Chapter 11 - Study Module

C) Railroads With the growth of the JIT, the railroads-based distribution systems have been the biggest loser. JIT manufacturing techniques require the use of small, frequent deliveries, and railways cannot accommodate this need easily. The JIT process has increased the demand airfreight and trucking.

C) To produce goods or services previously purchased The statement to produce goods or services previously purchased best describes vertical integration. Vertical integration can help provide a strategic advantage for firms that have the capital and talent to handle the additional scope of responsibility. Specifically, vertical integration can help reduce costs, increase quality, and ensure timely delivery. Building long-term partnerships with a few suppliers is a supply-chain strategy called "few suppliers." Creating complementary products is a business model and manufacturing strategy focused on differentiation; it is not, however, considered a common supply-chain strategy.

C) Channel assembly Channel assembly is an opportunity for effective management in the supply chain. There are multiple opportunities for effectively managing the supply chain including channel assembly. Channel assembly is the technique where a manufacturer sends individual components (rather than assembled units) to a distributor. The distributor is then responsible for final assembly. Multistage control of replenishment is not an effective management technique. Instead, an effective management technique would be single-stage control of replenishment where the responsibility for monitoring and managing inventory is assigned to one member of the supply chain. This removes the distortions and multiple forecasts that create the bullwhip effect.

B) improve logistics efficiency The trucking industry is establishing technologies, which let shippers and truckers find each other in order to improve logistics efficiency by using some of the industry's idle capacity.

C) the high cost of changing partners A disadvantage of the "few suppliers" strategy is the high cost of changing partners. While the few partners model has many advantages, it also has costs. One such difficulty associated with the few suppliers model is the high cost of changing partners. The long-term relationship that is common in a few partners model creates dependence between the firms that can sometime backfire when one partner can no longer meet their expectations.

C) Sharing trade secrets between firms Sharing trade secrets between firms is not an advantage of the "few suppliers" concept. Trade secrets are part of what gives a firm a competitive advantage, and it is unlikely that such information would ever be shared with an outside firm. In fact, trade secrets are one motivation to pursue another type of supply-chain strategy—vertical integration. Vertical integration is where a company develops the skills, capacity, and equipment to internalize the production of goods and services. Suppliers' willingness to participate in JIT systems and provide technological expertise are two of the common advantages of the few suppliers supply-chain strategy.

C) cost-based price model, market-based price model, and competitive bidding The three classic types of negotiation strategies are cost-based price model, market-based price model, and competitive bidding. The cost-based price model requires the supplier to open its books with the purchaser to determine an appropriate cost based on the suppliers material, labor, and equipment rates. The market-based price model uses public, auction, or index prices to determine appropriate cost structures. The competitive bidding process is most appropriate when suppliers are not willing to discuss costs or when good data does not exist to provide a market-based cost structure.

A) Cost-based price model The cost-based price model negotiation strategy requires the supplier to open its books to the purchasers. During this process, the supplier shares their accounting data with the purchaser to determine an appropriate supply cost based on the suppliers material, labor, and equipment rates. The market-based price model uses public, auction, or index prices to determine appropriate cost structures. The competitive bidding process is most appropriate when suppliers are not willing to discuss costs or when good data does not exist to provide a market-based cost structure.

C) postponement Keeping a product generic as long as possible before customizing is known as postponement. This process is very useful when making somewhat generic products (like computers, printers, televisions, etc.). While the external features of these devices will be different, the primary mechanisms that make each device function are similar. Thus, it makes sense for a company to postpone putting the external elements on a computer or television until farther along in the production cycle so that a business can more easily meet customer expectations. Forward and Backward integration are two types of vertical integration. Forward integration is the term used to describe the situation where a maker of parts begins to produce final products. An example of forward integration is American Apparel clothing company. This company makes clothes and then sells them in their own branded store rather than through a traditional retail department store. Backward integration is the term used to describe the situation where a larger firm purchases a former supplier. For example, backward integration would occur if a car manufacturer purchased a controlling share in a tire company or glass manufacturer.

C) Airfreight Airfreight distribution systems offer quickness and reliability when emergency supplies are needed overseas. Airfreight is among the fastest and most reliable ways to ship supplies and freight and is frequently used to ship lightweight items nationally and internationally. Waterways are one of the oldest transportation methods. Cargo shipped on the waterways is typically low value and bulky. Waterways are an important method of shipping if shipping costs are more important than speed as waterways are cost efficient, but very slow. Trucking accounts for the vast majority of manufactured goods; however, given the reliance on highways it is not the most effective way to ship goods overseas.

C) the bullwhip effect This is the result of the bullwhip effect. This bullwhip effect is a term used to describe the phenomenon of where orders are communicated through multiple parties including retailers, distributors, wholesalers, and manufacturers. At each level, variations and fluctuations are introduced that can either elevate or decrease the reported demand. The bullwhip effect ends up decreasing customer service and increasing costs. The bullwhip effect is a problem associated with a supply chain that is not integrated. There are a number of strategies that can be used to integrate a supply chain including the utilization of pass-through facilities and/or vendor-managed inventory. Pass-through facilities speed product shipment by holding merchandise and delivery from the same distribution hub. Vender-managed inventory is a system where the vendor/supplier actually keeps inventory on stock and delivers directly to the department that will use the product. This approach works well for inventory stock that can have multiple uses. For instance the same type of fabric could be used for sheets, pillow-cases, and curtains.

B) inventory turnover Inventory Turnover = cost of goods sold/average inventory investment = 8000/500 = 16.

