Supply Chain Exam 2

The Procure to Pay Cycle

Ordering Follow-up expediting Receipt and inspection settlement and payment records maintenance

Planning Horizon

Planning Horizon - The amount of time the master schedule record or MRP record extends into the future. The longer the production and supplier lead times, the longer the planning horizon must be.

Planning and control

Planning and control: A set of tactical and execution-level business activities that includes: master scheduling material requirements planning production activity control vendor order managemen

Planning lead time:

Planning lead time: The time from when a component is ordered until it arrives and is ready to use.

Processes

Processes are how organizational inputs are transformed into outputs. These processes are what deliver value to customers.

Product Tree Structure

Product Tree Structure: Graphical or "outline" representation off all the components involved in building the Independent Demand Item

Product-based layout (continuous flow & production lines)

Product-based layout (continuous flow & production lines) A type of layout where resources are arranged sequentially, according to the steps required to make a product Used for products with identical or highly similar designs Think about the process used to make sandwiches at Quiznos or Subway

Production Line - A process used to produce a narrow range of standard items with identical or highly similar designs. Examples: high-volume standardized products such as automobiles, candy bars, paper, pens Follows a product-based layout: sequential steps for completing the process are arranged next to one another Steps are usually linked by a material handling system that moves the items from one step to the next at a predetermined pace Can be suitable for high-volume production, especially when automation is utilized Utilizes specialized equipment and labor (people and machines do a small (specialized) task within the large process Are inflexible with regard to items that do not fit the design characteristics of the production line - customization is difficult to achieve

Production Line

Spend Analysis

The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement. PURPOSE: Determine where efforts to change purchasing practices will have the most influence. What categories of products or services make up the bulk of company spending? How much are we spending with various suppliers? Who are our suppliers? How much are we spending with each? What are our spending patterns like across different locations? What divisions, departments, plants, business units are responsible for the most spending?

Single Sourcing

The buying firm depends on a single company for all or nearly all of a particular item or service. Advantages: Volume Discounts, Reduction in Variability, Enables Strong Relationships Disadvantages: Increased Supply Risk, Supplier Dependence, Must Monitor Best Practices

Multiple Sourcing

The buying firm shares its business across multiple suppliers. Advantages: Creates Competition, Shares Risk, Promotes Improvements Disadvantages: Decreases Dedication of Suppliers, Increases Variability

Cross Sourcing

The buying firm uses a single supplier for one particular part or service and another supplier with the same capabilities for a different part or service. Balances risk while allowing for strong relationships with suppliers

Profit margin

The ratio of earnings (profit) to sales (revenue) for a given time period.

When customization occurs early in the supply chain:

When customization occurs early in the supply chain: Flexibility in response to unique customer needs will be greater. Lead times to the customer will tend to be longer. Products will tend to be more costly.

When customization occurs late in the supply chain:

When customization occurs late in the supply chain: Flexibility in response to unique customer needs will be limited. Lead times to the customer will tend to be shorter. Products will tend to be less costly.

Merchandise inventory

A balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular point in time.

Purchase Order

A document that authorizes a supplier to deliver a product or service

Hybrid Manufacturing Process

A group of processes that seeks to combine the characteristics, and hence advantages, of more than one of the classic processes. Machining centers - machines or series of machines that complete several manufacturing steps Group technology/Cellular Layout - Dedicating equipment and people to producing all the products within a product family Product Family: A set of products that require similar processing Common in companies that utilize "Lean" concepts

The Make-or-Buy Decision

A high-level, strategic decision regarding which products or services will be provided internally (Make) and which will be provided by external supply chain partners (Buy). Insourcing - The use of resources within the firm to provide products or services. "Do it Myself" [Insourcing the Supply Chain is "Vertical Integration"] Outsourcing - The use of supply chain partners to provide products or services. "Pay Someone to Do It"

Total cost analysis

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

Job Shop

A type of manufacturing process used to make a wide variety of highly customized products in quantities as small as​ one

Production Line

A type of manufacturing process used to produce a narrow range of standard items with identical or highly similar​ designs

Negotiating

Interactive and iterative process for determining purchase conditions Involves: Multiple communications to arrive at an agreement USE WHEN: Exact specification and performance is unknown (new product development) and the buyer needs input or guidance or collaboration from the supplier.

