SCM 470 Exam 1

ferdows 2004

1. Be able to explain why Zara has such control over the different steps of the process (what we term more "stages" of production) than its rivals. Key way Zara differed: much greater degree of vertical integration Event that shaped Zara's trajectory towards vertical integration: 1975 German wholesaler cancels a large order, the firm can't find any buyers for the order, so the decision is made to open a store called Zara (company started life as a manufacturer). Imprinting: conditions at the time of an organization's founding play a central role in shaping how the organization evolves in the future. 2. How does Zara's purchasing, production, and logistics operations differ from its rivals? Vertical integration 3. What is Zara's organizational structure and how does this organizational structure contribute to Zara's very rapid ability to design and introduce new fashion products? How is Zara organized? Grouped into 3 different divisions (men's, women's, children's divisions), with each division having their own set of functional experts (e.g. marketing, product development, production, etc.). Why use the divisional structure? Simplifies operations such that communication lines are much clearer (great degree of focus). The needs of these divisions are not the same. Facility layout: open office format. Why does this facilitate communication? Easy to pull together people because folks CAN'T HIDE IN THEIR OFFICES! Why is face to face communication so critical for Zara? Need speed. Why doesn't email work? · Converge on a common meaning versus convey information · Convergence is necessary when information is equivocal (uncertain, could be interpreted in different ways). Zara faces a lot of equivocal information. The best way to address equivocal information to converge on a common meaning is through face to face communication. · Why? (i) body language, (ii) both verbal and nonverbal cues are more apparent, (iii) very rapid feedback that can't be hidden from view, (iv) more methods to communicate (draw on a whiteboard). · Conveying information: best done through written word. (i) to write, we must organize our thoughts, (ii) we can go back and look at the message. 4. What is the advantage for Zara of owning its stores rather than franchising them? What do you believe, more broadly, are the advantages of franchising? Franchising: franchisor (parent company: Marriott) provides brand name (generates demand) and "recipe" for how to perform activities (manual, training, etc.) in return for a fixed franchise fee and royalties (x% of an outlet's sales). The franchisee provides (i) capital, (ii) labor, and (iii) oversee operations. The franchisee is the residual claimant on the profits of the outlet (profit = sales - royalty - costs). Benefits of franchising from the parent company: (i) leverage the local knowledge of the individual running the outlet, (ii) less administrative burden for the franchisor, (iii) less capital investments/risk, (iv) franchisee has much stronger incentive to keep costs under control as well as innovating to drive additional sales. Disadvantages: (i) uniformity of operations, (ii) less control over how the establishments operate because the franchisees are independent business people, (iii) poor service quality hurts the entire brand. 5. What characteristics of Zara's costs with regard to the different logistics cost components allows it to profitability engage in its practices? Hint: think about the profit margin for fashion products and the magnitude of the individual cost components. Zara absorbs higher costs for elements of the supply chain's physical function (air transportation) to reduce costs associated with the market mediation function (markdowns, lost sales). 6. One drawback often noted with vertical integration is that firms are exposed to risks because of asset ownership. Explain why Zara's physical assets (specifically manufacturing equipment, automated distribution center equipment, etc.) are high or low risk (hint, think about the flexibility of manufacturing capacity in this industry relative to other industries). 7. What is Zara's strategy with regard to the products it outsources (e.g., which types of products are outsourced)? Why would this strategy make sense? What types of products are entirely outsourced? Basic items (socks, sweaters) [functional products]. Who is production outsourced to for these basic items? Locations where labor is much less expensive (North Africa, East Asia, Eastern Europe). Suppliers best described as small subcontractors that are heavily dependent on Zara. Alternative: large contract manufacturers in East Asia (firms that make product for Nike). Why not use them? (i) Zara would not have as much control, (ii) because Zara makes complex products in house, they don't need the capabilities of the large contract manufacturers Why does it work to outsource the functional products? Demand should be stable (reduces the need for rapid adjustment operations), quality isn't at much of a concern because (i) items are easy to produce using a well understood production process, and (ii) quality for functional clothing items is straightforward to evaluate. 8. Why do you think that when Zara produces clothing in-house it outsources the most labor-intensive steps to small, local subcontractors? Why doesn't Zara want a lot of workers doing labor intensive sewing and other activities? Zara's production workers likely making well above prevailing wage for clothing manufacturing. Challenge is that if they did these activities in house, they would pay well above the cost they could get via the open market because it is very difficult to have a multi-tiered wage system in a factory. Why? It reduces our costs, labor costs. 9. Why does Zara maintain excess production capacity? Furthermore, what do you believe is the relationship between the amount of production capacity that you maintain and the required inventory levels? To be responsive. As excess production capacity increases, the amount of finished goods that needs to be held to be responsive to customer demand decreases. Strategic decision: the costs of excess production capacity versus costs of finished goods I nventory.

