Supply Flashcards
Types of Inventory:
Cycle Stock: Based on order cycles.
Safety Stock: Buffer for unexpected demand.
In Transit Stock: Goods in transportation.
Seasonal Stock: To meet seasonal demand.
Promotional Stock: For marketing campaigns.
Speculative Stock: To hedge against price changes.
Dead/Obsolete Stock: Unsellable inventory.
Demand and Supply Planning:
Describing Demand:
Factors: Level, frequency, patterns, and product life positioning.
Product Classification: Based on Pareto’s Law (80-20 Rule) for fast, medium, and slow movers.
Forecasting Demand:
Methods:
Qualitative: For lack of historical data.
Quantitative: Using statistical models and time series.
Planning Demand and Supply:
Metrics: Forecast accuracy and error rates.
Order Cycle Management:
Continuous or periodic review.
Economic Order Quantity (EOQ).
Sales and Operations Planning (S&OP)
Process:
Demand planning, supply/resource planning, financial integration.
S&OP meeting phases: Pre-S&OP, S&OP, Post-S&OP.
Definition:
Integrated business planning aligning sales, marketing, demand, and supply with strategic financial goals.
Successful Implementation:
Key factors for effective S&OP processes.
Challenges:
Common issues leading to failures in implementation.
Strategic Alignment in Supply Chain Management:
- Corporate Strategy:
Defined as the direction and scope of an organization over the long term, aligning resources with changing environments and stakeholder expectations.
Includes mission, goals, objectives, actions, and rewards.- Competitive Strategy:
Involves trade-offs and focus, with examples from companies like Amazon, IKEA, and Apple. - Alignment:
Competitive and functional strategies must align to achieve a unified goal.
- Competitive Strategy:
Strategic Decision-Making in SCM
Three Key Concepts:
1. Segmentation: Dividing supply chain drivers (inventory, information, facilities, transport) based on performance and needs.
2. Decoupling Point: The point where supply meets demand, influencing efficiency and responsiveness.
3. Lean and Agile Strategies:
- Lean: Focused on minimizing costs.
- Agile: Designed for rapid responsiveness to demand changes.
Customer Order Decoupling Point (CODP)
Refers to the value chain point where customer orders trigger production.
Critical in determining supply chain responsiveness and efficiency.
Inventory Strategies
Five distinct models based on the location of the decoupling point, which shapes the supply chain’s performance.
Purpose of Supply Chain Companies
- Align capital investments (factories, inventory, raw materials) with business goals.
- Improve financial performance through strategic supply chain management (SCM).
Funding Capital Investments
- Capital vs. Operating Expenses:
- Capital expenses: Long-term investments like factories or machinery.
- Operating expenses: Day-to-day operational costs.
- Funding Options:
- Equity vs. Debt: The balance is indicated by the gearing ratio (ideal range: 30-50%).
- Key Financial Metrics:
- WACC (Weighted Average Cost of Capital): A measure of overall cost of funds.
- Hurdle Rate: Minimum return required to justify an investment, accounting for risks and alternatives.
SCM’s Impact on Financial Statements
- Profit and Loss (P&L) Statement:
- Supply chain activities influence costs and revenues via:
- Quality, service, cost, and time.
- Raw material purchases, salaries, energy costs, fuel, and inventory management.
- Balance Sheet:
- Impacts working capital through inventory, debtors, cash, and payable accounts.
- Cash Flow:
- Importance of liquidity management:
- Reduce inventory.
- Lease instead of buying.
- Manage payment terms with customers and suppliers.
- Importance of liquidity management:
- Supply chain activities influence costs and revenues via:
Improving Financial Performance via SCM
- Levers of SCM:
- Influence on the flow of funds, goods, and information.
- Reducing costs, increasing speed to market, and optimizing inventory.
- Financial Impact Metrics:
- ROCE (Return on Capital Employed).
- ROA (Return on Assets).
Summary
SCM aligns operational activities with financial goals to add value.