Job Shops

Job Shops - A process used to make a wide variety of highly customized products in quantities as small as one. Examples include custom furniture, specialized machine tools used by manufacturers, restoration work, custom clothing, emergency room Characterized by general-purpose equipment and broadly skilled workers Main emphasis is meeting a customer's unique requirements. Product design and production process is not standardized Typically follows a functional equipment layout

Layouts are designed to:

Layouts are designed to: Minimize movement of Materials & People Maximize utilization of Machines & People Maximize productivity & quality of Machines & People Manage complexity - improve management of processes Manage interactions between Machines, People, Customers, Stakeholders

Contracting

Legal formalization of the buyer-supplier relationship and agreements Fixed-price contract - Stated price does not change. Cost-based contract - Price of the good or service is tied to the cost of some other key input(s) or other economic factors.

Batch Process

Batch Process - A process where items are moved through the different manufacturing steps in groups or batches. Examples: mass-market consumer products such as hand tools, computers, clothing, shoes, books, packaged food items, office furniture, etc. Batch processes set up a process to make many of one particular item. The process makes many of these identical products (often running continuously for days) before being stopped and changed to produce a different product. Fits between job shops and production lines in terms of product volume Flexible Manufacturing Systems - Highly automated batch processes that can quickly change from making one item to the next when making groups of similar products using computerized technology.

Projected Ending Inventory

Best estimate of what inventory levels will look like at the end of each planning period based on current information.

Reasons to Make or Insource

Better control over quality Better visibility of process Better control over social and environmental impact To protect intellectual property For Core Competencies To utilize excess capacity To reduce handling/storage costs When product life-cycles are stable

Bill of material (BOM)

Bill of material (BOM) - A listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly showing the quantity of each required to make an assembly.

Profit Leverage Effect: Sales must increase by

[COGS Savings] / [Pretax Profit Margin] to have the same effect EXAMPLE: Pretax Profit Margin = 10%, Purchasing/Procurement save $10 Sales must increase by $10 / 0.1 = $100 to have the same effect on Profit

Two approaches to creating profiles:

[Internal] Category profile -Understanding all aspects of a particular sourcing category that could ultimately have an impact on the sourcing strategy. Breaking down categories of purchasing into more detail Identifying where problems are occurring internally [External] Industry Analysis - Profiling the major forces and trends that are impacting an industry, including pricing, competition, regulatory forces, substitution, technology changes, and supply/demand trends. Maintaining visibility of global political and regulatory policy Tracking trends in commodity and supply pricing Monitoring market, customer, and competitor trends

Financial Impact

direct influence on bottom-line profits

Pareto Chart

graphically orders categories of numerical data in descending order so that the most important categories are easily recognized

Flexible Manufacturing Systems

highly automated batch processes that can reduce the cost of making groups of similar products

Service Package

includes all the​ value-added physical and intangible activities that a service organization provides to customer.

Total savings

is the product of the savings per unit and the forecasted demand

Cost of goods sold​ (COGS)

is the purchased cost of goods from outside suppliers. It tells how much a company has paid for the goods that it sold to its customers. A decrease in the COGS value causes an increase in the pretax earnings for the same amount. Recall that the sales amount remains unaffected.

profit margin

is the ratio of earnings to sales for a given time period. Use the current profit margin to calculate how much additional sales Dulaney would have to generate in order to have the same effect on pretax earnings as a decrease in merchandise costs.

total cost

is the sum of the purchase​ price, shipping and handling​ cost, inventory charges​ cost, and administrative costs

As the degree of customer contact​ increases,

more of the service package is provided by​ front-room operations.

Manufacturing and Service

processes are important. They tend to be expensive & involve the coordination and flow of materials, tools, machines, people, information Different processes have different strengths and weaknesses. Some processes are good at supporting a wide variety of goods or services, while others are better at providing standardized products or services at the lowest possible cost. Processes should support the overall business strategy, the needs of the targeted customers, and provide competitive advantage.