fisher 1997

1. How does the author define functional products and innovative products? What are the ways in which these products differ? · Functional: products that satisfy basic needs, which don't change much over time, predictable demand (smooth and steady, trended, regular seasonality), and long-life cycles o Stability invites competition which leads to low profit margins (flour, canned items) o EX: staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations · Innovative: companies introduce innovations to avoid low margins and give customers an additional reason to buy their offerings o Can enable a company to achieve higher profit margins, but the very newness of these products makes demand for them unpredictable o Short life cycle (just a few months) o EX: fast fashion apparel and personal computers, Ben and Jerry's flavors, cell phones 2. Why are the lifecycles for innovative products so short? As imitators erode the competitive advantage that innovative products enjoy, companies are forced to introduce a steady stream of newer innovations Copycats (imitators) - Peloton Consumer tastes quickly evolve 3. The author describes a supply chain as having to perform two distinct functions: [1] a physical function and [2] a market mediation function. What are these distinct functions, and which function is most important for functional products and innovative products? · Physical: readily apparent and includes converting raw materials into parts, components, and eventually finished goods, and transporting all of them from one point in the supply chain to the next (input sourcing, production, warehousing/storage, transportation) (FUNCTIONAL) · Market Mediation: less visible but equally important; purpose is ensuring that the variety of products reaching the marketplace matches what consumers want to buy, concerns cost of lost sales and markdowns (INNOVATIVE) · Functional Products: The predictable demand of functional products makes market mediation easy because a nearly perfect match between supply and demand can be achieved o Suppliers, manufacturers, and retailers must coordinate their activities in order to meet predictable demand at the lowest cost · Innovative Products: the uncertain market reaction to innovation increases the risk of shortages or excess supplies o Market mediation costs predominate for these products, and they, not physical costs, should be managers' primary focus 4. Which type of mismatch is more common: [1] having a responsive supply chain for a functional product or [2] having an efficient supply chain for an innovative product? Why is the primary mechanism that brings about this relationship? Having an efficient supply chain for an innovative product. For any company with innovative products, the rewards from investments in improving supply chain responsiveness are usually much greater than the rewards from investments in improving the chain's efficiency. Physical function costs are easy to measure. Market mediation costs are hard to measure. Market mediation costs require us to make assumptions about how consumers will behave (if we shorten lead time by 15 days, we can reduce the average markdown from 20% to 8%). 5. Why have many firms started to increase the number of new product introductions? They are fueled by an increase in the number of competitors and by the efforts of existing competitors to protect or increase profit margins. Marketing folks wanted to please all customers in hopes of increasing prices (increase margins). 6. On p. 110 the author describes two strategies utilized by Compaq and World Company to create a responsive supply chain. Explain each of these strategies. · Compaq: continue producing certain high variety, short life cycle circuits in house, rather than outsource them to a low-cost Asian country, because local production gave the company increased flexibility and shorter lead times. Production done domestically. o Domestically produce: closer to market means less time for transportation o In house production: full control to respond to changes · World Company: produces its basic styles in low-cost Chinese plants, but keeps production of high fashion styles in Japan, where the advantage of being able to respond quickly to emerging fashion trends more than offsets the disadvantage of high labor costs 7. One of the primary drivers of the misalignment between characteristics of a company's supply chain and its product is inertia from past experience. How does the computer industry's experience illustrate this phenomenon? Hint: see pp. 110-111. 8. What are the two ways that a company can align its supply chain with its product assuming a mismatch whereby the company currently has an efficient supply chain for an innovative product? Furthermore, what characteristics of the product make one strategy preferable over another? · Simplify product lines and pricing and move from innovative to functional (toothpaste) · When a company has an unresponsive supply chain for innovative products, the right solution is to make some products functional and to create a responsive supply chain for the remaining innovative products (automobile industry) · Solution 1: make product more functional · Solution 2: make supply chain responsive · Key factors that affect this: profit / sales ratio 9. On p. 112 the author explains that one of the challenges with increasing the responsiveness of a firm's supply chain is that this can clash with other managerial practices/ideologies, such as just-in-time (JIT) inventory management. How is this illustrated with the automaker BMW? BMW has innovative cars, which require inventory buffers to absorb uncertainty in demand. The most efficient place to put buffers is in parts but doing so directly contradicts the JIT system. COVID19: Let's add more inventory ("just in case" inventory). Will this really happen? Skeptical view: (i) known costs to adding inventory, but the benefits are all based on assumptions 10. What is the concept of forward buying with regard to the discussion of Campbell's? Why is forward buying so problematic? Forward buying is buying a year's (or x number of months) supply all at once to stock up. Retailers have to pay to carry the year's supply, and the shipment bulge added cost throughout the Campbell system. 11. What role does the pressure to meet Wall Street's expectations play in shaping decisions regarding the use of price discounts to induce sales? Hint: see p. 113. 12. The author explains that the three things that companies must do to increase their responsiveness are to [1] reduce uncertainty, [2] avoid uncertainty, and [3] hedge against uncertainty. Explain what each of these mean by providing examples. · Reduce Uncertainty: by finding sources of new data that can serve as leading indicators or by having different products share common components as much as possible so that demand for components becomes more predictable · Avoid Uncertainty: by cutting lead times and increasing the supply chain's flexibility so that it can produce to order or at least manufacture the product at a time closer to when demand materializes and can be accurately forecast · Hedge Against Uncertainty: hedge against the remaining residual uncertainty with buffers of inventory or excess capacity 13. The Japanese company National Bicycle became famous for implementing a strategy whereby the company produced customized bicycles. What are some of the challenges with implementing such a strategy with regard to [1] acceptable lead time for customers, [2] costs to produce customize bicycles, and [3] customers' willingness to pay for customization? When no one is buying bikes (in the winter), they build an inventory of high-end sports bicycles. Also, mass customization is not cheap. Their custom production requires three times more labor than assembly line mass production of bikes. Affluent customers are willing to pay for high margin, innovative products, and those products require a different, more expensive, but more responsive production process. MASS CUSTOMIZATION 14. Sport Obermeyer is a second company featured in the article. What are three ways the company sought to manage uncertainty? · Reduce Uncertainty: solicited early orders from important customers. The company invited its 25 largest retailers to Aspen each year to evaluate its new line. They found that the early orders from this handful of retailers permitted it to forecast national demand for all its products with a margin of error of just 10%. · Avoid Uncertainty: able to avoid uncertainty on half of its production by committing that production after early orders had been received in February. · Hedge Against Uncertainty: constructed a forecast for all products and used the average of the six forecasts as the company's forecast. They also used data on the cost of overproduction and underproduction. · Accurate Response

