Solution Manual for Supply Chain Logistics Management, 5thth Edition Bowersox Chapter(1-13)

SCLM 5th Edition End of Chapter Questions and Answers Chapter One: 21st Century Supply Chains Study Questions 1. Compare the concept of a modern supply chain with more traditional distribution channels. Be specific regarding similarities and differences.

Traditional distribution channels typically had an order fulfillment time of 15-30 days. However, if something went wrong, this time could increase dramatically. It was a common practice to maintain inventory at every stage of the supply chain like retailers, wholesalers, and manufacturers. The market was characterized by scarcity to the primary goal of traditional model was to ensure availability of products. However today customers want more options in product offerings. Modern supply chain is geared towards meeting the changing consumer needs.

Transportation capacity and operational performance has become more reliable and economical. Logistical systems are capable of capable of delivering products at exact times. So, customer orders can be fulfilled faster.

With massive development in information technology, the need to maintain inventory has reduced dramatically.

The occurrence of failures, characteristics of traditional supply chain, has been replaced by a commitment towards zero-defect of six sigma performance. In essence a high level of performance is achieved at a lower total cost with commitment of fewer financial resources than that in the past.

2. What specific role does logistics play in supply chain operations?

Logistics is the primary conduit of product and service flow within a supply chain arrangement. It is the work required to move and to position inventory throughout a supply chain. It is a combination of order management, inventory, transportation, warehousing, material handling and packaging as integrated throughout a facility network. Logistics is essential for effective supply chain connectivity.

3. Describe and illustrate an integrated service provider. How does the concept of integrated service provider differ from traditional service providers, such as for-hire transportation and warehousing?

Integrated Service Providers (ISP) also known as third-party logistics providers offer a range of logistics services that includes all work necessary to service customers. With the regulatory changes in transportation the traditional logistics services providers started offering warehousing and shared transportation services. The ISPs initiated the radical shift from single function to multifunction outsourcing. Their services include order entry to product delivery and in certain situations they also provide wide range of value-added services. For example, United Parcel Services (UPS) stocks Nike shoes and warm-ups at its Louisville warehouse and processes orders hourly. All the related communication and financial administration are handled by a UPS call center in San Antonio.

Therefore, UPS handles the basic logistics and value-added services for Nike.

In contrast the traditional service providers, such as for-hire transportation and warehousing specialize in specific functions. For instance, the for-hire transportation industry consists of carriers who specialize in moving products between geographic locations. The companies offering warehouse services are traditionally called public warehouses and they provide storage supplemented by specialized services.

4. Compare and contrast anticipatory and response-based business models. Why has responsiveness become popular in supply chain collaborations?

Anticipatory and response-based business models are the two ways used by firms to fulfill customer requirements.

However, the fundamental difference in the two models is timing The Anticipatory model has been the traditional business practice, which was mainly forecast driven. Since information about purchasing behavior was not readily available, and the channel partners were loosely collaborating, businesses were driven by forecasts. However, the forecasts used by the manufacturers, wholesales, distributors, and retailers were often different resulting in excess inventory in the system. All the work was performed in anticipation of future projections, so the likelihood of misgauging customer requirements was very high. In addition, each firm in the chain duplicated the anticipatory process.

The Response-based model aims to reduce or eliminate forecast reliance by joint planning and rapid exchange of information between supply chain partners. This model is possible because managers can now obtain and share accurate sales information more quickly. Consequently, customers can be provided with their desired items faster.

This model requires fewer steps and therefore less cost to complete fulfillment compared to the anticipatory model. A Response-based model is similar to a build to order model however the former has a faster response time and allows higher degree of customization.

Responsiveness propelled by information technology development has become the cornerstone of today’s supply chain collaboration. Higher responsiveness can not only increase the level of customer satisfaction but can also reduce the overall cost of doing that.

5. Discuss five non-traditional supply chain applications and describe the similarities and differences between traditional supply chain applications Students can choose from numerous non-traditional supply chain applications as presented in Table 1.2.

Similarities could be the inclusion of similar supply chain activities, however differentiated for the very specific application. For example, a construction supply chain still includes concepts such as procurement and logistics, however it is hyper specialized to emphasize just in time delivery performance to keep construction operations moving and not dwell product or cash, for undue periods of time. Each example will combine traditional supply chain elements with modifications specific to the application and goal of the given supply chain.

6. Describe how one of the consumer disruptors and one of the technology disruptors will impact supply chain design and strategy?

Students could choose the following disruptors: (1) “want it now” mentality (2) personalization (3) millennial preferences (4) omni-channel shopping or (5) aging consumer needs. Technology disruptors include: (1) autonomous vehicles and the internet of things (IOT), (2) artificial intelligence (3) Uberization (4) 3D printing (5) big data (6) alternative fuels. Answers should focus on how these consumer preferences and technologies will impact traditional supply chain strategies such as manufacturing, procurement, and logistics. In particular, answers should focus on how the consumer preferences and technology will change the decision. For example, consumers with a “want it now” mentality require a supply chain with inventory positioned closer to the end consumer and/or expedited transportation capabilities and capacity.

Challenge questions 1. What are the operating challenges related to a brick-and-mortar retail toy stores plan to establish 600 temporary or pop-up seasonal retail outlets? Be specific concerning the supply chain challenges leading into, during, and after the Christmas selling season.

There are several challenges when a brick and mortar retailer establishes temporary retail outlets.

Staff: First, recruiting temporary staff and training the staff to meet the customer service requirements of the toy store may turn into a significant challenge.

Space and location: As these stores are new, they should be located in the places which are easily approachable by customers like malls. Getting space in these places, which are already crowded may turn into a significant challenge.

Inventory: Because of their temporary nature of these outlets, it might be difficult to actually forecast the demand for each of these individual temporary retail outlets, resulting in either stock outs or excess inventories.

Logistics: One of the major challenges is the logistics. As these stores are new, the toy store will need to develop a new distribution system temporarily, which is a substantial challenge. At the end of season, moving all the remaining inventory back is also a big challenge.

2. Building on your knowledge of the industry, identify and discuss at least one more consumer or industry disruptor that will impact supply chain management.

Student answers will vary and could include numerous concepts such as total basket home food delivery, multiple delivery options including storage lockers, delivery to trunk, inside the front door delivery, etc. Remind students to challenge what is “possible” today vs. what the near future might hold.

3. Discuss how reverse logistics can create value?

In highly competitive markets environments, which we see in many industries, customer service plays a significant role. Reverse logistics plays a significant role in customer service as well as in improving customer perception. In addition to the benefit it provides to customers, reverse logistics also helps company to objectively measure quality of its products.

4. Building on your insight regarding non-traditional supply chain applications, discuss where else supply chain principles could be applied.

Student answers will vary and could include concepts like Hospitality or the Restaurant industry, advancements in the medical industry, or in the services industry.

Chapter 2: Supply Chain Information Technology Study Questions: 1. Discuss how supply chain information systems can provide a competitive advantage for the firm?

Answers will vary but should all focus on the concept of how supply chain information systems can not only assist in the planning, execution, and tracking of activities, but also how sophisticated firms use systems to help facilitate collaboration by sharing information across the supply chain and drive strategy through concepts like big data.

2. Compare and contrast supply chain transaction management, decision analysis, and strategic planning systems Transaction System: characterized by formal rules, produces, and standardized communications, a large volume of transactions, and an operational, day-to-day focus. Major emphasis on system efficiency Decision Analysis: focuses on software tools to assist mangers in identifying, evaluating, and comparing strategic and tactical alternative to improve performance. Typical analyses include supply chain design, inventory management, resource allocation, transportation routing, and customer segment profitability.

Strategic Planning: Organizes and synthesizes transaction data into a relationship database that assists in strategy formation and evaluation. Focusing on information to evaluate and refine supply chain and logistics strategy. Elements include desirability and scope of strategic alliances, development and refinement of supply chain capabilities, and opportunities related to customer relationship management.

Reference Figure 2.2 for additional information 3. Describe the benefits provided by Blockchain technology Blockchain is a communications technology that facilitates secure communication involving financial and supply chain institutions. Blockchain is a distributed database that maintains digital contents regarding transactions or events that make the records tamper-resistant. While many institutions such as suppliers, manufacturers, distributors, retailers, and logistics service providers may access, inspect, or add to the data, they can’t change or delete it. The original information is maintained in a permanent and public information trail, or chain of transactions. Therefore, the benefit of Blockchain technology is the un-interrupted distributed ledger enabling all participants’ access to the same information without risk of tamper.

4. Discuss the role of TMS, WMS, and YMS in Supply chain Execution?

Transportation Management Systems (TMS), Warehouse Management Systems (WMS), and Yard Management Systems (YMS) are all considered Logistics operations modules. As such they are critical technology elements in supply chain execution. TMS systems offer functionality including: 1) building loads from multiple orders 2) identifying possible carriers 3) maintaining database of shipments rates 4) determining shipment mode and route, 5) providing documentation to select product to ship and stage in the warehouse 6) Developing documentation for shipment and (7) tracking the order while in transit and finally (8) transferring information to accounts receivables. The WMS system functionality includes (1) shipment receipt (2) product storage and put away (3) product retrieval from storage locations (4) product staging for shipment and (5) initiation of value-added activities such as packaging, labeling, or other forms of customization. The YMS system functionality includes the

management of trailer and or rail cars in the firms outside storage area. It can also be used to schedule appointments.

5. Discuss the role of Supply Chain event management systems in supply chain competitiveness Consumers today expect to have visibility of a given orders status at any given time. Supply Chain event management systems help fulfill this process. Supply chain visibility and event management software track shipments while they are in transit and are increasingly capable of proactively suggesting changes in supply chain flows to minimize the potential of manufacturing shutdowns or service failures. As such, a firm with advanced event management systems can proactively identify opportunities to modify their execution plan thus providing superior customer experience.

Challenge Questions: 1. Discuss how Blockchain and tracking systems provide value to a firm’s customers Blockchain provides value to a firm’s customers by verifying the authenticity of the product being purchased or consumed. While there are numerous industries that are challenged by counterfeiting, raw materials falsifications, and theft for resale, the firms that face the most significant challenges are those involved in high-value branded goods, repair parts for durable items, health care supplies, alcohol, and pharmaceuticals. In all cases the combination of high dollar value / high risk associated with the goods combined with the relative ease of counterfeiting make the ability to track/trace and verify the authenticity of the product paramount.

2. How do the concepts of SaaS and cloud computing differ from the services offered by traditional data processing service centers?

SaaS (Software as a Service) and Cloud computing is a major step in current computer and software industry in turning into utilities. SaaS helps the small company’s helps small companies to access the software, which is very expensive otherwise. The other major advantage is that these firms are typically charged based on their usage rather than a fixed purchase price. Similarly, Cloud computing helps small companies to access a substantial amount of computing power and space at a significantly lower costs and pay as per their usage. The other major advantage with SaaS and Cloud computing will cost significantly less when compared with traditional data processing options, This feature helps not only small firms but also large firms who desire to try new technical advances without significant capital investments 3. Compare and contrast a firm having its own information systems, cloud computing, and software as a service Students should first identify the elements to use in comparative analysis: Items should include: -

Up front or capital cost Ongoing variable cost Systems flexibility Systems security Product Lifecycle / Shelf Life Firms’ capability to manage/support product Customized nature of the firms’ requirements (generic vs. highly customized)

The student should then evaluate each solution against these key variables. For example a firm having it’s “own systems” would include a higher up front/capital cost, potentially more or less flexibility, definitely higher security, a defined product depreciation/lifecycle and the ability to highly customize. How would this differ from software as a service? Also probe for how the industry has changed in the last 10, 5, and 1 years?