Supply Management

refers to the broad set of activities carried out by organizations to analyze sourcing​ opportunities, develop sourcing​ strategies, select​ suppliers, and carry out all the activities required to procure goods and services

Product-based layout

resources are arranged sequentially according to the steps required to make a product

Merchandise inventory

shows us how much the company paid for the inventory it had on hand at the time of the report.​ Therefore, a decrease in merchandise inventory causes the same decrease in total assets value. Recall that a decrease in the COGS value causes an increase in the pretax earnings for the same amount.

total cost per year of the insourcing option

sum of direct and indirect expenses

Statement of Work

terms and conditions for a purchased service that​ indicate, among other​ things, what services will be performed and how the service provider will be evaluated.

Savings per unit

the difference between the total cost per unit for insourcing option and the total cost per unit for outsourcing option

back room

the part of the service operation that is completed without direct customer contact.

administrative cost per unit

the product of the administrative costs per month and the length of the contract divided by the forecasted demand value

Direct Expenses

the product of the direct expenses per worker per month and the number of workers and the number of months in the year

Indirect Expenses

the product of the indirect expenses per supervisor per month and the number of supervisors and the number of months in the year

Procure-to-pay cycle

"The set of activities required to first identify a​ need, assign a supplier to meet that​ need, approve the specification or​ scope, acknowledge​ receipt, and submit payment to the​ supplier"

Many Financial Indicators are reported as a "Percent of Sales"

%COGS = COGS / Sales Revenue Pretax Profit Margin = Pretax Profit / Sales Revenue

Financial Performance

- Cost of goods sold (COGS) - Merchandise Inventory - Profit Margin

Indirect Costs

- Costs that are not tied directly to the level of operations or supply chain activities. "If you make/do more, the unit cost does not change." Examples: Administrative Costs, Overhead, Depreciation, Basic Utilities Difficult to calculate accurately. For this class, indirect costs will be given as an allocated Direct Cost ($/unit)

Profit Leverage Effect

- Decreasing the money spent on purchasing functions increases profit FASTER than increasing revenue as a result of marketing and sales. - Every $1 saved in purchasing, lowers COGS by $1 and directly contributes $1 to bottom line profits.

Performance Impact

- affecting the way your company performs Quality: Performance, Features, Reliability, Conformance, Durability, Serviceability, Perceived Quality Delivery: Right Quantity - Right Time - Right Place

Global Sourcing

- competing against World-Class organizations Global competition requires global sourcing Considerations Where and when are goods and services needed? What suppliers have the best mix of performance characteristics? Advances in information systems have enabled global sourcing efforts. Global sourcing applies to services and business processes, as well as manufactured goods. Invoice processing, financial analysis, call centers, IT processing

Broad set of activities carried out by organizations:

Analyze sourcing opportunities Develop sourcing strategies Select suppliers Procure goods and services Measure and manage suppliers

Available to Promise

Available to Promise - A field in the master schedule record that indicates the number of units that are available for sale each week, given those that have already been promised to customers.

Supply Chain Disruptions

Caused by natural disasters, economic or political events.

Statement of Work

Communicating your needs can be difficult when purchasing services. The document that communicates this need

Process Types

Continuous Flow Processes Production Line Batch Manufacturing Job Shop Fixed Position Layout

Continuous Flow Processes

Continuous Flow Processes - A process that produces highly standardized products using a tightly-linked, paced sequence of steps. Example products: oil, gas, oils, beverages, fluids, yarn and fabric Product usually cannot be broken into discrete units Processes are organized according to use Capital-Intensive processes - designed by engineers and difficult to alter Production runs continually. Changing product configuration involves extensive setups (cleaning out piping , draining lines, etc.) Often dedicated to a small number of unique products made in high volumes

Incremental Direct Costs

Costs that are incurred only after a certain number of products are produced. "Each time you produce X, a cost of $Y is incurred." Examples: Direct Labor, Transport Cost, Direct Maintenance Cost, Setup Cost Divide "Number of Units Needed" by the threshold "X" and multiply by the incremental cost $Y to calculate "Total Costs"

One-time costs

Costs that are incurred only when a product or service is first produced. Examples: Product Design, Fixture Purchase, Mold/Die Purchase One-Time Costs are added directly to "Total Costs"

Direct Costs

Costs tied directly to the level of operations or supply chain activities. "If you make/do more, the unit cost increases directly." incurred." Examples: Part-Time Labor, Direct Material Costs, Direct Energy Costs Multiply "Direct Costs" by the "Number of Units Needed" to calculate "Total Costs"

When Purchasing/Procurement reduces COGS by a quantity or percentage, the money saved increases Pretax Profit by the same amount.