blackburn 2004

1. What is the product characteristic that is the most influential in shaping the design of the reverse supply chain and why is this characteristic so important? Marginal value of time (MVT): the rate a product decreases in value as it spends more time in the return process. High MVT: consumer electronics [technological obsolescence]; fashion [consumer tastes change] Low MVT: power tools, disposable cameras 2. What are the five stages of product returns? Explain each one 1. Product Acquisition: product returned by the consumer, or leases expire (leasing cars) 2. Reverse Logistics: relocate (transport) product further upstream 3. Inspection and Disposition: decision about what to do with the item (sell as is; sell as is but in a new box; remanufacture and resell at a discount; remanufacture and keep for warranty support; scrap [salvage pieces of value and dispose of rest]; throw away/recycle directly) 4. Remanufacturing 5. Marketing: figure out distribution channels and price points for returned items 3. How can effective management of the reverse supply chain allow companies to target different customer markets? Could there be any problems associated with opening these new markets? Target to people who are unwilling/unable to pay full price for the original product. Sales cannibalization is the principal concern. 4. Explain the design of ABC Company's original reverse supply chain; was this supply chain designed more for responsive asset recovery or efficiency? Centralized structure. Product returns were consolidated and sent in large quantity to centralized inspection/testing/refurbishing locations. Designed around cost. Why does it seem that costs get primacy in reverse supply chains unless there is direct managerial effort to focus on responsiveness? Costs are very visible and reducing them has a direct positive effect on profit. 5. What are the two primary reasons that returned products lose value? Explain each? 1. As time goes on, product becomes more obsolete relative to new, competitor products. 2. As more time passes, it's more likely we have to downgrade the value recovery (e.g., rather than putting back on shelf, use for warranty replacement). 6. How are the rates of depreciation for different products characterized (i.e., are these linear, exponential, etc.?) Declines linearly with these discontinuous jumps that exist. 7. What types of products have the largest marginal value of time? High MVT: consumer electronics [technological obsolescence]; fashion [consumer tastes change] Low MVT: power tools, disposable cameras 8. What is the key characteristic difference between reverse supply chains designed for products with a low marginal value of time vis-à-vis products with a high marginal value of time? Location of the disposition decision. Low MVT items: centralize this High MVT items: decentralize this 9. Explain the concept of "preponement" and the two reasons it helps reduce time delays Preponement: making the disposition decision as early as possible once the product enters the reverse supply chain. 1. Determine early which products can be returned to shelf versus scrapped/thrown in landfill. 2. Centralized locations that do remanufacturing work more efficiently? Two reasons why: a. Less products are needing examined, other things equal b. Products that do go to the central return location should be more homogenous with regard to the condition they are in 10. What are the challenges associated with using a preponement strategy? 1. Incentive alignment challenges with resellers 2. Technological feasibility of remote inspection and disposition 11. What role does technology and new product development play in shaping the design of reverse supply chains? Design product to make evaluation in field feasible.

prataveria 2020

1] The authors repeatedly cite Pagh & Cooper (1998) for the framework they create. This framework is shown below. The picture below is from Pagh & Cooper (1998, p. 15). In class we will talk about this framework to form a basis for comparing and contrasting the authors' framework. 2] What are some of the reasons that the "where" component of activities needs to be considered when examining global supply chains (hint, see p. 97). 1. Trade barriers (European borders in the 1980s) 2. Tariffs and customs duties 3. Local content requirements 4. Labor cost differences

hull 2005

[1]: How does a supply-driven chain differ from a demand-driven chain with regard to the entity that activates activities? Why is this the case? Supply source is what activates all activity within the chain. [2]: How does the use of pricing in supply-driven chains differ from how pricing should be utilized in demand-driven chains for functional products? Price discounting is essential in supply driven supply chains in order the make sure the supply source can operate uninterrupted. For example, discount oil in order to keep the wells pumping.

ellram and tate 2020

[1]: What is the distinction between cost reduction and cost avoidance? What are some examples of each? Cost reduction: the decrease in price paid for an item versus what was paid previously (the part was $10 per unit last year and is now $9.50 per unit). Cost avoidance: paying less for something than you may have otherwise paid without conscious effort on the part of purchasing. [2]: Which type of cost savings (cost reduction versus cost avoidance) tends to receive greater attention at firms? What are some reasons why this is the case? Cost reduction. It's easier to measure. [3]: What relationship may exist between a firm's proportion of purchase spend that is direct and the extent it prioritizes cost avoidance when measuring procurement's performance? Why do you believe this is the case? As a firm's % of spend is focused more on direct inputs, cost avoidance tends to see lower priority because there are more opportunities for cost reduction. [4]: Which type of cost savings (cost reduction versus cost avoidance) presents a greater challenge for purchasing from a legitimacy standpoint? Why do you believe this is the case? Cost avoidance. It's harder to obtain legitimacy for because it is more difficult to measure. [5]: How does risk aversion of purchasing personnel factor into their decisions regarding how they present cost savings to other areas within the company (e.g., divisions/units, top management, finance, etc.)? Cost avoidance is often not reported to avoid conflict because other functional groups oppose that. [6]: What are some strategies that firms can implement to increase the perceived legitimacy of cost savings that stem from cost avoidance efforts? Cross functional buy in of the rules and techniques that are used to count cost avoidance savings.

