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SCM text book CHAPTER ONE Discussion Questions & answers

1 Consider the purchase of a can of soda at a convenience store. Describe the various stages in the supply chain and the different flows involved. When a customer purchases a can of soda at a convenience store his purchase represents the end of a supply chain!s delivery of an item and the beginning of information regarding his purchase flowing in the opposite direction. The supply chain stages include customers retailers wholesalers"distributors manufacturers and component"raw material suppliers. # customer!s purchase moves product towards the customer and dollars and information towards the retailer. The retailer places an order from the wholesaler"distributor to replenish stoc$ thereby moving information bac$ up the supply chain while moving product down the supply chain. #s the order is filled the retailer will move dollars bac$ up the supply chain. The wholesaler"distributor transmits information and dollars to the manufacturer who produces product and ships it down the supply chain to the wholesaler. %inally &or initially depending on your perspective' the manufacturer moves orders &information' and dollars towards suppliers in exchange for material flow into their production processes. ( Why should a firm li$e Dell ta$e into account total supply chain profitability when ma$ing decisions) Dell reali*es that their ultimate success lies with the success of their supply chain and its ability to generate supply chain surplus. +f Dell was to view supply chain operations as a *ero sum game they would lose their competitive edge as their suppliers! businesses struggled. Dell!s profit gained at the expense of their supply chain partners would be short lived. ,ust as a physical chain is only as strong as its wea$est lin$ the supply chain can be successful only if all members cooperate and focus on a global optimum rather than many local optima. What are some strategic planning and operational decisions that must be made by an apparel retailer li$e The .ap) #s The .ap plans supply chain strategy it must first consider the mar$eting function!s pricing plans in order to structure a supply chain consistent with these plans. /trategic considerations such as the capacity of each supplier and assembly operations sourcing decisions and how logistics are to be handled are all part of the design. The supply chain must also settle on communication channels and fre0uencies.

[Type text] /upply chain planning ta$es the strategic decisions as a given and see$s to exploit efficiencies in the chain to maximi*e supply chain surplus. The entire chain should collaborate in forecasting and planning production to achieve a global optimum. The forecasts should ta$e into account planned promotions and $nown seasonal fluctuations in demand. The operational decision ta$es the plans as a given and ma$es day1to1day decisions to process customer orders allocate resources to certain customers trigger orders from supply chain members and deliver product. 2 Consider the supply chain involved when a customer purchases a boo$ at a boo$store. +dentify cycles in this supply chain and the location of the push"pull boundary. #ll supply chain processes can be bro$en down into four process cycles that connect the five stages of the supply chain3 the customer order cycle the replenishment cycle the manufacturing cycle and the procurement cycle. The customer order cycle connects the customer with the retailer3 this connection is made as the boo$ perhaps /upply Chain 4anagement by Chopra and 4eindl is selected and paid for by the customer. The replenishment cycle connects the retailer and the distributor and is triggered by the retailer!s need to fill the empty shelf space with another copy of this tome. The manufacturing cycle connects the distributor and the manufacturer. #s demand for the boo$ is reali*ed and distributors empty their warehouses they signal the manufacturer to print another million copies to fill their empty warehouses. %inally the procurement cycle connects the manufacturer and the supplier. The manufacturer re0uires raw material inputs of paper in$ etc. to begin the assembly process for another batch of /upply Chain 4anagement. The push"pull boundary exists where demand switches from reactive &pull' to speculative &push' production. %or most boo$store supply chains the push"pull boundary is between the customer order cycle and the replenishment cycle. The customer order pulls the boo$ from the boo$ store shelf but the initial production of the boo$ was triggered by a build order that moved materials along the supply chain to the retail outlet. 5 Consider the supply chain involved when a customer orders a boo$ from #ma*on. +dentify the push"pull boundary and two processes each in the push and pull phases. +n #ma*on!s original operations design the push"pull boundary existed betwixt the retailer &#ma*on' and their distributor. #ma*on ordered product from the distributor and the customer order arrived. Today #ma*on has six warehouses where it stoc$s an inventory of items it is confident that will sell. +n this scenario the push"pull boundary exists between the customer and the retailer.

[Type text] 6rocesses in the pull phase are the order fulfillment shipping customer returns and customer billing. 6rocesses in the push phase are production stoc$ replenishments shipping and payment. 7 +n what way do supply chain flows affect the success or failure of a firm li$e #ma*on) 8ist two supply chain decisions that have a significant impact on supply chain profitability. The success or failure of a company li$e #ma*on is decided by the effective function of its supply chain. The flow of products from publishers to distributors to customers must be rapid and reliable in order to satisfy customers. The flow of information bac$ through the supply chain allows all members to coordinate efforts. The flow of money allows all supply chain members to maintain operations. /upply chain profitability is influenced by sourcing promotion and fulfillment decisions.

CHAPTER TWO Discussion Questions

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1. 9ow would you characteri*e the competitive strategy of a high1end department store chain such as :ordstrom) What are the $ey customer needs that :ordstrom aims to fill) The :ordstrom web site states the following. ;ver the years the :ordstrom family of employees built a thriving business on the principles of 0uality value selection and service. Today :ordstrom is one of the nation!s leading fashion retailers offering a wide variety of high10uality apparel shoes and accessories for men women and children at stores across the country. We remain committed to the simple idea our company was founded on earning our customers! trust one at a time. :ordstrom fills customer needs for high 0uality fashion merchandise and outstanding levels of customer service. 6rice is no ob<ect for the typical :ordstrom shopper. (. Where would you place the demand faced by :ordstrom on the implied demand uncertainty spectrum) Why) +mplied demand uncertainty is demand uncertainty due to the portion of demand that the supply chain is targeting not the entire demand. # high1end department store chain such as :ordstrom falls on the high end of the implied demand uncertainty scale. The fashion items that :ordstrom stoc$s have extremely high product margin high forecast errors and stoc$out rates and once the season is over these items are sold at deep discounts at their :ordstrom =ac$ outlet stores. -. What level of responsiveness would be most appropriate for :ordstrom!s supply chain) What should the supply chain be able to do particularly well) /upply chain responsiveness ta$es many forms including the ability to respond to a wide range of 0uantities meet short lead times handle a large variety of products build innovative products meet a high service level and handle supply uncertainty. The :ordstrom supply chain must be highly responsive in the areas of handling highly innovative fashion products customer response and service level3 they are effective in supplying well1heeled customers with merchandise and their return policy is legendary in the 6acific :orthwest. 2. 9ow can :ordstrom expand the scope of the strategic fit across the supply chain) /cope of strategic fit refers to the functions within the firm and stages across the supply chain that devise an integrated strategy with a shared ob<ective. >y adopting an intercompany interfunctional scope strategy :ordstrom will maximi*e supply chain surplus. :ordstrom can move in this direction by wor$ing with their suppliers as if they are actually owned by :ordstrom. =ather than viewing the supply chain as a *ero1sum game of inventory cost minimi*ation and profit maximi*ation

[Type text] :ordstrom must recogni*e that spreading the wealth and occasionally ta$ing on more inventory than is optimal for them will result in improved customer service. The intercompany interfunctional scope of strategic fit re0uires more effort than the other approaches presented in this section3 :ordstrom must evaluate all aspects of their supply web. 5. =econsider the previous four 0uestions for other companies such as #ma*on.com a supermar$et chain and auto manufacturer and a discount retailer such as Wal1 4art. #ma*on.com focuses on cost and flexibility by providing boo$s music and a host of other household products at low prices. Customers place orders online and expect to receive purchases in a number of days. Customer orders are processed at central warehouses or are drop shipped from suppliers by mail or common carrier. %or the most part the implied demand uncertainty for #ma*on.com is low as they cast such a wide net. #ma*on.com!s supply chain must be responsive in terms of flexibility3 they handle an incredibly diverse range of products. #ma*on.com!s supply chain should be able to provide low prices wide variety and reasonable delivery schedules for its customers. +n every lin$ of the supply chain #ma*on.com must function on the cost1responsiveness efficient frontier in order to support its competitive strategy. # supermar$et chain focuses on cost and 0uality with some specialty chains adding flexibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. +mplied demand uncertainty for a supermar$et chain tends to be low3 shoppers are typically repeat customers and have a constant demand level. The supermar$et supply chain must be responsive by receiving produce 0uic$ly to ensure freshness and have a high service level. /upermar$et supply chains tend to be well1established and can improve strategic fit by emphasi*ing speed to maintain freshness hence perceived 0uality. #uto manufacturers have extremely complicated supply chains that are increasingly focused on flexibility and lean operations. +mplied demand uncertainty for auto manufacturers varies considerably by target mar$et and manufacturer. #utomotive supply chains among the big three in the ?nited /tates have made great progress in the last decade and recogni*e that they must be responsive from a time and flexibility standpoint. Wal14art!s supply chain is obsessed with cost and is facilitated by a low implied demand uncertainty their impressive logistics system and their management information systems. Their supply chain is able to respond 0uic$ly to fill a wide variety of products to $eep merchandise on Wal14art!s shelves. Wal14art!s level of coordination along the supply chain is excellent3 it would be difficult to point out areas where true intercompany interfunctional scope of strategic fit has not been

[Type text] achieved. The sole supply chain criticism that surfaces is an occasional report that suppliers feel as if supply chain surplus is not shared e0uitably. 7. .ive arguments to support the statement that Wal14art has achieved very good strategic fit between its competitive and supply chain strategies. The best argument to support the statement that Wal14art has achieved very good strategic fit is their success as a company. Competition today is supply chain versus supply chain not company versus company so a company!s partners in the supply chain often determine the company!s success. Wal14art!s strategic focus on cost is evident in their competitive product development supply chain and mar$eting strategy. Their mar$eting strategy of advertising every day low prices appeals to consumers and does not disrupt the supply chain by causing surges in demand. @isiting one of their big box stores reveals low1priced merchandise both national and store brands stac$ed from floor to ceiling without elaborate displays or decoration. Wal14art!s logistics and information systems are famous for coordinating their entire supply chain and allowing it to meet customer needs at minimal cost. A. What are some factors that influence implied uncertainty) 9ow does the implied uncertainty differ between an integrated steel mill that measures lead times in months and re0uires large orders and a steel service center that promises (21hour lead times and sells orders of any si*e) %rom a customer perspective implied demand uncertainty increases when the customer!s range of 0uantity re0uired increases lead times decrease variety of product increases rate of innovation increases and re0uired service levels increase. We also see high implied uncertainty attributed with high product margins forecast errors above 2BC stoc$out rates above 1BC and forced season1end mar$downs. ;n the supply side we see increased supply uncertainty when the supply source has fre0uent brea$downs unpredictable and low yields poor 0uality limited supply capacity and evolving production processes. %or the steel mill that re0uires large orders and has lead times measured in months both the implied demand and supply uncertainty is less due to a better predictable capability and a better defined schedule for production. Due to the increasing number of si*es and the shorter response time associated with the steel service center implied uncertainty is high. D. What is the difference in implied uncertainty faced by a convenience store chain such as A1Eleven a supermar$et chain and a discount retailer such as Costco) When customers go to a convenience store chain such as A1Eleven they go there for the convenience of a nearby store and are not necessarily loo$ing for the lowest price. +mplied demand uncertainty would be high as customers are loo$ing for a

[Type text] variety of products and convenience versus cost and demand levels are hard to predict. # supermar$et chain focuses on cost and 0uality with some specialty chains adding flexibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. +mplied demand uncertainty for a supermar$et chain tends to be low3 shoppers are typically repeat customers and have a constant demand level. The supermar$et supply chain must be responsive by receiving produce 0uic$ly to ensure freshness and have a high service level. /upermar$et supply chains tend to be well1established and can improve strategic fit by emphasi*ing speed to maintain freshness hence perceived 0uality. 8ow price is very important to customers of discount retailers such as Costco. This customer is willing to tolerate less variety and even purchase very large pac$age si*es as long as the price is low. Customer demand can be more predictable and supply side needs are large and fairly stable. F. What are some problems that can arise when each stage of a supply chain focuses solely on its own profits when ma$ing decisions) +dentify some actions that can help a retailer and a manufacturer wor$ together to expand the scope of strategic fit. 9igh inventories poor 0uality low customer service increased returns are <ust a number of problems that occur when each stage of a supply chain focuses solely on its own profits. The truc$ing company re0uires full truc$ loads for delivery forcing the retailer to carry more inventory than wanted or needed. The supplier offers discounts to their buyers to maximi*e production but forcing the buyers to purchase in larger 0uantities than desired. This concept was very prevalent during the 1F5Bs and 1F7Bs as companies to minimi*e local costs and maximi*e their own profits. Today retailers and manufacturers have the opportunity to plan promotions <ointly such as Wal14art and 6G.. They can share sales information to determine customer trends. ,oint product development opportunities are being explored throughout the supply chain between retailers manufacturers and raw material suppliers.