EXAMPLE: Reducing COGS by $10 increases Pretax Profit by $10 EXAMPLE: COGS = $100. Reducing COGS by 10%, reduces COGS by: $100 x 0.1 = $10, which increases Pretax Profit by $10

Trends in Supply Chain Management

Ethical Sourcing Sustainable Sourcing Supply Chain Disruptions Risk Assessment and Strategy

Ethical Sourcing

Ethical Treatment of Workers - diversity & minorities, child labor, worker abuse, human rights, animal rights, safety, pay scales Fair Trade Products - Paying fair prices for products manufactured or grown by a disadvantaged producer in a developing country. Requires Verification and Management

Exploding the BOM

Exploding the BOM - Process of determining the quantity and timing of orders for the parts and assemblies that are needed to support the MPS.

Fixed-Position Layout

Fixed-Position Layout - A type of manufacturing process in which the position of the product is fixed. Examples: shipbuilding, construction projects, and traditional home building. Materials, equipment, and workers are transported to and from the product. Used in industries where the products are very bulky, massive, or heavy and movement is problematic.

The Master Schedule Record

Forecasted demand: Estimate of future demand during the planning period Booked orders: Confirmed customer orders for shipment Projected inventory levels: Calculation of future inventory levels Production quantities: Master Production Schedule (MPS): Planned quantity of products to be produced Units still available to meet customer needs (Available to Promise) after filling Booked orders

Four Levels of Customization

Four Levels of Customization Make-to-stock (MTS) - Products that require no customization. Assemble-to-order (ATO) - Products that are customized only at the very end of the manufacturing process. Make-to-order (MTO) - Products that use standard components but the final configuration of those components is customer-specific. Customized from a Standard "Menu" of options. Engineer-to-order (ETO) - Products are designed and produced from the start to meet unusual customer needs or requirements. Completely Customized.

Functional layout (job shop & batch manufacturing)

Functional layout (job shop & batch manufacturing) A type of layout where resources are physically grouped by function Used for products with high degrees of customization or expertise required Think about the process you must go through to sign up for and pay for classes

Sustainable Sourcing

Green Purchasing - Overall reduction in packaging, materials, waste, byproducts with a goal of environmental sustainability Sustainability - Replenishment of natural resources

Strategic Sourcing

Identifying ways to improve long-term business performance by better understanding sourcing needs, developing long-term sourcing strategies, selecting suppliers, and managing the supply base.

Reasons to Buy or Outsource

If low volumes increase costs To maintain strategic flexibility To gain access to state-of-the art technology and processes Cost and/or Quality Advantage When suppliers are reliable When relationships have been established When product life-cycles are short

front room

In a service​ organization, the​ ______________ is the point where the customer interfaces with the service organization.

MRP

MRP calculates when Dependent Demand items must be ordered and when sub-assembly components must be produced in order to complete the Independent Demand item on schedule. Advantages of MRP MRP is directly tied to the master production schedule and indicates the exact timing and quantity of orders for all components. MRP allows managers to trace every order for lower-level items through all the levels of the BOM, up to the Master Production Schedule. MRP tells a firm and its suppliers precisely what needs to be made when Special Considerations in MRP MRP requires organizational discipline and accurate information. MRP must be able to accommodate uncertainty MRP nervousness - A term used to refer to the observation that any change, even a small one, in the requirements for items at the top of the bill of material can have drastic effects on items further down the bill of material

Master Production Schedule (MPS)

Master Production Schedule (MPS) - The amount of product that will be finished and available for sale at the beginning of each week. The MPS drives more detailed planning activities, such as Material Requirements Planning (MRP)

Master Scheduling

Master Scheduling - A detailed planning process that tracks production output and matches this output to actual customer orders. Makes specific the overall resource levels established by S&OP. States exactly when and in what quantities specific products will be made. Links production with specific customer orders, allowing the firm to tell the customer exactly when an order will be filled. Informs the operations manager what inventory or resources are still available to meet new demand. Purposes: Maximize labor and equipment utilization Minimizing costs Ensure adequate finished goods inventories to fill customer orders on time Match the average production rate with the average sales rate over the planning horizon.

