VL_1 Strategic Framework for Supply Chain Analysis

Question 1

Explain the Defintion of Supply Chain

Answer 1

The Supply Chain consists of all parties responsible for fulfilling a customer request, dirctly or indirectly.

SC consists not only the maufacturer and the supplier but also the retailer, transporter, warehouser and even customer.

Furthermore the scope includes the flows of the products, financial funds and information. Product Flow is from manufactrer to the customer, financial funds viaversa and the information flow is in both directions.

There is sometimes reverse flows in case of the close Loop SC, or recycle.

Question 2

Which players are there in a classical SC?

Answer 2

Raw Material Supplier, Parts Supplier, Components Supplier, Manufacturer, Whole Sale, Retailer, Customer, in fact the customer is an integralpart of the supply chain, the primary purpose of the SC is the satisfy customer needs.

Question 3

Whats the main Goal of a Supply Chain?

Answer 3

Its the meeting the customer need properly and structuring the flows cost effective.

Maximize the difference between the value of the final product to the customer and the overall
supply chain costs (supply chain profitability, supply chain surplus)

We should measure the sucsess by these overall surplus and not the individuel stage profits. Maximizing the individuel stage profits does not necessarily imply which maximize the SC.

Question 4

Digital Supply Chains

Answer 4

Several Technological devoloplments and enablers have lead to this term: Senors and Geolocation, Robotics for Warehousing, UI and AR in Warehosues, BigData for PlantForecasting, and so on

Question 5

Which two types of SC did we learned, explain those?

Answer 5

Supply Driven SC: In the SD SC efficiency is maximised based on available resources.
i.e.: sugar porduction is driven by the crop and not by demand.

Demand Driven Supply Chains: In the DD SC efficency is maximised based on the expected demand

i.e.: in the fashion industry a demand driven approach is used by producing more of a popular style of jeans that is trending and in high demand

Question 6

Which 3 Decision Phases of a Supply Chain is there

Answer 6

Supply Chain Strategy or Supply Chain Design
* Long term decisions about a SC structure and configuration
Supply Chain Planning
* Short/medium term decisions about utilizing the given strategic resources, based on forecats
Supply Chain Operation
* Short term decisions based on the framework defined by SC planning: Delivery schedules Replenishment orders

Question 7

Explain the Toyotas SC?

Answer 7


Where should Toyota locate their plants and what
degree of flexibility should each plant have?

What capacity should each plant have?

Should plants be able to produce for all markets or
just for specific ones?

What kind of flexibility should be built into the sales
and distribution system?

How should this flexibility be valued?

What actions can be taken during product design to
promote flexibility?

Which reasons are there to separate the SC of
Lexus?

Question 8

What is the Cycle View of Supply Chain Processes?

Question 9

How is the Design of the Supply Chain of Dell?

Answer 9

Dell has enjoyed success based on its supply chain design, planning and operation. This success was based on two key SC feature that has supported rapid, low cost customisation:

The first was Dells desicion to sell directly to the end customer, bypassing the distributor and retailer.

The second key aspect of Dell’s supply chain was the **centralization of manufacturing and inventories in a few locations where final assembly was postponed until the customer order arrived. **

As a result, Dell was able to provide a large variety of PC configurations while keeping low levels of component inventories.

Later the growing power of the Hardware shifted the market again and dell adapted its SC by Sale in retail stores, now also make to stock production.

Question 10

Walmart‘s Successful Supply Chain Management? Explain

Answer 10

Walmart has been a leader at using supply chain design, planning, and operation to achieve success.
From its beginning, the company invested heavily in transportation and information infrastructure to facilitate the effective flow of goods and information. Walmart designed its supply chain with clusters of stores around distribution centers to facilitate frequent replenishment at its retail stores in a cost-effective manner. Frequent replenishment allows stores to match supply and demand more effectively than the competition. Walmart has been a leader in sharing information
and collaborating with suppliers to bring down costs and improve product availability.

