the firm 2. Ensure appropriate coordination across regions and business units: Coordination of purchasing across all regions and business units allows a firm to maximize economies of scale in purchasing and also to reduce transaction costs. 3. Always evaluate the total cost of ownership: All factors that influence the total cost of ownership should be identified and used in selecting suppliers. 4. Build long-term relationships with key suppliers: A basic principle of good sourcing is that a buyer and supplier working together can generate more opportunities for savings than the two parties working independently

What is forward buying?

A forward buy occurs when a retailer purchases in the promotional period for sales in future periods. A forward buy helps reduce the retailer's future cost of goods for product sold after the promotion ends.

Direct Shipping with Milk Runs

A milk run is a route on which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single buyer location In direct shipping with milk runs, a supplier delivers directly to multiple buyer locations on a truck or a truck picks up deliveries destined for the same buyer location from many suppliers.

How are cycle inventory and lot size related?

Cycle Inventory = lot size / 2 = Q/2

Why does cycle inventory exist?

Cycle inventory exists in a supply chain because different stages exploit economies of scale to lower total cost. The costs considered include material cost, fixed ordering cost, and holding cost. + transportation

Chapter 11: Managing Economies of Scale

Chapter 11: Managing Economies of Scale

Chapter 12: Managing Uncertainty

Chapter 12: Managing Uncertainty

Chapter 14: Transportation

Chapter 14: Transportation

Chapter 15: Sourcing Decisions in a Supply Chain

Chapter 15: Sourcing Decisions in a Supply Chain

Chapter 17: Sustainability in the Supply Chain

Chapter 17: Sustainability in the Supply Chain

Lot sizing for a single product (EOQ)

D = Annual demand of the product S = Fixed cost incurred per order C = Cost per unit of product h = Holding cost per year as a fraction of product cost Annual material cost = CD Number of orders per year = D/Q Annual ordering cost = (D/Q)S Annual holding cost = (Q/2)H = (Q/2)hC Total annual cost = TC = CD + (D/Q)S + (Q/2)hC

How do you measure demand uncertainty?

D =Average demand per period sD =Standard deviation of demand (forecast error) per period Lead time (L) is the gap between when an order is placed and when it is received

What are the first steps to selecting a supplier?

First, decide whether to use single or multiple sourcing while considering risks and contingencies. Then, make selection using: - Offline competitive bids - Develop and distribute Request for Proposals (RFP's) - Reverse auctions (vendors bid for your business) - Direct negotiations Supplier selection should be based on the total cost of using a supplier

What is the impact of desired product availability and uncertainty?

Goal is to reduce the level of safety inventory required in a way that does not adversely affect product availability. You could target: - Reduce the supplier lead time L -Reduce the underlying uncertainty of demand A reduction in supply uncertainty can help to dramatically reduce the required safety inventory without hurting product availability. The more reliable, consistent, and stable your suppliers are, the less inventory you need to carry.

What is holding cost?

Holding cost is the cost of carrying one unit in inventory for a specified period of time, usually one year. It is a combination of the cost of capital, the cost of physically storing the inventory, and the cost that results from the product becoming obsolete. H is the total holding cost and h is the unit cost of the product. • Holding cost incurred per unit per year = $H/unit/year =hC

What is the average price paid per unit purchased?

It is a key cost in the lot sizing decision. The price paid per unit is referred to as the material cost. It is measured in dollars per unit. increasing lot size decreases material cost due to economies of scale. Material cost = C • Average price per unit purchased, $C/unit

What is the role of cycle inventory in a supply chain?

Lot or batch size is the quantity that a stage of a supply chain either produces or purchases at a time. Cycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer. Q: Quantity in a lot or batch size D: Demand per unit time

Shipping via DC Using Milk Runs

Milk runs can be used from a DC if lot sizes to be delivered to each buyer location are small. Milk runs reduce outbound transportation costs by consolidating small shipments.