Material Requirements Planning (MRP)

Material Requirements Planning (MRP) - A planning process that translates the master production schedule (Independent Demand Items) into planned orders for the actual parts and components needed (Dependent Demand Items) to produce the master schedule. Independent Demand: Typically for Finished Goods - products made up of purchased or produced components and materials. Dependent Demand: Typically for Raw Materials and Work-In-Progress - components and materials used to create Independent Demand Items

Settlement and Payment

May be paid through Electric Funds Transfer (EFT) Payment is aligned with Quotation, Receipt, and Inspection

Dual Sourcing

Multiple sourcing across only two suppliers Enables stronger relationships while reducing risk

Where is the physical location of the producer/provider of products or services?

Off-shoring - Location of an Insourced or Outsourced Firm in a foreign country Near-shoring - Offshoring in an adjacent country On-shoring - Location of an Insourced or Outsourced Firm in the firm's country

Ordering

Purchase Order (PO) - A document that authorizes a supplier to deliver a product or service and often includes key terms and conditions such as price, delivery, and quality requirements [details taken from the Quotation or Proposal] Legally binding agreement when formally accepted by the supplier

Questions to ask when selecting a manufacturing process:

Questions to ask when selecting a manufacturing process: What are the physical requirements of the company's product? How similar to one another are the products the company makes? What are the company's production volumes? Where in the value chain does customization take place (if at all)?

Competitive Bidding

Requesting bids from potential suppliers with a formal RFQ RFQ-Request for Quotation: Includes all the characteristics required or desired Includes: descriptions, specifications, quantities, delivery, terms of payment, contract length, etc. USE WHEN: Price is a dominant criteria, requirements are straightforward

Qualitative criteria from Bauer SCM Recruiting Companies: SSQDC

Safety: Internal and External Sustainability: Green and Ethics Quality: Consistency, Conformance, Service Delivery: Reliability, Speed, Capacity Cost: Total Cost of Ownership Other .... below Qualitative criteria from the Textbook: Process and design capabilities and technologies Management capability Financial condition and cost structure Longer-term relationship potential, willingness to share knowledge

Receipt and Inspection

Statement of work (or scope of work) - Terms and conditions for a purchased service that indicate, among other things, what services will be performed and how the service provider will be evaluated. 100% Incoming Inspection (for new suppliers or new purchases) Sample Inspection (for established suppliers and purchases, utilizes statistical principles) No Inspection (for Certified Suppliers)

Planning Cycle

Strategic Planning Tactical Planning (Sales and Operations Planning) Detailed planning and control

Records Maintenance

Supplier Relationship Management (SRM) Software

Risk Assessment and Strategy

Take a Broad View of Potential Risks What are all the risks throughout the supply chain? Evaluating upstream as far as possible. Identify duplicate suppliers that are in the same geographic region. Prioritize Risk Potential Significance: In what ways would a disruption affect your company? Likelihood: How quickly would a disruption affect your supply? How long would a disruption affect your supply? How flexible is your system to respond to such a disruption? Develop Risk Management Strategies Evaluating relationships with diverse suppliers Holding higher inventory at various locations within the supply chain Developing alternative sources of supply

Takt Time

Takt time tells us the maximum allowable time between completions of successive units on the line

Cost Of Goods Sold (COGS)

The purchased cost of goods from outside suppliers.

Cycle Time

The time between completions of successive units

Three dimensions on which services can differ and compete:

Three dimensions on which services can differ and compete: - The nature of the Service Package Service Package: All the physical and intangible activities that a service organization provides Physical: Requires capital expenditures, material costs, tangible assets Intangible: Requires training, skill development, knowledge assets - The degree of customization Lower customization allow for standardized processes. Primary measurements are related to productivity and cost Higher customization requires flexible processes. Primary measurement becomes customer satisfaction . - The level of customer contact Front Room - Direct customer interface, high customer contact. Activities designed to guide the customer through the process - "Onstage Activities" Back Room - Activities done away from the customer, low customer contact. Activities carried out much like a manufacturing process - "Backstage Activities" and "Support Processes" Mapped using "Service Blueprinting" Challenge: communicating customer needs throughout the service process