Question 11

Explain the Cycle View of a Supply Chain

Answer 11

A SC is a sequence of procesess and flows that take place within and between diffrent stages and combine to fullfill a customer need. In Cycle View the the processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of the supply chain

Question 12

Which 5 stages are there in a SC?

Answer 12

Supplier
Manufacturer
Distributor
Retailer
Customer

Question 13

Given the 5 Stages of Supply Chain, explain the 4 SC Process cycles, which contain the all SC procesess.

Answer 13

Between the Stages
Supplier and Manufacturer: Procurement Cycle
Manufacturer and Distributer: Manufacturing Cycle
Distributer and Retailer: Replenishment Cycle
Retailer Customer: Customer Order Cycle

Question 14

In which example is it likely to see all for cylcles of SC proccess seperated? Where it is not?

Answer 14

For example, a grocery supply chain in which a retailer stocks finished-goods inventories and places replenishment orders with a distributor is likely to have all four cycles separated. Dell, in contrast, bypasses the retailer and distributor when it sells servers directly to customers.

Question 15

Which 6 Subprocesses within SC Cycles are there ?

Answer 15

Supplier stage markets product

Buyer stage places order

Supplier stage receives order

Supplier stage supplies order

Buyer stage receives supply

Buyer returns reverse flows to supplier or third party

Each cycle starts with the supplier marketing the product to customers. A buyer then places an order that is received by the supplier. The supplier supplies the order, which is received by the buyer. The buyer may return some of the product or other recycled material to the supplier or a third party

Question 16

Discuss the differences between the Customer Order Cycle and Procurement Cycle

Answer 16

Even though each cycle has the same basic subprocesses, there are a few important differences among the cycles. In the customer order cycle, demand is external to the supply chain
and thus is uncertain. In all other cycles, order placement is uncertain but can be projected based on policies followed by the particular supply chain stage. For example, in the procurement
cycle, a tire supplier to an automotive manufacturer can predict tire demand precisely once the production schedule at the manufacturer is known. The second difference across
cycles relates to the scale of an order. A customer buys a single car, but the dealer orders multiple cars at a time from the manufacturer, and the manufacturer, in turn, orders an even larger quantity of tires from the supplier. As we move from the customer to the supplier, the number of individual orders declines and the size of each order increases. Thus, sharing of information and operating policies across supply chain stages becomes more important as we move further from the end customer.

Question 17

When is the Cycle View Process is usefull?

Answer 17

A cycle view of the supply chain clearly defines the processes involved and the owners of each process This view is useful when considering operational decisions because it specifies the roles and responsibilities of each member of the supply chain and the desired outcome for each process.

Question 18

Explain the PullPush View of the SC Processes

Answer 18

All processes in a supply chain fall into one of two categories, depending on the timing of their execution relative to end customer demand. With pull processes, execution is initiated in
response to a customer order. With push processes, execution is initiated in anticipation of customer orders based on a forecast. Pull processes may also be referred to as reactive processes because they react to customer demand. Push processes may also be referred to as speculative processes because they respond to speculated (or forecasted), rather than actual, demand. The push/pull boundary in a supply chain separates push processes from pull processes,
**Push processes operate in an uncertain environment because customer demand is not yet known. Pull processes operate in an environment in which customer
demand is known. **
They are, however, often constrained by inventory and capacity decisions that were made in the push phase.

Push/Pull Boundary customer order decoupling point, Choosing an efficient/advantageous CODP is an important strategic decision during Supply Chain Design

Question 19

When is the PushPull view of a SC is useful?

Answer 19

A push/pull view of the supply chain categorizes processes based on whether they are initiated in response to a customer order (pull) or in anticipation of a customer order (push).

A push/pull view of the supply chain is very useful when considering strategic decisions relating to supply chain design. The goal is to identify an appropriate push/pull boundary such
that the supply chain can match supply and demand effectively

Question 20

Discuss the Push/Pull View of Supply Chain Processes in example of the paint industry and how it helped ?