A) local optimization Local optimization is a supply-chain complication best described as optimizing one's local area without full knowledge of the organizational need. Businesses operating in a complex supply chain have a tendency to focus on maximizing the local profit and minimizing costs without fully communicating the reasons for changes in product demand. For example, consider the situation where a local flower supplier receives a larger order of flowers from a normal customer. Local optimization would indicate that the supplier will increase their order from the grower for the next shipment because they were not aware the increased demand was a one-time event—the local film festival. Local optimization does not describe production efficiency or focus on the compatibility of corporate cultures.

C) drop shipping

C) Political issues Political issues are included as an aspect of environmental risk in supply-chain management. Supply chains are global phenomena crossing borders, continents, and countries. As a result, operations managers must consider a diverse set of risks as they develop their supply chain. The environmental risks that an operations manager must consider include political issues, custom duties, tariffs, security screening, and risk of terror attacks. Secure financial transactions are included as part of the risk analysis focusing on supply-chain controls. The availability of raw materials are included as part of the risk analysis focusing on supply-chain processes.

A) Long lead time The performance measure of a long lead time is not true of a world class firm. A company that needs a large-lead time indicates the inability to create quality products quickly and, therefore, this could be an indicator that the firm is not operating at the caliber of a world class firm. Firms that are able to place orders quickly and reliably deliver products on time are meeting metrics that are important indicators of effective performance with regard to supply-chain management and customer relations.

B) many suppliers The approach that holds the suppliers responsible for maintaining the necessary technology, expertise, and forecasting ability plus cost, quality, and delivery competencies is many suppliers. With a many-suppliers strategy, a firm submits a request for bids out to suppliers. Suppliers then respond to the demands and specifications for the request. This approach holds the supplier responsible for meeting the needs of the request. This includes making sure that the supplier has the necessary technology and expertise to deliver quality products and services. The few suppliers supply-chain strategy is focused on developing long-term relationships with a few dedicated suppliers. Long-term suppliers have a vested interest in the procuring firm and the end customer and function much more like a partnership. The Keiretsu supply-chain strategy is focused around building a coalition of supplier businesses that partner with the end manufacturer. In some cases, the manufacturing firms even become financial supporters of the suppliers.

A) 4.16 weeks The firm holds 4.16 weeks of supply. Weeks of supply is determined by using the following formula: Weeks of supply = inventory investment/average weekly cost of goods sold In this case, as indicated in the question, the total inventory investment is $2 million. To calculate the average weekly cost of goods sold you take the total annual cost of goods sold (in this case $25 million as indicated in the question stem) and divide that by 52 weeks. Thus, the average weekly costs of goods sold is $ .481 million (25/52 = .481). Therefore, Weeks of supply = inventory investment/average weekly cost of goods sold Weeks of supply = 2/.481 Weeks of supply = 4.16

C) Maintenance scheduling Maintenance scheduling is not a concern of the supply chain. Supply-chain management is focused on all of the activities associated with procuring materials and services, transforming those materials into intermediate goods, and delivering those goods to customers. Maintenance scheduling is not part of those associated activities. However, credit and cash transfers and warehousing and inventory levels are all associated with effective supply-chain management.

A) Long-term partnering with a few suppliers Long-term partnering with a few suppliers is the supply-chain strategy that creates value by allowing suppliers to have economies of scale. Economies of scale are realized because production costs can be spread across a longer period of time and a larger batch order. The supply-chain strategies of vertical integration and negotiation with many suppliers also have benefits, but they are not focused on building economies of scale.

C) vendors, intermediaries, and buyer exchange systems The three major variations of online catalogs are organized by vendors, intermediaries, and buyer exchange systems. That is, it is common to receive catalogs from vendors (i.e., Office depot, Lands end, etc.), catalogs from intermediaries that promote goods from multiple vendors within the same industry (i.e., office supply catalog, automotive part catalog, gardening supply catalog), and catalogs from buyer exchanges where buyers from a particular industry can economically purchase large quantities of goods (i.e., Marriot and Hyatt using Avendra to save money on hotel goods).

B) outsourcing

C) Third-Party Logistics The term used to describe the outsourcing of logistics is third-party logistics. Third-party, or specialized logistics firms, represent a potential way for operations managers to drive down inventory costs and improve delivery speed and reliability. As an example, Dell has a partnership with FedEx as a third-party logistics firm to help handle the packing and shipment of their products. The terms shipper managed inventory and outside logistics are not used to describe the outsourcing of logistics.

B) supplier evaluation, supplier development, negotiations, and contracting The four stages of vendor selection, in order, are vendor evaluation, vendor development, negotiations, and contracting. The first stage of vendor selection is the vendor evaluation stage. The vendor evaluation stage involves identifying vendors and determining if they would be reliable suppliers. The second stage, vendor development, focuses on integrating a supplier into the supply chain. This stage involves outlining product specifications, developing quality control systems, creating a payment system, and developing procurement policies. The third stage, negotiations, is focused on quality, delivery, payment, and costs. The fourth stage is contracting, spelling out the terms of the relationship, designed to share risk, benefits, and create incentive structures to encourage SC members to adopt policies that are optimal for the entire chain.

B) Short-term relationship with few suppliers Short-term relationship with few suppliers is not a supply-chain strategy. Short-term relationships with a few suppliers would not be a viable supply-chain strategy because it does not allow a firm to develop a trusting relationship within the supplier network. Effective supply-chain strategy is focused on obtaining goods and services from sources outside the firm. Continued negotiation with many suppliers and vertical integration are both supply-chain strategies that are commonly used.