CHAPTER THREE Discussion Questions

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1. 9ow could a grocery store use inventory to increase the responsiveness of the company!s supply chain) The logistical driver of inventory encompasses all raw materials wor$ in process and finished goods within a supply chain. # grocery store can be more responsive in the eyes of its customers if it offers a broader variety of /H?s and"or maintains a greater 0uantity of each /H?. # greater 0uantity of each /H? is problematic for highly perishable items li$e produce meat fish etc. %or these items a grocery store supply chain should be set up to permit fre0uent orders so that freshness is ensured and a stoc$out situation won!t exist for a significant length of time. # grocery store supply chain should use historical demand patterns for seasonal items to relieve stress on all members and provide customers with product during pea$ demand periods. (. 9ow could an auto manufacturer use transportation to increase the efficiency of its supply chain) Transportation a logistical driver entails moving inventory from point to point in the supply chain. The trade1off in transportation is between the cost of transportation and the speed at which product is transported. /lower modes of transportation reduce cost but could be a reasonable approach if suppliers are co1 located with the assembly operations. +f the supply chain is designed in such a way and assembly operations are located with proximity to mar$ets then the supply chain can be run cheaply without holding too much inventory in transit. -. 9ow could a bicycle manufacturer increase responsiveness through its facilities) %acilities another logistical driver are the actual physical locations in the supply chain networ$ where product is stored assembled or fabricated. # facility that is designed to be flexible can respond 0uic$ly to mar$et demands by retooling to produce different models or products whereas a dedicated facility cannot. 8ocating a facility close to the mar$et will increase responsiveness at the cost of decreased economies of scale that might be achieved with a centrali*ed location. # facility that is under capacity will be less responsive than a facility that is appropriately si*ed or has excess capacity. 2. 9ow could an industrial supplies distributor use information to increase its responsiveness) +nformation is a cross1functional driver and consists of data and analysis concerning facilities inventory transportation costs prices and customers throughout the supply chain. +nformation serves as a connection among all members of the supply chain and operates within each member to facilitate internal operations. #ccurate information can improve responsiveness by helping an

[Type text] industrial supplier better match supply and demand. +nformation that is gathered farther down the supply chain can be transmitted instantaneously and accurately to the supplies distributor. +nstead of waiting for a human to call or %#I an order the distributor can replenish inventory to the necessary levels or provide what is needed to fill the order as it is reali*ed. 5. 4otorola has gone from manufacturing all its cell phones in1house to almost completely outsourcing the manufacturing. What are the pros and cons of the two approaches) /ourcing is the set of business processes re0uired to purchase foods and services. These decisions are crucial because they affect the level of efficiency and responsiveness that 4otorola can achieve. The 4otorola production system for their line of pagers was hailed as a brea$through in mass customi*ation so it was somewhat surprising when 4otorola outsourced cell phones.. /ourcing decisions should be made based on the total supply chain surplus3 if a third party can help the chain achieve greater surplus then the function is a prime candidate for outsourcing. 4otorola was willing to give up some control and possibly some of its design talent and assembly expertise because it felt that the supplier could provide product of an appropriate level of 0uality with the responsiveness necessary. 6roducts and services that are outsourced are rarely brought bac$ in1house and should never be tied too closely to the outsourcing party!s core competency. 7. 9ow can a home delivery company li$e 6eapod use pricing of its delivery services to improve its profitability) 6ricing is the process by which a firm decides how much to charge customers for its goods and services. 6ricing affects the customer segments that choose to buy the product as well as the customer!s expectations. 6eapod can use everyday low pricing of its products to ensure stability in the supply chain but can influence demand by varying the delivery charges. %or example by establishing a minimum order amount of J5B and charging J1B to deliver an order under JA5 6eapod provides an incentive for a customer to pile on additional items to save on per unit shipping. #n order over J1BB incurs a delivery fee of JA which is the lowest delivery charge for a residential customer. 6eapod also varies delivery charges by time of day3 evening delivery times on wee$days and morning deliveries on /unday within narrow windows cost an extra dollar wider delivery windows are J1 less. The delivery latitude allows 6eapod!s delivery drivers to schedule more efficiently thereby increasing profitability.

A. What are some industries in which products have proliferated and life cycles have shortened) 9ow has the supply chains in these industries adapted)

[Type text] The authors cite the example of running shoes increasing from five styles in the early ABs to almost -BB by the late FBs. ;ther products that have seen an explosion in variety include personal electronics beverages snac$ and prepared foods entertainment tires and personal services. /upply chains have leveraged information systems recogni*ed the need to collaborate on product and process design and supply chain execution. The supply chain stance has shifted towards a partnership orientation from a focus on price negotiations. D. 9ow can the full set of logistical and cross1functional drivers be used to create strategic fit for a 6C manufacturer targeting both time sensitive and price conscious customers) The logistical drivers facilities inventory and transportation and the cross1 functional drivers information sourcing and pricing must be used in concert to achieve the appropriate balance of efficiency and responsiveness for the supply chain to be successful. # 6C manufacturer that wants to deliver product both 0uic$ly and efficiently can ma$e cost and time trade1offs among these drivers to achieve their goals. These trade offs across drivers afford more flexibility but re0uire constant vigilance as the trade1offs within each driver change. +n addition some drivers may be altered more easily e.g. order 0uantity and transportation media than other drivers e.g. location and sourcing. The trade1offs within each driver are summari*ed in the tableK Driver %acilities +nventory Transportation +nformation /ourcing 6ricing More Res onsive 4ultiple 6lants %lexible 6lants 9igher +nventory 9igher /peed #ccurate =eal Time Transmission =esponsive supplier Differential 6ricing More E!!icient /ingle 6lant Dedicated 6lant 8ower +nventory 8ower /peed 8ess #ccurate >atched Transmission Efficient supplier Everyday 8ow 6ricing

Case Note: Seven-Eleven Japan Co. refer pg: no 79

The goal of this case is to illustrate how a firm can be successful by structuring its supply chain to support its supply chain strategy. ;nce /even1Eleven ,apan decided to provide responsiveness by rapid replenishment it then structured its facilities inventory

[Type text] information and distribution to support this choice. The case also brings up the 0uestion of whether the same approach can wor$ in the ?nited /tates especially given the greater distances and lower store density.

Questions
1. A CONVENIENCE STORE CHAIN ATTEMPTS TO BE RESPONSIVE AND PROVIDE CUSTOMERS WHAT THEY NEED, WHEN THEY NEED IT, WHERE THEY NEED IT. WHAT ARE SOME DIFFERENT WAYS THAT A CONVENIENCE STORE SUPPLY CHAIN CAN BE RESPONSIVE? WHAT ARE SOME RISKS IN EACH CASE?

#s responsiveness increases the convenience store chain is exposed to greater uncertainty. # convenience store chain can improve responsiveness to this uncertainty using one of the following strategies especially for fresh and fast foodsK Local capacityK The convenience store chain can provide local coo$ing capacity at the stores and assemble foods almost on demand. +nventory would be stored as raw material. This is seen at the ?./. fast food restaurant franchise /ubway where dinner and lunch sandwiches are assembled on demand. The main ris$ with this approach is that capacity is decentrali*ed leading to poorer utili*ation. Local inventory: #nother approach is to have all inventory available at the store at all times. This allows for the centrali*ation of coo$ing capacity. The main ris$ is obsolete inventory and the need for extra space. Rapid replenishment: #nother approach is to set up rapid replenishment and supply the stores what they need and when they need it. This allows for centrali*ation of coo$ing capacity low levels of inventory but increases the cost of replenishment and receiving.
2. SEVEN-ELEVEN'S SUPPLY CHAIN STRATEGY IN JAPAN CAN BE DESCRIBED AS ATTEMPTING TO MICRO-MATCH SUPPLY AND DEMAND USING RAPID REPLENISHMENT. WHAT ARE SOME RISKS ASSOCIATED WITH THIS CHOICE?

The main ris$ for /even1Eleven is the potentially high cost of transportation and receiving at stores. 4icro1matching supply and demand using rapid replenishment assumes that each store will repeat the same demand pattern on a daily basis. The tour bus phenomenon where a group of unanticipated customers comes to the store and buys all of a type of product will cause difficulty for regular customers. During such an event the store will li$ely stoc$ out and customers may visit the next /even1Eleven site down the bloc$ to ma$e their purchases. /ome of this demand may permanently shift causing a local ripple3 the replenishment may be excessive at one site and insufficient at an ad<acent site for the next cycle. #nother possible issue would result from delays in transportation3 although deliveries are scheduled for off1pea$ hours a disruption in traffic flow will result in low service levels for the next wave of demand.

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WHAT HAS SEVEN-ELEVEN DONE IN ITS CHOICE OF FACILITY LOCATION, INVENTORY MANAGEMENT, TRANSPORTATION, AND INFORMATION INFRASTRUCTURE TO DEVELOP CAPABILITIES THAT SUPPORT ITS SUPPLY CHAIN STRATEGY IN JAPAN?

[Type text] #ll choices made by /even1Eleven are structured to lower its transportation and receiving costs. %or example its area dominance strategy of opening at least 5B17B stores in an area helps with mar$eting but also lowers the cost of replenishment. #ll manufacturing facilities are centrali*ed to get the maximum benefit of capacity aggregation and also lower the inbound transportation cost from the manufacturer to the distribution center &DC'. /even1Eleven also re0uires all suppliers to deliver to the DC where products are sorted by temperature. This reduces the outbound transportation cost because of aggregation of deliveries across multiple suppliers. +t also lowers the receiving cost. The information infrastructure is set up to allow store managers to place orders based on analysis of consumption data. The information infrastructure also facilitates the sorting of an order at the DC and receiving of the order at the store. The $ey point to emphasi*e here is that most decisions by /even1Eleven are structured to aggregate transportation and receiving to ma$e both cheaper. 2.
SEVEN-ELEVEN DOES NOT ALLOW DIRECT STORE DELIVERY IN JAPAN, WITH ALL PRODUCTS FLOWING THROUGH ITS DISTRIBUTION CENTER. WHAT BENEFIT DOES SEVEN-ELEVEN DERIVE FROM THIS POLICY? WHEN IS DIRECT STORE DELIVERY MORE APPROPRIATE?