Answer 20

The paint industry provides another excellent example of the gains from suitably adjusting the push/pull boundary. The manufacture of paint requires production of the base, mixing of suitable colors, and packing. Until the 1980s, all these processes were performed in large factories, and paint cans were shipped to stores. These qualified as push processes, as they were performed to a forecast in anticipation of customer demand. Given the uncertainty of demand, though, the paint supply chain had great difficulty matching supply and demand. In the 1990s, paint supply chains were restructured so mixing of colors was done at retail stores after customers placed their orders. In other words, color mixing was shifted from the push to the pull phase of the supply chain even though base preparation and packing of cans were still performed in the push phase.
The result is that customers are always able to get the color of their choice, whereas total paint inventories across the supply chain have declined.

Question 21

Explain the Push/Pull Processes for the L. L. Bean Supply Chain

Answer 21

L. L. Bean executes all processes in the customer order cycle after the customer order arrives. All processes that are part of the customer order cycle are thus pull processes.
Order fulfillment takes place from product in inventory that is built up in anticipation of customer orders. The goal of the replenishment cycle is to ensure product availability when a customer order arrives. All processes in the replenishment cycle are performed in anticipation of demand and are thus push processes. The same holds true for processes in the manufacturing and procurement cycles. In fact, raw material such as fabric is often purchased six to nine months
before customer demand is expected. Manufacturing itself begins three to six months before the
point of sale

manufacturing and procurement cycles is combined so 3 Cycles,

Question 22

Explain the Push/Pull Processes for Ethan Allen (Möbelmanufaktur)

Answer 22

Ethan Allen makes customized furniture, such as sofas and chairs, for which customers select the fabric and finish. In this case, the arrival of a customer order triggers production of the
product. The manufacturing cycle is thus part of the customer order fulfillment process in the customer order cycle. There are effectively **only two cycles in the Ethan Allen supply chain for
customized furniture: (1) a customer order and manufacturing cycle and (2) a procurement cycle, **
All processes in the customer order and manufacturing cycle at Ethan Allen are classified as pull processes because they are initiated by customer order arrival. The company, however,
does not place component orders in response to a customer order. Inventory is replenished in anticipation of customer demand. All processes in the procurement cycle for Ethan Allen are thus classified as push processes, because they are in response to a forecast.

Question 23

All supply chain processes discussed in the two process views can be
classified into the following three macro processes

Answer 23

1. Customer relationship management (CRM): all processes at the interface between the firm and its customers
2. Internal supply chain management (ISCM): all processes that are internal to the firm
3. Supplier relationship management (SRM): all processes at the interface between the firm and its suppliers

Question 24

Explain the success of Zara with her SC?

Answer 24

Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and
retailer. In 2012, Inditex reported sales of about 16 billion euros from more than 6,000 retail
outlets in about 86 countries. In an industry in which customer demand is fickle, Zara has grown
rapidly with a strategy to be highly responsive to changing trends with affordable prices. Whereas
design-to-sales cycle times in the apparel industry have traditionally averaged more than
six months, Zara has achieved cycle times of four to six weeks. This speed allows Zara to
introduce
new designs every week and to change 75 percent of its merchandise display every
three to four weeks. Thus, Zara’s products on display match customer preferences much more
closely than do those of the competition. The result is that Zara sells most of its products at full
price and has about half the markdowns in its stores compared with the competition.
Zara manufactures its apparel using a combination of flexible and quick sources in Europe
(mostly Portugal and Spain) and low-cost sources in Asia. This contrasts with most apparel manufacturers,
who have moved most of their manufacturing to Asia. About 40 percent of the manufacturing
capacity is owned by Inditex, with the rest outsourced. Products with highly uncertain
demand are sourced out of Europe, whereas products that are more predictable are sourced from
its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house
production occur after the sales season starts. This compares with less than 20 percent production
after the start of a sales season for a typical retailer. This responsiveness, along with the
postponement of decisions until after trends are known, allow Zara to reduce inventories and
forecast error. Zara has also invested heavily in information technology to ensure that the latest
sales data are available to drive replenishment and production decisions.

