Operations and Supply Chain

Management 9th Edition Russell

Solutions Manual
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10 Supply Chain Management Strategy and Design

Answers to Questions

10-1. McDonald’s: The company is supplied by food distributors and restaurant product suppliers (for plates,
napkins, etc.). Production is located in retail sites that are usually small and are near large easily accessible
customer markets. Their inventory levels are typically small because food cannot be stored in large
quantities. Their primary mode of transportation is trucking.
Toyota: Toyota suppliers include raw materials and auto parts. They receive some items on-demand for JIT
production and some is stored in warehouses. Production is in large plants with heavy-machinery in close
proximity to good transportation sources. Toyota plants are located all over the world as are their distribution
systems. Transportation is by all modes of transportation.
10-2. The strategic goals are low cost and customer service. Purchasing from suppliers must be on time or the
entire supply chain is delayed, creating late deliveries to customers. Erratic and poor quality supply can also
increase costs. If facilities are not located properly it can delay product or service flow through the supply
chain, and increase costs for longer deliveries. Production inefficiency and poor quality can cause delays in
product or service flow and it also creates the need for more inventory which increases cost. Inefficient
transportation can also result in higher inventories to offset delays and raise costs, and, causes delayed
delivery to customers.
10-3. Answer depends on the businesses selected.

10-4. Some service providers actually incorporate manufacturing aspects, for example, a restaurant “assembles”
menu items from raw materials and parts (food items), and provides the customer with a final product. A
hospital takes an “unfinished” product (a patient) and then it flows through a set of processes to produce an
end result. As a result, there aren’t as many “differences” in SCM between manufacturing operations and
some types of service providers. A “pure” service provider like a hotel, while not “assembling” a product
will still include supply chain processes like procurement, quality management, scheduling, etc., and the
same approaches to efficient management of these processes will apply.
10-5. Answer depends on the example the student selects. One example is a grocery chain that uses POS terminals
to send information sales to distribution center who, in turn, sends mixed loads to the store by truck weekly.
10-6. The answer depends on the company the student selects.
10-7. Answer depends on the e-marketplace selected.
10-8. Answer depends on the ERP provider selected.
10-9. The answer depends on the article the student selects.
10-10. The answer depends on the article the student selects.
10-11. Toyota is one automobile company that has begun a limited BTO program. The student should go tan
automobile company website to see what they are doing with BTO options. There are traditionally many
more options with automobiles than with a product like a computer, which means more suppliers to work
with. Customers must be reconditioned to make selections from a smaller list of options—like colors, seat
type and fabric, sound system, trim, tires, etc. Also the component parts for a computer can generally be
stored in one location however, component parts for autos tend to be more geographically dispersed.
10-12. RFID allows items to be scanned and identified without direct sight lines which enables items to be checked
much more rapidly. Since bills-of-lading must not be much more detailed than previously (listing virtually
all items in a shipment) this can be accomplished much more quickly and thoroughly with RFID technology
and the information can be transported via satellite. This allows for much quicker security approvals, thus
 allowing ships and planes to load and unload more quickly.
10-13. Figure 10.6 shows some of the advantages that RFID technology would provide for a retailer like Wal-Mart.
The primary obstacle to the use of RFID is (currently) cost.
10-14. It provides a set of performance evaluators and an apparatus for comparing supply chains, which enables
generic supply chain evaluation. These performance evaluators apply to supply chains of different sizes and
cut across supply chains from different industries, which could allow them to be used to establish standards
that can be used as a certification tool.
10-15. Universities have traditional suppliers for MRO goods like supplies, telephone and computer services,
furniture, maintenance equipment and products, food and beverages, etc. They also have non-traditional
suppliers like high schools that provide students. The producers are the teachers and other academic and
support services that educate the student and provide for daily student life and well-being. Distributors
include placement services and companies and organizations students are hired by. Inventory exists for MRO
goods and services. Students are also a form of inventory as are classrooms, dorm rooms, parking spaces,
etc. Students as inventory incur a carrying cost. The longer a student remains in school the greater the cost to
the institution or state. Not only is there a direct cost for maintaining a student, but a student who stays too
long also takes up a spot for other incoming students, thus creating shortages of facilities like dorm rooms
and classrooms, which in-turn require expenditures for capital expansion.