fort et al 2018

[1]: Looking at Figure 1A on p. 48, when does it appear that we start to see a secular decline in manufacturing employment? How did the pattern of recovery of manufacturing employment following recessions change following the 1992 recession relative to prior recessions? How does manufacturing employment in the 1st decade of 2000s behave differently than the other decades? Up till the recession in the early 1990s, as we come out of recessions manufacturing employment increases rapidly. After the early 1990s recession, manufacturing employment doesn't recover as rapidly. [2]: What are the two primary explanations for the secular decline in manufacturing employment? 1. Import competition coupled with firms offshoring manufacturing to plants in East Asia or Mexico. 2. Technology advances, especially industrial robots in sectors such as automotive. [3]: Examining Figure 3 with the 1977 to 2000 and then the 2000 to 2007 comparisons, what are key differences that you notice? Value Added: output (sales) less all intermediate inputs (goods and services). Value added also equals the sum of labor compensation to employee workers + any taxes paid + surplus (profits). 1997 - 2000: seems to be heavily a story of technology replacing jobs. 2000 - 2007: imports seem to matter more. [4]: Looking at Figure 4, what factor accounts for the greatest proportion of the decline in manufacturing employment in the U.S. (employment adjustment within continuing plants, net firm birth/death, or net plant birth/death within continuing firms)? What does this finding imply about the ability of plants to adjust to changing technology and competition? Where did the jobs go on a net basis, where "net" = jobs created - jobs destroyed? ~7 million jobs have been lost on a net basis, meaning destruction is 7 million more than created. Firms: an entity that owns one or more establishments that is classified as engaging in manufacturing activity. (General Motors) Establishment: a physical location where activity occurs. (GM plant in Lansing) 1. Net firm birth/death = a firm disappears from the database the Census Bureau keeps and, in doing so, the jobs have gone away (EX: a firm with one plant closes that plant and as such, the firm no longer exists). Minimally important factor until ~2000 when it starts to matter more (even more pronounced during the Great Recession). [New England and Mid Atlantic divisions] 2. Within continuing firm plants: plants in existence since 1977 changing their employment levels. Minimal factor through much of the period. 3. Net plant birth/death within ongoing firms: a firm that has been in existence since 1977 closes one or more of its plants. By far the most important factor. Steady from 1977 - 2000 then becomes even steeper from 2000 - 2009. Regarding adaptive ability, these data suggest firms do not view plants as easily adapted to major changes and, instead, prefer to close plants and open new ones. Especially prevalent in the East North Central division [WI, IL, IN, OH, MI]. General Motors, Lordstown Plant (OH), and the Chevy Cruze. [5]: Figure 5 is interesting in that it focuses on the total number of jobs created versus destroyed based on (i) growing/shrinking plants within ongoing firms, (ii) birth/death of plants within ongoing firms, and (iii) birth/death of firms. Which factor has the most pronounced effect? What conclusions does this suggest about the dynamics of job creation and destruction considered as separate concepts relative to only focusing on net change in jobs? Recognize the "net" statistics mask that there are a lot of jobs created and destroyed within each category, but the pattern has evolved over time. [6]: One aspect of Figure 5 is that the lines for growing/shrinking plants within ongoing firms become compressed over time. According to the authors, what does this imply about business dynamism (see p. 63)? 1. More regulation. 2. The requirements to compete today in manufacturing impose higher sunk costs that limit the creation of new firms. [7]: What patterns exist in Figure 6 regarding the change in manufacturing employment by region? Furthermore, how do the adjustment processes differ for the regions that showed pronounced decline in the years prior to 2000? Midwest is the manufacturing heartland.

gordon 2016

[1]: What 100 year period does the author argue is unprecedented in terms of improvement in humanity's economic condition and well-being (especially for Western nations)? Time window: 1870-1970 (unique century). Gordon stresses improvements regarding quality of life concerning (i) less manual work [dishwashers, washing machines, dryers, electric ovens and stoves, refrigeration], (ii) comfort [air conditioning, heaters, lack of light at night], (iii) transportation [cars, airplanes], (iv) health [in 1890 infant mortality was ~22% but by 1950 this had declined to 1%; average life expectancy increased from 45 to 72], (v) entertainment [television, radio], (vi) improvement in vision technology. [2]: The author cites two key "great inventions" as central to the economic revolution experienced during this time period? What are these two inventions? Furthermore, many economic historians have identified a third broad type of product category as facilitating this revolution. Any guesses to what said product category is (hint, it isn't computers or any other sort of communication technology)? 1. Electricity (electrification) [General Electric, Westinghouse] 2. Internal combustion engine 3. Synthetic chemicals Combine these with improved communication via the telegraph and improved transportation via railroads. [3]: Since the 1970s what sectors does the author argue have experienced the majority of advancement? How does this influence his projections for economic growth? Major sectors include entertainment, communication, and collection and processing of information (Internet, computers, cell phones, software for analyzing information [machine learning, artificial intelligence]). [4]: What are the major headwinds that the author argues the U.S. faces over the coming decades? 1. Income inequality (decline of unions; competition from trade eliminating many manufacturing jobs; automation of other manufacturing jobs]. 2. Slowing rate of advance of educational attainment. 3. Population is aging. 4. Debt/GDP and the welfare state (funding Social Security) [different schools of thought on this. One of those is modern monetary theory (MMT) which essentially argues debt is a very limited concern for a country like the US]. [5]: Why does the author claim that GDP gains were greatly under-estimated during the key period he identifies? What is your take on this argument? 1920-1970 GDP growth is terribly underestimated because it can't capture the massive improvements in quality of life (value of clean water, comfort of having air conditioning in FL in August). Some other economists have argued GDP misses the value that people receive from the Internet. KLEMS (capital, labor, energy, materials, purchased services) - all inputs to produce a