Question 25

Whats a competitive Strategy?

Answer 25

A company’s competitive strategy defines, relative to its competitors, the set of customer needs that it seeks to satisfy through its products and services.

For example, Walmart aims to provide high availability of a variety of products of reasonable quality at low prices

Question 26

Explain the product devolopment Strategy?

Answer 26

A product development strategy specifies the portfolio of new products that a company will try to develop. It also dictates whether the development effort will be made internally or
outsourced.

Question 27

Explain the markeitng and Sales Strategy

Answer 27

A marketing and sales strategy specifies how the market will be segmented and how the product will be positioned, priced, and promoted.

Question 28

What does Supply
Chain Strategy determine?

Answer 28

This strategy determines the nature of material procurement, transportation of materials, manufacture of product (the framework of the supply chain) or creation of service, and distribution of product.

Question 29

When can we speak from a strategic fit?

Answer 29

We can speak from a strategic fit, if the companies competitive strategy aligns with the supply chain strategy in Terms of the goals.

We adjust the Supply Chain to meet the Customer Needs.

Question 30

SC Chain Strategy of Zara
SC Chain Strategy of Walmart

Answer 30

Walmarts SC stratgy is based on the having a high efficency
Zaras strategy is having a more responsivness, they aim to have more flexibility to deal with uncertainities, which results from the Zaras competitive Strategy.

Question 31

Three steps to achieve starategic fit?

Answer 31

The first step in achieving strategic fit between competitive and supply chain strategies is to understand customers and supply chain uncertainty. Uncertainty from the customer and the supply chain can be combined and mapped on the implied uncertainty spectrum

Predictablesupply anddemand
Salt at a supermarket

Highly uncertain supply and demand
A new communication device

Understanding the Supply Chain Capabilities After understanding the uncertainty that the company faces, the next question is: How does the firm best meet demand in that uncertain environment? Creating strategic fit is all about designing a supply chain whose responsiveness aligns with the implied uncertainty it faces. The second step in achieving strategic fit between competitive and supply chain strategies is to understand the supply chain and map it on the responsiveness spectrum.

After mapping the level of implied uncertainty and understanding the supply chain position on the responsiveness spectrum, the third and final step is to ensure that the degree of supply chain responsiveness is consistent with the implied uncertainty.
**The goal is to target high responsiveness for a supply chain facing high implied uncertainty, and efficiency for a supply chain facing low implied uncertaint
**

Question 32

Achieving a stategic fit between the SC and competitive strategies?

Understanding the customer and
supply chain uncertainty, explain how to achieve this goal? Give example of differing customer needs?

Answer 32

So first we need the analyse and understand our potential customer profile and needs:

In the case of Seven-Eleven, customers are in a hurry and want convenience. In the case of Sam’s Club, they want a low price
and are willing to spend time getting it. Each customer in a particular segment will tend to have similar needs, whereas customers in a different segment can have very different needs.

At first glance, it may appear that each of the customer need
categories should be viewed differently, but in a fundamental sense, each customer need can be translated into the metric of implied demand uncertainty, which is demand uncertainty to which the SC is exposed in because of the customer needs it seeks to satisfy.

For example, a firm supplying only emergency orders for a product will face a higher implied demand uncertainty
than a firm that supplies the same product with a long lead time, as the second firm has an opportunity
to fulfill the orders evenly over the long lead time.

Question 33

Range of quantity required increases, because
Lead time decreases
Variety of products required increases
Number of channels through which products increases
may be acquired
Rate of innovation increases
Required service level increases

Answer 33

…a wider range of the quantity required implies greater variance in demand
… there is less time to react to orders.
… demand per product becomes more disaggregated.
… the total customer demand is now disaggregated over more
channels.
… new products tend to have more uncertain demand
… the firm must handle unusual surges in demand

Question 34

Correlation between Implied Demand Uncertainty and Other Attributes

How is these attributes (low or high) if IDU is low and high

Product margin
Average forecast error
Average stockout rate
Average forced season end markdown