Chapter 3: Logistics Study Questions 1. Illustrate a common trade-off that occurs between the functional areas of logistics.

Any illustration that demonstrates the inherent trade-offs between information, inventory, transportation, warehousing, material handling or packaging is acceptable. The following are a few examples of such tradeoffs: Information is increasingly being used as a substitute for inventory. For instance, a warehouse manager that is in constant contact with a supplier of his/her stocks need not hold traditional, high levels of inventory. By being “connected,” the supplier realizes when the warehouse is in need of product and can make accommodations through product processing and shipping accordingly. Improved, faster means of transportation also prevent manufacturers and merchandisers from holding high levels of inventory.

Poor packaging can lead to product damage in transit. Management should either improve packaging or seek a transportation mode that is more stable and less damage-inducing. Regardless, greater costs will be incurred upfront – though they are likely to be offset with reduced costs of product recollection and rework.

2. Discuss and elaborate the following statement: "The selection of a superior logistics network can create substantial competitive advantage."

The statement “The selection of superior logistics network can create substantial competitive advantage” holds true with regard to the network of distribution centers, warehouses, and consolidation points. The network design implies customer service and cost considerations. Added value (and perhaps a competitive advantage) may be derived from the “intimacy” of being located near customers. Networks that strive for the highest levels of effectiveness (superior service performance) often do so at significantly higher expense. Networks may also be designed for efficient product flows in order to lower transportation and inventory holding costs. Depending upon the competitive environment in which a firm operates, competitive advantage may result from either being located near customers to provide superior service or through low cost service with the cost-efficient network design.

3. Why are customer operations typically more erratic than manufacturing support and procurement operations?

Market or physical distribution operations are typically more erratic because they are driven by the customer, whose behavior cannot be controlled by the firm. Manufacturing and procurement operations, on the other hand, are initiated by the firm and considered to be within the firm’s span of control. However, better communications between the logistics organization and customers can reduce the uncertainty and erratic nature of marketdistribution operations.

4. Describe the logistics value proposition. Be specific regarding specific customer accommodation and cost.

The logistics value proposition is a framework that aims to match operating competency and commitment to meet the individual needs of specific customer expectations and requirements. A well-designed logistics network must have high customer response with low operational variance and minimum inventory commitment. However, the combinations will be different for different groups. Well designed and operated logistics system can help firms achieve competitive advantage.

5. Describe the fundamental similarities and differences between procurement, manufacturing support and customer-accommodation performance cycles as they relate to logistical control.

Procurement performance cycles consist of the many activities that maintain the flow of materials, parts, or finished goods into a manufacturing or distribution facility. The scope of procurement activities is limited.

Although similar to the customer order processing cycle, shipments are typically larger and cycles are often much longer. Maintaining raw materials inventory is typically less expensive relative to finished goods, since time of delivery and material security is often less sensitive into facility than out to the customer. Another difference is that the number of suppliers of a firm is generally less than the number of customers, making the procurement cycle more direct.

Manufacturing support performance cycles serve as the logistics of production. These functions maintain orderly and economic flow of materials and work-in-process inventory to support production schedules. The goal is to support manufacturing requirements in the most efficient manner. These are internal cycles for the firm, thus they are rarely affected by behavioral uncertainty.

Customer-accommodation performance cycles are those associated with processing and delivering customer orders. They link the customers through timely and economical product availability. Physical distribution integrates marketing and manufacturing efforts. To improve the effectiveness of the distribution system, forecast accuracy must improve to reduce uncertainty. In addition to the value of sound forecasting methods, the firm must emphasize flexibility and responsiveness to deal with the uncertainty of customers in the physical distribution cycle.

6. Discuss uncertainty as it relates to the overall logistical performance cycle. Discuss and illustrate how performance cycle variance can be controlled.

One of the major objectives of logistical management is to reduce the uncertainty in performance cycles. Since the performance cycles are made up of many activities, each with its own volatility or variance, variance over the entire cycle can significantly impede the logistics organization’s efficiency and effectiveness.

To control variance, the firm must conform expected cycle time to actual cycle time. If cycle time is less than expected, the delivered product becomes inventory to be stored. If the cycle time is longer than expected, then the firm must rely on safety stocks to satisfy customer demand. In either case there are costs associated with variance.

The idea is to eliminate variance by equating actual cycle time to the expected cycle time. This may require adjustments in product flows into or out of the organization.

Challenge questions 1. How has transportation cost, as a percentage of total logistics cost, tracked since 2007, when transportation was deregulated? How did you explain this trend?

The transportation costs as a percentage of total logistics costs in US has increased over the last 20 years. In 1980, the percentage was approximately 47 percent and has increased to over 63 percent in 2018. Therefore, transportation represents a significant portion of the overall logistics cost. Students should recognize that during this time firms have made significant improvements in managing inventories and thus inventory as a percentage of total cost has decreased dramatically.

2. Why is least total cost performance not always what a customer prefers? Illustrate a situation that supports your answer?

With the increase in the global nature of the business today, the complexity of the logistics network and expectation from customer have increased tremendously. Cost is only one of several considerations for evaluating the logistics options. Some of the other factors are speed of delivery, consistency, reliability and flexibility. The more significant the service failure impact upon a customer business, the greater the priority placed on error free logistical performance. For example, online retailer promises its customer a delivery within 2 days. A substantial part of its success as an online retailer will depend on its ability to consistently keep its promise. Hence the logistics partner of Amazon needs to adhere these customer requirements rather than concentrating on the reduction of cost alone.

3. What could be gained by “stapling yourself to an order”? Be specific and illustrate your answer.

Stapling yourself to an order helps firms to improve their order management cycles. With the improvement in order management cycles, firms can improve their customer satisfaction by fulfilling the order faster and more accurately. Second, it helps all the departments in the organization to appreciate the interrelationships with the other departments within the firm in fulfilling their ultimate goal and satisfying the customer. Most importantly, improving the order management cycle will help the companies to improve their financial performance.

4. What additional value-added services could True Value consider partnering with Yusen Logistics to implement? What could the benefit or drawback of this strategy entail?

Answer will vary but should include concepts such as the following: -

Introduction of a supplier compliance portal to measure on time delivery/shipment from origin Inclusion of a CTPAT (Customs Trade Partnership Against Terrorism) questionnaire for True Value vendor locations Inclusion of a Quality module that checks and records production quality against specific attributes identified by True Value

Benefits can include enhanced visibility, productivity improvements, and cost reductions through these or other expanded functionalities. Drawbacks could include a higher “cost to transition” to a new provider in the event True Value choses to evaluate the market.

Chapter 4: Customer Accommodation Study Questions 1. Explain the differences between transactional and relationship marketing. How do these differences lead to increasing emphasis on logistical performance in supply chain management?

Transactional marketing is generally focused toward short-term interaction with customers. Traditional marketing strategies follow this approach wherein exchanges/transactions are carried out with customers in order to increase their revenues and profits.

Relationship marketing focuses on long-term relations with key supply chain partners such as the consumers, intermediate customers and suppliers. This strategy aims to develop and retain long term preference and loyalty because it has been realized in many industries that it is more important to obtain greater share of the purchases made by the existing customers than to attract new customers. This approach tries to identify the individual customers in order to satisfy their unique needs in the most cost-efficient and effective way. This requires a greater emphasis on logistical performance of the entire supply chain.

2. Why are the four primary service outputs of spatial convenience, lot size, waiting time, and product variety important to logistics management? Provide examples of competing firms that differ in the level of each service output provided to customers.

Since every customer has different requirements regarding service, spatial convenience, lot size, waiting or delivery time, and product variety represent the four generic outputs to accommodate customer requirements.

Spatial convenience measures the amount of shopping time and effort that the customer desires. Higher convenience is offered by making the product available in more places. As an example, some household furniture manufacturers offer their products through department store, mass merchandisers and other independent department stores whereas Ethan Allen offers its products only at its own retail stores.

Lot size refers to the number of units that can be purchased in each transaction. A customer who wishes to buy larger quantities of items, for example 12 or 24 rolls of paper towels, to get a lower unit price can get it from Sam’s Club and Costco. However, they can buy single rolls from grocery or convenient stores. The basic tradeoff in such purchases is between the unit price and the storage or maintenance cost of such volumes.

Waiting time is the time a customer must wait between ordering and receiving products. The less waiting time, the higher is the service level. Buying products from retail or grocery stores has no waiting time. However, if someone wants to order from a catalog or via the Internet, there is typically a wait time of 1 day to 4 weeks to receive the product. Although longer waiting time is associated with inconvenience, customers are rewarded in the form of lower prices.

Product variety refers to the different assortments or variety offered to the consumers and end-users.

Supermarkets offer a large variety of items, whereas the warehouse stores offer a much less variety. Convenience stores offer even less variety.

3. Using the ten categories of customer expectations in Table 4.2, develop your own examples of how customers might evaluate performance of a supplier.

Reliability refers to performance of all activities by the supplier. If FedEx promises overnight delivery and fails to deliver, then it will be considered unreliable, even if it is done faster than any other provider. Customers can judge reliability in terms of all aspects of basic service platform.

Responsiveness refers to the customer’s expectation of the ability and willingness to provide timely service. If Walmart experiences a stock out of certain product, its supplier’s responsiveness will be measured by the time it takes for replenishment.

Access measures the ease of contact and approachability of the supplier. For example, the ease of obtaining information about the status of a pending order measures accessibility.

Communication means to proactively keep the customer informed. If the supplier expects a shortage of raw material that can affect delivery in the future, an advance notice to the customer will not only help to explore alternative but also builds a stronger partnership.

Credibility refers to the customer’s expectation that the communication from the suppliers will be believable and honest. The real essence of this measure is the completeness of the information.

Security refers to the customer’s feeling of risk in doing business with a supplier. For example, a customer schedules its production in anticipation of delivery. If the supply is delayed, the customer faces the risk of changing its plans. Another aspect of security concerns the confidentiality of business dealings. For example, Solectron undertakes the manufacturing for competitors like Nortel and Cisco, so confidentiality is a major issue.

Courtesy involves politeness, friendliness and respect of contact person. Since the customer may have to deal with different individuals in the supplier’s organization, failure by one person can destroy the best efforts of all the others.

Competency is judged by customers in every interaction with the suppliers. Therefore, a truck driver’s competency is measured when deliveries are made, customer service personnel when phone calls are made, etc.

Failure by any individual can affect the customer’s perception of the supplier.

Tangibles refer to the customer’s expectation of the physical appearance of facilities, equipment and personnel.

For example, an old and dilapidated warehouse can be an indicator of the firm’s overall performance to the customers.

Knowing the customer refers to the customer’s expectation regarding supplier’s understanding of their unique requirements and supplier willingness to adapt to those needs. For example, Walmart would expect its suppliers to understand its unique need and respond to that accordingly.

4. Compare and contrast the customer service, customer satisfaction, and customer success philosophies of supply chain management.

Customer service, customer satisfaction, and customer success represent three levels of customer accommodation.