chabot case

[1]: What are the major issues and challenges facing Chabot? Industry structure for wallpaper manufacturers: 10 major manufacturers (declining industry), ~$400 million annually of sales, Chabot represents ~$200 million (~50% of the market). Customer base: very concentrated customer base with regard to retailers, with the top 10 composing 90% of sales. Home Centers (Lowes, Home Depot) represent about 80% of Chabot's sales. Who has the power advantage here, Chabot vs Home Center? Home Centers have more power because home centers have very good outside options in that they can eliminate wallpaper without incurring an economic penalty. Chabot cannot risk losing them as a customer though. Reason this matters - what Chabot ultimately does must be perceived by the Home Centers as helping them (the Home Centers) improve inventory turns and, in general, providing more value. Nature of wallpaper as a product category: (i) product life cycle (3-4 months), (ii) demand is fundamentally unpredictable, especially at the retailer x pattern x geographic location level, (iii) gross margin for retailer if sold at full price: 45% (fairly high margin item). Retailers major complaints: A. Inventory turnover is unacceptably low at the store level (1.5-2.0 turns per year). B. Chabot is not responsive to demand for items that sell out (takes 4-6 weeks for replenishment once Chabot runs out of inventory for the item). C. Markdown funding - retailers have to extensively mark down items that don't sell. Fisher (1997): what the ultimate issue Chabot faces is that they have an efficient supply chain for an "innovative" product. [2]: What is the current structure of the company's operating strategy? Be sure to detail the different steps of the manufacturing process and distribution. Also make a reasonable guess regarding outbound transportation mode(s) currently being used. Furthermore, how does the order fulfillment process differ based on whether a product is going through its main production run versus if the product was in high demand and goes through a second production run? Chabot is a make to stock manufacturer in the case. Outbound Transport: from manufacturing plant to DCs (TN, OH, NY, NJ, CA). Mode most likely used for plant to DC moves: using full truckload (if there was enough demand for a full truckload shipment to a retailer DC (distribution center), we would certainly do that). From our DCs to the customer's DCs: less-than-truckload. With the main run, everything is to forecast. With the second run, we are essentially a make to order operation because the demand is already there (which we know because the item sold well). Chabot's management is fine with the DCs because they are paid off. Does this make sense? It does not because this doesn't consider (i) whether this fits within the process we will eventually create and (ii) it completely ignores all of the variable costs associated with those facilities (utilities, maintenance and upkeep, taxes). NY and NJ DCs came about because of mergers and acquisitions. [3]: Propose a strategy as to how Chabot should modify its operations. Your recommendation should be very thorough and touch on the following aspects: •How should Chabot modify its manufacturing operations? •Provide a detailed example of how production of a specific type of wallpaper (e.g., coral blue) would be completed under your new system. •How should Chabot modify the structure of its distribution network (e.g., location and number of DCs), or should it keep the distribution network the same? •How is Chabot's outbound transportation approach going to change with the new strategy relative to its current strategy? For example Given the changes you recommended, what is expected to happen to the costs associated with (i) raw materials and work-in-process inventories UP; (ii) finished goods inventories, (iii) per/unit all-in manufacturing costs [includes manufacturing, packaging, and labeling] UP; (iv) per/unit outbound transportation costs UP; and (v) per/unit warehousing costs DOWN? Chabot said let's add more inventory (3rd master carton) at the store level to deal with high demand items running short. This won't work because it would just add to the excessive inventory problems. Retailers sold cut the master carton quantity from 8 to 4. This deals with poor performers but doesn't deal with issue of slow responsiveness for best sellers. Chabot moves from a make to stock model to a make to order strategy. No more finished goods inventory held at the retail stores or even the retail distribution centers. Catalog at the store for customers to browse and select which patterns they want. At the end of each business data (during the middle of the night), retailers will transmit order data for patterns (and shipment locations) to Chabot. Chabot will use this information to build a production schedule to ensure that production runs are large enough for a pattern to be economical, yet also make sure the product gets to customers within an acceptable lead time. Strategy will leverage consolidation of outbound orders to the same geographic areas as much as possible. Unit of analysis with every order: pattern x retailer x shipment location (geographic region) Consolidate outbound shipments for the same shipment location as much as possible. This allows us to either tender a larger less-than-truckload shipment or, if there is a lot of demand across retailer DCs in a tight geographic region (Chicago, IL as an example), we may have a multi-stop full truckload shipment where the items for different retailers that have DCs in the same geographic region are consolidated into a full truckload and then delivered sequentially to the DCs. For Chabot, retailers with facilities on the West Coast poses the biggest challenge with regard to outbound transportation costs because we have less time to consolidate those shipments.