Direct store delivery &D/D' would lower the utili*ation of the outbound truc$s from the /even1Eleven DC. +t would also increase the receiving costs at the stores because of the increased deliveries. Thus /even1Eleven forces all suppliers to come in through the DC. D/D is most appropriate when stores are large and nearly1full truc$ load 0uantities are coming from a supplier to a store. This was the case for example in large ?./. 9ome Depot stores. %or smaller stores it is almost always beneficial to have an intermediate aggregation point to lower the cost of freight. +n fact 9ome Depot itself is setting up these intermediate facilities for its new stores that are often smaller.
5. WHAT DO YOU THINK ABOUT THE 7DREAM CONCEPT FOR SEVEN-ELEVEN JAPAN? FROM A SUPPLY CHAIN PERSPECTIVE IS IT LIKELY TO BE MORE SUCCESSFUL IN JAPAN OR THE UNITED STATES? WHY?

Adream ma$es sense given that ,apanese customers are happy to receive their shipments at the local convenience store. %rom a logistics perspective online deliveries can piggy bac$ on /even1Eleven!s existing distribution networ$ in ,apan. Deliveries from the online supplier can be brought to the DC where they are sorted along with other deliveries destined for a store. This should increase the utili*ation of outbound transportation allowing /even1Eleven to offer a lower cost alternative to having a pac$age carrier deliver the product at home. The primary negatives are that Adream will use up storage space and re0uire the store to be able to retrieve specific pac$ages for customers. ;ne can argue that the concept may be more successful in ,apan given the existing distribution networ$ of /even1Eleven and the fre0uency of visits by customers. ;nline delivery is able to lin$ with the existing networ$. The high visit fre0uency ensures that pac$ages are not occupying valuable store shelf space for a long time. #lso the fre0uent visits ensure that the marginal cost to the customer of pic$ing up at a ,apanese /even1Eleven is small. This is less li$ely to be the case in the ?nited /tates. 7.
SEVEN-ELEVEN IS ATTEMPTING TO DUPLICATE THEIR SUCCESSFUL JAPANESE SUPPLY CHAIN STRUCTURE IN THE UNITED STATES WITH THE INTRODUCTION OF

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CDCS. WHAT ARE THE PROS AND CONS OF THIS APPROACH? KEEP IN MIND THAT STORES ARE ALSO REPLENISHED BY WHOLESALERS AND DSD BY MANUFACTURERS.

The difficulty of duplicating the ,apan supply chain structure in the ?nited /tates follows primarily from the much lower density of ?./. /even1Eleven stores. This is compounded by the fact that /even1Eleven stores are getting both direct store deliveries as well as wholesaler deliveries to its stores. /etting up its own DCs does not allow /even1Eleven to get the same level of transportation aggregation as it gets in ,apan. +ts own distribution system would help more if all wholesaler deliveries and direct store deliveries were stopped and routed through the DC. Even then having its own distribution system would add much less value than in ,apan given the lower density of stores and larger distance between stores. A.
THE UNITED STATES HAS FOOD SERVICE DISTRIBUTORS LIKE MCLANE THAT ALSO REPLENISH CONVENIENCE STORES. WHAT ARE THE PROS AND CONS TO HAVING A DISTRIBUTOR REPLENISH CONVENIENCE STORES VERSUS A COMPANY LIKE SEVEN-ELEVEN MANAGING ITS OWN DISTRIBUTION FUNCTION?

;ne can contend that a distributor brings much more value to the table in the ?nited /tates relative to ,apan. .iven the lower density of stores a distributor is able to aggregate deliveries across many competing stores. This allows a distributor to reach levels of aggregation that cannot be achieved by a single chain such as /even1Eleven. The big disadvantage to having all deliveries done through a distributor is that /even1Eleven is unable to exploit having a large number of stores. +n fact it may be argued that going through the distributor has /even1Eleven subsidi*e deliveries to competing smaller chains that may also be using the same distributor.

CHAPTER "O#R Discussion Questions

1. What differences in the retail environment may <ustify the fact that the fast1moving consumer goods supply chain in +ndia has far more distributors than in the ?nited /tates)

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+ndia is a land of shop$eepers selling to over a billion consumers. +ndia is becomingly increasingly Westerni*ed but it will be 0uite a while &if not forever' before shop$eepers are supplanted by large retailers. The sheer volume of small store owners re0uires a large number of distributors to service them. The younger generation in +ndia particularly the +T rich areas of >angalore and Chennai have far higher disposable income than the older generation and the rest of the country. These young wor$ers have very different retail habits and are causing changes in +ndia!s shopping and supply chain needs. 6oor infrastructure although not entirely a retail concern is another reason why +ndia may need far more distributors than in the ?./. (. # specialty chemical company is considering expanding its operations into >ra*il where five companies dominate the consumption of specialty chemicals. What sort of distribution networ$ should this company utili*e) +f the expansion into >ra*il is merely a sales operation then distributor storage with last mile delivery is the best networ$ design. +f the expanded operations include manufacturing capabilities then manufacturer storage with direct shipping is a strong possibility. .iven the nature of the product pac$age carrier delivery is not an option and retail storage with customer pic$up is out of the 0uestion since this is a >(> scenario. +n1transit merge would be an option only if the manufacturer established a networ$ of plants in >ra*il perhaps focused factories relatively close to each customer. The chemical company has only five customers to serve3 it would not re0uire too large an investment in logistical infrastructure to effectively serve all five without intervention by a distributor. Their short supply chain would be easier to coordinate due to the stable demands and information sharing that is possible in a >(> scenario. -. # distributor has heard that one of the ma<or manufacturers from which it buys is considering going direct to the consumer. What can the distributor do about this) What advantages can it offer the manufacturer that the manufacturer is unli$ely to be able to reproduce) The two supply networ$ designs that the distributor can propose to counter the manufacturer!s proposal are the distributor storage with pac$age carrier delivery and the distributor storage with last mile delivery. >oth of these counter1proposals offer higher order visibility for the customer while having simpler information infrastructure than with manufacturer storage. The response time for both is excellent and the customer experience is also superior to the direct model. +f the manufacturer is trying to provide excellent customer service the increased costs in transportation and potentially higher levels of inventory may be acceptable tradeoffs. 2. What types of distribution networ$s are typically best suited for commodity items)

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Commodity items are available from many sources and customers expect them to be delivered 0uic$ly3 if a supply chain can!t be responsive the customers will move on to the next source. # distribution networ$ designed for retail storage with customer pic$up achieves 0uic$ response for high demand low variety products. ;ther commodity products can be effectively distributed using distributor storage with last1mile delivery which is also suited for high demand 0uic$ response products. 5. What type of networ$s are best suited to highly differentiated products) The networ$s that are best suited to highly differentiated products are the manufacturer storage with direct shipping and the manufacturer storage with in1 transit merge. >oth approaches have the ability to aggregate inventories and postpone product customi*ation which would help support a wider variety of products. 7. +n the future do you see the value added by distributors decreasing increasing or staying about the same) +t is doubtful that value added by distributors will decrease over time3 the nature of competition in all areas would suggest that distributors that add less value would be winnowed out. +t is more li$ely that distributors will be as$ed to do more or may volunteer to do so as a means of differentiating themselves from the competition. A. Why has e1business been more successful in the 6C industry compared to the grocery industry) +n the future how valuable is e1business li$ely to be in the 6C industry) The 6C industry is selling a highly customi*ed product that is purchased on a per1 household basis less routinely than the commodity products that ma$e up groceries. # company li$e Dell can leverage the +nternet as a mar$eting and distribution tool to advertise new capabilities and options before bric$s and mortar retailers can. Dell also removes whatever intimidation &or frustration' factor might be experienced by conversing with in1store sales representatives. Computers have a very high value to shipping cost ratio so the increased shipping costs when compared to a traditional store are negligible. .roceries have a much lower ratio3 although in1store shoppers are incurring costs to pic$ up their groceries those costs are hidden in comparison to the delivery charge on an itemi*ed bill from 6eapod. E1business will continue to be a valuable tool in the 6C industry3 none of the advantages currently being en<oyed by Dell and .ateway are li$ely to change significantly. D. +s e1business li$ely to be more beneficial in the early part or the mature part of a product!s life cycle) Why)

[Type text] E1business is more li$ely to be more beneficial in the early part of a product!s life cycle. E1business strengths include flexible pricing promotions and product portfolios and greater speed in disseminating product information. 8ater in the life cycle a product is li$ely to be a commodity which doesn!t play to the strengths of this channel. F. Consider the sale of home improvement products at 9ome Depot or a chain of hardware stores such as True @alue. Who can extract the greatest benefit from going online) Why) >oth entities and other hardware companies li$e #ce are already on1line. #n article titled L9ome Depot!s /elf1+mprovement M Company >usiness and 4ar$etingN by Eric Ooung in The Industry Standard /eptember 11 (BBB indicates that 9ome Depot is the last ma<or player to go on1line but brings the deepest poc$ets. Those of us that have stood in line with the contractors reali*e that many of 9ome Depot!s items are ill1suited to a web enterprise and the clientele is e0ually ill1suited. Contractor sales are such a significant portion of 9ome Depot!s sales in comparison with the mix at True1@alue that it is li$ely that True1@alue will ultimately benefit more from an e1commerce division. The article goes on to say LEach chain is employing a slightly different e1commerce strategy. Whereas 9ome Depot wants its site to replicate its merchandise mix True @alue limits the number of items it offers online. %or example at True @alue :et shoppers wonPt find products most people need in a hurry such as toilet1tan$ fix1it $its. QOouPre not going to wait three days to have it shipped so you can stop the water from dripping into your neighborPs apartment Q says :eil 9astie C+; at True@alue.com. #ce 9ardware meanwhile thin$s bigger is better. +ts site offers almost everything in its stores plus about 15 BBB additional products. #cePs supplementary online offerings are a windfall from its investment in ;ur9ouse.com a Web1based home improvement site that handles #cePs online sales. The two companies split online revenues. #ce <oined forces with ;ur9ouse to get a leg up in e1commerce. QWe didnPt want to be left in the starting gate Q says Hen :ichols a retail operations vice president for #ce. Waiting in the wings is 8owePs the nationPs second1largest home improvement chain. 8i$e 9ome Depot 8owePs wants to expand its online presence but is approaching e1commerce slowly. >eginning in ;ctober the retailer will offer a wide selection in a limited number of categories such as hand tools and appliances. 8owePs will deliver :et orders directly to buyers or to the store closest to the customer again li$e 9ome Depot. 4eanwhile +nternet1only retailers are scrambling to win over customers vowing to compete against offline chains in price and selection. Corner9ardware for example says it currently has 1(5 BBB products available 11 three times the number available at an average 9ome Depot store. The pure +nternet players ac$nowledge that they donPt have the brand recognition of 9ome Depot. >ut they hope to build their brands before 9ome Depot and the other bric$1and1mortar stores establish a strong online presence. /till itPs not clear that

[Type text] any are benefiting from first1mover advantage. #lready two :et pure1plays 11 9ardware.com and 9omeWarehouse.com 11 have gone under.N 1B. #ma*on.com sells boo$s music electronics software toys and home improvement products online. +n which product category does e1business offer the greatest advantage compared to a retail store chain) +n which product category does e1business offer the smallest advantage &or a potential cost disadvantage' compared to a retail store chain) Why) #ma*on!s greatest e1business advantage comes from boo$ sales3 they are able to list millions of boo$ titles that a physical store cannot possibly carry on their shelves. Cost advantages for #ma*on are few and far between3 the item price to shipping cost ratio for boo$s music and software is not as high as most consumers would prefer. #ma*on certainly has no cost advantage with music and software. >oth are readily sold over the +nternet3 it would behoove #ma*on to partner with another /eattle1area company to ma$e this the norm. Electronics hardware and even toys are products that most consumers would li$e to experience before ma$ing a selection. #ny cost advantage #ma*on might have in these sectors may be overshadowed by an inability to hold the item on1line. 11. Why should an e1business such as #ma*on.com build more warehouses as its sales volume grows) #ma*on initially tried to run their entire boo$ business with no warehousing facilities instead relying on other distributors to carry their entire inventory. :ext #ma*on ran their business out of a single warehouse in /eattle and discovered it wasn!t feasible3 the trade1off of responsiveness and cost was causing excessive delays in getting products to customers. :ow #ma*on uses a hybrid of these two systems carrying items that it $nows will sell in its own warehouses and letting others carry items that have greater demand uncertainty. #s #ma*on!s business grows it should continue to establish warehouses to spread its facilities closer to poc$ets of new customers thus achieving better levels of responsiveness while still maintaining its cost advantage.