Customer service represents logistics role in fulfilling the marketing concept. It aims to provide the right amount of the right product at the right time at the right place in the right condition at the right price with right information. The fundamental attributes of customer service are availability, operational performance, and service reliability. Customer satisfaction measures the degree to which a customer is satisfied with the supplier’s performance. However, customer satisfaction depends on the customer’s expectations. Models have been developed to identify some of the gaps that arise due the failure of many firms to satisfy their customers.

Customer success philosophy requires that firms work very closely with the customers to understand their requirements, internal processes, competitive environment and try to make their customer successful. In contrast

to the typical focus of basic service and satisfaction programs to meet standards and expectations of customers, a customer success program tries to understand the entire supply chain, different levels of customers and tries to ensure that customer at each level is able to meet their customers.

5. What is meant by value-added services? Why are these services considered essential in a customer success program?

Value added services refer to the unique and specific activities that firms can jointly perform to enhance their efficiency and effectiveness. Such services foster customer success. These services are typically customer specific and therefore cannot be generalized. These services enable the customers to achieve their specific objectives.

These are considered essential in customer service programs because by providing unique product packages, creating customized unit loads, offering unique information services, providing VMI, etc., firms enhance their customers’ success. Some of the value-added services like warehousing, transportation, proper sequencing and sorting of products involve specialists due to their flexibility and capability to concentrate on providing the required services.

6. Explain the customer satisfaction “gaps” shown in Figure 4.1.

The knowledge gap reflects management’s lack of knowledge or understanding of customers’ real expectations.

The standards gap exists when internal performance standards do not accurately reflect those expectations. The performance gap arises when actual performance does not meet the standards for performance. Communications gaps exist when the firm does not meet its promises or commitments to customers. The perception gap exists when customers inaccurately perceive the actual performance of the firm. The satisfaction/quality gap arises when the customer’s perception of that performance is different from the performance that they expected.

Challenge questions 1. Gillette has involved itself in Omni-Channel marketing by establishing a subscription service for razor blades delivered to consumer homes. How does this differ in terms of service outputs from its normal distribution process?

Gillette, through its expansion into Omni-Channel is now measuring on time service for potentially tens of thousands of end customers vs. hundreds of business or wholesale customers. As such, their world is understandably more complex. In addition, they may not have great forecasted volume as the subscription model grows and on time expectations may be higher as parcel modality is used for shipment vs less than truck load or full truck. Answers should focus on all elements of the linear supply chain and how the output for B2C vs. B2B changes key decisions points.

2. In general, what challenges do you think a manufacturer of consumer goods faces in implementing an Omni channel approach?

Answers will vary but should focus on the difference regarding how direct to consumer service is measured and the magnitude of impact different variables can have when compared to business to business customer service. For example, failure to achieve the desired customer service levels when interacting in a B2C environment could result in immediate bad publicity or word of mouth. Another challenge could relate to forecasting accuracy and the lack of aggregation of demand between for example a large wholesaler and a grocery chain further exposing the wholesaler to potential out of stocks.

Chapter 5: Integrated Operations Planning Study Questions 1. How does improved supply chain visibility improve the planning process?

Supply chain visibility improves the planning process by providing real-time information regarding location and status of supply chain inventory and resources. Visibility implies not only being able to track supply chain inventory and resources but also that information regarding available resources can be effectively evaluated and managed. For example, at any given point in time, manufacturers may have thousands of shipments in-transit and inventory being held in hundreds of locations around the globe. Supply chain visibility requires exception management to highlight the need for resource or activity plans to minimize or prevent potential problems.

Limited visibility regarding inventory in-transit and expected arrival times can result in significant uncertainty regarding product availability.

2. Describe the S&OP process. What are the major trade-offs that must be considered?

S&OP is a process that coordinates demand and supply plans across the organization. The process includes developing a collaborative forecast, information sharing and accountability to systemically develop a common and consistent plan. The process collaboratively establishes a coordinated plan for responding to customer requirements within the resource constraints of the enterprise. Figure 5.2 outlines the “balancing objectives” that must be considered from a trade-off perspective.

3. Identify and discuss the major forecast components. Why is it important to decompose demand into these components when developing new forecasts?

The major forecasting components are 1) base demand that represents an appropriate forecast of items without the impact of seasonality, trend, cycle or promotional components; 2) seasonal component is the generally recurring upward and downward movement in the demand pattern, usually on an annual basis; 3) trend component is the long range movement in periodic sales over an extended period of time; 4) cyclic component is characterized by swings in demand pattern that lasts more than a year; 5)promotional component characterizes the demand swings initiated by the company’s marketing efforts, such as advertising, deals or promotions; 6) irregular component represents the random quantities that do not fit any categories.

Each component has a different impact on the overall demand and operates over different time horizons.

Therefore, by decomposing the total demand into these components, it is easier to identify and monitor each of the components.

4. Compare and contrast time series and causal forecast techniques. Under what conditions would each be appropriate?

Time series forecast use historical sales patterns to project future demand. The basic assumption is that patterns (levels, seasonality, and trends) will repeat themselves into the future. Causal forecast techniques, on the other hand, based future demand projections on the relationship between demand and some other “leading” factor.

Examples of leading factors could include weather, sales of related products, or product life cycle factors. For example, temperature and rainfall could be used to project the sales of summer leisure products, beverages, or automotive repair (i.e., Summer weather increases the need for electronic parts while winter weather increases the

need for sheet metal due to accidents). Sales of related products could include basing the forecast on water softener supplies upon the sale of water softeners.

Time series techniques are appropriate when the trend and seasonality for a project are reasonably stable. Causal techniques are better when there is a stable relationship between the leading factor and the demand and when there is a reliable measure of the leading variable.

5. Discuss how a minor change in demand at the retail level can significantly impact supply chain variation at distributors, manufacturers, and suppliers.

There is a tendency for any anticipation or speculation to amplify as it proceeds up the supply chain toward the supplier. Each change/ error in the demand creates a disturbance for the total logistics demand. In a study done by Forrester Research, it was found that an increase in retail demand by 10 percent without clear communication to the other members of the supply chain leads to an inventory swing of 16 percent for the distributor, 28 percent for the factory warehouse, and 40 percent for factory production. Such a phenomenon obviously increases the supply chain variance, increases costs and reduces asset utilization 6. Describe the major components of an advanced planning and scheduling system. What are the major challenges in implementing such a system?

Supply Chain planning systems incorporate both spatial and temporal considerations. The spatial considerations include movements between raw material providers, manufacturing plants, warehouses, distributors, retailers, and the end consumer. The temporal considerations include movement timing and scheduling. System components include: the Demand Management module which develops the requirement projections for the planning horizon, the Resource Management component which defines and coordinates supply chain system resources and constraints. In addition, resource optimization and resource utilization are key components. Major challenges in implementing such a system include technological barriers, process integration, and management alignment amongst others.

Challenge questions 1. Advanced planning and scheduling can be completed at the firm, divisional or geographic level.

Describe the challenges and benefits for each strategy. In what situations would you recommend that a firm implement APS at a firm, divisional or geographic level and why?

Advanced planning and scheduling can be done at the various levels (Firm, divisional or geographic level) depending on the independence of these regional operations and the nature of the market served at the firm, divisional or geographic level.

APS at the firm level can be used for aggregate planning for a longer time period like months or quarters. After having an aggregate plan at the firm level, the APS can be executed at the divisional level. If demand in one geographic area can be served by some facilities and the demand in other geographies are served by other facilities in those geographies then APS can be executed at the geographic level 2. CPFR has been shown to improve forecasting accuracy for manufacturers. What are the major challenges associated with using CPFR? Given its demonstrated benefits, discuss when CPFR should or should not be used by firms.

CPFR aims to produce a one common demand forecast across the supply chain, thus reducing the overall inventory, improving the ability to meet customer demand. There are some major challenges in implementing CPFR. CPFR

requires extensive collaboration between supply chain partners. In order to develop this level of integration it requires data management and infrastructure capabilities to integrate across the entire supply chain. The supply chain partners must collaborate to plan the promotional activities together.

Integration and collaboration is costly. Given the cost and extensive amount of effort involved in its implementation, firms need to be very careful in choosing when to use CPFR. 3. The chapter describes a situation where Whirlpool and Lowe’s are collaborating to jointly developing a merchandizing and operations plan. What are the benefits and risks to each organization? What are the challenges to Whirlpool, as it has other major customers to consider?

Given the high cost of inventory for Whirlpool, collaborative planning with Lowe’s should help Whirlpool and Lowe’s to improve forecast accuracy and reduce the cost of carrying inventory. CPFR will also improve the relationship between Whirlpool and Lowe’s while improving service to the consumers. Some of the major risks are may require both firms to change their current culture which may result in some resistance. One of the major problems is the risk due to confidentiality of sensitive information which will be shared due to this new collaborative relationship.

A risk to Whirlpool is that other major customers such as Home Depot may perceive that Whirlpool is providing preferential treatment to Lowe’s. They may then reduce their effort and even decide not to sell Whirlpool products in their stores.

4. Assume that effective forecasting requires a combination of technique, system support, and administration. Your supervisor in your consumer products firm has requested that you identify some initiatives to enhance forecast accuracy. What specific initiatives would you recommend for consideration regarding the technique, system support and administration components?

Improving forecast accuracy in consumer products where promotions, new products, and other efforts are common requires the ability to adjust forecasts quickly. Student answers should include suggestions concerning better internal collaboration and initiatives to improve data collection and analysis.

Chapter 6: Procurement & Manufacturing Study Questions 1. Why does the contemporary view of procurement as a strategic activity differ from the more traditional view of "purchasing?"

Purchasing has been typically viewed as a low-level managerial activity responsible for executing and processing orders for other departments of the organization. Its role was to obtain the resource at the lowest possible price from the supplier. Procurement on the other hand has a more strategic role that emphasizes establishing relationships between buyers and sellers to accomplish multiple objectives. The need for procurement arose due to the recognition of substantial dollar volume of purchases and the potential dollar savings from this strategic approach 2. How does lowest TCO differ from lowest purchase price?

Purchase price is one of the major concerns of procurement so firms typically try to negotiate for the lowest price.

They also try to get quantity discounts and associated logistical benefits out of the purchase price. Apart from the standard services, there could be other value-added services that are offered by the sellers. For example, a seller may deliver truckloads of material as a standard service, however delivery of smaller and more frequent shipments would represent a different level of service that would come at a cost to the buyer. It is important to understand the trade-offs between the value-added service and its price in determining the total cost of ownership.

The final component of TCO is the lifecycle costs like administrative expenses, costs of rework, replacement, scrap etc. that are incurred before and after the purchase of the materials.

Therefore, the purchase price of a material is only a portion of the total cost of ownership for a firm. Even though the purchase price remains the most important component of cost, other cost factors like service costs and life cycle costs should also be evaluated.

3. What is the underlying rationale that explains why firms should segment their purchase requirements?

Explain the concept of procurement strategy portfolio.

It has typically been found that a small percentage of material purchases account for a large percentage of the total dollar spent by a firm. This illustrates that all procured items/services are not similar and therefore it would be more cost-effective for a firm to segment its purchase requirements and adopt different strategies. The segmentation should not only be based on the dollar expenditure but should also consider the impact that the items have on the company’s competitiveness. Supply base reduction and volume consolidation can however be appropriate for all types of material classes.

4. Explain how logistics performance is crucial to a JIT philosophy.

The philosophy of JIT is to carry out activities in a time-phased manner so that the purchased materials arrive at the manufacturing point just at the time they are required for the transformation. It is not just restricted to the internal operations of the firm but also involves the suppliers. Reliable logistics performance is absolutely crucial to eliminate or at least reduce the need for buffer stocks of material. This can be achieved by close cooperation between the manufacturer’s purchasing organization and the suppliers.