jacobides 2016

[1]: What do the authors mean by the term "industry architecture"? 1. Who does what (are components made by independent suppliers or are they made by wholly owned subsidiaries of the original equipment makers (OEMs) of the sector; who performs most of the research and development; who is in charge of setting standards for products/components)? 2. Who takes what (which actors get to claim most of the profits)? [2]: What do the authors mean by a "module" as it pertains to an automobile? How do these modules differ from the concept of a "module" as found in the classic product development literature (hint, see p. 1944)? Module to an auto OEM: large subassembly (instrument panel, back seats). Module in a new product development context: module pertains to a product with a modular product architecture whereby standardized "design rules" specify how different components will interact and interface with each other (standard interfaces exist such that different chip makers [Intel, AMD] can design microprocessors that can fit within the same make and model of laptop computer). Question - in the auto context, are there general standardized interfaces between "modules" across OEMs? No, in the auto sector, there are closed standards regarding how different parts of a vehicle will interface (controlled by the OEMs). [3]: What are the standard responsibilities of OEMs in the automotive sector (hint, see p. 1948)? OEM responsibilities: majority of R&D (research and development); develop product architecture (general structure of an SUV, pickup truck, electric versions); design specific vehicles; determine specifications for major subassemblies and determine how they interface; final assembly; manage a network of distributors (franchised dealerships); regulatory compliance. [4]: What role did the rise of the Toyota Production System (TPS) and many Western firms' inability to successfully replicate TPS play on their approach for rethinking industry architecture? Modularity + outsourcing begins in the mid to late 1990s. Wall Street is unhappy with the US automakers because they haven't been able to replicate the Toyota Production System [TPS] (but Wall Street loved the personal computer makers at the time). OEMs decide the best way to compete with Toyota is to rethink industry architecture by rearranging how activities are done. [5]: Was the analogy that a car could be viewed as a truly modular product appropriate? Why or why not? Personal computer industry as the analogy (note: this DOESN'T mean Apple). Very bad analogy...for reasons we will discuss. [6]: What were the core argument(s) as to why OEM's would benefit from large Tier 1 suppliers increasing their responsibility to both design and produce entire modules? What were some company-specific catalysts for this movement (e.g., Ford, Chrysler, Hyundai)? Argument was OEMs would benefit because cut costs because (i) shift design work to engineers who are paid less and (ii) move assembly activities away from union shops. [7]: How did Toyota's approach regarding the "modularity + outsourcing" initiative differ from the other OEMs? Why did Toyota adopt this attitude? Toyota thought this was a poor idea because they didn't believe suppliers had the knowledge base for designing subassemblies that would effectively mesh with other subassemblies. Toyota saw the key role of the OEM as a systems integrator that specializes in combining diverse knowledge areas to make a finished product. [8]: What role did industry analysts and academics play in the "outsourcing + modularity" push? Relatedly, what industry were the auto OEMs being told to emulate? Academics and consultants were a huge influence in this movement. [9]: Why were the Tier 1 suppliers so supportive of the "modularity + outsourcing" push? 1. Could charge more for value added services like engineering. 2. They could break the OEMs' control over the product architecture and design subassemblies that would generalize across OEMs. [10]: Which functional groups at OEMs were the most concerned about the "modularity + outsourcing" push? 1. Purchasing (fears more powerful suppliers). 2. Engineering (fears suppliers have oversold their design capabilities and lack the knowledge the OEMS have). 3. Manufacturing (doesn't believe suppliers can be as productive as the OEMs). [11]: What issues were encountered that resulted in realigned expectations at the OEMs and Tier 1 suppliers that resulted in the "modularity + outsourcing" ending in the early 2000s? 1. Quality issues at the Tier 1's (just don't have the knowledge to engage in design like they thought). 2. OEMs won't give up proprietary standards on how subassemblies interface with one another. 3. OEMs legal/regulatory responsibility. [12]: What were three core factors that allowed the OEMs to retain their position of power in the supply chain and retain their role of systems integrators despite the "modularity + outsourcing" push? 1. OEMs maintained control of the product architecture. 2. OEMs controlled distribution of vehicles via the dealer networks. 3. Regulatory responsibility. [13]: On p. 1960 the authors discuss how the OEMs are approaching electric and autonomous vehicles. How is this strategy different from the "modularity + outsourcing" concept? OEMs are doing the majority of R&D and embracing their role as a systems integrator to bring together many disparate technologies into a finished product. [14]: What company now forms the "dominant analogy" that the authors claim many of the auto OEMs now hold? Why? Apple with their strong control over their product ecosystem.

atasu 2010

[1]: What do the authors note is a common belief that sales and marketing managers have about the effect of remanufactured products on sales and profits? Why do they hold this belief? Remanufacturing reduces profits because remanufactured products cannibalize sales of new products. Source of this justification: "gut feelings", "assumptions", "it is known". [2]: What is a canonical example of a perfect substitute in a remanufactured product setting? In perfect substitute settings, why would firms prefer remanufacturing? Disposable cameras. High end capital goods (especially military equipment). Owner of remanufactured item stays the same, but the product is continually improved. a. M1 Abrams battle tanks b. B-52 bombers used by the USAF c. Commercial aircraft [3]: What are some strategic reasons for companies to offer remanufactured versions of their products? Target cost-conscious consumers who won't pay full price. Protect brand image because 3rd parties will remanufacture your product if there is a market for it and could hurt your brand. Prevent low-cost rivals from poaching existing customers. Prevent intellectual property loss via 3rd parties. Reduce environmental impact. [4]: What part of the entire process of developing a supply chain for remanufactured products is most distinct from the supply chain for new products? Why is this the case? "Sourcing" of material: for forward supply chain, just buy from vendors. For remanufacturing, we need to obtain existing product which creates uncertainty regarding time of returns [leasing can reduce some uncertainty] and condition of those returns. [5]: What role can product development play in a company's remanufacturing strategy? Make the product easy to disassemble. [6]: Why is production planning, staffing, training, etc. more complex in a remanufacturing setting than in a setting for producing new products? What implications could this have with regard to designing the network of manufacturing facilities? Relative to the manufacturing process for the forward supply chain, the manufacturing process for remanufacturing needs to be MORE flexible. Skill of manufacturing workers is HIGHER at remanufacturing locations relative to manufacturing for the forward supply chain. [7]: What two broad customer segments do the authors discuss with regard to remanufactured products? Newness conscious: only buy new product Functionally oriented: want the product for what it can do, not as concerned about being new [8]: What product segment, business-to-business (B2B) or business-to-consumer (B2C), is more at risk of cannibalization? Why is this the case? B2B: professional purchasing managers who are buying for their firms; cost will be a major priority and whether the item has been used is much less relevant. [9]: How should companies' pricing strategy for remanufactured products be affected by the size of a functionally-oriented customer segment? As the percent of the customer pool becomes more functionally oriented, the price discount for the remanufactured product relative to the new product should be SMALLER. [10]: How does a company's decision to outsource manufacturing activities affect its ability to perform remanufacturing activities in-house? Why do you believe this is the case? Nearly impossible for a firm that has outsourced manufacturing of new products to remanufacture its products in house. Lack the capability of performing those activities.