C9#6TE= 5 Discussion Ruestions

1. 9ow do the location and si*e of warehouses affect the performance of a firm such as #ma*on.com) What factors should #ma*on.com ta$e into account when ma$ing this decision) The location and si*e of #ma*on!s warehouses have a direct bearing on how responsive and efficient they can be. #t one time #ma*on ran their on1line boo$store out of one warehouse in /eattle3 this warehouse was small by today!s standards and was unable to $eep up with pea$ demand. #ma*on has since added

[Type text] other geographically distributed warehouses that hold the items with steadier demand. The dispersion of warehouses allows #ma*on to ship from closer to the customers and the stoc$ing of items with more even demand allows for a higher service level at a reasonable cost. #ma*on should consider what regions are underserved by the current networ$ of warehouses and where it is most economical to locate the next warehouse effectively balancing their efficiency and responsiveness with their strategy. (. 9ow do import duties and exchange rates affect the location decision in a supply chain) Tariffs refer to any duties that must be paid when products are moved across international state or city boundaries. +f a tariff is excessive it provides a strong disincentive to do business across borders with entities in that area. The classic wor$around to a high tariff is adding a location inside the area. /ome regions have developed trade agreements that limit or eliminate the tariff on goods. Exchange rates specify how much one currency is worth in terms of another. #s one currency gains against another it may be beneficial to add shift production to the area using the devalued currency. This ma$es the goods more affordable for the population. Companies with flexible production capabilities can shift some production from area to area depending on the buying power of local mar$ets. -. What are different roles played by production facilities within a global networ$) The different strategic roles for facilities in a global networ$ are as followsK ;ffshore facilityK low1cost facility for export production. This is strictly a low1cost producer for an export mar$et /ource facilityK low1cost facility for global production. This facility is also viewed as a low1cost provider but provides output for the entire global networ$. /erver facilityK regional production facility This facility supplies the mar$et in the country where it is located Contributor facilityK regional production facility with development s$ills. This facility serves the mar$et where it is located but is also responsible for customi*ation that increases salability in that country. ;utpost facilityK regional production facility built to gain local s$ills. This facility plays the role of a server facility but more importantly it obtains access to $nowledge or s$ills that exist in that region. 8ead facilityK facility that leads in development and process technologies. This facility creates new processes technologies and products for the entire networ$. 2. #ma*on.com has built new warehouses as it has grown. 9ow does this change affect various cost and response times in the #ma*on.com supply chain)

[Type text] 8ogistics and facility costs incurred within a supply chain change as the number of facilities their location and capacity allocation is changed. #s #ma*on has added warehouses their logistics inventory and facility costs have changed. #n increased number of warehouses increases that fixed cost but can be exploited to reduce transportation costs. These potentially fall if the warehouses are spread throughout a distribution area which increases responsiveness at a similar cost or maintains responsiveness at a reduced cost. +nventory costs also change with an increased number of warehouses3 #ma*on is holding more total inventory and can ta$e advantage of pooling to reduce 0uantities of some items. 5. 4c4aster1Carr sells maintenance repair and operations e0uipment from five warehouses in the ?nited /tates. WW .rainger sells products from more than -5B retail locations supported by several warehouses. +n both cases customers place orders using the Web or on the phone. Discuss the pros and cons of the two strategies. WW .rainger has the more responsive networ$3 a customer with a critical repair need can drive to a local retail location to pic$ up the necessary part. 4c4aster Carr!s networ$ is less responsive3 critical supplies would be scheduled for overnight delivery in all li$elihood. WW .rainger has the greater facility cost since it has more locations although the retail facilities provide a presence that doubles as a mar$eting tool not en<oyed by 4c4aster Carr. 4c4aster Carr!s facility expense is much lower and their networ$ model shifts the transportation cost more fully to the customer. # WW .rainger customer travels the last mile to pic$ up an order but .rainger must ship from their warehouse to the retail locations. 7. Consider a firm such as Dell with very few production facilities worldwide. 8ist the pros and cons of this approach and why it may or may not be suitable for the computer industry. The advantage for Dell!s networ$ design is lower facility costs3 they can locate in <ust enough countries to avoid tariffs and mitigate some of their exchange rate and demand ris$. The disadvantage for Dell is the lac$ of responsiveness this adds to their system. # customer has no expectation of *ero flow time so they $now as they enter the transaction that they must wait for their 6C. /hipping from one of the production facilities adds to the delay which is highly visible on Dell!s or the pac$age carrier!s web site. The shipping costs might also be a concern for some customers but the value to shipping cost ratio is so high that these costs seem li$e small potatoes in comparison to the total invoice. A. Consider a firm such as %ord with more than 15B facilities worldwide. 8ist the pros and cons of having many facilities and why it may or may not be suitable for the automobile industry. #utoma$ers often use a multiplant strategy to create server facilities. These server facilities provide product for the mar$et where they are located thereby ta$ing

[Type text] advantage of tax incentives local content re0uirements tariff barriers and high logistics costs. This can be a good strategy if mar$et demand exists for your product3 when demand drops the producer is left with expensive excess capacity. +f the facilities are flexible production of popular models can continue to prepare product for export. +f facilities are inflexible or all sales are flat then the producer must bear the cost or shed assets.

CHAPTER SE$EN Discussion Questions

1. What role does forecasting play in the supply chain of a build1to1order manufacturer such as Dell) #lthough Dell builds to order they obtain 6C components in anticipation of customer orders and therefore they rely on forecasting. This forecast is used to predict future demand which determines the 0uantity of each component needed to assemble a 6C and the plant capacity re0uired to perform the assembly.

[Type text] (. 9ow could Dell use collaborative forecasting with its suppliers to improve its supply chain) Collaborative forecasting re0uires all supply chain partners to share information regarding parameters that might affect demand such as the timing and magnitude of promotions. Dell could share with their components suppliers all of the promotions e.g. holiday bac$1to1school etc. they have planned. These suppliers could in turn notify their suppliers of discrete components that a spi$e in demand is anticipated. These demand forecasts for end items determine the demand for components and coupled with $nowledge of fabrication times allows all members of the supply chain to provide the right 0uantity at the right time to their customers. -. What role does forecasting play in the supply chain of a mail order firm such as 88 >ean) 88 >ean has historically operated almost exclusively in a ma$e1to1stoc$ mode and with very few exceptions stoc$ed products that did not go out of style as rapidly as many other clothing and accessory lines. # pre1worldwide web existence would have relied on communication with manufacturers about what products might be featured on the front of their catalog. The lead times involved in printing and distributing the catalog and producing the product line were such that elaborate planning and forecasting tools were not re0uired. # 0uic$ visit to the web site demonstrates that this is changing3 the featured products on the web site can be changed daily or programmed to rotate each time the web page is refreshed. 88 >ean and their supply chain including the logistics component are well aware of the demand forecast and can all receive sales data as orders are placed. 88 >ean probably has an extranet to communicate sales data with suppliers and allows customers to create accounts to manage purchases wish lists and trac$ orders.

2. What systematic and random components would you expect in demand for chocolates) /ystematic components are level the current deseasonali*ed demand3 trend the rate of growth or decline in demand for the next period3 and seasonality the predictable seasonal fluctuations in demand. The demand for chocolates is probably highly seasonal one would expect demand to spi$e for certain holidays such as @alentine!s Day 9alloween and Christmas. 5. Why should a manager be suspicious if a forecaster claims to forecast historical demand without any forecast error) The primary difficulty with such a claim is that forecasts are always wrong hence an estimate of error should be provided with the forecast. .iven a set of data it is possible to create a forecasting model that is 1BBC accurate but such a model

[Type text] would contain ridiculous cubic 0uartic and possibly higher1order terms. The model would wor$ only on that data. 7. .ive examples of products that display seasonality of demand. 6roducts that display seasonality include heating oil electricity natural gas wrapping paper school supplies sporting goods &summer winter etc.' facial tissues beverages &coffee beer iced tea etc.' ice cream pi**a delivery and tax preparation services. #ll products display some form of seasonality if you loo$ at them in a global perspective. A. What is the problem if a manager uses last year!s sales data instead of last year!s demand to forecast demand for the coming year) 8ast year!s sales data is fine as long as there were no stoc$ outs. +f an item is not on the shelf or is explicitly indicated as being sold out the manager may be blissfully unaware of customer demand that existed but was not expressed. #lso if there were special promotions last year that are not planned for the following year the data must be ad<usted to accommodate this factor. D. 9ow do static and adaptive forecasting methods differ) /tatic methods assume that the estimates of level trend and seasonality within the systematic component do not vary as new demand is observed. ;nce these parameters are estimated there is no need to ad<ust them and they can be used for all future forecasts. +n adaptive forecasting the estimates of level trend and seasonality are updated after each demand observation that is as data are collected they are incorporated into the forecasting process. #daptive methods allow a forecaster to react &or overreact' to recent developments. /hould a disruptive technology affect demand the adaptive forecast will respond immediately albeit dragging several historical data points along for the ride. The static approach would not ta$e this new data into account and presumably the forecasts would suffer. We would li$e to thin$ that a forecaster using an invalid static method would recogni*e its futility in light of a paradigm shift but painful personal experience suggests otherwise.

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CHAPTER E%&HT Discussion Questions

1. What are some industries in which aggregate planning would be particularly important) #ggregate planning is useful in many types of manufacturing and services. 4anufacturers include furniture all durable goods consumer electronics textiles motor vehicles and aircraft /ervice industries might be restaurants and other hospitality providers li$e hotels and motels. (. What are the characteristics of these industries that ma$e them good candidates for aggregate planning)

[Type text] #ggregate planning is most useful in industries characteri*ed by relatively long lead times and finite amounts of capacity. The end products or services provided in these industries are composed of inputs that are often provided by other businesses that must perform some fabrication. -. What are the main differences between the aggregate planning strategies) The three pure aggregate planning strategies are the chase strategy time flexibility from wor$force or capacity strategy and the level strategy. The primary difference among the three strategies is the lever that is the parameter that is manipulated to achieve e0uality of supply and demand over the aggregate planning period. The first chase strategy uses capacity in the form of machine or personnel capacity as the lever. >y chasing demand on a period1by1period basis the level of inventory is very low throughout the supply change and the wor$ force is in a constant state of flux which can increase management costs. The second chase strategy is time flexibility from wor$force or capacity using utili*ation as the level. This strategy li$e the chase plan before it results in low levels of inventory throughout the supply chain. +t avoids the layoff problem of its predecessor but still re0uires a flexible wor$force and may also result in low machine utili*ation. The third strategy is to maintain a constant output rate throughout the aggregate planning period which stands in star$ contract to the first two strategies. +f demand is highly variable this plan will result in periods mar$ed by bac$orders or stoc$ outs and other periods when the supply chain carries a high level of inventory. There is no true synchroni*ation of demand with supply in this strategy although over the entire aggregate planning period the planner will achieve a match. 2. What types of industries or situations are best suited to the chase strategy) The flexibility strategy) The level strategy) The chase strategy should be used when the cost of carrying inventory is very high and the costs to change levels of machine and labor capacity are low. +ndustries with these characteristics include aircraft and other high dollar products and producers of highly perishable products. The flexibility strategy should be used when inventory carrying costs are relatively high machine capacity is relatively inexpensive and the wor$ force cannot be ad<usted on short notice. This strategy wor$s in the automotive sector durable goods and consumer electronics. The level strategy wor$s well when inventory carrying and bac$log costs are relatively low. The consumer goods industry has a cost structure that lends itself well to the level strategy.

