Session 8 - Important Slides

Question 1

What are 5 Strategic Sub-Processes?

Answer 1

1) Review marketing Strategy, Supply Chain Structure & Service Goals
2) Define Requirements of Order Fulfilment
3) Evaluate Logistics Network
4) Define Plan for Order Fulfilment
5) Develop Framework of Metrics

Question 2

What are 7 Operational Sub-Processes?

Answer 2

1) Generate & Communicate Order
2) Enter Order
3) Process Order
4) Handle Documentation
5) Fill Order
6) Deliver Order
7) Perform Post Delivery Activities & Measure Performance

Question 3

What are the 7 Process Interfaces in-between?

Answer 3

1) Customer Relationship Management
2) Customer Service Management
3) Demand Management
4) Manufacturing Flow Management
5) Supplier Relationship Management
6) Product Development & Commercialisation
7) Returns Management

Question 4

What is the order-to-cash cycle?

Answer 4

O2C or OTC is the business process that covers the entirety of the order processing system right from receiving the order to up until the point the payment is made, and an entry is logged in your accounting books.
It is better as fast as possible. Shows the liquidity factor of the company

Question 5

What 2 components create Gross Margin? What are their Order Fulfilment’s Impact?

Answer 5

Gross Margin = Sales – COGS
1) Sales affected positively by:
> Obtain repeat business
> Increase share of market and/or customer
> Retain and strengthen relationships with profitable customers
2) COGS can be positively or negatively affected by:
> Impact component cost through efficient network design

Question 6

What components create Profit from Operations? What are their Order Fulfilment’s Impact?

Answer 6

Profit from Operations = Gross Margin – Total Expenses
1) Total Expenses can be reduced by:
> Increase orders shipped complete
> Reduce damage and tracing
> Reduce services provided to less profitable customers
> Reduce handling costs
> Reduce general overhead/management/administrative costs
> Reduce outbound freight
> Optimize physical network/facilities
> Leverage new and/or alternative distribution channels
> Reduce errors, claims and customers returns
> Reduce human resources costs / improve effectiveness

Question 7

What components create Net Profit?

Answer 7

Net Profit = Profits from Operations - Taxes

Question 8

What components create Current Assets? What are their Order Fulfilment’s Impact?

Answer 8

Current Assets = Inventory + Other Current Assets
1) Inventory can be reduced by:
> Reduce finished goods inventory
> Reduce obsolete inventory
2) Other Current Assets can be reduced by:
> Reduce accounts receivable through faster payment (O2C)

Question 9

What components create Capital Charge? What is it equal to? What are their Order Fulfilment’s Impact?

Answer 9

Capital Charge (= Cost of Capital x Total Assets) = Currents Assets + Fixed Assets
1) Fixed Assets can be reduced by:
> Improve Asset utilisation and rationalisation

Question 10

What is EVA?

Answer 10

EVA = Net Profit - Capital Charge

Question 11

What are the 5 Headlines of Traditional Performance Measures in Order Fulfilment?

Answer 11

1) Asset Management
2) Cost
3) Customer Service
4) Productivity
5) Quality

Question 12

What are some examples of Traditional Performance Measures in Order Fulfilment regarding Asset Management?

Answer 12

1) Inventory Turns
2) Inventory Obsolescence
3) Return on Assets
4) Inventory Days Supply
5) EVA

Question 13

What are some examples of Traditional Performance Measures in Order Fulfilment regarding Cost?

Answer 13

1) Inventory Carrying Cost
2) Total Landed Costs
3) Outbound Freight
4) Warehousing Labour Costs
5) Administrative

Question 14

What are some examples of Traditional Performance Measures in Order Fulfilment regarding Customer Service?

Answer 14

1) Fill Rate
2) On-Time Delivery
3) Order-Cycle Time
4) Complete Orders
5) Customer Complaints

Question 15

What are some examples of Traditional Performance Measures in Order Fulfilment regarding Productivity?

Answer 15

1) Units Shipped per Employee
2) Equipment Downtime
3) Order Productivity
4) Warehouse Labour Productivity
5) Transportation Labour Productivity

Question 16

What are some examples of Traditional Performance Measures in Order Fulfilment regarding Quality?

Answer 16

1) Damage Frequency
2) Order Entry Accuracy
3) Picking / Shipping Accuracy
4) Document / Invoicing Accuracy
5) Number of Customer Returns

Question 17

What are inventory turns?

Answer 17

Inventory turnover is a financial ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.
Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory. The higher the number of inventory turns, the better.

Question 18

What is inventory obsolescence and what could be inventory obsolescence in automotive?

Answer 18

Obsolete inventory is a term that refers to inventory that is at the end of its product life cycle. This inventory has not been sold or used for a long period of time and is not expected to be sold in the future. This type of inventory has to be written-down or written-off and can cause large losses for a company.
Example: Shelf life for example glue when you open it can be used for 20 hours or paint.

Question 19

What is Fill Rate?

Answer 19

The definition of fill rate is the percentage of customer orders you’re able to meet without running out of stock at any given time. A strong fill rate is at or near 100%, meaning you’re able to fulfil all of the wholesale sales you make without stockouts, backorders, or lost sales.