Answer 34

If the IDU is low, such as the table salt, which means

Question 35

Explain the difference between the Demand Uncertainity and Implied demand uncertainity

Answer 35

Eger Range of Quantity that you offer artartirisan senin Supply Chainin icin Implied Demand Unceartanityin artar, aslinda productun ayni olmasina ragmen demandi

Question 36

Achieving a startegic Fit: Understanding the supply chain

capabilities

What is Supply Chain Responsiveness
What is Supply Chain Efficiency

Answer 36

Supply chain responsiveness is the ability to

Respond to wide ranges of quantities demanded

Meet short lead times

Handle a large variety of products

Build highly innovative products

Meet a very high service level

Responsiveness, however, comes at a cost. For instance, to respond to a wider range of quantities demanded, capacity must be increased, which increases costs. This increase in cost
leads to the second definition: Supply chain efficiency is the inverse of the cost of making and delivering a product to the customer. Increases in cost lower efficiency. For every strategic choice to increase responsiveness, there are additional costs that lower efficiency.

Question 37

What is a Cost Responsiveness Efficient Frontier

Answer 37

The cost-responsiveness efficient frontier is the curve shows the lowest possible cost for a given level of responsiveness. It ia indiffierenzkurve. Lowest cost is defined based on existing technology; not every firm is able to operate on the efficient frontier, which represents the costresponsiveness performance of the best supply chains. A firm that is not on the efficient frontier can improve both its responsiveness and its cost performance by moving toward the efficient frontier. In contrast, a firm on the efficient frontier can improve its responsiveness only by increasing cost and becoming less efficient- - so it needs a trade off between both .

Given the trade-off between cost and responsiveness, a key strategic choice for any supply chain is the level of responsiveness it seeks to provide.

Of course, firms on the efficient frontier are also continuously
improving their processes and changing technology to shift the efficient frontier itself.

Question 38

Explain the Responsiveness Spectrum and how the responiveness is importent for SC?

Answer 38

Given the trade-off between cost and responsiveness, a key strategic choice for any supply chain is the level of responsiveness it seeks to provide.

Supply chains range from those that focus solely on being responsive to those that focus on a goal of producing and supplying at the lowest possible cost.

Efficiency increases as the as the responsiveness decreaeses.

Seven-Eleven Japan replenishes its stores with breakfast items in the morning, lunch items in the afternoon, and dinner items at night. its highly responsive.

Question 39

How do we achieve a strategic fit?

Answer 39

After mapping the level of implied uncertainty and understanding the supply chain position on the responsiveness spectrum, the third and final step is to ensure that the degree of supply chain responsiveness is consistent with the implied uncertainty.

The goal is to target high responsiveness for a supply chain facing high implied uncertainty, and efficiency for a supply chain facing low implied uncertainty.

Question 41

How should a pasta manufacturer such as Barilla design its SC to acieve a strategic fit?

Answer 41

pasta manufacturer such as Barilla. Pasta is a product with relatively stable customer demand, giving it a low implied demand uncertainty. Supply is also quite predictable.
Barilla could design a highly responsive supply chain in which pasta is custom made in small batches in response to customer orders and shipped via a rapid transportation mode such as
FedEx. This choice would obviously make the pasta prohibitively expensive, resulting in a loss of customers. Barilla, therefore, is in a much better position if it designs a more efficient supply
chain with a focus on cost reduction.

Question 42

Figure for Finding the Zone of
Strategic Fit

Answer 42

in the y Achsis we have the responseviess level pf the SC, in the x achsis we have the Implied Uncertainty. If the IU is really low, because the prodct has a overall low demand uncertainty aswell as the customer needs doest imply higher DU, then the stratgic fit is for low responsiveness.

Question 43

Step 3 Achieving Strategic Fit

Distribution
of Implied Uncertainty Within the Supply Chain, IKEA Example

Answer 43

The next step in achieving strategic fit is to assign roles to different stages of the supply chain that ensure the appropriate level of responsiveness. It is important to understand that the
desired level of responsiveness required across the supply chain may be attained by assigning different levels of responsiveness and efficiency to each stage of the supply chain as illustrated
by the following examples.