5. Why would a company's costs of manufacturing and procurement tend to increase as the firm changes from a MTP to a MTO strategy? Why would inventory costs tend to decrease?

Make-to-plan (MTP), also known as Make-to-stock (MTS), is a manufacturing strategy, where production is planned on the basis of forecasted requirements. It aims to take advantage of economies of scale by having longer production runs. On the other hand, the make-to-order (MTO) strategy seeks to manufacture to customer specification. Consequently, there will be smaller batch runs and greater change-overs. If a firm moves from MTP to MTO, it cannot take advantage of volume and economy of scales and therefore its manufacturing and procurement cost typically increases. However, the inventory and warehousing costs will decrease because of smaller lot sizes.

6. How does a firms’ marketing strategy impact its decisions regarding the appropriate manufacturing strategy?

Answers to this question may vary and should include considerations regarding how the unique attributes of the firm’s go to market strategy such as product differentiation, intellectual property and/or patents, and lead time lead to key manufacturing decisions such as to insource or outsource, the number of and location of production facilities, and the distribution model. The use of specific examples will assist in framing the questions answer.

Challenge Questions 1. In the text, Tyco’s procurement of logistics services was discussed? Why is Tyco’s approach is considered innovative?

The concept of consolidation of logistics services is itself innovative. The development of a centralized organization focusing on aggregating the total expenditures across the business units even with its vast geographical reach is commendable. The other major innovative aspect of its strategy is the ability of the manager to deal flexibly with various carriers on day-to-day basis. In addition to the flexibility it provides to managers, it helps the firm to avoid over dependence on a single supplier, thus developing competition across various suppliers, which will potentially drive more innovation and lower cost from suppliers 2. What problems might Tyco confront in attempting to implement this strategy?

One of the major problems relates to Tyco’s vast geographical reach and diversified manufacturing. In addition to that, the approach to have various suppliers will not help the company to develop long-term relations. Moreover, the individual managers might also face problem because of the lack of complete control at their end to do any major changes which are specific to their plants.

3. Why do you think Levi Strauss dropped its program for mass customization?

One of the major problems with Levi Strauss is that even though customization is needed in the customers, too many options will substantially reduce the manufacturing efficiency while increasing the costs. This is what happened with Levi Strauss. It had provided more options without taking into consideration all the cost involved in providing those capabilities. Levi apparently did not change its manufacturing processes which would be necessary to achieve the mass customization it was attempting to provide.

4. What alternative approaches would you recommend to Levi Strauss to more precisely match customer requirements?

Levi Strauss needs to find an approach to reduce the number of options for customization. In order to become successful with mass customization, postponement strategies play a very crucial role. Levi Strauss might have analyzed all the opportunities to evaluate the chances of postponement. Then it might have given those options to the customers.

In addition to that, Levi might have also considered some automated machinery, which can produce the required customization without losing the operational efficiency. Evaluating the cost of customization is very crucial and then the product should be able to demand those costs from customer.

Chapter 7: Inventory Study Questions 1. Discuss the relationship between service level, uncertainty, safety stock, and order quantity. How can trade-offs between these elements be made?

Two of the most important factors regarding the level of service delivered are availability and speed. Availability and speed of service are affected by the uncertainties of demand and replenishment cycles. To maximize certainty in service level, safety stocks are often maintained at logistical facilities across the network. Hefty quantities of safety stock significantly increase inventory carrying and total cost. Should orders be submitted in larger quantities by customers, uncertainty may be reduced, alleviating the need for safety stock? Close communications between suppliers and customers can substantially reduce uncertainty.

2. Discuss the disproportionate risk of holding inventory by retailers, wholesalers, and manufacturers.

Why has there been a trend to push inventory back up the channel of distribution?

Holding inventory is risky because it increases capital investment and the potential for obsolescence. The nature and the extent of the risk varies depending on the position of the firm in the supply chain. Manufacturers’ inventories have a long-term dimension. Their inventory commitment is relatively deeper and of longer duration.

However, due to the relatively low differentiation at the manufacturer level, the risk and the value of inventory is less. Wholesalers have a more broad exposure, but a shorter duration compared to the manufacturers. For retailers, inventory management is no more than a buying-selling process. Retailers have an extensive breadth of inventory and their inventory holding costs are typically higher than those of the manufacturers and wholesalers.

Thus, they try to push the inventory responsibility back up the channel to avoid those high costs. Manufacturers have the greatest inventory depth but the lowest relative value. Retailers, on the other hand, have the least depth but the highest relative value.

3. What is the difference between the probability of a stock-out and the magnitude of a stock-out?

The probability of a stockout is the frequency of stockout occurrences. This figure gives no indication of how severe the particular stockout is – that is, it does not tell us how many units are demanded while the item is out of stock. The magnitude of a stockout, usually measured by fill rate, tells us how many units were needed when the stockout occurred.

4. Illustrate how fine-line inventory classification can be used with product and market segments. What are the benefits and considerations when classifying inventory by product, market, and product/market?

The objective of product/ market inventory classification is to focus and refine inventory management efforts.

It groups products with similar qualifications, in terms of sales, profit contribution, inventory value, usage rate, and nature of the item to facilitate inventory management. Once the items are classified, they are labeled as A, B and C. Each designation has its own inventory control policy.

5. Customer-based inventory management strategies allow the use of different availability levels for specific customers. Discuss the rationale for such a strategy. Are such strategies discriminatory?

Justify your position.

Though allocation may sometimes be discriminatory, companies should take into consideration the needs of their core customers. If the firm will have an obvious loss in marketing its products in one demand segment, it may reconsider further pursuing that segment. Some products of societal importance such as food stocks and healthcare are particularly sensitive to needs. Inventory is sometimes required in sites that are relatively inefficient.

6. Discuss the differences between reactive and planning inventory logics. What are the advantages of each? What are the major implications of each?

The reactive inventory system responds to the channel members’ inventory needs by drawing the product through the distribution channel. The replenishments are initiated when the stock level falls under a specified limit. It assumes that all customers, markets and products are equal contributors to profit. It also assumes infinite availability at the source and infinite capacity at the holding site, as well as predictable and independent performance cycle times. Reactive systems operate best when customer demand patterns are predictable. On the other hand, inventory planning methods use a common information base to coordinate inventory requirements across multiple locations. They improve effectiveness and efficiency of the inventory in terms of quantity and placement. They require accurate, time-placed forecasts across distribution centers. Though consistent and reliable performance cycles are often prerequisite, plans are always subject to frequency rescheduling.

Challenge questions 1. Aggregate inventory data suggests that while overall average inventory levels are declining, the relative percentage being held by manufacturers in increasing. Explain why you think this observation is either true or false. Describe how such a shift could benefit the operations of the entire channel and how manufacturers could take advantage of the shift.

With the advent of technology, firms are able to manage the communication between supply chain partners. This helps to reduce the average inventory across the supply chain. But with more and more competition and increasing product variety, the concept of vendor-managed inventory is becoming predominant. Thus, the relative percentage being held by manufacturers is increasing.

As the cost of inventory is less at the manufacturers level this may reduce the overall cost. Moreover, the major advantage to the manufacturers is that this method will give the manufacturers access to the point of sale data thus increasing the visibility. This will help the manufacturers to do a better forecasting and plan their supply chain in a better way 2. Consumers are expressing increased demand for product customization in the form of features, labeling, color or packaging. What is the impact of this trend on supply chain inventory? What strategies can firms and supply chains use to mitigate this impact?

Increase in SKU’s will significantly increase supply chain complexity. Forecasting more individual products results in less accuracy and ultimately drives increases in total inventory. Firms should actively measure the increase in the supply chain costs before increasing any SKU’s. There is tradeoff between the increased customer base and supply chain costs. Companies should be able to estimate the costs from the entire supply chain while deciding the introduction of any new SKU. 3. Many of the retailers and, in some cases, wholesalers are driving their suppliers to provide vendormanaged inventory and consignment inventory at no additional cost to the customer. In effect, the customer is looking to shift inventory risk and responsibility to the supplier without paying for it.

Describe initiatives that the supplier can use to recoup some value when they are required to follow these customer requirements VMI seems to be inevitable. Given the increased complexity and competition retailers are forcing the wholesalers or manufacturers to take the cost of inventory. For suppliers, one of the major advantages with this is the access to the point of sale data, which can improve the forecast accuracy for the wholesalers and manufacturers. This might help the suppliers to reduce the average inventory across their supply chain and can help the supplier to recoup some of the additional costs.

4. You have been asked to establish an inventory carrying cost percent to supply your firm’s supply chain planning initiatives. Identify and describe the carrying cost components. Review the various approaches to determine the opportunity cost components and provide the rationale for each. As part of the assignment, you must recommend which approach you would use and why. You should also identify the implications of the opportunity cost decision on supply chain design decisions Inventory carrying cost is the expense associated with maintaining the inventory. There are several components of inventory carrying cost. 

Capital costs



Inventory service costs





o

Insurance

o

Physical handling

o

Taxes

Storage space costs o

Plant WH

o

Public

o

Rented

o

Company owned WH

Inventory risk costs o

Obsolescence

o

Damage

o

Shrinkage

The opportunity cost of capital can be estimated using various approaches. If the risk associated with the inventory is equivalent to that of the business, then cost of capital can be used as the opportunity cost. If the risk of holding inventory is higher because of price reductions, lower demand or obsolescence then a higher rate can be used.

The cost of carrying inventory has a direct impact, not only on the number of distribution centers that the company maintains, but also on all of the firm’s distribution policies. Given a desired customer service level, low inventory carrying costs lead to multiple warehouses and a slower mode of transport such as railroads. High inventory carrying costs, on the other hand, results in limited number of stock locations and faster means of transportation.

Chapter 8: Transportation Study Questions 1. Compare and contrast the transport principles of economy-of-scale and economy-of-distance.

Illustrate how they combine to create efficient transportation.

Economy of scale and economy of distance are two fundamental principles that impact transportation efficiency.

These scaling principles are very important when various transportation alternatives are considered. Economy of scale means that the cost per unit of weight decreases as the size of the shipment increases. Therefore, truckload (TL) shipments that utilize the total vehicle capacity have a lower cost per pound than less than truckload (LTL) shipments. The economies-of-scale exists because the fixed costs associated with moving the load is distributed over the increased weight. Economy of distance refers to a decrease in the transportation cost per unit of weight as the distance increases. Therefore, a shipment for 800 miles will cost less to move than two shipments of the same weight each moving 400 miles. This principle is also called as the tapering principle. Longer distances allow fixed costs to be spread over more miles resulting in lower per mile charges.

2. What is the economic justification for the rapid growth of premium package services?

In today’s business world, competition is shifting towards time-based competition. Given this fact, though service is expensive, premium package services can justify their costs with the incredible speed they offer. That value of speed may exceed the business or personal shipper’s costs, particularly in emergency situations. In most cases, business shippers parlay those costs to customers that value time and are willing to pay the premium package cost.

3. Railroads have the largest percentage of intercity freight ton-miles, but motor carriers have the largest revenue. How do you explain this relationship?

