9.2 Supply chain management

Question 1

A supply chain consists of a

Answer 1

• network of org.
• together they work together to provide and process the necessary raw materials into work in progress and then into finished goods for distribution and sale to end customer
• Eg: raw materials supplier - manufacturer - wholesaler/retailer - customer

Question 2

The transformation of the product along the supply chain includes activities such as:

Answer 2

• Production planning
• Purchasing
• Materials management
• Distribution
• Customer service
• Forecasting

Question 3

Supply chain management (SCM) involves

Answer 3

• the coordination of activities from the suppliers of raw materials on one end of the SC to the customer at the other end
• this should be done in a way to save costs and add value
• the objective should be to achieve synergies that benefit every player along the chain
• technology can play a key part in SCM

Question 4

The strategic supply wheel - Cousins (pg 242):

Answer 4

• this model emphasises the importance of viewing supply as central to the org and it’s effectiveness
• the notion is that the supply strategy should involve a number of key areas (spokes) for attention and action
• the wheel depicts the corp supply strategy as hub and an integrated approach is needed to balance all fives spokes
• there is an interface between spokes and the FF, particularly in areas of cost/benefit and performance measures

Question 5

Cousins model - spokes of wheel:

Answer 5

• Organisation structure - whether centralised / decentralised impacts control and interaction and should enhance rather than hinder supply strategy
• Relationships with suppliers - can be competitive (contractual) or collaborative (relational)
• Cost / benefit - supply decisions should be based on benefits and costs and cost/benefit should be done when making strategic decisions
• Competences - do the skills exist to achieve the strategy
• Performance measures - necessary to monitor and control the chosen strategy

Question 6

Relationship with suppliers (Cousin) - Competitive (contractual):

Answer 6

• purchasing function looked for lowest price suppliers, often through process of tendering, use of power and constantly switching supply sources to prevent getting too close
• supplier contracts had heavy penalty clauses and were drawn up in a spirit of general mistrust
• the knowledge and skills of supplier could not be exploited as info was deliberately withheld in case supplier used it to gain power during price negotiations

Question 7

Relationship with suppliers (Cousin) - Collaborative (relational):

Answer 7

• Org look to enter into partnerships with key customers and suppliers so they can better understand how to provide value and customer service
• product design processes include discussions involving both customers and suppliers, resulting in a synergy that can lead to generating new ideas, solutions and innovative products
• to enhance collaboration the org may reward supplier with long term sole sourcing agreements in return for greater levels of support and commitment to ongoing improvement
• the nature of the collaboration needs to shift to reflect the constant change in environment

Question 8

Material requirement planning (MRP):

Answer 8

• is a computerised system for planning the requirements for raw materials, work in progress and finished products
• It is designed to answer three questions:
  
  • What is needed?
  • How much is needed?
  • When is it needed?

Question 9

Functions of MRP include:

Answer 9

• Identifying firm orders and forecasting future orders with confidence
• Using orders to determine quantity of materials required
• Determining the timing of material requirement
• Calculating purchase orders based on stock levels
• Automatically placing purchase orders
• Scheduling materials for future production

Question 10

The following technology has been developed from MRP:

Answer 10

• Manufacturing resource planning (MRPII) - goes beyond MRP to include:
  
  • production planning
  • machine capacity scheduling
  • demand forecasting and analysis
  • quality tracking tools
  • employee attendance
  • productivity tracking
• Enterprise resource planning (ERP) - integrates info from many aspects of operations and support functions into one single system

Question 11

Quality is one of the key ways in which a bus can

Answer 11

• differentiate it’s g/s, improve performance and gain a competitive advantage
• it can be defined in a number of ways:
  
  • it means the g/s are free from errors and adheres to design specifications
  • the g/s are fit for use
  • the g/s meets the customers needs

Question 12

Why quality is important to a bus:

Answer 12

Higher quality can help increase revenue and reduce costs:
- higher quality improves the perceived image of product which can lead to more customers wanting to buy it and willing to pay more
- a higher volume of sales may result in lower unit costs due to economies of scale
- higher quality in manufacturing should lower waste and defective rates which will reduce production costs
- need for inspection and testing should be reduced also reducing costs
- volume of customer complaints and warranty claims should be lower therefore reduced cost
- better quality in production should lead to shorter processing times and therefore reduce costs

