Question bank

V Trimester PGDBM Examination 2013 Supply Chain Management

1.a. Name the decision stages in a supply chain I-16 (3 marks) Decision stages in a supply chain: There are three phases: Supply chain strategy or design Supply chain planning and Supply chain operation b. Explain the process overview of supply chain I-35 to 38 (7 marks) Push/pull view of supply chain process: All processes in supply chain fall into one of two categories: o pull process o push process In pull process, execution is initiated in response to a customer order. In push process, execution is in anticipation of customer order At the time of execution of a pull process, demand is known with certainty whereas at the time execution of a push process demand is not known but forecasted A push/pull view of the supply chain is useful when considering strategic decisions relating to supply chain design This view facilitates a more global consideration of supply chain processes as they relate to a customer order. Pull process may be regarded as reactive process as they react to customer demand Push process may be regarded as speculative process as they respond to forecast (speculative) demand rather than actual demand The push/pull boundary in a supply chain helps to separate, push process from pull process. Ex. In computer manufacturing firm, the beginning of assembly process represents the push/pull boundary All processes carried out prior to assembly are push processes and

 All processes carried out after and including assembly are pull processes, because they are initiated in response to a customer order.

c. Explain the importance of Supply Chain Management I-8 to13 (10 marks) Importance of SCM: of late SCM is gaining importance. Reasons: the total time for material to travel through the entire supply chain can be quite long (say 6months to an year). SCM can reduce waiting time in various stages leading to reduction in inventory, increased flexibility, reduced costs, reduced cycle time and better deliveries Many companies have improved their internal operations and now find it necessary to consider relations with external customers and suppliers in supply chain to gain further improvements in operations

 Supply chain thinking is an application of systems thinking and provides a basis for understanding processes that cut across a companys internal departments and processes that extend outside company as well. the goals of SCM is to reduce uncertainty and risks in the supply chain, positively affecting inventory levels, cycle time, processes and ultimately end-customer service levels. Focus is on system optimization the design, planning and operation of a supply chain have a strong impact on overall profitability and success SCM has become a hot competitive advantage as companies struggle to get the right stuff to the right place at right time All the TQM, JIT, reengineering, team work and delighting customers depends on the relationships with suppliers and distributors who are part of the supply chain SCM includes transportation vendors, suppliers, distributors, banks, credit and cash transfers, bills payable and receivable, warehousing and inventory levels, order fulfillment and sharing customer, forecasting and production information As firms strive to increase their competitiveness via product customization, high quality, cost reductions and speed-to-market, they place added emphasis on SCM SCM build chain of suppliers that focus on both waste and maximizing value to the ultimate customer The key to SCM is to make suppliers partners in the firms strategy to satisfy the ever-changing market place 2.a. State the process overview of supply chain I-25 (3 marks) Process overview of a supply chain: Two different ways to view process cycle view 2. the push-pull view Cycle view: supply chain process can be broken down to four processes cycles: customer order cycle, 2. replenishment cycle, 3. manufacturing cycle and 4. procurement cycle Push/pull view of supply chain process: All processes in supply chain fall into one of two categories: o push process and pull process

 b. Briefly state objectives of Supply Chain Management I-14,15 (7 marks) Objectives: To maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the costs the supply chain incurs in filling the customers request Value is correlated with supply chain profitability the difference between revenue generated from customer and the overall cost across the supply chain. This surplus is to be shared by all the intermediaries, higher the profitability, the more successful is supply chain. Success is to be measured in terms of supply chain profitability and not in terms profit at individual stages Effective supply chain management involves, the management of supply chain assets and product, information, and fund flows to maximize total supply chain profitability c. Discuss role of inventory in supply chain I-78 to 86 (10 marks) Role of inventory in the supply chain: Inventory occurs in supply chain because of mismatch in supply and demand Inventory in supply chain helps to increase the amount of demand satisfied by having the product ready when customer wants it. Inventory plays significant role in reducing the cost of the product by exploiting economies of scale that may exist during production and distribution Inventory exists in supply chain in the form of RM, WIP, and FG that suppliers, manufacturers, distributors and retailers hold. It is a major source of cost in supply chain and its impact on responsiveness is significant The location and quantity of inventory can vary responsiveness to great extent Inventory also has a significant impact on the material flow in a supply chain The time that elapses between the point at which material enters the supply chain to the point of exit is referred to as material flow time