Question 20

What are the 2 important basic factors in fulfilment?

Answer 20

1) Production Lead Time P
> How long does it take to produce the product?
2) Demand Lead Time D
> How long is the customer willing to wait for the product?

Question 21

What is the P:D Ratio?

Answer 21

Overlapping of P and D so that both lead times end at the same time!

Question 22

What are the 4 Standard Order Fulfilment Principles? Visualise the slide for each!

Answer 22

1) Engineer-to-order
> Product is designed and built according to customer order
> P & D start at the same time at supply chain, D continues to marketplace after P is completed
2) Make-to-order
> Also Build-to-order: Material is ordered and product is made only after order is received
> No FGI cost, less efficient production
> P & D start at the same time in factory, D continues to marketplace after P is completed
3) Assemble-to-order
> Also Configure-to-order: Components are produced and stocked, then assembled when order arrives
> Typically customised products, high inventory costs
> P starts at supply chain, in factory components are completed, D comes after, continues to marketplace
4) Make-to-stock
> Also Make-to-forecast: Goods produced and placed in stock before order is received
> Typically commodities and continuous processing, efficient but risk of obsolescence, high inventory costs
> P starts at supply chain and finishes at the end of factory where FG is produced, D only in marketplace

Question 23

Give an example product for each order fulfilment principle!

Answer 23

1)	Engineer-to-order
>	Satellites
>	Spaceships
>	Superyachts
2)	Make-to-order / Build-to-order
>	Rolls-Royce
>	Small sailing yachts
3)	Assemble-to-order / Configure-to-order
>	Dell Laptops
>	BMW (usually)
4)	Make-to-stock / Make-to-forecast
>	Shampoos
>	Soaps
>	Toothpaste

Question 24

Can you think of products where multiple order fulfilment principles may be used? If so, under what circumstances would you use different principles?

Answer 24

Food - Pizza / Also Computers & Laptops
1) Engineer-to-order
> Asking Chef to create a pizza recipe just for you
> Long wait time
2) Make-to-order / Build-to-order
> High-End, fix menu pizza restaurant, where you purchase (or reserve) the menu before you arrive and your items are therefore ordered
> Or when you reserve a table, you make the specific ingredient pizza demand and the ingredients have to be ordered for your arrival
3) Assemble-to-order / Configure-to-order
> Usual Italian restaurant pizza, where ingredients are waiting ready and assembled when you place your order
4) Make-to-stock / Make-to-forecast
> Frozen Pizza from the store
> Shortest wait time

3rd question computers you order at the shop they can have assemble or made to order if the customer is willing to wait, here important is the lead times and customer involvement in the process= decisive factors

Question 25

What is the Bullwhip Effect?

Answer 25

The bullwhip effect is a distribution channel phenomenon in which demand forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain.

The bullwhip effect is a supply chain phenomenon describing how small fluctuations in demand at the retail level can cause progressively larger fluctuations in demand at the wholesale, distributor, manufacturer and raw material supplier levels.

Question 26

What are the 5 Principles in Automotive Order Fulfilment?

Answer 26

1) Make-to-Forecast
2) Locate-to-order
3) Amend-to-order
4) Hybrid Build-to-order
5) Full Build-to-order

Question 27

What is the goal of Make-to-Forecast Principle in Automotive Order Fulfilment? What are its benefits and weaknesses? Give Example

Answer 27

Ford (model t), GM, Chrysler: no customization (mostly USA directly going to retailer and take car home right away)
= Decouple production and reactive stock management to allow efficient production
+ Efficient production
+ Local optimisation of factory operations
- High stock in market = discount selling strategy for aging stock (discounting)
- Customer orders compete with forecast orders for capacity
- Completely decoupled from customer & market

Question 28

What is the goal of Locate-to-Order Principle in Automotive Order Fulfilment? What are its benefits and weaknesses? Give Example

Answer 28

One tick above lowest class like Hyundai!
= Locate the order from pipeline to different customers coming to retailers. You go to retailer want to purchase not available there but available some other city, dealer orders the car and it is brought to your dealer or close by
= Use stocks visibility to widen customer choice at the expense of extra transportation costs
+ Higher chance to find the right vehicle in stock
- High stocks
- Extra transportation cost for transfer between dealers

Question 29

What is the goal of Amend-to-Order Principle in Automotive Order Fulfilment? What are its benefits and weaknesses? Give Example

Answer 29

Cheaper generic cars like VW Golf, but not lowest class!
= Production plans the pipeline of the factory so that unsold orders in the feed can change to whatever customer requires
= Sophisticated push system with limited flexibility and high risk of pushing when demand drops
+ High degree of custom build vehicles in production
- Customer orders only built when they fit in
- Unsold orders are built anyway (just like make-to-forecast)
- High temptation to revert to make-to-forecast if demand drops

You open up the pipeline so that you can amend the feed according to the custoners demand

Question 30

What is the goal of Hybrid Build-to-order Principle in Automotive Order Fulfilment? What are its benefits and weaknesses? Give Example