IKEA is a Swedish furniture retailer with large stores in more than forty countries. IKEA has targeted customers who want stylish furniture at a reasonable cost. The company limits the
variety of styles that it sells through modular design. The large scale of each store and the limited variety of furniture (through modular design) decrease the implied uncertainty faced by the supply chain. IKEA stocks all styles in inventory and serves customers from stock. Thus, it uses inventory to absorb all the uncertainty faced by the supply chain. The presence of inventory at large IKEA stores allows replenishment orders to its manufacturers to be more stable and predictable.
As a result, IKEA passes along little uncertainty to its manufacturers, who tend to be located in low-cost countries and focus on efficiency. IKEA provides responsiveness in the supply
chain, with the stores absorbing most of the uncertainty and being responsive, and the suppliers absorbing little uncertainty and being efficient.

Question 44

Example of Supply Chain, where the IU is passed on Manufacterers from the retailer to increase retaelier efficency?

Answer 44

In contrast, another approach for responsiveness may involve the retailer holding little
inventory. In this case, the retailer does not contribute significantly to supply chain responsiveness,
and most of the implied demand uncertainty is passed on to the manufacturer. For the supply
chain to be responsive, the manufacturer now needs to be flexible and have low response
times. An example of this approach is England, Inc., a furniture manufacturer located in Tennessee.
Every week, the company makes several thousand sofas and chairs to order, delivering them
to furniture stores across the country within three weeks. England, Inc.’s retailers allow customers
to select from a wide variety of styles and promise relatively quick delivery. This imposes a
high level of implied uncertainty on the supply chain. The retailers, however, do not carry much
inventory and pass most of the implied uncertainty on to England, Inc. The retailers can thus be
efficient because most of the implied uncertainty for the supply chain is absorbed by England,
Inc., with its flexible manufacturing process

Question 45

Explain the Stratgic Fit of Zara

Answer 45

Zara uses a responsive supply chain with production in Europe for trendy items, it uses a more efficient supply chain with production in Asia for the basics. This tailored supply chain strategy provides a better strategic fit for Zara compared with using a single supply chain.

Question 46

A supply chain’s performance in terms of responsiveness and efficiency is based on the interaction between the following ….. and …. drivers

Answer 46

Logistical Drivers: Facilities, Inventory, Transportation
Cross functional: Information, Sourcing, Pricing

The goal is to structure the drivers to achieve the desired level of responsiveness at the lowest possible cost, thus improving
the supply chain surplus and the firm’s financial performance.

Question 47

Define each driver and discuss its impact on the performance of the supply chain: Logistical 1: Facilities

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 47

Facilities are the actual physical locations in the supply chain network where product is stored, assembled, or fabricated. The two major types of facilities are production sites and storage
sites. Decisions regarding the role, location, capacity, and flexibility of facilities have a significant impact on the supply chain’s performance. For example, in 2013, Amazon increased the number of warehousing facilities (and, as a result, experienced an increase in PP&E) located close to customers to improve its responsiveness. In contrast, Best Buy tried to improve its efficiency in 2013 by shutting down retail facilities even though it reduced responsiveness.

Question 48

Define each driver and discuss its impact on the performance of the supply chain: Logistical 1: Inventory

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 48

Inventory encompasses all raw materials, work in process, and finished goods within a supply chain. The inventory belonging to a firm is reported under assets. Changing inventory
policies can dramatically alter the supply chain’s efficiency and responsiveness. For example, W.W. Grainger makes itself responsive by stocking large amounts of inventory and satisfying
customer demand from stock even though the high inventory levels reduce efficiency. Such a practice makes sense for Grainger because its products hold their value for a long time. A strategy using high inventory levels can be dangerous in the fashion apparel business, though, in which inventory loses value relatively quickly with changing seasons and trends. Rather than
hold high levels of inventory, Spanish apparel retailer Zara has worked hard to shorten new product and replenishment lead times. As a result, the company is very responsive but carries low
levels of inventory.