 Inventory also affects through-put which is the rate at which sales to the end customer occur. According to Littles law, inventory is the product of flow time T and through put R(I=RT) Reduced flow time can reduce inventory cost and increase responsiveness inventory plays a significant role in competitive strategy: firm can use inventory to achieve high level of responsiveness (a competitive advantage) by locating large inventory near market (customers) On the other hand it can reduce cost by centralized stocking which supports competitive strategy as low cost producer Inventory drives the trade off between responsiveness and efficiency The decisions to create more responsive and efficient supply chain: o cycle inventory decision: cycle inventory is the average amount of inventory used to satisfy demand between receipt of supplier shipment The size of cycle inventory is the result of the production or purchase lot size When firms produce or purchase in large lots to exploit economies of scale, cycle inventory increases, hence the inventory carrying cost A retailer must take cycle inventory decisions regarding how much to order for replenishment and how often to place orders. Supply chain managers face the basic trade-offs between the cost of holding larger lots of inventory and the cost of ordering the product frequently Another related decision is determining how much safety inventory to hold Safety inventory is the inventory which is held to meet the excess demand when demand exceeds expectation (or estimation) Safety inventory is needed to counter uncertainty in demand and in delivery lead time. Determining an appropriate amount of safety inventory involves making a trade-off between costs of having too much inventory and the cost of losing sales due to stock out When the demand for a product is seasonal, seasonal inventory may have to be built up to counter predictable variability in demand affected by seasonality.

 the decision to build seasonal inventory or not depends on the ability of a firm to change the rate of its production system to adjust to a period of high demand without incurring large costs The basic trade off supply chain managers face in determining how much seasonal inventory to build is between the cost of carrying additional seasonal inventory and the cost of having a more flexible production rate The overall trade off involved in inventory decisions is between responsiveness and efficiency Increasing the inventory usually makes the supply chain more responsive to the customer while at the same time the cost increases thereby decreasing the efficiency. The supply chain managers must determine the optimal level of inventory for reaching the level of responsiveness and efficiency targeted by the firms competitive strategy c. Briefly explain how strategic fit achieved I-58 to 65 (10 marks) How is strategic fit achieved: three basic steps: understanding the customer and supply chain uncertainty: first the company must understand the customer needs for each targeted segment and uncertainty the supply chain faces in satisfying these needs These needs help company define the desired cost and service requirements The supply chain uncertainty helps the company identify the extent of unpredictability of demand, disruption and delay the supply chain must be prepared for. understanding the supply chain capabilities: There are many types of supply chains, each of which is designed to perform different tasks well. A company must understand what its supply chain is designed to do well achieving strategic fit: if a mismatch exist between what supply chain does particularly well and desired customer needs, the company will either need to restructure the supply chain to support the competitive strategy or alter its competitive strategy Understanding the customer and supply chain uncertainty: to understand the customer the company must identify the needs of the customer segment being served. The quantity of the product needed in each lot: an emergency order for material needed to repair a production line is likely to be small. An order for material to construct new production line is likely to be large

 The response time that customers are willing to tolerate: the tolerable response time for the emergency order is likely to be short, whereas the allowable response time for the construction order is apt to be long The variety of products needed : a customer may place a high premium on the availability of all parts of an emergency repair order from a single supplier. This may not be the case for construction order The service level required: A customer placing an emergency order expects high level of product availability. This customer may go elsewhere if all parts of the order are not immediately available. This may not happen in case of a construction order for which long lead time is likely The price of the product: customer placing emergency order is less sensitive to price than customer placing construction order The desired rate of innovation in the product: customers at high end department store expect a lot of innovation and new designs in the stores apparel. Customers at wal-mart may be less sensitive to new product innovation Each customer in a particular segment tend to have similar needs, where as customers in a different segment can have very different needs The goal is to identify one key measure for all the attributes of consumer needs to define supply chain design Implied demand uncertainty: at first glance it may appear that each of the customer need categories to be viewed differently, but in a very fundamental sense, each customer need can be translated into the metric of implied demand uncertainty Implied demand uncertainty is demand uncertainty due to the portion of demand that the supply chain is targeting not the entire demand Demand uncertainty reflects the uncertainty of customer demand for a product Ex. 1. A firm supplying only emergency orders for a product face a higher demand uncertainty than a firm that supplies the same product with long lead time, as the second firm has an opportunity to fulfill the orders evenly over the long lead time as a supply chain raises its level of service, it must be able to meet a higher and higher percentage of actual demand forcing it to prepare for surges in demand. Thus raising service level increases the implied demand

uncertainty even though the products underlying demand uncertainty does not change .