Answer 30

Premium segment cars, expensive ones like s-classes & 7 series!
= When there is a build-to-order request queue in the feed of the factory, but when no orders come, the feed will still be produced and placed in inventory
= Compromise between stable production and cost of inventory
+ Stable production
+ Relatively short OTD (order to delivery)
+ Less discounting needed
- High stocks in market
- Requires discounting of aging stock
- Danger of reverting back to complete push

Question 31

What is the goal of Full Build-to-order Principle in Automotive Order Fulfilment? What are its benefits and weaknesses? Give Example

Answer 31

Rolls Royce!
= When the whole feed is only customer orders
= Customer driven value chain, using active demand and revenue management
+ No stocks (only showroom and demonstrations)
+ No discounts
- Sensitive to short term market demand fluctuations = will not work with proactive demand management

Question 32

What is the Travelling Salesman Problem?

Answer 32

If a vehicle must deliver to more than two customers, we must decide the order, in which we will visit those customers, so as to minimize the total cost of making the delivery.
We first suppose that any time that we make a delivery to customers, we are able to make use of only a single vehicle (capacity of our only truck is never an issue).
In this case, we need to dispatch a single vehicle from our depot to n-1 customers, with the vehicle returning to the depot following its final delivery.

Question 33

What is the objective function of TSP formulation?

Answer 33

Minimize sum sum cij * xij
C is costs and x is number of products
= Means minimize the cost or the distance

Question 34

What are the constraints of the TSP formulation?

Answer 34

1) Sum xij = 1 for all i elemanıdır I
> For each city i there has to be a path to city j
2) Sum xij = 1 for j elemanıdır J
> For each city j there has to be a path to city i
3) Sum xij (i ve j elemanıdır e(u)) <= IUI -1 tüm u kapsar n için
> The sub-tour elimination constraint (without this constraint the problem is simpler you can go back and forth, but this limits the moves to once)
> No paths exist twice (each route can only be travelled once)
> Each city can be visited once and each has to be visited once

Question 35

What are TSP, VRP and Inventory Routing?

Answer 35

1)	TSP: Traveling Salesman Problem
>	Salesman visits n customers at minimum cost
2)	VRP: Vehicle Routing Problem
>	m vehicles to deliver to n customers
>	with specific demand and time windows
3)	Inventory Routing 
>	m vehicles to deliver to n customers 
>	with unspecified demand, time windows, vehicle and storage capacity constraints

Question 36

What are the 6 Heuristic methods for Vehicle Routing solutions?

Answer 36

1) Load points that are close together on the same vehicle
2) Build routes starting with points farther from depot first
3) Fill the largest vehicle to capacity first
4) Routes shouldn’t cross
5) Form teardrop pattern routes
6) Plan pickups during deliveries, don’t separate

Question 37

Explain the VRP in 3 steps! What are its 3 foundations?

Answer 37

Number of vehicles located at a central depot has to serve a set of geographically dispersed customers
Each vehicle has a given capacity and each customer has a given demand
The objective is to minimize the total distance travelled (or minimize the cost or minimise the travel time)
Foundation:
Each customer must be visited once only once
You go back to go back to depot at the end
You cant make subtours

Question 38

What are the 7 Problem Variants in VRP?

Answer 38

1)	CVRP: Capacitated VRP
>	Limited vehicle capacity
2)	VRPTW: VRP with time windows
>	Customer time windows
3)	MDVRP: Multi-depot VRP
>	Multiple Depots
4)	VRPPD: VRP with Pickup & Delivery
>	Pickup & Delivery
5)	TD-VRP: Time-Dependent VRP
>	Time dependent travel time
6)	MFVRP: Mixed Fleet VRP
>	Heterogeneous Fleet
7)	E-VRP: Green VRP
>	BEV routing with recharging

Question 39

What is the motivation for the Green VRP?

Answer 39

Solving the issue of alternative-fuel powered VRP with limited driving range and charging capacities

Question 40

What is order fulfilment?

Answer 40

Process of giving customers delivery dates, promising, checking capacity
Whole process from customer order to the delivery

Question 41

What are good measures of order fulfilment performance?

Answer 41

1) Inventory turns
2) Fill rate / Line fill rate
3) Inventory costs
4) C2C cycle
5) EVA

Question 42

What is given in a VRP?

Answer 42

>

A set (fixed number) of pick-up or delivery points,
The demand at every pick-up or delivery points (deterministic),
A set (fixed number) of vehicles (homogeneous) and
All relevant distance information across pick-up points.

Question 43

What is it is required to find an effective/efficient solution for a VRP?

Answer 43

>

Assigning pick-up points to vehicles and

> Sequencing pick-up points on the route of each vehicle

Question 44

What is the objective of a VRP?

Answer 44

Minimizing the total distance travelled by the vehicles and/or the number of vehicles used.

Question 45

What are the constraints of a VRP?

Answer 45

>

Every route originates and terminates at the depot
The capacity of vehicle is restricted
The maximum distance(time) allowed for a vehicle on any route is within a pre-specified limit
Each pick-up point is visited once only

Question 46

What is the cash-to-cash cycle equation

Answer 46

C2C = Total Inventory Days of Supply + Days Receivables - Days Payables