Question 49

Define each driver and discuss its impact on the performance of the supply chain: Logistical 1: Transportation

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 49

Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency.

Question 50

Fundamental Conflict of Facility Desicions

Number of facilities:
Capacities of facilities:
Flexibility:

Answer 50

Number of facilities:
Centralized vs. decentralized
A basic trade-off here is whether to centralize to gain economies of scale or to decentralize to become more responsive by being closer to the customer

Capacities of facilities:
High utilization vs. excess capacities
A large amount of excess capacity allows the facility to respond to wide swings in the demands placed on it. Excess capacity, however, costs money and therefore can decrease efficiency. A facility with little excess capacity will likely be more efficient per unit of product it produces than one with a lot of unused capacity. The high-utilization facility, however, will have
difficulty responding to demand fluctuations. Therefore, a company must make a trade-off to determine the right amount of capacity to have at each of its facilities.

Flexibility:
Adaptability of output quantity/product

Flexible capacity can be used for many types of products but is often less efficient, whereas dedicated capacity can be used for only a limited number of products but is more efficient.

Question 51

Inventory as a driver, how should we manage it?

Answer 51

Inventory affects the assets held, the costs incurred, and responsiveness provided in the supply chain. High levels of inventory in an apparel supply chain improve responsiveness but also leave the supply chain vulnerable to the need for markdowns, lowering profit margins. A higher level of inventory also facilitates a reduction in production and transportation costs. because of improved economies of scale in both functions. This choice, however, increases inventory holding cost. Low levels of inventory improve inventory turns but may result in lost sales if customers are unable to find products they are ready to buy. In general, managers should aim to reduce inventory in ways that do not increase cost or reduce responsiveness.

Question 51

Types of Inventory?

Cycle Inventory

Answer 51

Cycle inventory is the average amount of inventory used to satisfy demand between receipts of supplier shipments.

The size of the cycle inventory is a result of the production,transportation, or purchase of material in large lots. Companies produce or purchase in large lots to exploit economies of scale in the production, transportation, or purchasing process. With the increase in lot size, however, comes an increase in carrying costs. As an example of a
cycle inventory decision, consider an online book retailer. This e-retailer’s sales average around 10 truckloads of books a month. The cycle inventory decisions the retailer must make are how
much to order for replenishment and how often to place these orders. The e-retailer could order 10 truckloads once each month or it could order one truck load every three days. The basic tradeoff supply chain managers face is the cost of holding larger lots of inventory (when cycle inventory is high) versus the cost of ordering more frequently (when cycle inventory is low).

Imagine the store sells an average of 100 pairs of jeans each week. The store receives deliveries from its supplier once every two weeks. Therefore, every time the store places an order with its supplier, it needs to order enough jeans to cover two weeks of sales, or 200 pairs of jeans.

In this scenario, the cycle inventory consists of the 200 pairs of jeans that the store orders to meet the regular sales demand for the two weeks between deliveries. At the beginning of the cycle, right after the delivery, the store’s cycle inventory is at its highest. As the two-week period progresses and jeans are sold, the cycle inventory decreases until it’s time for the next delivery, which replenishes the cycle inventory back to 200 pairs of jeans.

Question 52

Types of Inventory?

Safety Inventory

Answer 52

Safety inventory is inventory held in case demand exceeds expectation; it is held to counter uncertainty. If the world were perfectly predictable, only cycle inventory would be needed. Because demand is uncertain and may exceed expectations, however, companies hold safety inventory to satisfy an unexpectedly high demand. Managers face a key decision
when determining how much safety inventory to hold. For example, a toy retailer such as Toys “R” Us must calculate its safety inventory for the holiday buying season. If it has too much safety inventory, toys will go unsold and may have to be discounted after the holidays. If the company has too little safety inventory, however, then Toys “R” Us will lose sales, along with
the margin those sales would have brought. Therefore, choosing safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing sales owing to not having enough inventory.

