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Exam 1 Study Guide MODULE ONE: What is Supply Chain Management? (9 TOAL QUESTIONS) ●

Supply Chain Management: effective and efficient integration of suppliers, manufacturers, transportation organizations and other parties responsible for bringing products and services to market (doing the least amount of work for the best product)

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Procurement (purchasing): responsible for acquiring materials, equipment, products and services Finding supplier that offers the best value Negotiate terms of purchase Create long-term relationships with suppliers

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Operations: responsible for making business processes effective and efficient Making highest quality product with the fewest resources possible Logistics: responsible for developing transportation itinerary (movement and storage) to navigate smooth flow of materials

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Reverse Logistics: management of products that flow upstream (toward supplier)

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Global SCM: when supply chain partners span across multiple countries/continents

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1st tier suppliers: provides goods and services directly to a company

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2nd tier supplier: provides goods and services to a company’s 1st tier supplier

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SCM flows: Materials, money, and information -if these three are not continuously flowing, supply chain will fail

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Business model: a company’s plan for how it will purchase items, transform them, deliver them, and sell them to product profit Business to Consumer (B2C) - amazon, starbucks, nordstrom Business to Business (B2B) - boeing, consulting/marketing agencies Both B2B and B2C - IBM, dell, verizon Brick & Mortar - land-based commerce only (ex. Burger King, Circle K) Internet Only Retailer - net commerce only (ex. Amazon.com) Click & Mortar - land-based and internet (ex. Nordstrom, barnes and noble)

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Supply Chain visibility: ability to see what is happening with inventory upstream (toward supplier) and downstream (toward consumer) ●

Profit relationship to SCM: if products are poorly manufactured or are delivered later and/or damaged it will affect a company’s ability to generate revenues

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ROI’s relationship to SCM: supply chain managers seek to maximize ROI so that investment decreases and profit increases

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Competitive priorities: cost, quality, speed, flexibility Cost: material, production, packaging, customer service, organizational, quality Quality: design, material & production, quality level delivered, consistency, service Time: delivery (lead time), on-time delivery Flexibility: product or customization flexibility (Oregano’s pizza on toppings), volume flexibility (frozen pizza in volume but not toppings), mass customization

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Core competency: primary advantage over competitors (usually difficult, if not impossible to replicate)

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Productivity vs. Value Perspectives (organization vs. customers) Productivity: maximizing outputs and minimizing inputs (organizational perspective) Value: giving a customer more for the same price or the same amount for a lower price (customer perspective)

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Primary supply chain goals: effectiveness, efficiency, and adaptability

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Seven types of waste: decreasing one may increase another Defects Overproduction: wastes time, money and effort Transportation (increases possibility of theft, damage, and loss) Motion: too much movement wastes time Waiting: items should not be produced too far in advance Inventory: not providing an immediate return Over-processing: wastes time and resources

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Keys to being a Successful Supply Chain Manager: Satisfy needs of the customer: create value by creating competitive priority mix Satisfy needs of the company: maximize productivity, eliminate waste Be prepared for the future: responsive to change

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Supply Chain Strategy: Understanding the product/service and the market’s desires Developing a business model Organizing the right group of supply chain partners

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Supply Chain Tools Supply chain metrics: identifying successes and failures Information technology tools: collect, organize, and report data Relationship management skills Financial resources: companies need to be willing to invest in their supply chain Organizational integration: effective communication between all departments

List of terms likely to be tested from lectures: Supply Chain Management - What is SCM?  Supply Chain Management: The Efficient Integration of…. -Suppliers and Manufacturers -Transporters, Distribution centers, warehouses -Retailers and all other parties associated tasked with the successful delivery of the final product and/or service. -Supply chain is…”only as strong as its weakest link” -Efficiency is very important…how can you be efficient if you are not integrated?  Operations Management (key component to the supply chain): sign, operation, and improvement of the production systems that efficiently transform INPUTS into Finished Goods & Services, maximizing productivity. Ex of “duties”: Process management, Plant management, capacity planning – resources, speed (How much, how fast?), scheduling jobs/people, waiting line management, process improvement projects.