Sustainability and Supply Chain Drivers

Opportunities for improving supply chain sustainability can be identified by matching the social (workforce, customer, society) and environmental (resource reduction, emission reduction, product innovation) pillars

What is postponement?

Postponement is the ability of a supply chain to delay product differentiation or customization until closer to the time the product is sold. - Have common components in the supply chain for most of the push phase - Move product differentiation as close to the pull phase of the supply chain as possible

All Shipments via Intermediate Distribution Center with Storage

Product is shipped from suppliers to a central distribution center, where it is stored until needed by buyers when it is shipped to each buyer location The presence of a DC allows a supply chain to achieve economies of scale for inbound transportation to a point close to the final destination, because each supplier sends a large ship- ment to the DC that contains product for all locations the DC serves

What is safety inventory?

Safety inventory is inventory carried to satisfy demand that exceeds the amount forecast. Safety inventory is required because demand is uncertain, and a product shortage may result if actual demand exceeds the forecast demand. - Raising the level of safety inventory increases product availability and thus the margin captured from avoiding missed sales -However, raising the level of safety inventory increases inventory holding costs

What are the factors influencing growth of surplus by a third party?

Scale: If your firm is large scale, it is unlikely that a third party can achieve further scale economies and increase the surplus Uncertainty: If requirements are highly variable over time, third party can increase the surplus through aggregation (saves on internal investments when uncertain outcomes exist) Specificity of assets: If assets required are specific to a firm, a third party is unlikely to increase the surplus (unless this is a specialty of the outside firm) A firm gains the most by outsourcing to a third party if its needs are small, highly uncertain, and shared by other firms sourcing from the same third party.

What is substitution?

Substitution refers to the use of one product to satisfy demand for a different product. Substitution may occur in two situations: 1. Manufacturer-driven substitution: The manufacturer or supplier makes the decision to substitute 2. Customer-driven substitution: Customers make the decision to substitute.

Tailored Transportation

Tailored transportation is the use of different transportation networks and modes based on customer and product characteristics. Factors affecting tailoring -Customer density and distance -Customer size - Transportation cost based on total route distance - Delivery cost based on number of deliveries - Product demand and value

How does sharing risk grow supply chain profits?

The absence of risk sharing in a supply chain results in locally optimal decisions that decrease the total supply chain profits. Three approaches to risk sharing increase overall supply chain profits: -Buyback or returns: A buyback or returns clause allows a retailer to return unsold inventory up to a specified amount, at an agreed-upon price. In this case, the supplier is sharing risk by agreeing to buy back unsold inventory at the retailer. -Revenue sharing: In revenue-sharing contracts, the manufacturer charges the retailer a lower wholesale price, but shares a fraction of the retailer's revenue. In this case, the manufacturer is sharing risk because the retailer's cost is lower (than without risk sharing) if demand is low. -Quantity flexibility: Under quantity flexibility contracts, the manufacturer allows the retailer to change the quantity ordered (within limits) after observing demand. By reducing customer/retailer risk, they may be more willing to carry extra product, and thus increase possibility of sales

How do you decide whether to in-house or outsource?

The decision to outsource is based on the growth in supply chain surplus provided by the third party and the increase in risk incurred by using a third party. A firm should consider outsourcing if the growth in surplus is large with a small increase in risk. Performing the function in-house is preferable if the growth in surplus is small or the increase in risk is large.

Factors driving focus on supply chain

The factors driving an increased focus on supply chain sustainability can be divided into three distinct categories: 1. Reducing risk and improving the financial performance of the supply chain 2. Community pressures and government mandates 3. Attracting customers that value sustainability

Challenges for measuring and reporting social and environmental pillars:

The first challenge relates to the scope over which a category is measured. The second challenge in measurement and reporting relates to the use of absolute or relative measures of performance. An absolute measure reports the total amount of energy consumption, whereas a relative measure may report the energy consumed per unit of output.

What is fixed ordering cost?