10-16. The bullwhip effect occurs when demand variability becomes magnified as demand information is
transmitted back upstream in the supply chain causing suppliers to compensate for demand uncertainty with
larger than necessary buffer inventories.

10-17. Global supply chain risks include natural and/or man-made disasters that temporarily disrupt the flow of
supply, such as earthquakes and floods, and, labor strikes and political instability.

10-18. Companies manage supply chain risks by building resiliency into the supply chain by developing processes
that identify conditions that could cause supply disruptions and developing contingency plans for them,
including a pool of alternative suppliers, logistics providers and energy sources. Another approach is risk
pooling achieved by aggregating risks to reduce their overall impact, such as combining inventory locations
from numerous risky locations to a few. Also, risk can be managed by reducing product variability
allowing companies to meet demand with fewer suppliers.

10-19. Student answers will vary, however, examples include:

a. Overseas suppliers – defective products
b. Container ships – delays and unreliable delivery
c. Transportation – late deliveries and product damage
d. Packaging – defective packaging, labeling errors
e. Distribution – order errors, incorrect deliveries
f. Warehousing – theft and product damage

10-20. Answer depends on student responses.

10-21. Answer depends on company student identifies.

10-22. Answer depends on student responses.

10-23. Sustainability to a large extent is about conserving resources, which coincides with the quality management
focus of eliminating waste. In the human resources area, quality management focuses on employee
satisfaction, which also coincides with sustainability goals. To a certain extent, sustainability also supports
the quality goal of customer satisfaction since customers these days seem to desire sustainable products.

10-24. As a result of cultural, economic and political differences companies often encounter workplace
sustainability issues related to worker wages, treatment and living conditions. Also, companies tend to
 reap the negative media impact of environmental pollution, greenhouse gas emissions, and waste created
by their overseas suppliers.

10-25. In China sustainability issues are prominent in the workplace as a result of a huge labor pool and a lack of
government control that allows suppliers to mistreat workers. In Mexico workplace issues are less
pervasive, however, environmental pollution laws are more relaxed than in the U.S.

10-26. By introducing programs to reduce waste and conserve energy, which also saves costs. Telecommuting is a
specific example of how a company can reduce facility and transportation costs by having employees work
from home.

10-27. The answer depends on the companies the student selects; however, examples might include Apple, Wal-
Mart, Levi Strauss, P&G and Target.

10-28. Service companies can achieve sustainability by reducing waste and conserving resources, like reducing
paper usage, conserving on heat and electricity in workplace facilities, and telecommuting. However, some
service companies, like UPS and Wal-Mart, can also reduce greenhouse gas emissions like carbon dioxide
by using more energy-efficient vehicles. Manufacturing firms can reduce their carbon footprint, as well as
eliminate waste and conserve energy and other sustainable resources.

10-29. Answer depends on student responses.

10-30. Answer depends on student responses.

10-31. In a digital supply chain, products move and are distributed electronically so there are no physical products,
modes of transport, inventory or facilities; i.e., the things that make up a physical supply chain. However,
there are still suppliers of digital content, the movement of products, distributors, stores and end-use
customers. The supply chain tends to be embedded in the Internet.

10-32. Common characteristics include excellent financials, adoption of industry best practices, product
innovation and simplification, effective supply chain planning and execution, lower cycle times, high order
fulfillment rates, a focus on total supply chain costs and inventory reduction, a commitment to quality,
effective risk management, a focus on core competencies, collaboration with suppliers, well-defined
strategies, advanced IT capabilities, collaboration with suppliers, and supply chain visibility, among others.

10-33. The Gartner score is a composite based on five measures including the opinion in the form of a ranking
from an in-house Gartner panel, the rankings of a peer panel, the three-year return on assets (ROA),
inventory turns, and the three-year weighted revenue growth.

10-34. In 2012 IBM and Microsoft dropped out of the top 25 primarily due to the way Gartner’s computes its
scores. The ranking includes companies that operate predominantly physical supply chains, and one of the
criteria looks at the proportion of revenue related to physical product versus services or software, and these
two companies fell below the cutoff (of 50%) for this revenue proportion.

10-35. This answer depends on which companies the student selects.