The characteristic of railroad transport is that very large shipments can be carried at low cost. Thus, the rates they charge are relatively low. On the other hand, motor carriage can handle small, but valuable shipments. Motor carriers can charge higher rates because of higher speed and flexibility, the fact that they are more readily available also lets them charge more, thus increasing their revenue per ton relative to railroads 4. The five basic modes of transportation have been available for well over fifty years. Is this the way it will always be or can you identify a sixth mode that may become economically feasible at some time in the foreseeable future?

Intermodal transportation could be another mode of transportation in the future. It takes advantage of the inherent economies of each mode and provides an integrated service at lower total cost. The most widely used intermodal system is the trailer (TOFC) or container (COFC) on a flatcar.

5. Seven economic drivers that influence transportation cost were presented. Select a specific product and discuss how each factor will impact determination of a freight rate.

The following are the factors that affect the transportation cost of a product: Distance: Generally, transportation cost increase with distance, though at a decreasing rate. Since there are fixed cost, related to loading and unloading, involved regardless of distance, real costs are never zero – even if product is

not moved. Generally speaking, if the product is moving in the city, transportation cost/distance would be much higher than that of intercity transportation.

Volume: Generally, transportation costs per pound tend to decrease as the total weight is distributed across a number of transportation facilities and equipment, each having its own fixed costs to cover. The more a unit of equipment is utilized (filled), the lower the variable cost per product unit. The relationship is repetitive for each truck load.

Density: In terms of weight and space, the individual vehicle is more constrained by space, unless the product is extremely dense –- creating limitations based on weight. The transportation rates are quoted per weight, while the actual fuel and labor expenses are not dramatically influenced by weight. Therefore, higher density products usually have lower transportation costs per unit of weight. The cost/density relationship is similar to the cost/volume relationship.

Stowability: Items with standard rectangular shapes that do not have odd lengths, sizes and weights are easy to stow. This factor is directly related to the shipment shape.

Handling: The way products are packaged, the need for special handling equipment, and the physical grouping of products serve as handling cost elements.

Liability: Carriers should either have insurance to protect against damage claims or accept responsibility for damage. Improved packaging and reduced susceptibility to loss and damage can be a solution to reduce risks.

Market Conditions: The imbalance of movement between the destination and the origin causes vehicles to sometimes return empty. This is also increased by the seasonality effect of demand. The logistical system should be designed so that backhaul movement is integrated in systematic movements when possible.

Students should give a specific example illustrating how a product’s freight rate is influenced by the above factors.

6. What is the purpose of freight classification: Does the concept of classification have relevancy given deregulation of transportation?

Not all types of freight should be considered the same and charged according to weight only. Some types of freight are more delicate than others. Like glass, many products require special handling. Like frozen foods, many products require special packaging. Shipping size is another factor that may influence the transportation costs.

Thus, for all factors that influence transportation costs, rate should be established to determine the market price for the shipment of specific product types. The freight classification system establishes standards that simplify the negotiation of freight charges. Freight classifications for a specific item range from 35 to 500. The higher the classification, the higher the rate per pound. Generally, products with low density and/or high value will have higher classifications because they are either easier to haul or can accommodate a higher freight cost.

Challenge questions 1. What, in your opinion, will be the major impact of the Walmart decision to purchase FOB from its suppliers? The current stated objective is to reduce transportation costs on freight inbound to Walmart’s distribution centers. How might the business relationships be impacted, if at some future time, Walmart decides to bypass its distribution centers and move merchandise direct from suppliers to its retail stores?

Student answers will vary. In their answers they should consider Wal-Mart’s negotiating leverage with carriers versus that of its suppliers. They might also consider the possibility of improving the usage of its own equipment by having potential for backhauls after equipment has delivered to a store location.

2. What could the long-term impacts of the electronic logging device mandate be on the trucking industry? Assume both positive and negative potential impacts. What participant in the supply chain (e.g. shipper, carrier, driver) would be most directly affected by each?

Answers will vary, key concepts to include are the following: Positives: Overall Safety, Driver/Load track & trace, opportunity to digitally match capacity with demand, lead time predictability, investment into facilities for drivers to rest Negatives: Reduced total market capacity, more difficult to retain drivers due to lower miles/day.

All partners in the supply chain are impacted, however the drivers may be the most immediately impacted by the change in regulation 3. How might the growth of e-commerce affect existing shipper relationships?

Answers will vary, students should be encouraged to think about numerous different industries. One general consideration to discuss would be the transition from Truck Load / LTL or what is more traditionally viewed as B2B shipping modality to B2C modality, primarily parcel. Referencing the modality trade-offs discussed in the chapter, what may a shipper experience in the number of carriers they manage, the cost per package, etc. and they continue growing in the space of e-commerce?

4. Supporters of cube-based pricing feel traditional pricing methods are overcomplicated and reduce transportation efficiency. As a newly minted logistics graduate, assume your employer asks for your evaluation of the traditional versus cubic-based LTL pricing. Make sure to include the potential impact of dimensioners in your evaluation. State your position as either a shipper or a carrier.

For both parties, cubic rates will definitely simplify the current overcomplicated traditional pricing methods.

Students should also consider the other factors that influence the freight rating however. Cubic rates do not account for differences in handling or liability which can vary significantly between products of similar size and density. Specific to dimensions, the key take away here is that advancements in technology are enabling both shippers and carriers to more easily evaluate the cubic density of freight, resulting in significantly more advance costing models and algorithms vs year prior.

Chapter 9: Warehousing, Materials Handling, and Packaging Study Questions 1. Discuss and illustrate the economic justification for establishing a warehouse.

Warehouses offer many economic benefits for firms. One economic benefit of a warehouse is derived from the ability to consolidate products from multiple production plants into large, consolidated shipments delivered to customers. Also, large shipments from production plants are often broken into smaller shipments and arranged for local delivery. This is called break bulk. Break bulk shipments significantly reduce freight costs. In addition, warehouses allow production to be postponed or delayed until actual demand is certain. Once demand is determined in terms of product type and quantity, minor processing can quickly make final products available, reducing inventory requirements. Warehouses also provide buffers for seasonality, improve production efficiency, and support marketing efforts that often send logistics managers scrambling to meet surges in demand.

2. Under what conditions could it make sense to combine private and public warehouses in a logistical system?

A private warehouse facility is owned and managed by the same enterprise that owns the merchandise stored at the facility. A public warehouse is facility that provides services to the clients as an independent business. Private warehouses operate wholly under the guise of the firm. Though not always as efficient or proficient as public warehouse operators, they have no markup. Utilizing private warehouses offers financial flexibility since they require no fixed investment. With public warehouses, it is easier to change location, size and the number of warehouses. A combination of both is used to satisfy the product demand change patterns during the year and among geographic locations, taking the financial resources of the firm into consideration.

3. Discuss and illustrate the role of warehouses in reverse logistics.

Warehouses play an important role in performing reverse logistics. Most of the physical work related to product recall, reclamation and disposal of overstock and damaged inventory is performed at warehouses. Reverse logistics involves the handling of controlled and regular inventory. Controlled inventory consists of hazardous materials and product recalls that might have potential health or environmental implications. The controlled inventory needs to be reclaimed under strict scrutiny to prevent possible redistribution or improper disposal. Regular inventory represents products that are damaged or aged beyond the recommended sale-by-date. Reverse logistics offer typical challenges because the packages are often broken or not packaged properly, it also requires significant manual sortation and inspection. However, the opportunity to recover cost by reimbursement and recycling is significant.

4. Discuss the differences between rigid and non-rigid containers. Discuss the role of load securing in unitization.

Rigid containers serve as a device for master cartons or loose products to be transferred during warehousing and transportation. The distinct purpose of rigid containers is to better protect merchandise and enhance material handling. They reduce packaging requirements and transportation costs since the potential for damage is lessened.

Non-rigid containers do not protect the product during storage and transfer by complete closure. It is a cheaper

method of unitization though more careful packaging of the product is often required since it is more prone to handling disturbances. The non-rigid containers are also less expensive for backhauls as the container doesn’t take up a fixed space for return.

To decrease damage potential, the unit load must be restrained during handling and transportation. Simply stacking containers is usually insufficient to secure a unit load. To improve stability, techniques such as rope ties, corner posts, steel strapping, taping, anti-skid treatment, adhesion, and wrapping are widely used.

5. In terms of basic handling, what is the role of a unit load?

A unit load is the smallest quantity of product readily available for shipment. A unit load may be a case of the product, a pallet of cases, or a container of cases. Unit loads are usually combined together to make larger, more economical shipments. Since it is the smallest shipment quantity, its shape and size serves as the standard determining appropriate suitable packaging material, and the appropriate selection and usage of handling equipment for the warehouse. It can thereby be implied that the unit load has far-reaching effects in capital investments for facility accommodations and variable costs for packaging.

Challenge questions 1. Assume you work for a pharmaceutical company and you are faced with any unprecedented nationwide recall. The product in question is not considered a health threat, but the recall has high profile in the public news media. How would you proceed? Be specific concerning your sequence of actions, supporting logic and public relations initiatives.

Students may perceive that even though there is no health threat, the fact that it is a pharmaceutical product may still involve several governmental agencies to ensure proper handling. Because of the high profile the firm may want to think of the same process that would be used for controlled inventory in order to reassure the public that there is no danger.

2. Canadian Tire is one of Canada’s largest firms. They operate four large distribution centers service over 470 tire retail outlets. They recently installed a YMS, which they have integrated with their WMS and TMS systems. Their expectation was improved performance in over-the-road transportation equipment utilization, driver productivity, and warehouse dock/door utilization. As a relatively new logistics employee, you have been asked to develop an evaluation system to measure operational productivity improvement. While management does not want a financial impact evaluation, they are interested in developing benchmarks to measure initial and sustainable productivity improvement.

You have the job-how would you proceed?

The metrics need to be established for the period prior to implementation to provide a benchmark. Students may suggest various measures for each category. For example, over the road equipment utilization can be measured percent of time the equipment was in use compared to the total time that the equipment was available. The driver productivity can be measured by the amount of goods each driver has transported currently when compared to total driver time capacity. Warehouse dock utilization can be measured by the number of vehicles loaded per dock per time period. Students may think of many other potential measures.

3. Given the fact that both the Navy and the Air Force regularly fly pilotless aircraft for surveillance and combat missions, the idea of a driverless fork truck seems somewhat of a no-brainer. Why not pilotless cargo aircraft such as FedEx and UPS? Why not semi-trucks moving intercity without drivers? How would your answer differ if we had highways that were dedicated to the truck-only traffic, either on an exclusive or time-allocated basis? Where do you think the concept of probotics will eventually end up?

Certainly, there is no correct answer to this question. Students should be expected to consider issues related to safety, technology, and investment.

Chapter 10: Global Supply Chain Study Questions 1. Discuss how logistics management must evolve to reflect the differing needs for each stage of international development The stages of international development include: 1) Export/Import; 2) International operations; and 3) Globalization. At the Export/Import stage, logistics management is outsourcing many of the warehousing and storage services to third-party service providers. At this stage, the enterprise’s logistics function doesn’t need much international expertise as it pays others to complete the international activities. During stage two, International operations/local presence, the enterprise uses subsidiaries and local distributors with specific business charters and visible local presence. This gives the enterprise more control along with greater sales and margin. During this stage, logistics has to develop international expertise as it is responsible for moving the product from the home country to the international markets so it must understand the documentation and shipping requirements. However, at this stage, most of the flows go out from the home country. At stage three, globalization, there is a worldwide flow of key resources to leverage global sourcing and marketing advantages.