 Logistics: is the COORDINATED Planning and Execution of the following: o Preparation of Packaged Product o Movement Itinerary (Transport) o Storage Itinerary (Warehousing) o Product Distribution throughout the Supply Chain – -Who gets what? When? How? Ex. of “duties”: Distribution/Warehousing, Infrastructure Management, Packaging, containerization, transportation, documentation, Third party management and communication

 Reverse logistics

 Procurement (a key component to the supply chain): The process of obtaining services, supplies, and equipment in in conformance with corporate regulations. Ex. of “duties”: supplier selection, purchasing negotiations, managing supplier relationships as well as materials/ inventory *You are in purchasing if your job is in procurement

 3 flows of the Supply Chain: 1. MATERIALS 2. INFORMATION 3. MONEY

 Supply chain visibility

Corporations – Goals and Terminology The Corportation-Stakeholders -Owners, investors, stockholders -Managers, employees and business partners -Customers -“Corporate level” -Without these three the company will not be successful -Company is there to make money, but as the manager you have to be thinking about owners, managers and customers constantly -Every decision as a manager has to do with money, but obviously you have to make all these people happy.  Primary goals of a business and Ties to SCM: Sustainable and long term profits AND maximize return on investment (ROI). Supply chain is about revenue and cost. Better products= more revenuedelivered on timemore revenue. Doing it on time=less cost. Find a way to different so you can survive for a long period of time. How can this be achieved? 1. MAKE MONEY: Profit= Revenue- Cost 2. BE EFFICIENT AND AVOID WASTE: ROI Formula=Profit/ Investment 3. BE DIFFERENT/ BE BETTER: Develop core competencies….

 Core competencies

 Competitive Priorities (4): The four things that companies compete on 1. Cost- very versatile: Ex: Water bottles -When you buy a bottle of water don’t just consider the water. There are also…(5) -Material costs -Production costs -Packaging, transportation, warranties, repairs, rework, errors, time -Customer service cost `

-Other organizational costs-marketing, finance, technology, waste disposal, rent, insurance, legal, human resources “CONTROL ACROSS ENTIRE SUPPLY CHAIN*

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Quality: (5 different types) Design quality: Product or service. Good workers and materials can’t make up for a bad design. Ex: Apple --------------------------------------------------Material and Production quality: This requires well designed production system, good materials, labor, high performance, aesthetics, durability

Quality level delivered: How does it look when the end user finally gets it? What it look slike off the assembly line is NOT the only thing that is important. Ex: Food deliveries Consistent quality: Same every time? Perfect every time? Having the ability to be consistent is challenge for any company that wants a massive customer base. Ex: McDonalds? ---------------------------------------------------

Service quality: Sales, support, repairs, maintenance, assembly, delievery

Quality is a very versatile word People have different meanings when it comes to quality Diff. companies give different types of “high quality” Ex: Apple focuses on design quality. They do not always work very well with material and production quality issues Ex: McDonald’s= “consistent quality” Ex: Quantity level delivered-pizza was hot and yummy when it came out of the oven, but after it was transported and delivered-not so much

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Speed/Time

DELIVERY TIME-Lead Time (Pizza Delivery)

-From order placementorder fulfillment -Includes… -Supplier delivery times -Manufacturing time -Transport times across the supply chain -Waiting time ON-TIME DELIVERY- (Airline Industry) -% Of time delivered when promised - Developing schedules, and staying on schedule -Who dictates promised date/time? Fast, accurate or both? -Some companies focus on being more reliable than being on time *CONTROL ACROSS THE ENTIRE SUPPLY CHAIN

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Flexibility-companies typically offer large quantities OR a large range of customizable features. Both are considered a form of flexibility. Consider the planning required to offer a customer each (or both.) 3 different types: 1. 2.