Solutions to Problems

470
10-1. Inventory turns = = 14.2
17.5 + 9.3 + 6.4

33.2
Days of supply = = 25.94 days
1.28

10-2.

Average aggregate value of inventory = $12,042,000

Inventory turns = = 5.3

Days of supply =

= 69

10-3. Average aggregate value of inventory:

Raw material = 82, 500
WIP = 61, 300
Finished goods = 220, 000
363, 800

3, 700, 000
Inventory turns = = 10.17
363,800

363,800
Days of supply = = 35.88
( 3, 700, 000 ) / ( 365)
10-4. Aggregate value of inventory: Raw materials = 817,500
WIP = 67,800
Finished goods = 64,000
949,300
17,500, 000
Inventory turns = = 18.4
949,300

949,300
Weeks of supply = = 2.7 weeks
(17,500, 000 ) / (50 )

10-5. Average aggregate value of inventory: Raw materials = 281,090

 WIP = 3,435,000
Finished goods = 3,087,000
6,803,090
18,500, 000
Inventory turns = = 2.72
6,803, 090

6,803, 090
Days of supply = = 134.22
(18,500, 000 ) / ( 365 )

10-6. (a)

Year
1 2 3 4
Inventory turns 8.0 8.3 11.1 12.0
Days of supply 45.7 44.1 32.8 30.5

(b) The company’s supply chain performance has marginally improved. However, the number of turns still
seems excessive for a computer firm.
(c) For a BTO company the average work-in-process and finished goods inventory seems excessive; the
company should work to reduce these levels, possibly by working with its suppliers.

10-7.

Supplier 1 Supplier 2
Inventory turns 22.6 9.25
Weeks of supply 2.3 5.6

Supplier 1 has the better supply chain performance. Other factors that might influence Delph could be
quality and delivery speed.

219
10-8. c= = 7.3
30

Control limits using Z = 3.00:

UCL = c + Z c = 7.3 + 3 7.3 = 7.3 + 8.11 = 15.41

LCL = c − Z c = 7.3 − 3 7.3 = 7.3 − 8.11  0

All the sample observations are within the control limits suggesting that the invoice errors are in control.
 255
10-9. c= = 12.75
20

UCL = c + Z c = 12.75 + 3 12.75 = 23.46

LCL = c − Z c = 12.75 − 3 12.75 = 2.04

All the sample observations are within the control limits suggesting that the delivery process is in control.

10-10.

Sample Proportion Defective

1 .028
2 .044
3 .072
4 .034
5 .050
6 .082
7 .036
8 .038
9 .052
10 .056
11 .076
12 .048
13 .030
14 .024
15 .020
16 .032
17 .018
18 .042
19 .036
20 .024

421 421
p= = = .0421
( 20 )( 500 ) 10, 000

p (1 − p )
UCL = p + Z
n

.0421(1 − .0421)
= .0421 + 3.00
500

= .0421 + .027 = .069

p (1 − p )
LCL = p − Z
n

.0421(1 − .0421)
= .0421 − 3 = .0421 − .027 = .015
500
 Samples 3 and 11 are above the upper control limit indicating the process may be out of control.

10-11.

Sample x R
1 2.00 2.3
2 2.08 2.6
3 2.92 2.7
4 1.78 1.9
5 2.70 3.2
6 3.50 5.0
7 2.84 2.2
8 3.26 4.6
9 2.50 1.3
10 4.14 3.5
11 2.12 3.0
12 4.38 4.0
13 2.84 3.3
14 2.70 1.1
15 3.56 5.6
16 2.96 3.1
17 3.34 6.1
18 4.16 2.4
19 3.70 2.5
20 2.72 2.9
60.20 63.3

R=
 R = 63.3 = 3.17
k 20

x=
 x = 60.20 = 3.01
20 20

R-chart

D3 = 0, D4 = 2.11, for n = 5
UCL = D4 R = 2.11( 3.17 ) = 6.69
LCL = 0 R = 0 ( 3.17 ) = 0

There are no R values outside the control limits, which would suggest the process is in control.

x -chart

A2 = 0.58

UCL = x + A2 R = 3.01 + 0.58 (3.17 ) = 4.85

LCL = x − A2 R = 3.01 − 0.58 (3.17 ) = 1.17

There are no x values outside the control limits, which suggests the process is in control.
10-12. x = 3.17, R = 3.25, A2 ( n = 5) = 0.58