The fixed ordering cost includes all costs that do not vary with the size of the order but are incurred each time an order is placed. Fixed Ordering Cost = S • Fixed ordering cost incurred per lot, $S/lot

How do third parties increase the supply chain surplus?

The growth in surplus (cost advantage) comes from aggregating (pooling) capacity, inventory, inbound or outbound transportation, warehousing, procurement, information, receivables, or relationships to a level that the firm cannot achieve on its own. 1. Capacity aggregation 2. Inventory aggregation 3. Transportation aggregation by transportation intermediaries 4. Transportation aggregation by storage intermediaries 5. Warehousing aggregation 6. Procurement aggregation 7. Information aggregation 8. Receivables aggregation 9. Relationship aggregation 10. Lower costs and higher quality

What is the primary role of cycle inventory?

The primary role of cycle inventory is to allow different stages in a supply chain to purchase product in lot sizes that minimize the sum of the material, ordering, and holding costs. Ideally, cycle inventory decisions should be made considering the total cost across the entire supply chain. In practice, however, it is generally the case that each stage makes its cycle inventory decisions independently. Increases total cycle inventory and total costs in the supply chain

Social Pillar

The social pillar measures a firm's ability to address issues that are important for its workforce, customers, and society. Workforce: employment quality, health and safety, training and development, and diversity and opportunity. Customer: accurate product information and labeling, along with the impact of the product on the customer's health and safety. Social: human rights and the impact on local communities. - Audit and support suppliers -Supplier collaboration and capability that build strong associations with social and environmental responsibility performance improvement and lower operating costs - Customers reward sustainable practices from vendors -Benefits accrue to all customers of the supplier

What is commonality?

The use of common components in a variety of products is an effective supply chain strategy to exploit aggregation and reduce component inventories. With increasing product variety, component commonality is a key to reducing supply chain inventories without hurting product availability.

What are third-party logistics providers?

Third-party logistics (3PL) providers performs one or more of the logistics activities relating to the flow of product, information, and funds that could be performed by the firm itself - Storage - Inventory control - IT/WMS & TMS functions - Distribution - Customer compliance issues (avoiding VCB's) - Special packaging, labeling - Transportation

Air

Three major cost components: 1. Fixed infrastructure and equipment 2. Cost of labor and fuel that is independent of the passengers or cargo on a flight but is fixed for a flight 3. Variable cost depending on passenger/cargo Key Issues: - Location/number of hubs - Fleet assignment - Maintenance schedules - Crew scheduling - Prices and availability Air carriers offer a fast and fairly expensive mode of transportation for cargo. Small, high- value items or time-sensitive emergency shipments that must travel a long distance are best suited for air transport.

Design options for a transportation network

When designing a transportation network between two stages of the supply chain: 1. Should transportation be direct or through an intermediate site? 2. Should the intermediate site stock product or only serve as a cross-docking location? 3. Should each delivery route supply a single destination or multiple destinations (milk run)?

Key Points for Transportation

When selecting a mode of transportation, managers must account for unit costs and cycle, safety, and in-transit inventory costs that result from using each mode. Modes with high transportation costs can be justified if they result in significantly lower inventory costs. In short, look at the overall total cost of inventory in the supply chain.

Direct Shipment Network to Single Destination

With the direct shipment network to a single destination option, the buyer structures the transportation network so that all shipments come directly from each supplier to each buyer location The major advantage of a direct shipment transportation network is the elimination of intermediate warehouses and its simplicity of operation and coordination. A direct shipment network to single destination is justified only if demand at buyer locations is large enough that optimal replenishment lot sizes are close to a truckload from each sup- plier to each location.

Economies of Scale to Exploit Quantity Discounts

•Lot size-based discount - discounts based on quantity ordered in a single lot •Volume based discount - discount is based on total quantity purchased over a given period •Two common schemes -All-unit quantity discounts (combined SKU's) -Marginal unit quantity discount or multi-block tariffs (tiered pricing)