bucklin 1965

[1]: What relationship does the author suggest exists between postponement and risk? Why is this the case? When an entity postpones it shifts the risk from itself to another member of the supply chain. EX: Imagine we have a manufacturer (sawmill) that will not cut logs into lumber until a wholesaler of lumber places an order with the manufacturer. In this case, the manufacturer has shifted risk to the wholesaler because the wholesaler must either (i) hold inventory of lumber to satisfy its customers' demands or (ii) be forced to promise its customers a long lead time. Upstream side: Dell refusing to hold raw material inventory forces the suppliers to hold finished goods inventories of components to rapidly response to Dell's demands. [2]: Explain why the authors says that it is not possible for all members of the channel (i.e., supply chain) to postpone? What factor matters the most for affecting the feasibility of postponing? The most important factor is the customers' willingness to wait long enough for the upstream entity to economically engage in some type of postponement. [3]: What is the concept of "speculation"? How does speculation allow a firm to reduce costs? Opposite of postponement. Speculate means absorb the risk by (i) making product to stock and (ii) positioning inventory close to the customer (manufacturer). Costs reduced because (i) transporting large quantities using efficient modes of transport (EX: a steel mill transporting 40 carloads of finished steel coils to a forward warehouse close to end users); (ii) less likely to lose customers who are time sensitive and are not willing to wait; (iii) larger batch quantities reduce manufacturing costs. [4]: From Figure 1, why is cost curve DB lower than AD' when delivery time is short? Why is curve AD' so steep when delivery time is short? Context: manufacturer of copy machines Curve DB = make copy machines to stock (based on forecast) and position inventories close to customers (at foreward warehouses) Curve AD' = make to order AD' is so steep when delivery time (customer's lead time expectations) is so short...(i) very small batch sizes for items [in contrast, if lead time is long, the manufacturer can aggregate the orders for the same item into a larger batch and, in doing so, reduce setup costs dramatically]; (ii) work overtime to be flexible to demand [in contrast, if lead time is long, we have some flexibility of smoothing production such that we don't need to work as much overtime]; (iii) transportation cost is expensive because shipments are smaller and we need faster modes of transportation (less-than-truckload). DB becomes higher than AD' as lead time lengthens because DB is forcing us to hold finished goods inventory. [5]: How would modern-day activities such as 3D printing affect the cost curves shown in Figure 1? What implications does this have for the possibility of postponement? AD' will become less steep at shorter lead times and the curve itself may also shift downwards. [6]: Using the concepts noted in Figure 1 and Figure 2, be prepared to explain why the concept of just-in-time inventory management originated in Japan, as opposed to the United States? Japan is much smaller, so suppliers are much closer together, meaning transport costs for raw materials is less. Japan is relatively poor with regard to raw materials (iron ore, petroleum) and has to import much of what it needs, making raw material more expensive. Storage is expensive because Japan is very mountainous. [7]: What prediction does the author make about how more reliable, high-speed air transport will affect speculative inventories? Speculative inventories will decrease. As transportation costs go up, we'll add inventory, and vice versa. [8]: How does the author's prediction about how consumers' valuation of their time affecting their shopping behaviors played out over time? As consumers value their time more, they will catalogue retail (e-commerce today).

langlois 2013

[2]: On pp. 353-354, the author discusses two intertwined yet distinct concepts of (i) the technology of production and (ii) the organizational structure that directs production. Explain what the author means by these concepts. For a reference, let's frame discussion around manufacturing of pharmaceutical products such as vaccines. A: Technology of production: physical nature of the assets/equipment involved (e.g. type of equipment necessary to devise and mix active ingredients), type of production (continuous flow operation), batch quantity sizes (e.g. making hundreds of thousands or millions of product in one batch). B. Organizational structure: centralize or decentralize the various activities that go on to produce and deliver a product. Pharma - do we make the product in house at our own plants or do we outsource that to a contract manufacturer? Vertical integration decisions (who does what). Pfizer - distribution is being handled by UPS and FedEx (these firms themselves are outsourcing some transportation steps). Moderna - all activity being handled via McKessan (largest wholesaler of pharma and medical products in the US). Chandler's Thesis: technology of production has a direct effect on the organizational structure of production. Langlois' Thesis: Chandler is correct, BUT as time goes on, the external environment may change such that the effect of technology on structure will differ. [3]: The concept of "buffering," and in particular the idea that managers serve an important role to process information to address uncertainty, is central to the authors argument. Be prepared to discuss the importance of this concept as the author traces out the evolution of supply chains. Firms are continually affected by their external environment (regulatory policy, changing customer taste, natural disasters, major technological leaps, etc.). Firms desire to buffer their operations from the environment as much as possible to keep operating efficiently. Managerial cognition plays a central role in this buffering function. Vertical integration allows for buffering because it increases firms' abilities to bring its managers cognitions to work to address environmental uncertainties. [4]: Why were markets in the U.S. prior to the Civil War decentralized, isolated, and regional? Which entity in the supply chain played the greatest role in coordinating economic activity? Why did these entities play a central role in financing, especially for manufacturers? Why were markets so regionalized? Very poor land-based transportation network (mules, wagons, horses). What invention that was commercialized in the 1950s had the greatest impact on globalizing markets? Intermodal shipping container. Central actors: general merchant wholesalers (bought in bulk from different producers and selling to different markets to make a profit). Why so essential? Aggregating demand across multiple products to be able to economize on transportation costs and other overhead expenses. Why so critical for financing, especially for manufacturers? Merchants were knowledgeable about manufacturers' capabilities and the products they made such that they could evaluate wo was a reasonably safe investment and who wasn't. Adverse selection: when one party can misrepresent itself and cause another party with whom the former transacts with harm (e.g. manufacturer lies about abilities, gets loan, and then defaults). This is the SAME CHALLENGE sourcing managers face today. [5]: What were the two major, distinct types of innovations that formed the prerequisite of the "managerial revolution" that, in conjunction with major technological advances in machinery, allowed for the creation of capital-intensive manufacturers? Hint, see p. 358-359 A: Railroad: provides fast, reliable land transport. B: Telegraph: provides fast, reliable communication. If you are investing in a capital-intensive production process (flour mill), to be profitable, you must operate at high capacity. To operate at high capacity, you need a steady stream of inputs and need to be able to transport the outputs to market without issue. [6]: With the rise of capital-intensive manufacturers in many sectors (e.g., consumer foods), why were middlemen suddenly less important? (Hint, see p. 359). High throughput manufacturing generates the scale of output necessary to economize on transportation costs. This DOESN'T mean wholesalers disappear. They instead tend to specialize based on a product type. [7]: On p. 361 the author discusses the concept of dynamic transaction costs to provide a theoretical explanation as to why capital-intensive firms increased their degree of vertical integration in the late 19th and early 20th centuries. What is this explanation? How does it apply today with a return to widespread vertical integration today (e.g., Amazon's delivery network, Apple making their own computer chips) after many years away from vertical integration? Dynamic transaction costs arise from the need to make frequent, simultaneous modifications to our operations and the inability and failing to do this results in very high opportunity costs. Zara faces very high dynamic transaction costs in that if it doesn't have the ability to quickly change operations (designing a new coat based on the current fashion trends), it risks losing a lot of business and profit. [8]: On p. 362, Footnote 16, the author challenges Raff & Temin's (1991) argument as to why concerns about "holdup" due to investments being asset specific (in the case of the Swift meatpacking company) was not an adequate explanation for vertical integration. Be prepared to discuss this example. [9]: On p. 363 the author provides an excerpt from Chandler (1990) that makes a distinction between potential economies of scale and scope versus actual economies of scale and scope. What is the difference and what role do supply chain managers play in this concept? Potential: function of the production technology at hand (essentially an engineering constraint). Actual: function of how well management is able to do its job (identify customer markets, obtain quality sources of supply, arrange transportation). [10]: On p. 365, the author describes Edith Penrose's (1959) theory of diversification and firm growth. What are the core elements of this theory and how could it account for observed patterns of diversification at the time? How well does this theory account for the patterns of diversification we observe with Amazon, Google, Facebook, Tesla, etc.? Firms are bundles of resources, including managerial talent/skill to use the different physical assets and knowledge for new purposes. Resources are generated with additional activity through learning by doing, which means that there is continually a pool of unutilized resources. Managers seeks to allocate those unutilized resources towards profitable opportunities. 1. Direct byproducts of production (Swift selling leather and glue, which are animal byproducts). 2. Develop capabilities of performing some type of activity (refrigerated distribution in the case of Swift), and we then diversify along the lines of that activity. [11]: What role did brand-building efforts by both large manufacturers and retailers play in creating consumer confidence in their products while simultaneously reducing uncertainty in firms' environments? Hint, see pp. 367-368. [12]: On p. 374, the author discusses the concept of a "general specialist" that became common in the 1980s and 1990s (and exist today), such as contract manufacturers, firms that perform clinical trials, etc. What are some of the prerequisite factors that made the rise of such general specialist firms possible? Fabless semiconductor companies: firms that design semiconductors, but do not have in-house production capacity and, instead, outsource assembly to 3rd party contract manufacturers (3rd party manufacturer = general specialist). A: General purpose production technology that can be utilized for the needs of multiple clients. B: Property rights that are clearly specified. C: Set standards for products/services. [13]: On p. 376 the author discusses how the standard processes associated with home mortgage lending (originating, underwriting, and holding/administering the loan) went from a vertically integrated structure to a fragmented structure. This breakdown is widely recognized to have been a key cause of the 2008-2009 Global Financial Crisis (and hence the Great Recession). Why do you think this system failed so spectacularly (which runs counter to the author's general thesis)? Fragmentation created massive incentive alignment issues.