During this stage, the firm’s logistics organization must have the relationships and be capable of moving product into and out of many countries 2. Discuss the logistics operational considerations for operating in a global environment.

The text identifies five operational considerations for logistics in a global environment. These include: 1) performance cycle structure; 2) transportation; 3) operational considerations; 4) information system integration; and 5) alliances. Global operating performance cycles are generally longer resulting in increased uncertainty and less visibility. Global transportation typically involves more participants and substantially less control meaning it is more difficult to track and monitor shipments. Global operations require that logistics accommodate multiple legal constraints, technologies, and languages. This increases the complexity for transporting product. Global operations requires information technology integration or at least interchange with divisions and subsidiaries around the globe. This likely implies integrated data bases. Global operations also requires effective use of alliances to outsource activities that are not core to the enterprise.

3. Describe the logistics characteristics of a firm moving toward a globally integrated enterprise.

A firm moving toward global integration status must have a logistics system that supports global operations.

Specific characteristics include capabilities to manage global transportation, information technology, production resources, and labor. A globally integrated enterprise makes logistics decisions to optimize global firm profitability. To provide this capability, the firm will make decisions to market, source, and produce products in sites which both maximize revenue through access to markets and minimize cost including materials acquisition, production, logistics, and taxation. The implications for a logistics firm include the capability to move material and product globally, manage inventory and facilities globally and across multiple time zones, and the management of global human resources.

4. Describe some of the strategies that firms can use to overcome the challenges related to transportation infrastructure congestion.

Strategies that firms can use to overcome the challenges of transportation infrastructure congestion include mode changes, lane changes, consolidation, and shifting of operational activities. Mode changes can shift transport

volumes from a constrained infrastructure to one with less congestion. Short sea shipping is being used along the U.S. Atlantic seacoast and on the Great Lakes to take containers off the congested rails and highways. Lane changes shift the flow of product from a congested lane or one with a congested terminal to an alternate lane. Since the west coast ports of the U.S. are typically quite congested, some firms are shipping product through the Panama Canal so that it can be received at less congested Gulf of Mexico or East Coast ports. While individual firms have used consolidation to enhance resource utilization for many years, load consolidation across firms receiving product from the same suppliers, delivering to the same customers, or even across competitors is now being used to reduce congestion problems. For example, in the office furniture industry in Western Michigan, the major competitors use a joint venture to accept delivery from common suppliers to improve utilization of vehicles and the infrastructure. Finally, some of the operational activities that occur at ports can be shifted away from ports to reduce congestion. For example, it is usually necessary for containers to be inspected by U.S. Customs prior to leaving the port area resulting in substantial congestion as containers may have to be held in a limited geographic area. This type of congestion is now being overcome by shipping the containers to an inland site “in bond” and then having them inspected at the inland site. The result is faster throughput of goods at the port and less congestion.

5. Discuss the rationale and challenges related to sourcing from low-cost countries.

Increased need for global competitiveness is driving many firms, particularly those in durable and fashion industries, to identify and establish relationships with suppliers in low cost countries. There are numerous justifications for such sourcing initiatives. First, sourcing from countries with low wage rates typically reduces manufacturing cost. While such strategies may reduce manufacturing cost, some firms have not considered the total cost impact of international sourcing particularly with respect to the logistics cost components of transportation and inventory. Second, seeking out suppliers in low cost countries can also increase the number of possible sources and thus increase the competitive pressure on domestic suppliers. Third, low cost country sourcing can increase the firm’s exposure to state-of-the-art product and process technologies. Without pressure from global suppliers, there may be reluctance on the part of domestic suppliers to investigate or invest in new technologies because they have significant assets tied up in older technologies. Conversely, global suppliers may place significant focus on new technologies to establish a competitive position in foreign markets even given the issues discussed earlier regarding extended supply chains. A final rationale for low cost country sourcing is to establish a local presence to facilitate sales in the international country. For example, while the U.S. automobile industry is significantly increasing sourcing from low cost countries to reduce component cost, it is also seeking to facilitate automobile sales in the local country. Due to political or legal constraints, it is often necessary for a firm to have local relationships and production operations to be allowed to sell their product in the local country. The combination of these make a strong case for sourcing from a low-cost country but it is necessary to also consider the challenges.

While the rationale for low-cost import sourcing is substantial, there is also a long list of issues and challenges related to such sourcing strategies. These issues and challenges are further complicated by the fact that the benefits and costs related to low cost country sourcing accrue to different organizational units. Procurement or manufacturing may receive the benefits through lower cost material or components. Many of the costs and the challenges to ship and guarantee delivery of the material are the responsibility of logistics. Benefits and costs must be integrated across the full supply chain process in order to make the correct sourcing decision. The first challenge is the identification of sources capable of producing the materials in the quality and quantity required.

While it is becoming easier to achieve the quality objective, ensuring that the potential supplier has the ability to meet volume and seasonal fluctuation demands in a suitable time frame remains a challenge. This second challenge considers the protection of a firm’s Intellectual Property as products or components are produced and transported. The suppliers and countries involved need to have legal constraints in place to protect product designs and related trade secrets. The third challenge relates to understanding import/export compliance issues.

There may be government regulations regarding the volume of a commodity that can be imported before duties or other restrictions are enforced. The percentage of materials that are foreign sourced may also restrict a firm’s ability to sell to select customers. For example, government contracts may require a specific level of domestic made components. For example, if the contract requires that the product is “Made in the U.S.A.” 95 percent of the material must be of domestic origin. The fourth challenge relates to communication with suppliers and transportation companies. While the procurement negotiation with low cost countries is not easy, there is often a greater difficulty in dealing with carriers, freight forwarders, and government customs due to time zone, language, and technology differences. The fifth challenge is the need to guarantee the security of the product while it is intransit. The sixth challenge concerns the inventory and obsolescence risk associated with extended transit times.

With the longer transit times associated with low cost country sourcing, it is not uncommon for the firm to have one or two months’ supply of product in transit which must be counted as an asset and incur the related inventory carrying cost. Extended lead times also increase the potential for obsolescence as orders have longer lead times and there is generally little flexibility to change. Such extended lead-times also can impact recovery when a quality issues develops. It is not unusual for firms to fly components from offshore suppliers to recover from an unexpected quality problems or delayed shipments. The final challenge, which synthesizes the previous ones, focuses on the need to understand the difference between piece price and total cost. While the piece price may include the material as well as direct and indirect labor, the total cost perspective needs to consider other cost elements including freight, inventory, obsolescence, duties, taxes, recovery, and other risk considerations.

6. Discuss how product variations, security and import constraints, and transportation uncertainty should impact global sourcing and marketing decisions.

International operations often require increased product variations and complexity. This is due to the increased need for local customization in the form of styles, technical requirements, labeling, and packaging. When neighboring countries require more variation to meet market needs, it is more difficult to maintain multiple inventories with the appropriate level of customization. Similarly, when orders require increased product variations from a distant (i.e., global source), it is more difficult to maintain the appropriate inventory levels with the extended lead times. The extended lead times require longer forecast lead times which make it more difficult to project the inventory requirements Greater security and import constraints also make it more difficult for international sourcing. International sourcing introduces security issues as product must be tracked more closely and may also require more documentation and inspection when crossing borders. In addition, the longer lead times characteristic of international operations, security issues can introduce additional uncertainty. Import constraints can also introduce uncertainty by artificially limiting the times and costs when materials can be imported.

Imported products that must be transported from sources that have high transportation uncertainty such as those with low volumes or irregular routes are also less desirable for global sourcing. The international sourcing can increase uncertainty which increases the buffer inventory required for sustainable operations.

Challenge questions 1. Suppose you were asked to advise a domestic firm in your region. Identify critical value propositions that the firm uses to compete domestically. Using the value propositions that you have identified, develop and rationalize an argument for the firm to increase its global operations based on the points identified in Table 10.1 Student answers will differ based on the firm chosen and their understanding of that firm’s value proposition. They should recognize that a value proposition based on lowest cost is likely to focus primarily on the rationale related to reducing direct cost, achieving economies of scale, reducing tax liability, and reduced uncertainty.

2. For each region in table 10.2, identify the country with the lowest and highest logistics cost as a percentage of GDP. For each of the six countries (three regions and lowest and highest in each), compare and contrast each country’s logistics as a percentage of GDP and rationalize the differences.

Region

highest

Lowest

NA

Canada

United States

Europe

Greece

Hungary

Pacific Rim

China

Saudi Arabia

From the table we can see that when we normalize the logistics with GDP, we more or less eliminate the effect of size of economy of the logistics expense. In their answers, students should consider factors such as: 1. Size (area) 2. Population density 3. Terrain 4. Technologies 5. Infrastructure 3. Describe and rationalize how a firm’s logistics and supply chain strategy will likely evolve as a firm shifts from no international strategy to a global strategy to a transnational strategy. What are the challenges as a firm evolves through each?

Students should recognize that as a firm evolves in its global strategy, the logistics challenges increase with respect to the differences in performance cycle structures, transportation, operational considerations, information systems, and alliances (as discussed 276-290). Their answers should incorporate aspects of each of these differences as a firm moves through each stage of evolution...

4. Select a component or finished good that you are familiar with that is sourced from a low-cost country.

Develop a total cost value proposition to evaluate the potential of continued sourcing from a low-cost country. For each of the cost components (material, manufacturing, transportation, packaging, inventory, handling, damage, risk, and security) identify the major trade-offs associated with sourcing locally versus sourcing from a low-cost country. Based on your assessment of the current environment in your country, what is the direction for each of these cost components over the next five years, and what is the likely trend regarding low-cost country sourcing.

Depending on the item selected, answers may differ. However, as a general rule, students should recognize that low-cost country sourcing provides typically provides lower material and manufacturing cost but increases all other cost components. The problem arises in that some of those cost components are difficult to quantify. The costs related to risk and security specifically will continue to increase substantially in the foreseeable future.

Chapter 11: Network Design Study Questions 1. What is the basic objective in a logistics design and analysis study? Is it normally a one-time activity?

Specific answers will vary, particularly if context is added to the question. However, the basic objective in a logistics design and analysis study is to identify what infrastructure, systems, and processes are required to achieve the desired customer service level, and the lowest total cost or resource deployment. A typical example of the logistics design study is to determine the best combinations of plants and distribution centers.

Traditionally these exercises have been point-in-time studies or a “one time activity”, however with the developments in modeling technology and the pace of change firms are conducting these activities on a much more frequent basis. Firms who do this well generally obtain a competitive advantage in the market place.

2. Why is it important to develop supporting logic to guide the logistical and supply chain planning process?

Answers will vary but, in general, it is important to have guidance as to “what problem” the firm is trying to solve and to keep achieving customer service goal(s) as a key guiding principle in the logistical and supply chain planning process.

3. What is a cost/benefit evaluation important to the logistical systems design efforts?

Answers will very but a cost/benefit evaluation is important to the logistics system design effort because the system designed must achieve the perceived benefits to justify the investment.

4. What is meant by the level of threshold service of a least-cost system?

Threshold service of a least-cost system is the standard of service performance in terms of inventory availability and capability. Threshold service serves as the starting point in the process of defining customer service policy, establishing the basic service platform and determining which value-added services might be valued by specific customers. Threshold service seeks to maximize service given constraints of the network design and the pursuit of least total cost.

5. Why does customer service not increase proportionately to increases in total cost when a logistical system is being designed?