PRODUCT OR CUSTOMIZATION FLEXIBILITY: -Options offered -Built to your specifications VOLUME FLEXIBILITY -Coping with demand changes -Large and/or small orders (timely)

*Sometimes companies through the use of good planning, design and technology can provide both forms of flexibility. This is called…. 3. MASS CUSTOMIZATION -Both customization and volume flexibility Other types of flexibility modern organizations require: -Design flexibility ---------------------------------------Materials/ Parts flexibility -Facility flexibility -Tools/Machinery flexibility -Employee flexibility ---------------------------------------Service flexibility

*All companies differ in these priorities Some examples…. McDonalds burgers vs. Red Robin burgers: how can these both coexist and be profitable for each company? Look at these main pointsWho makes it cheaper? Who makes it faster? Who makes better quality? THIS is how companies coexist.

 Productivity (Corporate goal)- “ Organizational Perspective” o What did I make? (outputs) o What was the cost? (inputs) o “Boss wants productivity” o AKA making more for less money or less for more money? VS…  Value (Corporate goal)- “Customer Perspective” o What do I get? (quantity, quality, size…) o What is the price? (money, waiting time,warrenty…) o AKA what I get in comparison to how much I paid…(size and price) Different people want different things Supply chain manager is responsible for making people feel better about the product (they can make it cheaper for the customers, deliver it faster, etc.)  Business Models: The plan for purchasing, transforming, delivering, and selling products/services with the intent of making a profit. Consider: Amazon vs Barnes&Noble, SeaGate HD vs. DropBox -B2C -B2B Both B2B an B2C -Brick and Mortar (land-based commerce) -Internet only retailer (net commerce only) -Click and Mortar (land based and internet) In supply chain we want to provide supply chain visibility: being able to see where the inventory is in the supply chain Do you have enough inventory? How can you be sure? Can you count on your supply chain tomorrow, next week, next month?

*ILLUSTRATIONS THAT MAY BE INCLUDED: Simple Supply Chain illustration:

MARKETING/ DESIGN/ STRATEGY makes up the “brain of the company.” IT= information (how many did we sell, how many manufactured today, etc.) IT/ MARKETING/ ACCOUNTING all work together

MODULE TWO: Managing Supply (18 TOTAL QUESTIONS-9 FROM TEXTBOOK/8 MATH RELATED) ●

Inventory: items owned by a company for present sale, future sale and day-to-day operations

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Lead time: period of time between when an order is placed and when it is received

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Lot size: an accepted order size (ex. Buying S,M,L,XL per unit or buying equal amount of each size in each package)

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Demand forecasting: predictive analysis of consumer demand in future period Story in class: USS naval officer questions experts separately to avoid group think and finds missing submarine 220 yards away from where they guessed

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Putting together the right team: diversity of opinion, independence, decentralization

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SKU: identification code used to track inventory or catalog sales (ex. Seeing if store has white shirt in medium size)

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Independent demand: demand levels are not directly impacted by demand of related item (ex. Cars)

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Dependent demand: demand levels are directly impacted by demand of related item (ex. Tires because more cars sold cases greater demand for tires)

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All 8 Inventory Classifications: Raw materials Work-in-process Finished goods Maintenance, repair and operations (MRO): items important for daily operations (ex. Desks, computers, cleaning supplies) Market inventory: inventory readily available on the shelf at a store Safety stock: inventory kept for variation/uncertainty of demand (decrease amount of safety stock by having better suppliers) Anticipation inventory: created and stored for future use (ex. Shovels/snowblowers for winter, candy for halloween) Pipeline inventory: inventory “on its way” to the customer (DOESN’T INCLUDE SAFETY STOCK) Pipeline inventory = periodic demand (d) * lead time (L) = dL Shrinkage: happens more often when there’s too much inventory (ex. Shampoo principle)

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High vs. Low inventory High inventory: higher levels of customer service, quality discounts possible, lower ordering and transportation costs, greater security against unexpected demand variability Short lead times may require high inventory Low inventory: less storage space required, lower chance of inventory shrinkage, less materials handling requirements, less money invested in inventory for use elsewhere