farmco case

[3]: Utilize Ingrid's approach to identify the 20 most important suppliers. How closely aligned are the two lists?Given how closely aligned the lists are, does it appear the two lists are measuring the same thing—if so why so, if not why not? 6/20 overlap. It does not appear these two strategies are measuring the same thing. This matters because since they aren't measuring the same thing, for a given purpose, one approach will be superior to the other. [4]: Ingrid's approach combines aspects of a supplier that are more associated with a supplier's performance (e.g., lead time) with aspects associated with how important/critical the supplier is for the company's operations to continue (e.g., how difficult it would be to replace the supplier). What is her justification for doing this? Does this justification appear reasonable? Her goal was to identify suppliers where FarmCo needed to devote the most time and energy to. [5]: Do you believe Ingrid's approach is superior to using purchase volume alone to classify FarmCo's most important suppliers? If so why so, if not why not? Purchase volume: even though it is a single measure, it does a better job of capturing which suppliers are the most important. Ingrid's method has numerous weaknesses and makes some very strong assumptions that may not be justified. [6]: Many people like to use ratio measures to create variables that capture rates, but ratio measures often become problematic when the denominator is small (e.g., on-time deliveries/total deliveries). Why are ratio measures problematic when the number in the denominator (e.g., total deliveries) is small? Explain an alternative measure to capture delivery reliability that avoids the issue encountered with Ingrid's measure. Note, you can assume you have access to more data than Ingrid has presented when proposing your new measure, such as the number of days an order was late by. Reliability is very low for suppliers with infrequent deliveries. Alternatives: average number of days late; average absolute deviation from the delivery date; weighted average absolute deviation from the delivery date where late deliveries received 2x the weight. [7]: People are like using variables that represent counts (e.g., number of product lines that a supplier provides products for). What is the central assumption about each variant of the loading wagon that Ingrid is implicitly making when she assumes that a larger number of products lines supplied makes a supplier more important to FarmCo? How reasonable do you believe this assumption is? Ingrid's counting strategy assumes each variant of the loading wagon is equally important to FarmCo. No, this assumption is not reasonable. See scatter diagram and fact several major suppliers account for only one variant. [8]: For two of the measures, Ingrid elects to create measures by dividing the measured variable (e.g., kilometers from headquarters) by the maximum value for any one supplier, which results in a measure residing on a (0, 1] sample space. Why is this approach problematic if one is interested in comparing changes in the measure over many years across all suppliers in FarmCo's supply base if that supply base continually exhibits turnover amongst suppliers? Ingrid assumes manageability becomes increasingly harder as a linear function of distance. There is a major discontinuity in difficulty managing as a function of distance once you are outside convenient driving ranges. This ignores cultural differences, misses that distance may not be that great of an indicator concerning how hard it is to deal with a supplier.