- Effective SCM improves profitability, liquidity, and asset efficiency
Definition of Outsourcing
Outsourcing in SCM involves delegating functions like buying, manufacturing, warehousing, and transportation to third-party logistics providers (3PLs)
Reasons for Outsourcing
- Advantages:
- Increases operating flexibility.
- Reduces fixed assets.
- Enhances efficiency.
- Concerns:
- Loss of direct customer contact.
- 3PLs needing time to understand the business.
- Loss of control over processes.
Drivers of Outsourcing Logistics
- Operating flexibility, cost efficiency, and scalability
The Tendering Process
- Steps:
- Identify potential service providers.
- Gather and shortlist based on initial information.
- Collect detailed information in a standardized format.
- Assess in cross-functional teams.
- Select the provider and evaluate associated risks.
- Define contract terms, costs, and services.
- Develop an implementation and contingency plan.
Managing Outsourcing Relationships
- Dedicated vs. Shared Resources:
- Dedicated: Specialized, loyal, confidential but costly and less flexible.
- Shared: Economies of scale, lower costs but less specialization and higher risk of conflicting demands.
- Causes of Outsourcing Failures:
- Minimal involvement from the company.
- Unclear contracts and objectives.
- Poor communication and lack of performance measurements.
- Best Practices:
- Set clear expectations.
- Monitor performance regularly (customer service and finance).
- Execute operational plans effectively.
Approaches to Foreign Market Entry
- Entry Strategies:
- Direct Export: Exporting without intermediaries, either from a home base or via local subsidiaries.
- Indirect Export:
- Individual: Uses agents, importers, distributors, or trading companies as intermediaries.
- Collective: Includes joint selling or export management companies (EMCs).
- Production Abroad:
- Strategic alliances: Licensing, contract manufacturing, joint ventures, and franchising.
- E-Commerce: Growing in popularity due to convenience, customer loyalty, and internet access.
Distribution Channels
- The chain of intermediaries facilitating the flow of goods to the final buyer.
- Choice of channel influenced by internal (company size, experience) and external (market conditions, socio-cultural aspects) factors.
Risks in International Business
- Cross-Cultural Risk: Miscommunication impacting human values.
- Country Risk: Political, legal, or economic instability.
- Currency Risk: Fluctuations in exchange rates.
- Commercial Risk: Poorly executed business strategies or operations.
- Managers need proactive strategies to mitigate these risks.
Key Forms of Export and Collaboration
- Licensing: Grants rights to produce and sell products.
- Franchising: Allows using marketing and sales approaches under strict conditions (e.g., McDonald’s).
- Joint Ventures and Acquisitions: Collaborative strategies for market access.
Financial Policy in Export
- Key aspects:
- Currency management: Mitigate currency risk through hedging strategies.
- Liquidity and cash management: Optimize flows of money within the company and with third parties.
- Credit management: Manage debts and mitigate risks with proper policies.
- Export finance: Use forward contracts, options, and other tools to protect against exchange rate fluctuations.
Currency Risk and Hedging
- Hedging Strategies:
- Shifting risks: Transfer currency risk to customers or suppliers.
- Reducing costs: Adjust pricing to offset currency fluctuations.
- Leading and lagging: Optimize payment timings based on currency trends.
- Structural hedging: Match cash inflows and outflows in the same currency.
- Financial instruments:
- FX Forward Contracts: Lock exchange rates for future payments.
- Options Contracts: Right to buy or sell at a fixed rate in the future.
Foreign Payment Systems:
- Four Ways to Settle Payments:
- Advance Payment: Secure for the seller but risky for the buyer.
- Open Account: Risky for the exporter; relies on buyer’s creditworthiness.
- Documentary Collection: Payment upon receipt of shipping documents (D/P or D/A).
- Letter of Credit (L/C): A bank guarantees payment upon meeting conditions.
Example Scenarios
- Currency risk examples demonstrate how companies mitigate exposure using hedging techniques and forward contracts.
Logistics in Export Management
- Defined as the process of planning, organizing, and managing the flow of goods from purchase to delivery at minimal cost, ensuring market needs are met.