Question 13

Methods of quality measurement:

Answer 13

• there are four main types of quality-related costs, the org needs to identify these
• monitoring the costs of quality is central to the operation of any quality improvement programme
• targets should be set for each quality-related cost

Question 14

Quality related costs:

Answer 14

• Costs of conformance
  
  • Prevention costs - cost of implementing a quality improvement programme to prevent defects before they occur (routine repairs of machinery & staff training costs)
  • Appraisal costs - cost of quality inspection and testing (inspection of raw materials)
• Costs of non-conformance:
  
  • Internal failure costs - cost of failing to meet quality standards before g/s reaches customer (machine breakdown repairs)
  • External failure costs - cost of failing to meet quality standards after g/s reaches customer (returns from customers)

Question 15

There are a number of techniques an org can use to improve the effectiveness of the supply chain and manage relationships withing:

Answer 15

• Statistical process control
• Total quality management (TQM)
• Kaizen
• Six sigma
• Lean thinking
• Just in time
• Reverse logistics

Question 16

Statistical process control (SPC)

Answer 16

• a method for measuring and controlling quality during a process
• quality data is obtained in real time and plotted on a graph with a pre determined target and control limits
• data that falls within control limits indicates that everything is operating as expected
• if data falls outside the control limits, the variation should be investigated and corrective action taken before a defect occurs

Question 17

Total quality management (Japan):

Answer 17

• TQM is the continuous improvement in quality, productivity and effectiveness by establishing management responsibility for processes and outputs
• every process has an identified owner and every person operates within a process and contributes to it’s improvement
• it is less of a single technique and more of a culturally shared understanding

Question 18

The fundamental features of TQM include:

Answer 18

• Prevention of errors before they occur (get things right first time) - shift from quality control to quality assurance (prevention costs)
• Continual improvement - continuous examination and improvement of processes
• Real participation by all - everyone in value chain is involved in process
• Collaboration internally and externally is vital
• Commitment of senior management - management must be fully committed and encourage everyone else to become quality concious

Question 19

TQM participation by all includes:

Answer 19

• Employees - are encouraged to seek out, identify and correct quality problems. Teamwork is vital. They should be able to decide how best to do their work and achieve targets.
• Suppliers - Quality and reliability is vital
• Customers - goal is to identify and meet needs of customers

Question 20

TQM participation by employees may include:

Answer 20

• quality circles which are small groups of workers of different levels to come to together to discuss and solve quality problems

Question 21

Common reasons for failure of TQM programmes:

Answer 21

• Tail off - after an initial burst of enthusiasm, top management fails to maintain interest and support
• Deflection - other initiatives or problems deflect attention from TQM
• Lack of buy-in - managers pay only lip service to principles of worker involvement and communication
• Rejection - TQM does not fit in with org culture and therefore rejected

Question 22

Kaizen is

Answer 22

• is a Japanese term for the philosophy of continuous improvement in performance by small, incremental steps

Question 23

Characteristics of Kaizen:

Answer 23

• involves setting standards and then continually improving these standards to achieve long term sustainable improvements
• the focus is on eliminating waste, improving processes and systems and improving productivity
• it involves all areas of the bus
• employees often work in teams and are empowered to make changes (source of ideas on how to reduce costs, requires change in culture)
• allows org to respond quickly to changes in the competitive environment

Question 24

Six sigma quality management programme (Motorola)

Answer 24

• aim is to achieve a reduction in number of faults that go beyond an accepted tolerance limit by using statistical techniques
• the sigma stands for standard deviation
• this is the tolerance level set

Question 25

Lean thinking:

Answer 25

• is a philosophy that aims to systematically eliminate waste by identifying and eliminating all non value adding activities

Question 26

Lean thinking wastes to be eliminated include:

Answer 26

• Inventory - holding / purchasing unnecessary raw materials, wip and finished goods
• Waiting - time delays / idle time when value is not added to product
• Defective units - production of a part that is scrapped or requires rework
• Effort or motion - actions of people/equipment that don’t add value
• Transportation - delays in transportation or unnecessary handling due to poor planning or factory layout
• Over processing - unnecessary steps that don’t add value
• Over production - producing more than customers ordered

Question 27

Lean synchronisation aims to

Answer 27

• meet demand instantly with perfect quality and no waste
• it overlaps to a large degree with lean and just in time

Question 28

Just-in-time (JIT)

Answer 28

• is a system where the objective is to produce or procure products as they are required by the customer for use, rather than for inventory
• inventory levels of raw materials, wip and finished goods are kept to a minimum

Question 29

Requirements for successful operation of JIT system:

Answer 29

• High quality and reliability - emphasis on getting work right first time through
  
  • highly skilled and well trained staff
  • fully maintained machinery
  • long term links with suppliers to ensure reliable and high quality service
• Elimination of non-value adding activities - value is only being added while a product is being produced and not while it’s stored (therefore low inventory)
• Speed of throughput - speed of production should match the rate of demand of customers (shorter production runs with lower finished goods stocks)
• Flexibility - is needed to respond immediately to customer orders
  
  • system should be able to switch from making one product to another
  • workforce should be dedicate and have appropriate skills
  • it is an org culture that must be adopted by everyone
  • workers should be able to use their initiative and deal with problems as they occur
• Lower costs by
  
  • raising quality and eliminating waste
  • achieving faster throughput
  • minimising inventory levels

Question 30

Advantages of JIT:

Answer 30

• lower stock holding costs
• less working capital tied up in stock
• less stock perishing, becoming obsolete or out of date
• avoids build up of unsold finished products
• less time spent on checking and re-working products

Question 31

Disadvantages of JIT:

Answer 31

• little room for mistakes
• production is very reliant on suppliers (can cause delays)
• no spare finished products for unexpected orders
• may be difficult to empower employees to embrace concept and culture
• won’t be suitable for all companies (supermarkets)
• can be difficult to apply to service industry

Question 32

Reverse logistics is the

Answer 32

• return of unwanted or surplus goods, materials or equipment back to the org for reuse, recycling or disposal
• internet selling and shorter product life cycles has led to org focusing on their reverse logistics capability

Question 33

The main reasons for returns are:

Answer 33

• The customer is not satisfied with the product
• Installation or usage problems - if installation or usage is complicated
• Warranty claims for defective products
• Return of unsold stock by retailers
• Manufacturer recall program due to faults

Question 34

Steps should be taken to deal with the returns challenge:

Answer 34

• Minimise returns - production of good quality products that meet customer requirements and have clear guidelines for installation and use
• Ensure the possible reuse or recycling of material

Question 35

Techniques to deal with the returns challenge - these should reduce costs, improve customer service and increase revenue

Answer 35

• Root cause analysis to understand the reasons for returns
• Creation of profit centres around the returns process to focus on maximising the price they will get for returns
• Separation of supply chain into forward and reverse logistics
• Centralising the returns centre to improve speed and efficiency of handling returns
• Outsourcing the returns process to a competent and dedicated provider
• the use of technology such as ERP which supports reverse logistics processes

Question 36

A collaborative relationship between CFO and leader of supply chain is advantageous for org growth and competitive advantage:

Answer 36

• the role of supply chain leader has become more prominent, with a shift to creating supply chain strategy that is aligned with overall corp goals and helps org respond to new opportunities
• the FF now collaborates more closely with other functions as a supporter and enabler of performance
• the result is that CFOs and supply chain leaders are working increasingly together to understand, analyse and address supply chain issues

Question 37

In the FF’s unique position with end to end view of org, there are a number of areas the CFO can enhance performance by bus partnering with the supply chain, including:

Answer 37

• Stronger alignment between the supply chain and broader strategy and consistency of strategy within the supply chain
• CFO’s help to set the right growth priorities and pace of growth
• Monitor and enhance performance by establishing KPIs aligned with broader org
• Managing risk and business continuity