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5. What are the ma<or cost categories needed as inputs for aggregate planning) The ma<or cost categories needed as inputs for aggregate planning are production costs and inventory costs. 6roduction costs include labor costs of regular and overtime costs of subcontracting production costs of changing capacity by hiring or laying off wor$force and increasing or reducing machine capacity. +nventory costs include the cost of having too much &storage costs per period' and too little &bac$order or stoc$out costs'. 7. 9ow does the availability of subcontracting affect the aggregate planning problem) /ubcontracting provides another variable that the aggregate planner may manipulate to match supply with demand. # fortunate planner may be able to plan production using a chase strategy from a macro view with production segmented such that internal operations are run using a level strategy with a subcontractor absorbing the variability in demand. A. +f a company currently employs the chase strategy and the cost of training increases dramatically how might this change the company!s aggregate planning strategy) #s training costs increase it becomes more expensive to vary the level of wor$force perhaps to the point of ma$ing a chase strategy cost1prohibitive. +f a chase strategy is ta$en off the table then the aggregate planner should familiari*e himself with a level strategy time flexibility strategy or some happy combination of the two. D. 9ow can aggregate planning be used in an environment of high demand uncertainty) 9igh demand uncertainty creates difficulties for the forecasting input to aggregate planning. >ased on experience any aggregate planner $nows that an aggregate plan developed for an 1D month planning period will not be 1BBC accurate and that the last few months in the plan may have gross errors in the demand forecast. #s those months roll towards the present the planner must update the plan. +n an environment with high demand uncertainty the planner must update plans regularly communicate more fre0uently with suppliers and all others providing inputs to the plan and recogni*e that plans several months into the future are little more than toner on paper.

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CHAPTER N%NE Discussion Questions

1. What are some obstacles to creating a flexible wor$force) What are the benefits) # flexible wor$force possesses the ability to learn new tas$s or switch tas$s without significantly disrupting production to expand &or contract' capacity via over or idle time hiring and firing of seasonal wor$ers or subcontracting and to wor$ different schedules. # number of factors influence a producer!s ability to reali*e a flexible wor$forceK restrictive labor agreements and wor$ rules a tight labor mar$et the education level culture or organi*ational culture of the wor$ force the complexity of the tas$s the proprietary nature of the production process and restrictions imposed by other members of the supply chain. # flexible wor$force opens the supply chain up to a wider range of alternatives when trying to match supply with demand. +f subcontracting or temporary wor$ers can be deployed then a firm can function at a steady base rate and use the subs to buffer periods of high demand.

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(. Discuss why subcontractors can often offer products and services to a company more cheaply than if the company produced them themselves) The subcontractor can offer services more cheaply for a number of reasons. +n many cases the subcontractor is a specialist in the area and is more flexible hence cheaper. +f a subcontractor is performing similar wor$ for a number of clients they can ta$e advantage of the *ero1sum nature of business competition. >y aggregating orders from a number of clients the subcontractor is able to satisfy pea$s in demand from some of their clients because other standard clients will be experiencing valleys in demand. +f subcontracting occurs because a firm is at capacity the subcontractor &that is not overcapacity' can handle the production more cheaply simply because is expensive to operate a system at excess capacity. -. +n what industries would you tend to see dual facility types &some facilities focusing on only one type of product and others able to produce a wide variety') +n what industries would this be relatively rare) Why) #ny industry where a lucrative product re0uires both uni0ue labor s$ills and production facilities is a prime candidate for a dual facility operation. The healthcare industry is one example of a dual facility type3 many large hospital chains have focused operations for trauma heart ob"gyn and other specialties. ;ther industries with dual facility types include the legal profession hospitality construction and many others. +ndustries where dual facility types are rare include tobacco products alcoholic beverages sawmills and chemicals. The dividing point among these industries is the continuous flow nature of the non1 dual producers. +f processing re0uirements dictate that the product stream must visit the same steps of a process in the same se0uence then the higher volume and low process flexibility combination results in dedicated production facilities that simply can!t have a broad product range. 2. Discuss how you would set up a collaboration mechanism for the enterprises in a supply chain. Collaboration mechanisms in a supply chain should begin with the initial partnering process as the supply chain is being established. #ll parties in the chain must be aligned and dedicated to the success of the entire chain. Trust and open communication are of primary importance3 there should be a myriad of formal and informal communication channels open among all parties. +f constancy of purpose is ever in 0uestion each firm might devote some resources towards e0uitable Lchain incentivesN such that behaviors that benefit the entire supply chain are recogni*ed and rewarded. The incentives communication and trust should be established at all levels of every chain member. Company leadership should provide for highly visible evidence of these activities on their level and among cross1business supply chain teams.

[Type text] 5. What are some product lines that use common parts across many products) What are the advantages of doing this) There are many producers both manufacturing and service that use common parts across many products. /ome of these product lines include the food industry construction furniture soap plastics perfumes computer and office e0uipment automotive motorcycles bicycles airframe and most bac$1office operations in the service industries. The use of common parts &and services' lowers costs and enables producers to meet variability in demand. 6art commonality absorbs variability in disaggregated demand from period to period since the aggregated demand is inherently less variable. The common parts may be produced or ac0uired at a more constant rate and stoc$ed at a lower inventory level while maintaining a higher customer service level. 7. Discuss how a company can get mar$eting and operations to wor$ together with the common goal of coordinating supply and demand to maximi*e profitability. 4ar$eting and operations often find themselves at cross purposes3 as the authors note mar$eting often has incentives based on revenue whereas operations has incentives based on cost. The cachet of new products service guarantees co1 promotions and other mar$eting vehicles is 0uite often lost on members of the organi*ation that must fulfill promises made by their friends in mar$eting. #s with all collaborations open communication is a must on a near1constant basis. =egular planning meetings must include full cross1functional participation and critical information must be shared as sales and operations occur. 9aving common performance measures is another way to get these two groups to wor$ together for the common good of the company. 9olding both groups responsible for Customer service accuracy on time delivery and 0uality and rewarding them <ointly for achieving these goals will greatly increase their willingness to wor$ together. A. 9ow can a firm use pricing to change demand patterns) # change in price one of mar$eting!s %our 6!s will change demand assuming that there is some elasticity in demand. # firm can shift demand from a popular product or time to a less1popular product or what is traditionally an off1pea$ demand period by lowering prices. # firm can collect data on the impact of price changes on demand and use the correlation as an input into supply chain aggregate planning. +n the absence of such coordination it is virtually guaranteed that supply chain partners will face demand levels they had not anticipated and will be unable to satisfy. The increase in demand results from a combination of a' mar$et growth b' stealing share and c' forward buying. The first two increase demand for the product and the third robs sales from the future. D. Why would a firm want to offer pricing promotions in its pea$1demand periods)

[Type text] +f we assume that a pricing promotion serves to increase demand then there are a couple of reasons a firm may offer pricing promotions during pea$ demand periods. Even at pea$ demand the firm may have excess capacity and could meet this demand. The nature of the product and supply chain may be such that a promotion today results in an order that both the supply chain and customer recogni*e will be filled in the future perhaps during an anticipated low demand period. +f a firm produces a product that is at the end of its life cycle there may be incentive to exhaust accumulated materials and labor s$ills that are dedicated to its production. %inally a firm may be practicing a form of predatory pricing if it senses that a competitor teetering on the brin$ of extinction is starved for sales. F. Why would a firm want to offer pricing promotions during its low1demand periods) 6ricing promotions during low1demand periods should serve to increase demand and sales. The increase in demand results from a combination of the following three factorsK 4ar$et growth M sales may be reali*ed from customers that were not considering this product at the higher price. /tealing share M sales may be reali*ed from customers that were considering a competitors product. %orward buying M sales may be stolen from the future by customers that feel that price may rise in the future.

CHAPTER TEN Discussion Questions

1. Consider a supermar$et deciding on the si*e of its replenishment order from 6roctor G .amble. What costs should it ta$e into account when ma$ing this decision) The main cost categories for the supermar$et!s inventory policy are material costs ordering costs and holding costs. 4aterial cost is the money paid to 6roctor and .amble for the goods themselves. ;rdering costs also called procurement costs are incurred by re0uesting the goods from the supplier and are fixed in the sense that they do not vary with the si*e of the order. Examples of such fixed costs are the labor re0uired to place the order handle the resultant paperwor$ and the transportation fee to ship the order. The holding cost is the cost to carry one unit in inventory for a specified period of time usually one year. This cost is variable and includes the cost of capital and all of the costs associated with physically storing inventory M shrin$age spoilage or obsolescence insurance the cost of capital the cost of the warehouse space etc. (. Discuss how various costs for the supermar$et change as it decreases the lot si*e ordered from 6roctor G .amble.

[Type text] #s the lot si*e ordered from the supplier decreases the holding cost &variable with respect to lot si*e' decreases. #s the lot si*e decreases the ordering cost remains the same but the annual ordering cost will rise since the total number of orders each year must increase. #s the lot si*e decreases the cost of the materials will drop on a per1order basis but will stay the same on an annual basis since total annual demand hasn!t changed. The exception to this occurs if the supplier has a price brea$ for an order si*e above a certain threshold3 in this case the cost of the goods might increase if the reduced order si*e is not sufficient to trigger a substantial per unit discount. -. #s demand at the supermar$et chain grows how would you expect the cycle inventory measured in days of inventory to change) Explain. #s the demand at the supermar$et chain grows we would expect the cycle inventory as measured in days of inventory to also increase although the increase in cycle inventory is only 2BC of the increase in demand. This is because the relationship between the optimal lot si*e RS and the annual demand D is ( DS . /ince D is under the radical its doubling to (D does not translate to a QS = hC <ump from a RS to a (RS order3 it translates to a <ump from a RS to a 1.2RS order. 2. The manager at the supermar$et wants to decrease the lot si*e without increasing the costs he incurs. What actions can he ta$e to achieve his ob<ective) ;ne action would be to simply decrease the lot si*e and let the robust nature of the E;R model wor$ its magic. The total cost curve on either side of the optimal order 0uantity the RS is relatively flat so movements in either direction have little impact on total annual procurement and carrying costs. +f greater cuts in lot si*e are desired the manager can aggregate multiple products in a single order. =ecall that the E;R model is based on a one1product1at1a1time assumption3 if multiple products are aggregated then the fixed procurement cost is spread over all of the items and dramatic lot si*e reductions are possible. +f the same products are being ordered by another supermar$et in the same chain &or at least by stores that are willing to cooperate' the combined orders can be delivered by a single truc$ ma$ing multiple stops thereby reducing transportation expense. ;ther techni0ues that should be deployed when aggregating across product lines include advanced shipping notices and =%+D tags that will ma$e inventory trac$ing and warehouse management simpler. 5. When are 0uantity discounts <ustified in a supply chain) Ruantity discounts are <ustified in a supply chain as long as they are the fruits of a coordinated supply chain and maximi*e total supply chain profits. %or commodity products for which price is set by the mar$et manufacturers with large fixed costs per lot can use lot si*e1based 0uantity discounts to maximi*e total supply chain profits.