Levels of Logistics
- Strategic: High-level decisions involving supply chains, sourcing, and globalization.
- Tactical: Decisions regarding customer service levels, outsourcing, and logistical policies.
- Operational: Day-to-day management of transportation, packaging, and stock levels.
Logistical Process
- Divided into:
- Purchase Logistics: From suppliers to production.
- Production Logistics: Inventory, spare parts, and quality management.
- Physical Distribution: Delivery from production to end users.
International Logistics Considerations
- Cultural and legal differences.
- Trends like globalization, environmental concerns, digitization, and e-commerce.
- Key performance indicators (KPIs) for efficiency.
Customs Policy
- Essential in all international transactions.
- Key Customs Components:
- Customs value and tariffs (based on the Harmonized System).
- Documentation and formalities.
- Special regimes like customs warehousing, inward/outward processing relief, and temporary importation.
- Key Customs Components:
Incoterms
- Defines responsibilities for shipping, insurance, documentation, and costs between buyers and sellers.
- Helps allocate risks, costs, and tasks in international trade.
Packaging in Export
- Functions:
- Clustering: Keeping shipments organized.
- Protection: Safeguarding goods from damage and theft.
- Communication: Instructions for handling and usage.
Operational Customs Management
- Material aspects: Tariff mapping, compliance checks, and preferential origin requirements.
- Formal aspects: Documentation through intermediaries or direct processing.
Definition of Sustainability
- Meeting current needs without compromising the ability of future generations to meet theirs.
- A balanced approach integrating the triple bottom line: economic, environmental, and social factors.
Environmental Impact of Supply Chains
- Contribution to greenhouse gas emissions through manufacturing, energy production, and transportation.
- Emissions include CO₂, CH₄, and NOₓ, highlighting the role of supply chain activities in climate change.
Key Challenges
- Transport Intensity:
- Increased global sourcing raises transport demands.
- Practical steps to reduce intensity include:
- Reviewing product design and sourcing strategies.
- Improving transport utilization and adopting postponement strategies.
- Peak Oil:
- The hypothetical point of maximum crude oil production, after which production declines.
- Supply chains must adapt by reconfiguring networks to reduce energy dependence.
Sustainability Strategies
- Reduce, Reuse, Recycle:
- Focus on minimizing resource use while enhancing profitability.
- Cooperation in the supply chain, such as reducing packaging.
- Compliance with government regulations.
- Beyond Carbon Footprint:
- Consider the broader resource footprint in supply chain decisions.
Infrastructure and Logistics
- Challenges:
- Logistics infrastructure has not kept pace with economic growth.
- Issues include increased global trade, capacity limitations, and the Just-In-Time (JIT) principle.
- Solutions:
- Smart logistics and intelligent transport systems to optimize resource use and reduce congestion.
- Question: Explain the relationship between inventory management and sales & operations planning (S&OP).
- Answer: S&OP optimizes profits and reduces costs and risks. Inventory management achieves a balance between supply and demand to support these goals.
- Question: Analyze Henkel’s expansion in Bowling Green using the four drivers of supply chain performance.
- Answer:
- Inventory: Improved inventory management due to modernization.
- Information: Enhanced IT systems for efficiency.
- Facilities: Expanded production facilities.
- Transport: Streamlined logistics operations.
- Question: How can Henkel improve financial performance through SCM?
- Answer: Focus on core manufacturing, outsource packaging, reduce transport and material costs, and use demand forecasting for better sales and cost efficiency.
- Question: How does Henkel mitigate outsourcing risks?
- Answer: Maintain control over key processes, ensure alignment with business strategy, and treat the supplier as a partner to sustain quality and efficiency.
- Question: What market entry options do retail companies have according to Veldman et al. (2010)?
- Answer:
- Direct export.
- Indirect export via intermediaries.
- Cooperative export strategies.
- Question: Identify dilemmas in the leather supply chain
- Answer:
- Ethical: Waste from unused cowhides due to decreased leather demand.
- Environmental: Pollution from methane emissions and water-intensive tanning processes.