The relationship between service value and the cost required to achieve subsequently higher levels of service is non-linear. That is, the value derived from higher levels of service is not constant relative to costs that also lack constancy. Marginal improvements in service derive diminishing improvements in value but continually rising cost. This principle is based upon the law of diminishing returns found in economics. The further you pursue an activity the more difficult it is to achieve each additional increment of change. To continually improve customer service logistics, the firm must shorten performance cycles and meet needs more proficiently, generating higher levels of quality for the customer. This requires investment in more facilities (fixed costs) while also generating higher variable cost. At some point, it becomes unreasonable to seek greater output regardless of the level of inputs (materials, facilities, links, and labor) within the network design.

6. Discuss the differences between improving customer service through faster and more consistent transportation, higher inventory levels and/or expanded numbers of warehouses.

Customer service improved with faster, more consistent transportation still requires adequate inventory during replenishment periods. However, less safety stock is needed to be maintained in the field as performance cycle uncertainty lessens. Also, premium transportation modes are typically required to provide quick, consistent delivery.

Customer service improved with higher inventory levels is typically very expensive. Therefore, it is important to establish consolidation is transportation. Movement of large quantities creates transportation economies. These economies can be readily achieved when plentiful levels of inventory are maintained.

Improving customer service with more warehouses increases the average inventory level and system-wide inventory carrying costs. However, transportation costs will decrease with more consolidation points. Closer proximity to the customer results in less uncertainty as the order replenishment time decreases.

Challenge questions 1. Suppose that you are responsible for integrating the logistics system of two national food manufacturers as a result of a merger. Each firm serves the entire country from seven distribution centers and delivers to a common customer base using predominantly less-than-truckload transportation. Identity and rationalize the opportunities for improved performance following the merger.

There are many opportunities for the newly merged national food manufacturers to integrate their logistics systems. Areas of opportunity focus around consolidation/aggregation of activities including: Warehouse operations (consolidation from 14-7), systems and technologies (assuming at least 2 WMS systems to 1), consolidation of freight (transition from LTL to TL shipments at a lower cost). The opportunities should be evaluated based on overall impact to the business with a primary focus on maintaining customer service, recognizing existing commitments (building leases, etc.) and then ranked by cost savings/efficiency from higher to lowest and implemented accordingly. Also brand and aggregate system integration (ERP/HR/Accounting) must be considered.

2. Western Michigan is home to three office furniture manufacturing firms. When they realized that they were sourcing from many of the same suppliers, they thought that there might be an opportunity for a joint venture to consolidate inbound movement of raw materials. Describe the trade-offs that might be associated with such an initiative across competitors. Discuss the benefits and risks of such a strategy.

Collaboration amongst competitors, once unheard of, is a concept that has been developed in the last decade. Many argue information technology has been the enabler of such collaboration via cross firm information sharing. When the three Western Michigan office furniture firms realized they all sourced from similar suppliers they recognized the possibility of increased efficiency, service, and reliability through consolidation. There are also many risks associated with this practice including the sharing of information (each company in theory has an idea of what the other is purchasing from both an innovation and quantity standpoint). In addition, one firm might be concerned with losing the position it has protected with a specific supplier through previous negotiation. The general challenge for each firm is to evaluate the benefits associated with consolidation and determine if the benefit outweighs the perceived risks associated with such consolidation. This is an extremely complicated decision requiring in depth specific knowledge of each firm’s industry position and corporate culture.

3. Describe and rationalize the distribution network that would result for products with the following characteristics: a. Electronic products with high value that are relatively small and light. b. Canned food products with low value and relatively high weight. c. Medical products for which the hospitals and clinics expect the supplier to provide four-hour delivery service; and d. Aircraft spare parts that are high value, relatively small, and critical to the ability of the plane to fly.

Each of the potential supply chains present classic trade off decisions specific to fundamental supply chain attributes including service level expectations, product characteristics (price/physical characteristics), and overall revenue generation vs. cost to serve. Examined individually: a. Electronic products that have high value and are relatively small and light. We can assume that inventory carrying costs are high and transportation expenses are relatively low when evaluating this scenario. It is probable this is a distribution network with one or few distribution centers therefore reducing total demand variability and subsequently inventory carrying costs. In parallel we can assume it is likely that some form of less than TL freight is utilized (Parcel / LTL) based on the weight of product. b. b. Canned food products with low value and high weight. The focus for this supply chain is reducing non-value-added movements and driving economy of scale in transportation. Is it likely these products are distributed directly from manufacturing in full TL quantities whenever feasible likely in full pallet quantities. The focus is reducing touches and maximizing economy of scale.

C. and d. Both the medical products and aircraft spare parts example would have similar supply chains. Both are oriented on extremely high service due to the nature of the product. As a result, it can be assumed that the network would include numerous distribution nodes all holding a full catalog of required inventory. In stock /inventory availability combined with expedited transportation (overnight delivery) are the key attributes of this supply chain. We can assume based on the type of product that these are high dollar value products and subsequently the given supply chain can afford a higher inventory carrying cost and transportation expenses.

4. Describe and rationalize the impact of increasing fuel prices on logistics network design.

The impact of increasing fuel prices will be drastic on logistics network design. A traditional network design will incorporate numerous factors to develop the optimized solution. These factors will include customer locations, production locations, customer service required attributes, etc. The cost of transportation/fuel is a major variable factor in optimizing the network. As fuel prices decrease the use of transportation or inventory in transit increases.

Said another way there is less focus on optimizing the miles traveled vs. other costs such as inventory, real estate and/or labor. As fuel prices increase the focus on reducing total miles traveled across the network becomes the primary objective. An aggregate example to understand the impact of fuel is the classic “off shoring” decision in which lower cost labor is utilized in developing countries to support a lowest total landed cost. As the cost of fuel increases the balance shifts driving firms to “in-source” or “near-shore” trading off higher labor costs for reduced total miles. In both cases the firms focus on total lowest cost, the individual factors impacting total lowest cost have now “flipped” with the cost of fuel being the lever driving change.

5. As firms increase product variation because of differentiated packaging or labeling, product line complexity increases. Discuss and rationalize the trade-offs between increased product complexity, process postponement and logistics network design.

It is a good general assumption that firms will continue to increase product variation as a result of consumer requirements. This presents another classic supply chain trade off. Increased product complexity results in the requirement for higher inventories across the supply chain. To combat this pressure the concept of postponement has been developed. Process postponement is the delay in differentiation of a product or process until the latest possible point in the supply chain. The idea is to aggregate demand variability through postponement of customization (i.e., – keep larger quantities of lower dollar value inventory vs. small quantities of numerous customized SKU’s. The best example of postponement is the mixing of individual paint colors at point of purchase in a store. The trade-off allows lower inventory carrying cost, higher levels of service but requires product modification/assembly/configuration requiring labor expense closer to point of sale/consumption. From a logistics network standpoint, the key elements are to understand what can be postponed and at what point in the distribution process the differentiation activity should incur. For many firms this has resulted in value added activities such as labeling or product packaging to be completed within the distribution center network.

Chapter 12: Relationship Management Study Questions 1. Discuss the three challenges logistics faces as it manages on a process, rather than a functional basis.

Describe each challenge and give an example of how it may be overcome.

Logistics faces three challenges as it manages on a process, rather than functional, basis: The first challenge is that all effort must be focused on the value added for the customer. Managers can meet the demands of this new mind set by focusing on the needs of customers.

The second challenge is to match skills necessary to complete a particular activity regardless of functional assignments. This difficulty can be overcome by establishing a horizontal structure.

The third challenge is that the work performed should stimulate synergy. Systems integration considers functional trade-offs and coordinates activities to achieve maximum output from minimal required inputs.

2. How do reward systems serve as barriers to enterprise integration?

Traditionally, reward systems have been based on functional achievement, managers have strived for stand-alone performance. However, enterprise integration requires cross-functional coordination. Therefore, it is difficult to encourage managers to view functions as contributing to a process rather than functional objective. To facilitate internal integration, measures like balanced scorecards are being developed because unless a suitable reward and measurement system is put in place, integration will remain more theory than practice.

3. In your words, describe and illustrate the Great Divide. Do you believe the Great Divide phenomenon is as widely experienced as the text indicates? Support your position with an illustration.

The Great Divide represents a situation wherein the supply chain integration is only partial instead of being end-toend. This phenomenon is most commonly observed in the outbound or market-distribution side and the inbound or procurement-manufacturing side of an organization. This operational discontinuity can be generalized across different industries with similar challenges like 1) it is easier to integrate with groups external to the firm because of the relative balance of power; 2) senior managers do not have a clear vision of internal process requirements and related measures to drive enterprise-wide integration; and 3) barriers to integration within an enterprise.

A typical illustration of Great Divide is the availability of numerous forecasts within a firm. Each of the functions has to meet their target or objectives. Hence, they make the projections for the future requirements in isolation which ultimately leads to overstocking or stock-outs.

4. Distinguish between reliability and character-based trust. Why is character-based trust critical in collaborative relationships?

Reliability-based trust, while important, is simply based in the fact that supply chain partners can and will carry out the promises that they make to one another. Thus, each partner can rely on the other to do as they promise.

Character-based trust, however, is a much deeper form of trust in which each partner perceives the other as interested in the overall welfare of the others. Thus, there is a general belief that all parties will work together to enhance the performance of the supply chain as a whole, rather than just to maximize their own benefit from the arrangement.

5. Distinguish among different types of supply chain collaborative relationships. What drives the differences?

The five types of supply chain collaborative relationships are: 1. Contractual which focus on the on the price, service, and performance expectations during a specific time period when one firm purchases products or materials from another.

2. Outsourcing which focuses on the performance of a service or activity rather than purchase of a specific product or material. Thus, a firm may outsource its manufacturing, call center operation, or other activity to another firm under specified terms and performance requirements.

3. Administered, in which a dominant, powerful firm assumes leadership responsibility to encourage collaboration and limited information sharing among trading partners.

4. Alliances, where independent firms voluntarily agree to integrate their resources to create greater efficiency and effectiveness for customers.

5. Enterprise extension, in which firms are so closely aligned with one another that they can essentially be viewed as one entity.

The primary distinguishing features among these types of relationships are the extent to which the involved firms acknowledge their dependency upon each other and their willingness to share information with each other. As relationships move from contracting to the extreme of enterprise extension, the dependency increases substantially as does the need for comprehensive information sharing.

6. What are the major considerations for initiating a logistics alliance? In implementation? In maintenance?

In initiating relationships, supply chain partners must conduct thorough internal assessments to determine their ability to make whatever changes may be necessary to support a collaborative relationship. This assessment must include existing practices, procedures, and culture, ability to empower key employees, and ability to achieve internal integration to support the requirements of supply chain partners.

The key consideration in implementation concerns the choice of partners. Compatible cultures and a common vision of the relationship are key concerns. Finally, in maintenance, it is critical to establish mutual goals, twoway performance measures, and both formal and informal feedback mechanisms

Challenge questions 1. Using the Lowe’s and Whirlpool example in the chapter as a setting, discuss what you think are some of the issues involved for each firm as the relationship progresses from initiation to maturity.

There are numerous issues involved for both Lowe’s and Whirlpool as the relationship matures from initiation to maturity. Potential examples include each firm’s ability to fully comprehend internal processes prior to sharing information with each other. Another example could be the alignment of appropriate cross functional resources between the two firms such as the merchants and forecast analysts for Lowe’s with the forecast analysts and production schedulers at Whirlpool. As the relationship progresses from immature to mature the level of senior management involvement must increase as the nature of discussions transition from short term tactical plans to long term strategic alignment. Throughout the duration of the relationship each firm must ensure they maintain appropriate levels of profit.