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7. What is the difference between lot si*e1based and volume1based 0uantity discounts) 8ot si*e discounts are based on the 0uantity purchased per lot not the rate of purchase. 8ot si*e1based discounts tend to raise cycle inventory in the supply chain by encouraging retailers to increase the si*e of each lot. 8ot si*e1based discounts ma$e sense only when the manufacturer incurs a very high fixed cost per order. %or commodity products for which price is set by the mar$et manufacturers with large fixed costs per lot can use lot si*e1based 0uantity discounts to maximi*e total supply chain profits. @olume discounts are based on the rate of purchase or volume purchased per specified time period. @olume1based discounts are compatible with small lots that reduce the cycle inventory. +f the manufacturer does not incur a very high fixed cost per order it is better for the supply chain to have volume1based discounts. %or products for which a firm has mar$et power volume1based discounts can be used to achieve coordination in the supply chain and maximi*e supply chain profits. A. Why do manufacturers such as Hraft and /ara 8ee offer trade promotions) What impact do trade promotions have on the supply chain) 9ow should trade promotions be structured to maximi*e their impact while minimi*ing the additional cost they impose on the supply chain) 4anufacturers use trade promotions to offer a discounted price and a time period over which the discount is effective. The goal of manufacturers such as Hraft and /ara 8ee is to influence retailers to act in a way that helps the manufacturer achieve its ob<ectives. These ob<ectives may include increased sales a shifting of inventory from manufacturer to retailer and defense against the competition. Trade promotions may cause a retailer to pass through some or all of the promotion to customers to spur sales which increases sales for the entire supply chain. What happens more fre0uently in practice is that retailers may choose to pass through very little of the promotion to customers purchase in greater 0uantities and hold this cheaper inventory in greater 0uantities. This action increases both cycle inventory and flow times within the supply chain. Trade promotions should be structured such that a retailer!s optimal response benefits the entire supply chain i.e. retailers limit their forward buying and pass along more of the discount to end customers. +f the manufacturer has accumulated excessive inventory then a trade promotion may provide sufficient incentive to the buyer to forward buy thus drawing inventories down to an appropriate level. The manufacturer may be able to smooth demand by shifting it to a period of anticipated low demand with a trade promotion. =esearch has shown that trade promotions by the manufacturer are effective for products with high deal elasticity that ensures high pass1through &passing the discount on to the consumer' and high holding costs that ensure low forward buying paper goods being the poster child for this combination. Trade promotions

[Type text] are also more effective with strong brands relative to wea$ brands and may ma$e sense as a competitive response. D. Why is it appropriate to include only the incremental cost when estimating the holding and order cost for a firm) The cycle inventory models discussed in the chapter are robust3 thus incremental &variable' costs per lot si*e are more important than costs that are fixed with respect to lot si*e. The labor component of procurement or setup costs may be salaried3 therefore changes in lot si*e do not impact this component.

Case note' De(iver) strate*) at Moon c+e,- Refer pgno 355

1. What is the annual cost of 4oonChem!s strategy of sending full truc$loads to each customer in the 6eoria region to replenish consignment inventory) 4oonChem!s customer profile appears in Table 1B12 and is reproduced belowK Customer Type /mall 4edium 8arge Number of Customers 1( 7 ( Consumption (Pounds per Month) 1 BBB 5 BBB 1( BBB

Each truc$ has a fixed capacity of 2B BBB pounds and costs 4oonChem J2BB per delivery. The /mall customers use only 1( BBB pounds per year so a 2B BBB truc$load represents better than a three year supplyT Total policy cost is obtained using a RU2B BBB an /UJ2BB and an hC U &(5C'&J1'.

[Type text] SD hCQ + Q ( J2BB&1( BBB' &(5C'&J1'2B BBB TCSmall = + = J5 1(B 2B BBB ( J2BB&7B BBB' &(5C'&J1'2B BBB TCMedium = + = J5 7BB 2B BBB ( J2BB&122 BBB' &(5C'&J1'2B BBB TCLarge = + = J7 22B 2B BBB ( TC = %actoring in the number of each class of customersK J5 1(B 1( + J5 7BB 7 + J7 22B ( = J1BA F(B (. Consider different delivery options and evaluate the cost of each. What delivery option do you recommend for 4oonChem) 4oonChem has the option of scheduling multiple deliveries on a single truc$ with a base charge of J-5B for the truc$ and J5B for each delivery the truc$ ma$es3 truc$ capacity remains at 2B BBB pounds. Three alternatives that students might consider include creating a LsupergroupN of all customer deliveries on a single truc$ creating three groups consisting of customers within each class and creating two groups consisting of one large three medium and six small customers each. Costs for each of these alternatives are examined in turn. #lternative 1K The /upergroup The supergroup approach has a total annual demand of AF( BBB pounds of the base chemical and would incur a shipping cost of J-5BV(B&J5B'UJ1-5B. The optimal order fre0uency isK n =
S

k i =1

Di hCi

(S S

122 BBB&J1'&(5C' + -7B BBB&J1'&(5C' + &(DD BBB'&J1'&(5C' (&J1-5B'

= D.57 This number of shipments per year re0uires a truc$ capable of holding far more than 2B BBB pounds3 dividing AF( BBB pounds by the 2B BBB pound truc$ capacity sets the number of orders per year at 1F.D. Each truc$ will hold 122 BBB"1F.DUA (A- pounds for the small customers3 -7B BBB"1F.DU1D 1D( pounds for the medium customers and (DD BBB"1F.DU12 525 pounds for the large customers to be divided e0ually among the number of customers in each si*e range.

[Type text] Cycle inventory across all customers in each class is half of the order 0uantity and results in annual holding costs of JFBF J((A- and J1D1D for small medium and large respectively &J5 BBB total'. The annual ordering cost of this policy is &1F.D orders'&J1-5B"order' U J(7 A-B. Total plan cost is J5 BBBVJ(7 A-BUJ-1 A-B. #lternative (K /eparate groups for the /mall 4edium and 8arge customers nSmall =
S

k i =1

Di hCi

(S S

122 BBB&J1'&(5C' (&JF5B'

= 2.-5 nMedium =
S

k i =1

Di hCi

(S S

-7B BBB&J1'&(5C' (&J75B'

= D.-( nLarge =
S

k i =1

Di hCi

(S S

(DD BBB&J1'&(5C' (&J25B'

= D.F2 The optimal number of shipments for the 4edium customers re0uires a capacity greater than 2B BBB per truc$ so dividing -7B BBB pounds by 2B BBB pounds"truc$ indicates that F orders per year is practical. The actual order si*es for each class and the resultant holding and ordering costs are shown in the tableK Class /mall 4edium 8arge Order Si e -- BD( 2B BBB -( 1FF !olding Cost J2 1-5 J5 BBB J2 B(5 Ordering Cost J2 1-5 J5 D5B J2 B(5

The total plan cost is J(A 1AB #lternative -K Two groups with 7 /mall - 4edium and 1 8arge customer each Each group has an annual demand of -F7 BBB and an ordering cost /UJD5B.

[Type text]

n =
S

k i =1

Di hCi

(S S

A( BBB&J1'&(5C' + 1DB BBB&J1'&(5C' + &122 BBB'&J1'&(5C' (&JD5B'

= A.7This ordering fre0uency exceeds truc$ capacity3 dividing group demand by 2B BBB pounds per truc$ gives F.F orders annually. 6lan specifics appear in the tableK Class /mall 4edium 8arge Order Si e A (A1D 1D( 12 525 !olding Cost JFBF J( (AJ1 D1D Ordering Cost JD5B&F.F'&(' U J17 D-B

The total plan cost is J(7 D-B #lternative - is J-2B cheaper than #lternative ( and both are over J2 BBB cheaper than #lternative 1.

-. 9ow does your recommendation impact consignment inventory for 4oonChem) The consignment inventory drops significantly from its initial levels. The current system with each customer ordering in lots of 2B BBB pounds has a cycle inventory of (B BBB pounds for each of the (B sites resulting in a system1wide cycle inventory of 2BB BBB poundsT #lternative 1 has a cycle inventory of 2B BBB"( U (B BBB pounds #lternative ( has a cycle inventory of &-- BD(V2B BBBV-( 1FF'"(U5( 721 pounds #lternative - has a cycle inventory of &2B BBB"('S( U 2B BBB pounds

[Type text]

CHAPTER E.E$EN Discussion Questions

1. What is the role of safety inventory in the supply chain) /afety inventory is inventory carried to satisfy demand that exceeds the amount forecasted for a given period. #s such it tends to have a negative impact on supply chain cost but a positive impact on supply chain responsiveness. /afety inventory is carried because product demand and lead time are uncertain and a product shortage may result if actual demand during lead time exceeds the forecast amount. (. Explain how a reduction in lead time can help a supply chain reduce safety inventory without hurting product availability. # reduction in lead time reduces supply chain safety inventory according to e0uations 11.( through 11.2. The reorder point is driven by the demand during lead time the standard deviation of demand during lead time and the customer service level the latter two combining to form the safety stoc$. +f lead time falls the standard deviation of demand during lead time also falls resulting in less safety stoc$. Ta$ing an intuitive &and extreme' approach if lead time approached *ero there would be no need for safety &or any' stoc$ since customer orders could be filled instantaneously.

[Type text] -. What are the pros and cons of the various measures of product availability) The common measures of product availability discussed in this chapter are product fill rate order fill rate and cycle service level &C/8'. Pro/uct !i(( rate is the fraction of product demand that is satisfied from product in inventory and should be measured over specified amounts of demand rather than time. %ill rate provides an accurate picture of the number of customers that receive their single1product orders. Or/er !i(( rate is the fraction of orders that are filled from available inventory and should be measured over a specified number of orders rather than time. +n the multiproduct case poor performance on one item can doom the order fill rate to an extremely low score while the other products would have achieved very high fill rates. C)c(e service (eve( is the fraction of replenishment cycles that end with all the customer demand being met. Cycle service levels tend to be lower than the other two metrics3 a firm could maintain a cycle service level of BC but have a FFC product fill rate. 2. Describe the two types of ordering policies and the impact that each of them has on safety inventory. The two types of ordering policies discussed in the text are continuous review and periodic review. Continuous review re0uires that inventory levels be monitored constantly with an order for a lot si*e of R placed when the inventory level drops as low as the reorder point. /ince the level of inventory is $nown continuously the level of safety inventory can be low3 an order will be placed the minute the reorder point is reached. 6eriodic review re0uires less vigilance3 the inventory level is measured at regular time intervals and an order is placed to raise the inventory level to a specified threshold. ?nder this system the level of inventory is $nown once a period and merely estimated until the next count. 4ore safety inventory must be carried under a periodic review system to guard against a surge in demand. 5. What is the impact of supply uncertainty on safety inventory) The re0uired safety inventory increases with an increase in the standard deviation of periodic demand. The standard deviation of periodic demand is a function of the variance in the lead time and the variance in the demand. #nything that causes supply to be more deterministic will minimi*e the need for safety inventory. 7. Why can a 9ome Depot with a few large stores provide a higher level of product availability with lower inventories than a hardware store chain such as Tru1@alue with many small stores) 9ome Depot benefits from substitution and from aggregation. 4any of the products 9ome Depot carries are not aggressively branded in the eyes of the do1it1yourselfer.