UCL = x + A2 R = 3.17 + ( 0.58 )( 3.25 ) = 5.04

LCL = x − A2 R = 3.17 − 1.89 = 1.29

UCL = D4 R = 2.11( 3.25 ) = 6.86

LCL = D3 R = 0 ( 3.25 ) = 0

The process appears out of control for sample 10, however, this could be an aberration since there are no
other apparent nonrandom patterns or out-of-control points. Thus, this point should probably be “thrown out”
and a new control chart developed with the remaining eleven samples.
CASE PROBLEM SOLUTION: Somerset Furniture Company’s Global Supply Chain

This case is based on a real furniture company the authors are familiar with. The company essentially reinvented
itself from a furniture manufacturer to a supply chain management and distribution company. In doing so it
outsourced its primary area of expertise, i.e., manufacturing, thereby losing direct control of the thing it knew most
about, and adopted the role of supply chain manager, something it had little prior expertise with. The company
suffered a number of inadequacies that left it ill prepared to assume its new role. The case as presented addresses
many of the problems faced by companies that are confronted by a global supply chain, and provides students with a
general platform for discussing supply chain problems and their remedy.

Following is the variable timeline for product lead time:

1. Develop purchase order: 12 to 25 days

2. Process purchase order overseas: 10 to 20 days
3. Manufacturing process: 60 days
4. Transport from plants to ports: 1 to 14 days
5. Arrange for containers and paperwork: 5 to 10 days
6. Wait for containers: 1 to 7 days
7. Load containers: 3 to 6 days
8. Security checks: 7 to 21 days
9. Overseas shipment: 28 days
10. Clear customs and loading trucks: 7 to 14 days
11. Transport to warehouse: 1 to 3 days
12. Receive and warehouse: 1 to 30 days

Total lead time: 119 to 238 days

Following is a list of discussion points for this case:

• The company identified a set of characteristics of their global supply chain that seem to be endemic to many
companies, as follows:

Lower product cost

Greater information requirements
Longer delivery times to customers
Quality problems
Decrease in forecast accuracy
Increase in inventory
Replacement parts and repair service challenges
Complex multi-step, inter-modal logistics
Clash of different business cultures
Hiring challenges
Longer product to cash cycle
Collaboration with multiple business partners

• Primary among its deficiencies was its lack of expertise in the information technology area and an insufficient
computing system. Much of the variability in the company’s supply chain was attributable to information
technology problems. After the company made new hires to acquire IT expertise, and upgraded their
computing technology, they were able to successfully address many of their problems in logistics and order
processing and fulfillment, including the reduction of system variability.

• The company adopted better, more innovative forecasting methods, which improved their scheduling.
• They contracted with an international trade logistics (ITL) company to improve their overseas logistics, which
combined with their improved information technology capabilities, allowed them to directly monitor and
 control overseas product movement. This reduced scheduling variability.

• In the quality area they worked with their Chinese suppliers to improve quality management including training
local plant managers in the use of quality control techniques. More quality auditors were hired to make more
frequent visits to the plants, and quality was monitored more closely at various key points in the
manufacturing process. In the case of the humidity problem the production of some lines was moved to other
plants in China.

• Suppliers were selected based on the following criteria: quality, capacity, delivery and service.

• Many furniture products were redesigned with the objective of creating full container loads. It was discovered
that removing even a few inches from the dimensions of a piece of furniture would allow additional pieces to
be loaded into a container.

• The company decided to keep its own spare parts inventory in the U.S., ordering spare parts from their Chinese
suppliers when the product line is initially produced. This required a more accurate forecast of spare parts
demand. However, improved product quality eventually reduced the need for spare parts.

• To improve service the company determined required inventory levels based on customer demand with an
objective of on-time delivery while at the same time seeking ways to reduce inventory levels. The reduction in
system variability simultaneously worked to reduce inventory requirements and improve customer service.

• The company implemented a warehouse management system (WMS) to improve its local distribution service to
customers.

• The company is also exploring moving some production to other countries to limit its vulnerability to
anticipated restrictions on furniture imports from China. Also, the SARS epidemic has caused the company to
reconsider sourcing its products from only one country.