2. The Lowe’s and Whirlpool collaboration resulted in several areas of performance improvement. What specific actions do you think could be taken by supply chain managers as a result of the collaboration that led to the performance improvement?

The main action enabled via the collaborative relationship between Lowe’s and Whirlpool is the ability to align Lowe’s marketing efforts or “demand” with Whirlpool’s production capacity or “supply.” This includes the new product development process (in the chapter the example of Whirlpool developing new SKU’s without communicating to Lowe’s) and correlating management of supply chain inventory as well. Specific action can be taken by Lowe’s regarding product price point and timing of promotions when understanding Whirlpool’s capacity.

In parallel Whirlpool can adjust/modify production/assembly capacity to meet Lowe’s demand if point of sale information and on hand inventory throughout the Lowe’s network is shared. The general theme focuses on the key notion that better decisions can be made when information is shared across channel partners within a given supply chain.

3. What would you suggest the Lowe’s and Whirlpool as possible next steps in their collaborative relationship?

There are numerous next steps Lowe’s and Whirlpool can evaluate to continue growth of their collaboration.

Categories include logistics efficiency – ensuring minimum order quantities make sense for transportation efficiency, appropriate capacity planning for warehouse and transportation efficiencies, etc. (It may be assumed they have already completed basic supply chain alignment activities). In addition, Lowe’s and Whirlpool could look at underperforming market segments and collaborate on initiatives as simple as special market pricing or as complex as co-development of new products. Another possible way Lowe’s and Whirlpool could collaborate could include the sharing or “federating” of human resources. (For example, industrial engineers to evaluate network optimization).

4. What could Kraft and Starbucks have done at the beginning of their distribution relationship that might have resulted in a more amicable end to the relationship? Be as specific as possible in your discussion Kraft and Starbucks could have taken numerous measures to ensure clear rules for their business engagement. The specific action that may have made sense in this circumstance is the inclusion of a clause in their service agreement that prohibited each company from acquiring a company that would directly compete with products or services the other company offered. As this may not have been realistic, other contingencies could have included a time frame (i.e., 10 Years) or a growth factor (i.e., 200%) at which point the existing agreement would conclude allowing each company the opportunity to innovate/evaluate as required.

Chapter 13: Performance Management Study Questions 1. Briefly discuss the three objectives for developing and implementing performance measurement systems.

The first objective for developing and implementing performance measurement systems is monitoring.

Monitoring involves the historical taking of logistics system performance for management and customers.

Monitoring measures are typically focused on service levels achieved and logistics cost components. The second objective of performance measurement is controlling. Controlling tracks ongoing performance and helps to refine a logistics process in order to bring it into compliance with the standards. The third objective is directing.

Directing measures are designed to motivate personnel to achieve higher levels of productivity.

2. How does the balanced scorecard concept help guide logistics managers in the development of a performance measurement system?

The balanced scorecard framework suggests a comprehensive system for assessing performance representing a balance between financial and non-financial metrics. Logistics, and most functional measurement systems, historically focused primarily on measures related to cost and basic customer service. A balanced scorecard incorporates measures from four different perspectives: The customer perspective, internal operations perspective, innovation and learning perspective, and financial perspective. While the balanced scorecard does not suggest which specific metrics should be used, it does guide logistics managers in understanding the requirements for a comprehensive measurement system.

3. Is the ideal of a perfect order a realistic operational goal?

The perfect order is the ultimate, integrative measure of logistics service quality. It measures whether an order proceeds smoothly through every step of the logistical system, without fault. However, as mentioned previously, service quality is in the “eye of the beholder.” Even operationally “perfect” execution can result in “faulty” delivery if the customer perceives an inadequacy. It must also be stressed that different customers may have different requirements concerning order performance by a supplier. Therefore, though the perfect order represents an ideal, will be difficult to always meet perfect order performance requirements.

4. Why are comprehensive measures of supply chain performance such as total supply chain cost so difficult to develop?

Traditionally firms have focused inwardly to reduce cost. The comprehensive measures like total supply chain cost primarily focus on reducing the aggregate of cost across all firms in the supply chain, not an individual organization. It requires that those firms whose cost is reduced to share benefits to fair compensate those, whose cost is increased. It is challenging to equitably distribute the gains/ benefits amongst the partners.

5. Compare and contrast the contribution approach with the net profit approach in cost/revenue analysis.

The Contribution approach and net profit approach are two widely used frameworks for effective costing.

Contribution approach requires all costs to be identified as fixed and variable according to the cost behavior. It also specifies which are direct costs and which are variable costs. In this approach, income statements are prepared to identify profitability of each segment by determination of fixed, variable, direct, and indirect costs.

Net Profit approach requires all operating costs be charged or allocated to an operating segment. This approach is based on the fact that all of a firm’s activities exist to support the production and delivery of goods and services to customers. Moreover, in many firms many costs are joint or shared costs. Therefore, in order to determine profitability of a channel, territory, or product, each segment is allocated its fair share of these costs.

6. How can the Strategic Profit Model be integrated with cost-revenue analysis for the purpose of analyzing the return on assets from servicing a specific customer account?

The Strategic Profit Model can be integrated with the cost-revenue analysis for analyzing the return on assets related to servicing a specific customer account. Contribution for each product is calculated using only those expenses directly traced to each product. Similarly, asset investments directly attributable to specific products are identified. In some situations, accounts receivable, segment based inventory carrying cost, and other direct asset investments attributable to specific customer need to be included. Other segment profitability and return on investment analysis can be conducted using the SPM framework. This gives a very powerful tool to the mangers to identify how logistics process, activities and decisions impact the financial objectives of the organization.

Challenge Questions 1. What do you think are the difficulties faced by companies such as Gillette Group and Guinness in developing measurement systems that provide real-time information concerning logistics performance? Consider the Guinness example of measuring on-time delivery rather than on-time shipment in your answer.

Companies such as Gillette Group and Guinness face numerous difficulties in developing logistics measurement systems. These difficulties include such internal considerations such as: Defining the delivery process stages/steps, defining what point in time is relevant for measurements to be taken and reported, and what technology platform should be used for measurement/reporting. Additional external difficulties include aligning performance expectations/measurements with supply chain partners and measuring performance across channel partners.

Remember that data and metrics are critical to monitoring system status; however, controlling performance remains the responsibility of management.

2. Suppose you work for a small company with limited liability to invest in technology. What actions might you take to provide you with measurement information that larger firms such as Gillette group and Guinness obtain through technology investment?

Smaller firms are often faced with investment limitations as it relates to information technology. There are numerous ways to address this constraint. Strategies include the completion of an operational assessment starting at a functional level, expanding to map processes across the organization. Superior process understanding combined with clear understanding of how specific process impact goals can enable a firm with limited capital to focus investment on critical processes and subsequently drive performance. Another approach can include job functionality that captures the manual documentation of specific metrics. A common example would be a truck driver keeping a manual log of miles traveled, gas consumption, and number of stops as compared to more advanced in-cab systematic capabilities.

3. What do you think are the major barriers to implement customer and product profitability analysis such as that done by Sunny Delight?

Major barriers to implementing customer and product profitability as completed by Sunny Delight could include the lack of a solid understanding of existing processes and costs associated with given processes. Additional barriers could include lack of cross functional management approach focus on total process cost as compared to individual functional cost. Clear end to end process mapping and associated costs are required to complete customer and product profitability analysis.

4. What types of decisions, other than those discussed in the example, might Sunny Delight and other firms improve through detailed customer and product profitability analysis?

There are numerous other decisions Sunny Delight or other firms could improve through detailed customer and product profitability analysis. Examples with a customer could include improved collaborative forecasting resulting in decreased overall supply chain inventory or increases to minimum order quantity to improve cube utilization/reduce the number of orders entered. Product examples could include changes to packaging engineering to improve product packaging function and cost, or joint promotional activities focused on point of purchase.

Chapter 14: Supply Chain Trends Study Questions 1. Describe the relationship among firm revenue, cost, and the number of stock keeping units Reference figure 14.3, Impact of SKU’s on Revenue and Cost. As stock keep units (SKU’s) goes up (along the horizontal access) you can see the break point where cost starts to increase at a rate higher than revenue which results in deteriorating profit.

2. Describe some of the logistics and supply chain challenges related to security, regulatory, and compliance Answers can vary, concepts should include: security: determining whether the product can be imported or exported, making sure the product is packaged appropriately, protecting the product from theft and/or damage while in the supply chain. Regulatory challenges are typically associated with the manufacturing, movement, or storage of product and establish to limit where goods can go or not go. Examples could include drugs, weapons, chemicals, or raw fruits/vegetables, or livestock. Compliance refers to regulations placed on imports and exports by customs and regulatory agencies. The challenges associated with all is the requirements to execute within the establishes rules 3. Discuss the implications of supply chain risk on supply chain cost Answers will vary, the key takeaway is for the student to acknowledge and articulate the concept that the supply chain professional must be able to asses and evaluate the trade-offs between the opportunities and costs related to risk. Managing threats and changes suggests that need for logistics professionals to become increasingly aware of the security, regulatory, and compliance environment that the supply chain must operate in.

4. Describe the types of functional skills that are necessary to effectively manage the supply chain Answers will vary but should include a combination of experience both within a given function and across numerous supply chain functions. Reference Figure 14.2 for example supply chain career paths. In addition, the answers should include a mix of theoretical vs. on the job experience, skill sets developed in people management, analytics and tools, as well as operating systems.

Challenge Questions 1. Describe the rationale for the increased shortage of supply chain talent. Discuss the key tasks to ensure that a firm has an adequate supply of talent Answers will vary as this is a broad industry question. The main driver of increased shortage of supply chain talent is the increased understanding regarding how supply chain management expertise can assist in firm growth and competitiveness which has, in turn, driven the demand for supply chain talent up significantly. In addition, the consumers increased awareness of and expectation associated with fast, reliable, delivery has forced numerous companies to invest heavily in developing direct to consumer supply chain capabilities all requiring a variety of different talent. Key tasks a firm must engage in 1) Acquisition 2) Development 3) Conservation, and 4) Retention 2. Describe the internal and external forces that drive SKU complexity

Reference Figure 14.4 3. Describe the internal and external forces that drive SKU commonality Reference Figure 14.4 4. Discuss the role that duties and taxes play in logistics and supply chain design. What are some of the unique characteristics regarding the role of duties and taxes?

Answers will vary but ultimately duty and taxes impact the cost associated with a supply chain and its design. For example, sourcing in a lower cost country that has a high export or import tax associated with the country in which the goods are consumed can result in a different strategy. Unique characteristics associated with duties and taxes include 1) controlled by external forces such as the government 2) variable and different by part of the world, government, product type, 3) influenced by the product content and the production processes.

5. What are the trade-offs associated with product complexity versus product commonality? Discuss the initiatives that firms can use to manage product complexity Answers will vary but will gravitate towards the concept that more complexity, in theory, offers more choices and more opportunities to sell while costing more to support/manage. Commonality on the other hand traditional produces a lower total cost output but can result in lost or reduced sales. This is a fantastic balance that combines both hard numbers and “art” to manage. Initiatives that firms can use to assist in managing product complexity include produce lifecycle management, product profitability analysis, customer profitability analysis, and overall portfolio profitability analysis to name a few commonly used tools.