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Chapter 1 business logistics flashcards |

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  • Supply Chain Management

    Consists of firms collaborating to leverage strategic positioning, and to improve operating efficiency

    Supply Chain Strategy

    Is a channel and business organizational arrangement, based on acknowledge dependency, and collaboration


    -The work required to move and geographically position inventory

    -Order Management
    -Material Handling

    Integrative managements creates

    -Economic value
    -Lowest cost
    - Economicies of scale
    - Product/service creation
    -Market Value
    -Attractive assortment
    - Economy-of-scope effectiveness
    -Relevancy value
    -Segmental diversity
    -Product/service positions

    Basic supply chain model

    Plan--> Source---> Make---> Deliver and <--Return

    Concepts Necessary for Achieving Integrated Management

    -Lowest total process cost is the focus of integrated management
    -Differs from lowest cost of each function in the process
    -Collaboration of operating information, technology and risk has been encouraged by national legislation to keep US-based firms competitive
    -Enterprise extension includes expanded managerial influence and control beyond traditional ownership boundaries of a single enterprise
    -Integrated service providers (ISP) provide a range of logistics services to accommodate customers, ranging from order entry to product delivery

    Supply Chain Information System Functionality

    Strategic planning: Formulaiton of strategic alliance, Develop and refine capabilities and Customer service analysis

    Decision analysis: Vehichle routing and scheduling, inventory levels and mangement, Network/facility locations and integration and Vertical integration Vs. Third party

    Management control: Financial measurement, Customer service measurement, Productivity measurement and quality measurement.

    Transaction system: Order management, Inventory assignment, Order selection, Shipping, Pricing and invoicing and customer inquiry.

    More Opportunities Exist for Improvements at Higher Levels of Functionality

    Strategic planning can be high risk and has extensive options but creates a competitive advantage.

    Decision analysis has significant user expense, effectiveness driven activity focus but identifies and evaluates competitive alternatives.

    Management control creates Performance control systems, feedback for performance evaluation and proactive direction for users but measures competitive capability and addition of improvement areas.

    Transaction systems have high hardware and systems costs, structured training and effeciency-driven focus but creates a competitive qualifacation.


    -The backbone of most firm's logistical information systems
    -Maintains an integrated database of current and historical data
    -Processes most (if not all) transactions across all business functions
    -Most common / widely used ERP software packages;

    -Example transactions include
    -Order entry and order management
    -Inventory assignment
    -Shipping and receiving

    Enterprise Integration and Administration Modules

    Enterprise integration and admin branches off to (General admin, Accounts Recievable, Financial inventory, General ledger, Human resourches)

    Enterprise Operations

    Support day to day supply chain operations


    Supply chain and process are designed to minimize cost.
    -Predictable supply and low cost
    -Low cost production and highly utilized capacity
    -High inventory turns
    -Ideal for FUNCTIONAL products


    Supply chain designed to respond quickly to market demands
    -Fast response
    -Minimal stockouts
    -Need flexible capacity (volume)
    -inventory of parts
    -minimize lead times
    -Need to have a variety of products
    -Ideal for INNOVATIVE products

    Anticpatory business model

    Forceast ->Buy materials ->Maufacture->Warehouse->Sell->Deliver (This is a push or Make-to-Stock model)

    Responsive business model

    Sell->Buy components and materials->Manufacture->Deliver
    (This is a pull or Make-to-order) Responds to actual demand

    Manufacturing (or Form) Postponement

    -Manufacturing one order at a time
    -Base modular construction of product
    -No customization until the exact customer specs and financial commitment is received
    -Objective is to maintain products in an uncommitted status as long as possible
    -Balances economy of scale with responsiveness
    -Can build a sufficient quantity of "ready to customize" basic units
    -Requires a lot of forethought during product design

    Example of Manufacturing Postponement

    Keeping all the car panels a base color (white or gray) until the order is received, then painting to the color ordered

    Geographic (or Logistics) Postponement

    -Build or stock a full-line inventory at one or a few strategic locations
    -Forward deployment of inventory is postponed until customer orders are received
    -Once orders received, specific item is expedited to the local distributor
    -Advantages are manufacturing economies of scale along with responsiveness to customer
    -Often used for critical, high cost parts and assemblies (e.g. engines)

    Example of Geographic Postponement

    Keeping full inventory in a central warehouse and releasing customer orders to local distributors or direct shipping to customer

    Combined Postponement

    -Keeping the basic products centralized and performing the customization at the destination distributor
    -Historical example - Autos
    -Installing dealer options like sound systems, GPS, sun roofs on new cars purchased
    -Contemporary example - Computers
    -Dell Computers, doing final assembly or packaging additional system options like printers, digital cameras at a distribution center

    Barriers to Implementing Responsive Systems

    Need for publicly held corporations to maintain planned quarterly profits
    -Expectations of continued financial results often
    drive promotional and pricing strategies to "load the
    channel" with inventory, i.e., "Channel Stuffing"
    Need to establish collaborative relationships
    -Most business managers do not have training or
    experience in development of collaborative

    Cash-to-Cash Conversion

    - the time required to convert raw material or inventory purchases into sales revenue

    Dwell Time Minimization

    - dwell time is the ratio of time that an assets sits idle to the time required to satisfy its supply chain mission

    Cash Spin

    - reducing assets in the supply chain can "spin" cash for reinvestment in other projects

    Globalization Offers Firms Several Attractive Opportunities

    Demand exceeds local supply
    -90% of global demand is not fully satisfied by local
    Strategic sourcing
    -Identifying and matching the sources of raw
    materials and components to manufacturers and
    -Moving manufacturing and distribution operations
    to countries with favorable labor costs and tax laws

    Significant Differences for Global Logistics

    Distance of typical order-to-delivery operations is significantly longer compared to domestic business.
    Documentation requirements for business transactions is significantly more complex. A typical cross-border shipment now involves....
    Accurately completing and filing about 35 documents
    Compliance with > 600 laws & 500 trade agreements which are constantly changing.
    Interfacing with about 25 parties, including customs, carriers, freight forwarders, government agencies, etc.
    Operations must deal with significant Diversity in work practices and local operating environments.
    How consumers demand products and services must accommodate cultural variations.

    Trends in SCM

    Flexibility and respoinsiveness
    Cost reduction


    - Expanding the Supply Chain. International, mature and emerging markets have become a part of the overall business growth strategy for many companies.

    -Breadth - foreign manufacturing, office & retail sites, foreign suppliers & customers

    -Depth - second and third tier suppliers & customers

    Flexibility & Responsiveness:

    Firms will increasingly need to be more flexible and responsive to customer needs adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration

    Cost Reduction and Continuous Improvement:

    Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non-core competencies.

    Sustainability and "Greening" the Supply Chain:

    Customers increasingly prefer products that are made and sourced in 'the right way'; minimizing business' social, economic and environmental impact on society and enhancing positive effects.
    Large majority (75%) of U.S. consumers influenced by a firm's environmental friendliness reputation

    Benefits of Actively Managing the Supply Chain

    Improved customer service
    Increased revenue
    Lower costs
    Better asset utilization
    Reduced uncertainty throughout the supply chain
    Elimination of rush (unplanned) activities
    Minimize delays / shorter lead-times
    Lower inventory levels throughout the supply chain
    Adds customer value / retain customers
    Ability to effectively respond to disruptions and conflicts
    Organizations that benefit the most are those with large inventories, large numbers of suppliers, complex products, and large purchasing budgets because they have the most to gain or lose.



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