Question 53

Types of inventory?

Seasonal Inventory

Answer 53

Seasonal inventory is built up to counter predictable seasonal variability in demand. Companies using seasonal inventory build up inventory in periods of low demand and store it for periods of high demand, when they will not have the capacity to produce
all that is demanded. Managers face key decisions in determining whether to build seasonal inventory and, if they do build it, in deciding how much to build. If a company has volume
flexibility and can rapidly change the rate of its production system at very low cost, then it may not need seasonal inventory. However, if changing the rate of production is expensive (e.g.,
when workers must be hired or fired), then a company would be wise to establish a smooth production rate and build up its inventory during periods of low demand. Therefore, the basic
trade-off supply chain managers face in determining how much seasonal inventory to build is the cost of carrying the additional seasonal inventory versus the cost of having a more flexible
production rate.

Question 54

Fundemental Conflict of Inventory

Cycle inventory:

Safety inventory:

Seasonal inventory:

Answer 54

Cycle inventory:
Carrying costs vs. replenishment costs

Safety inventory:
Capital commitment vs. service level/lost sales

Seasonal inventory:
Carrying seasonal inventory vs. cost of flexible production rate

Question 55

Cross Functional Drivers: Information

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 55

Information consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain. Information is potentially the
biggest driver of performance in the supply chain because it directly affects each of the other drivers.

Information presents management with the opportunity to make supply chains more responsive and more efficient.For example, Seven-Eleven Japan has used information to better match supply and demand while achieving production and distribution economies. The result is a high level of responsiveness to customer demand while production and replenishment costs are lowered.

The fundemantal conflict and the managers desiciion is on Information infrastructure: Complexity vs. benefits

Question 56

Cross Functional Drivers: Sourcing

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 56

is the choice of who will perform a particular supply chain activity, such as production, storage, transportation, or the management of information. At the strategic level, these decisions determine what functions a firm performs and what functions the firm outsources. Sourcing decisions affect both the responsiveness and efficiency of a supply chain. After Motorola
outsourced much of its production to contract manufacturers in China, for instance, it saw its efficiency improve but its responsiveness suffer because of the long lead times. To make up for the drop in responsiveness, Motorola started flying in some of its cell phones from China even though this choice increased transportation cost.

Question 57

Zaras sourcing strategy?

Answer 57

Zara has a sourcing strategy that varies by product type. For basic products such as white T-shirts, Zara aims for efficiency because demand is predictable. These products are sourced from suppliers in low cost countries. For trendy products for which demand is unpredictable, in contrast,
Zara sources from company-owned factories in Europe. These factories are not low cost, but they are flexible and responsive to the rapidly evolving needs of the trendy market.

Question 58

Components of Sourcing Decisions

Manufacturing:
Number of suppliers:
Supplier selection:

Answer 58

Manufacturing:
In house vs. outsourcing

Number of suppliers:
Single sourcing vs. multiple sourcing

Supplier selection:
Direct negotiation vs. auction

Question 59

Cross Functional Drivers: Pricing

SC Performance in terms of its responsiveness and efficiency is based on the interaction between the logistical and cross functional drivers.

Answer 59

Pricing determines how much a firm will charge for the goods and services that it makes available in the supply chain. Pricing affects the behavior of the buyer of the good or service,
thus affecting demand and supply chain performance. For example, if a transportation company varies its charges based on the lead time provided by the customers, it is likely that
customers who value efficiency will order early and customers who value responsiveness will be willing to wait and order just before they need a product transported.

Differential pricing provides responsiveness to customers that value it and low cost to customers that do not value responsiveness as much. Any change in pricing affects revenues directly but could also affect costs based on the impact of this change on the other drivers.

Question 60

Fundamental
Conflict:
Pricing Strategies
Demand profiles

Answer 60

Pricing strategies:
Fixed prices vs. variable prices
(e.g. discount campaigns, quantity discounts or tariff

Demand profiles:
Every day low pricing vs. High low pricing