[Type text] This class of customers wants to perform a simple home repair or improvement and is less concerned about a specific manufacturer than about getting all the supplies in one trip &although + should note that in my experience there is no such thing as a single trip to 9ome Depot for any pro<ect'. 9ome Depot also benefits from aggregation3 the large box store draws customers from a wider area and what one part of the customer base doesn!t need this month the other part does. The highs and lows tend to cancel thus stabili*ing demand within each season. A. Why is #ma*on.com able to provide a large variety of boo$s and music with less safety inventory than a boo$store chain selling through retail stores) #ma*on is able to provide a large variety of boo$s and music with less safety inventory through the power of aggregation. >y holding best1selling items in geographically dispersed warehouses #ma*on can hold less inventory and still meet customer demand. E0uations 11.1( through 11.17 illustrate the savings possible through aggregation versus a multiple location retail design. +ntuitively many small retail stores would each have their own safety inventory for their customer base and most of this safety inventory would languish on the shelves. +f one site experienced a surge in demand a stoc$out would result. # large centrali*ed supply would need less safety inventory as the demand variances might cancel each other e.g. high demand from one region is offset by low demand from another. ;nly if many regions had unanticipated high demand would the central supply be exhausted. D. +n the 1FDBs paint was sold by color and si*e in paint retail stores. Today paint is mixed at the paint store according to the color desired. Discuss what if any impact this change has on safety inventories in the supply chain. The practice of adding pigmentation in the retail store is a classic example of postponement3 paint stores can mix any color into a solid white base and produce exactly what the customer wants. This change has greatly reduced the amount of safety inventory re0uired as the paint store must now stoc$ far fewer product lines. The reduction in safety inventory has simultaneously reduced safety inventory storage costs and increased responsiveness. F. # new technology allows boo$s to be printed in ten minutes. >orders has decided to purchase these machines for each store. They must decide which boo$s to carry in stoc$ and which boo$s to print on demand using this technology. Do you recommend it for best1sellers or for other boo$s) Why) +f >orders must carry stoc$ after purchasing this machine they should carry items with a steady demand bestsellers and the li$e. The fringe boo$s that are rarely purchased would best be left to the 1B minute process which is effectively instantaneous production. The boo$s with low demand would be too expensive to stoc$ for sporadic demand3 they would need only one of each but the breadth of the

[Type text] product line would be overwhelming and prohibitively expensive to carry from month to month.

CHAPTER TWE.$E Discussion Questions

1. Consider two products with the same cost but different margins. Which product should have a higher level of product availability) Why) The product with the higher margin should be stoc$ed at a higher level of availability than the product with the lower margin. The product with the higher margin will have a higher Cu which is the cost of understoc$ing. The cost of understoc$ing is the sale price less the cost and may be thought of by the supplier as profit foregone. # higher cost of understoc$ing results in a higher critical fractile so the optimal cycle service level will be higher which will yield a higher availability. (. Consider two products with the same margin carried by a retail store. #ny leftover units of one product are worthless. 8eftover units of the other product can be sold to outlet stores. Which product should have a higher level of availability) Why) The product with the higher salvage value should be stoc$ed at a higher level of availability than those with the lower salvage value. The product with the higher salvage value will have a lower Co which is the cost of overstoc$ing. The cost of overstoc$ing is the sale price less the salvage value. # lower cost of overstoc$ing results in a higher critical fractile so the optimal cycle service level will be higher which will yield a higher availability.

[Type text] -. # firm improves its forecast accuracy using better mar$eting intelligence. What impact will this have on supply chain inventories and profitability) Why) +mproved forecast accuracy should result in a closer match between supply and demand resulting in improved profitability. #n improved match will result in lower levels of unplanned carryover inventory and shortages at the end of planning periods. The improved match will lower the expected costs of having too much or too little inventory. 2. 9ow can postponement of product differentiation be used to improve supply chain profitability) 6ostponement refers to the delay of product differentiation until closer to the sale of the product. 6ostponement allows producers to leverage two features common to forecastsK forecasts with shorter time hori*ons tend to be more accurate than those with longer time hori*ons3 and aggregate forecasts tend to be more accurate than forecasts for individual items"models. 4ore accurate forecasts allow for a better match of supply and demand thereby lowering mismatch costs and increasing profitability as discussed in the previous 0uestion. 5. 4attel has historically allowed toy retailers to place two orders for the holiday shopping season. 4attel is considering allowing retailers to place only one order. What impact will this have on retailer orders) What impact will this have on supply chain profits) 4attel needs to abandon this approach to supply chain management. ?nder the two1order system retailers could place an order assess mar$et demand and place a second order that ta$es advantage of the short time hori*on and improved $nowledge about mar$et demand. The single1order system will re0uire a less1 educated guess about demand that will occur further in the future. The single1order system has a much higher ris$ of a gross mismatch between supply and demand resulting in excessive stoc$1out situations &lost sales' and fire sales at the end of the season. /upply chain profits will decline if the ordering system is changed to a single1order system. 7. Discuss how an expensive supplier with short lead times who is used as a bac$up for a low cost supplier with long lead times can result in higher profits than using only the low1cost supplier. The two suppliers can be deployed so that the customer has the opportunity to place two &or more' orders during each demand cycle. The low1cost supplier with long lead times should receive the first order from the customer. #s demand is reali*ed the customer can refine their demand forecast. +f the forecast is overly optimistic the excess inventory can be disposed for its salvage value. The salvage value should be the same regardless of supplier but than$s to the lower purchase price the cost of overstoc$ing is much lower.

[Type text] The second order can be placed at a later time and can be used to match demand as closely as the production situation permits. +t may be possible to use the second order to fill only firm customer demand that was not met by the order from the slow low1cost supplier. Even if this is not the case the second order gives the customer the ability to match supply and demand while ta$ing advantage of each supplier!s strength.

CHAPTER TH%RTEEN Discussion Questions

1. What modes of transportation are best suited for large low1value shipments) Why) =ail and water transportation modes are best suited for large low1value shipments. The price structure of the business ma$e rail and water the modes of choice if low1 value large heavy or high1density items need to be transported. #ir pac$age carriers and truc$s would not have the infrastructure re0uired to accommodate large items3 roads and bridges would be damaged and the storage capacity of the carriers is insufficient. (. Why is it important to account for congestion when pricing the use of transportation infrastructure) +nfrastructure often re0uires government ownership and is not something that can be increased in capacity in the short term. +f congestion is not factored in to the price structure for infrastructure then demand for the resources will exceed capacity and ma<or delays will occur. 6ricing may be used to force users to internali*e the marginal impact of their choices thus alleviating some of the demand during pea$ periods. -. Wal14art designs its networ$s so that a DC supports several large retail stores. Explain how the company can use such a networ$ to reduce transportation costs while replenishing inventories more fre0uently.

[Type text]

# distribution center that supports several large retail stores can reduce supply chain costs in four waysK 1' +nbound shipments to the DC achieve economies of scale because each supplier sends a large shipment3 (' The outbound transportation costs for a DC can be low because it serves retail locations nearby3 and very large inbound shipments that match retail demand can be cross1doc$ed at the DC which saves both -' storage and 2' material1handling costs. # DC also can replenish retail inventories more fre0uently3 the DC brea$s bul$ from manufacturers on one side of the warehouse and sends it to retail locations on the outbound side. /ince retail demands are aggregated at the DC level the amount of inventory actually stored at the DC is very low and as 8ittle!s 8aw indicates the time between replenishments is low also. 2. Compare the transportation costs for an e1business such as #ma*on.com and a retailer such as 9ome Depot when selling home1improvement materials. The primary difference between these retailers is that 9ome Depot does not incur any outbound transportation cost for residential customers while #ma*on faces such charges. 9ome Depot has substantial inbound transportation charges but is able to offload the outbound transportation cost to the vast ma<ority of their customers. #ma*on must use high cost pac$age carriers for much of its product line although they are able to avoid inbound transportation costs for items that are drop shipped. %or items that are held in one of their warehouses #ma*on must pay both inbound and outbound. 5. What transportation challenges does 6eapod face) Compare transportation costs at online grocers and supermar$et chains. 6eapod faces the burden of expensive outbound transportation costs and must account for congestion in the delivery area. ?nli$e traditional grocers who don!t deliver their products 6eapod must deliver items in their fleet of climate1controlled truc$s. These truc$s must be scheduled with pricing incentives offered for pea$ and off1pea$ delivery times. Customers are $eenly aware of the transportation component of their purchases and 6eapod can use pricing incentives to spur their customers towards higher order amounts. >oth 6eapod and traditional grocers must pay the inbound transportation costs of their wares3 there would appear to be no great advantage gained by either approach unless one vendor has such substantial mar$et share as to gain price concessions that they other can!t negotiate. 7. Do you expect aggregation of inventory at one location to be more effective when a company such as Dell sells computers or when a company such as #ma*on.com sells boo$s) Explain by considering transportation and inventory costs. +nventory aggregation is a good idea when inventory and facility costs form a large fraction of a supply chain!s total costs. +nventory aggregation is useful for products

[Type text] with a large value to weight ratio and for products with high demand uncertainty. >oth factors allow aggregation to wor$ to Dell!s advantage while #ma*on reaps less of a reward. Dell benefits from aggregation because personal computers have an extremely high value to weight ratio3 the demand for new items is uncertain and 4oore!s 8aw ma$es holding excessive inventory an extremely unattractive proposition. #ma*on benefits from aggregation when inventory costs are examined but is hurt by increased transportation costs. 4ost items that #ma*on sells have low value to weight ratios and #ma*on must ship them via pac$age carrier which is expensive. #ma*on saves money on storage costs since they choose to stoc$ more popular titles and allow other entities to hold items with more variable demand. A. Discuss $ey drivers that may be used to tailor transportation. 9ow does tailoring help) Tailored transportation is the term for use of different transportation networ$s and modes based on customer and product characteristics. Tailoring transportation allows firms to achieve cost and responsiveness targets that are appropriate for the supply chain. The $ey drivers are density and distance customer si*e and product demand and value. These drivers can be viewed as guide for ownership of Transportation options based on customer density and distance are summari*ed in the table and present cost and responsiveness tradeoffs for the supply chain. S+ort /istance Me/iu, /istance .on* /istance Hi*+ 6rivate fleet with Cross1doc$ with Cross1doc$ with /ensit) mil$ runs mil$ runs mil$ runs Me/iu, Third1party mil$ 8T8 carrier 8T8 or pac$age /ensit) runs carrier Third1party mil$ 8T8 or pac$age 6ac$age carrier .ow /ensit) runs or 8T8 carrier carrier Customer si*e and location dictate whether a supplier should use a T8 or 8T8 carrier or mil$ runs. @ery large customers can be supplied using a T8 carrier whereas smaller customers can use 8T8 carriers or mil$ runs. The authors discuss a customer1partitioning procedure for combining smaller customers! shipments with larger customers in order to achieve responsiveness and cost targets. 6roduct demand and value determine whether aggregation strategies will benefit the supply chain. The best combinations are shown in the tableK Pro/uct Hi*+ $a(ue .ow $a(ue T) e Hi*+ Disaggregate cycle inventory but Disaggregate all inventories /e,an/ aggregate safety inventory. ?se an and use inexpensive mode of inexpensive mode of transportation transportation for for replenishing cycle inventory and a replenishment. fast mode when replenishing safety

[Type text] inventory. .ow /e,an/ #ggregate all inventories. +f needed use fast mode of transportation for filling customer orders. #ggregate only safety inventory. ?se inexpensive mode of transportation for replenishing cycle inventory.