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All 4 costs of inventory Cost to purchase Holding cost: warehouse rent, security systems, insurance, etc. Ordering cost: order clerk salary, delivery fees Stockout cost - cost for not having enough inventory on hand

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Inventory calculations: Average amount of inventory = Lot Size (Q) / 2 Number of Orders per year = Annual Demand (D) / Lot Size (Q) Time between orders (in weeks) = (Q/D) * 52

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Total Annual Cost formula TC = [Annual Demand(D)* cost to purchase on unit(C)] + [(Q/2)* cost to hold one unit for a year (H)] + [(D/Q)* cost to place a single order (S)]

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EOQ: lot size that will minimize TC; the optimal lot size EOQ=sqrt[(2DS)/H)] EOQ is the point where AHC = AOC; intersection point

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Reasons for making Proprietary technology: company does not tell others how to make it No competent suppliers: others cannot make it as good as you can Better quality control: others may not be as detail-oriented Idle capacity: you have machines and people available to make it Control: faster, cheaper, better VS.

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Reasons for outsourcing (buying) Insufficient capacity: don’t have time or resources Lack of expertise: don’t know how to make it No competent supplier: can’t make it up to the standards you want Better use of resources: outside suppliers can produce it faster and at a lower cost than you can

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Total cost of ownership (TCO): cost to acquire, store, use, handle, transport, maintain, dispose, recycle or refurbish an item

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Vertical Integration: taking on additional supply chain responsibility that were formerly done by outside parties Forward integration: taking over downstream operations (ex. Bakery opens sandwich shop and use their own bread for their sandwiches) Backward integration: taking over upstream operations (ex. Bakery purchases a flour company; use their own flour in bread and sell flour to other companies)

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Steps in purchasing process (ordering costs) Requisition: identify need (use MR-)-material requisition Supplier selections: you may use RFQ- request for quotation Place order: use PO-purchase order Track order: communicate with supplierReceive order: inspect, record, shelve

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Purchasing documents Material requisition (MR): initiate purchasing process by signaling that product/service (lists quantity needed, product description/specifications) Request for quotation (RFQ): if the product requested is not in stock and RFQ is issued asking the supplier to provide a quote of per unit price, delivery date, etc. Purchase order (PO): states the terms and conditions of an order; represents a binding contract between supplier and buyer

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E-procurement system: aids in submitting requests for materials, orders, negotiating with suppliers, tracking shipments, receiving shipments; helps analyze procurement actions for improvement

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Centralized purchasing: single purchasing department responsible for all purchasing decisions Avoids duplication Volume discounts by pooling common order from different departments into one large order Consolidated shipping: pen/paper orders from all different departments can be shipped to one location in a single order Established supply base: allows deeper supplier relationships to form Supply specialization: employees can develop expertise in buying certain categories of products

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Decentralized purchasing: purchasing department in each department Closer knowledge of requirements: better understanding of the intended use of item Closer knowledge of supplier: local buyers would be able to make better purchasing decisions Speed of purchase: can be bought immediately

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Supplier base: group of suppliers that a company makes most of its purchases

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Choosing a supplier: you need to consider consumer needs; cost, quality, speed, and flexibility; technological capability; location; information technology system; ability to innovate; capacity potential; 2nd and 3rd tier suppliers; reliability; service

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Supplier scorecards: forced to quantify your desires, clearly communicate your actual desires/needs, allow for meaningful discussions on present and future

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Supplier certification: assessment to ensure supplier meets minimum supplier standards

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Single supplier Quantity discount opportunities Lowest total cost Intellectual property advantage: no one else can make it as well Quality control: all items fairly consistent Easier relationship management and collaboration Having too close of a relationships with suppliers can cause them to slack if they think they are not held to as high a standard anymore VS.

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Multiple supplier Competition breed innovation Risk is spread out among multiple suppliers: if one fails, others can step in Capacity flexibility: can make more ...