CHAPTER S%0TEEN Discussion Questions

1. What processes within each macro process are best suited to being enabled by +T) What processes are least suited) The macro processes in a supply chain are customer relationship management &C=4' internal supply chain management &+/C4' and supplier relationship management &/=4'. Ta$en collectively these macro processes span the entire supply chain. C=4 processes focus on the downstream interactions between the enterprise and its customers. The $ey processes under C=4 are mar$eting selling and order management and of these three the creative sub1processes of the mar$eting and selling processes are least suited to +T enablement. The best suited processes for +T enablement are pricing and profitability calculations sales force automation and order configuration and trac$ing. Within order management virtually all processes reap the benefits of information technology. +/C4 processes focus on internal operations within the enterprise and include strategic planning demand planning supply planning fulfillment and field service. The use of +T to facilitate +/C4 sub1processes is presented in glowing terms in separate chapters in this text. 9uge gains in efficiency and responsiveness have been achieved via the application of +T to all aspects of +/C4. /=4 processes focus on upstream interaction between the enterprise and its suppliers and includes the sub1processes of design collaboration sourcing negotiating buying and supply collaboration. The authors indicate in chapter 12 that sourcing1related +T has had the most ups and downs of any supply chain software sector with the primary problems being loss of flexibility and the re0uirement of collaboration. Electronic mar$etplaces once flourished but have

[Type text] since withered. This is not to say that +T does not play a role in /=4 processes3 in fact all areas are supported by +T software. (. What are the $ey advantages that best1of1breed software companies provide) The competitive arena in C=4 +/C4 and /=4 can be parsed into best1of1breed winners E=6 players and best1of1breed startups. >est of breed companies provide a valuable service to all sectors by defining functionality and providing mar$et leadership. %or the C=4 macro process /iebel was the sole remaining best of breed provider as the boo$ went to press but it has since been ac0uired by ;racle as predicted by the authors. The +/C4 and /=4 macro process sectors have had best of breed providers that have long since yielded mar$et leadership to E=6 vendors. -. What are the $ey advantages that large software companies such as the E=6 players provide) E=6!s popularity in the 1FFBs drove the most successful companies to become the largest enterprise software companies. Their si*e provides a wealth of resources and collective experience that can be brought to bear on a client!s issues. The ma<or advantage that E=6 players have relative to best1of1breed providers is the inherent ability to integrate across the three macro processes of C=4 +/C4 and /=4 often through the transaction management foundation. 2. What types of industries would be most li$ely to choose a best of breed approach to their +T systems) What types would be more li$ely to choose a single large integrated solution) Established firms that have strong C+; leadership and see the supply chain as encompassing the entirety of the three macro processes would probably be more inclined to select a large integrated solution. Well1respected C+; leadership would be essential in promoting and managing such a pro<ect. # firm that is mature in this supply chain is fertile ground for an integrated solution. %irms that have recently merged or integrated vertically may have a more self1 centered perspective on the supply chain and might s$ew towards a best1of1breed approach. These firms might start their +T enablement with a focus on +/C4 and then see$ to wor$ either end of the supply chain with an /=4 or C=4 best1of1 breed implementation. %irms closer to either end of the supply chain3 e.g. an extractor of raw materials that sells to a few fabricators or a turn$ey service operation that spends most of their efforts dealing with customers might choose a system tailored to their end of the supply chain. 5. Discuss why the high tech industry has been the leader in adopting supply chain +T systems. The high tech industry has been the leader in adopting supply chain +T systems because of the mindset of the decision1ma$ers in this sector. The high tech wor$force tends to be early adopters of new technologies3 they understand there is a ris$ associated with adoption but are willing to assume the ris$ and proceed. 9igh

[Type text] tech corporate cultures lend themselves to such ventures3 there is little resistance to change because survival in this sector depends on it. 7. #re manufacturers better candidates for +T enablement than service organi*ations) Why or why not) %rom a supply chain perspective manufacturers overall are better candidates for +T enablement than service organi*ations although both can derive considerable benefit. The tangible standard &or modular' nature of the output affords manufacturing this advantage. :ext on the spectrum are bac$ office service processes which can be completely automated using information technology. These bac$ office processes can be a component of either a manufacturing or service organi*ation or could be stand1alone organi*ation e.g. medical transcription claims processing payment centers etc. This is not to say that a pure service cannot reap the rewards of +T enablement3 6ixar /tudios 6eapod and 6rudential +nsurance are three companies <ust from the 6!s that owe a great deal of their success to information technology.

CHAPTER SE$ENTEEN Discussion Questions

1. What is the bullwhip effect and how does it relate to lac$ of coordination in a supply chain) The bullwhip effect refers to the fluctuation in orders along the length of the supply chain as orders move from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect relates directly to the lac$ of coordination &demand information flows' within the supply chain. Each supply chain member has a different idea of what demand is and the demand estimates are grossly distorted and exaggerated as the supply chain partner is distanced from the customer. (. What is the impact of lac$ of coordination on the performance of a supply chain) The impact of lac$ of coordination is degradation of responsiveness and poor cost performance for all supply chain members. #s the bullwhip effect rears its ugly head supply chain partners find themselves with excessive inventory followed by stoc$outs and bac$orders. The fluctuations in inventory result in increased holding costs and lost sales which in turn spi$e transportation and material handling costs. ?ltimately the struggle with cost and responsiveness hurts the relationships among supply chain partners as they see$ to explain their lac$ of performance. -. +n what way can improper incentives lead to a lac$ of coordination in a supply chain) What countermeasures can be used to offset this effect) +ncentive obstacles occur in situations when different participants in the supply chain are motivated by self interest.

[Type text] +ncentives that focus only on the local impact of an action result in decisions being made that achieve a local optimum but can avoid a global &supply chain' optimum. #ll supply chain partners must agree on global performance measures and structure rewards such that members are appropriately motivated. /ales force incentives also are responsible for counterproductive supply chain behavior. Commissions that are based on a single short time frame can be gamed by the sales force to maximi*e commission but these actions inadvertently increase demand variability and exert pressure on the supply chain. Commissions should be structured to provide incentives to consistently sell large volumes of product over a broad time frame to the sell1through point.

2. What problems result if each stage of a supply chain views its demand as the orders placed by the downstream stage) 9ow should firms within a supply chain communicate to facilitate coordination) +f each stage of a supply chain views its demand as the orders placed by their downstream counterpart the bullwhip effect is reali*ed by the supply chain. Each member develops a forecast that is based on something other than the true customer demand and hilarity ensues. /upply chain members should share point1of1sale &6;/' data so that all members are aware of the true customer demand for product. The beauty of data sharing re0uirements is that only aggregate 6;/ data must be shared to mitigate the bullwhip effect3 there is no need to share detailed 6;/ data. 5. What factors lead to a batching of orders within a supply chain) 9ow does this affect coordination) What actions can minimi*e large batches and improve coordination) ;rder batching is caused by a number of different factors. ;ne mechanism is the price structure of T8 and 8T8 shipment 0uantities3 there is incentive to wait a while to ma$e sure that a T8 shipment is achieved. # customer!s natural tendency to wait for a milestone either real or perceived can also cause batching. Customers may wait until %riday 4onday the last or first day of the month etc. <ust because that!s when they always have or because that event reminds them to order. ;rder batching also occurs because customers are aware of an impending price reduction and want to ta$e advantage of it. >atching adversely affects supply chain coordination because the supply chain will be starved for flow then overwhelmed with demand. # supply chain can reconfigure their transportation and distribution system to allow for shipments to multiple customers on a single truc$ to achieve T8 0uantities. The chain can also assign &or encourage' days for placing orders and move from lot1si*e based to volume based 0uantity discounts &or abandon discounts and promotions altogether'. 7. 9ow do trade promotions and price fluctuations affect coordination in a supply chain) What pricing and promotion policies can facilitate coordination)

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Trade promotions and price fluctuations ma$e supply chain coordination more difficult. Customers see$ to purchase goods for less and engage in forward buying which creates spi$es in demand that may exceed capacity. #ll parties would benefit if the supply chain used every day low pricing &ED86' to mitigate forward buying and allow procurement production and logistics to function at a steadier pace. +f price incentives must be offered the chain is better served by implementing a volume1based 0uantity discount plan instead of a lot si*e based 0uantity discount i.e. providing incentives to purchase large 0uantities over a long period of time perhaps a year. A. 9ow is the building of strategic partnerships and trust valuable within a supply chain) Cooperation and trust within the supply chain help improve performance for the following reasonsK When stages trust each other they are more li$ely to ta$e the other party!s ob<ectives into consideration when ma$ing decisions thereby facilitating win1win situations. #ction1oriented managerial levers to achieve coordination become easier to implement and the supply chain becomes more agile. #n increase in supply chain productivity results either by elimination of duplicated effort or by allocating effort to the appropriate stage. Detailed sales and production information is shared3 this allows the supply chain to coordinate production and distribution decisions. D. What issues must be considered when designing a supply chain relationship to improve the chances of developing cooperation and trust) The issues that supply chain partners must consider when designing their chain include assessing the value of the relationship the operational roles and decision rights for each the execution of binding contracts and establishment of conflict resolution mechanisms. The value of the relationship is assessed by identifying the mutual benefits that it provides and the costs and contributions of each party. The mix of effort and benefit for all parties should be e0uitable. The roles and decision rights ta$e into account the interdependence between the parties3 the nirvana of interdependence is reciprocal interdependence where parties come together and exchange information and inputs in both directions. This re0uires more effort than se0uential interdependence but the payoff is increased supply chain surplus. 4anagers can help promote trust by creating contracts that encourage negotiation as unplanned contingencies arise since complete information and consideration of all future contingencies is impossible. The primary contacts from each side are an important starting point in developing a healthy relationship.

[Type text] Effective contract1resolution mechanisms can significantly strengthen any supply chain relationship. /uch mechanisms allow parties the opportunity to communicate and wor$ through their differences in the process building greater trust. F. What issues must be considered when managing a supply chain relationship to improve the chances of developing cooperation and trust) The following issues merit attention when management endeavors to improve the chances of success in supply chain partnershipK The presence of flexibility trust and commitment in both parties helps a supply chain relationship succeed. +n particular commitment of top management on both sides is crucial for success. .ood organi*ational arrangements especially for information sharing and conflict resolution improve chances for success. 4echanisms that ma$e the actions of each party and resulting outcomes visible help avoid conflicts and resolve disputes. The more fairly the stronger partner teats the wea$er vulnerable partner the stronger the supply chain relationship tends to be. 1B. What are the different C6%= scenarios and how do they benefit supply chain partners) Collaborative planning forecasting and replenishment &C6%=' is defined as a business practice that combines the intelligence of multiple partners in the planning and fulfillment of customer demand. +n order to be successful the two parties must have synchroni*ed their data and established standards for exchanging the information. The four scenarios that sellers and buyers can collaborate along includeK =etail event collaboration M the identification of specific /H?s that will be involved in sales promotions and sharing of information regarding the timing duration pricing advertising and display tactics to be deployed. The benefit of retail event collaborations is a reduction in stoc$outs excess inventory and unplanned logistics costs. DC replenishment collaboration M the forecasting of DC withdrawals or demand from the DC to the manufacturer is converted to a stream of orders that are loc$ed in over a specified time hori*on. # successful DC replenishment collaboration reduces production costs at the manufacturer and inventory and stoc$outs at the retailer. /tore replenishment collaboration M the forecasting of store1level orders that are committed over a specific time hori*on. /uch a collaboration results in greater visibility of sales for the manufacturer improved replenishment accuracy and product availability and reduced inventories. Collaborative assortment planning M the forecasting &collaborative interpretation' of industry trends macroeconomic factors and customer tastes for seasonal goods. This forecast is converted into a planned purchase order at the style"color"si*e level that is used to produce sample products for

[Type text] a fashion event before final merchandising decisions are made. The manufacturer benefits from this collaboration by having more lead time to purchase raw materials and plan capacity.