Chapter 10 Supply Chain Design Essay

81) Discuss the major differences between supply chains for services and manufacturing. Which supply chain is easier to coordinate effectively? Answer: Supply chain design for a service provider is driven by the need to provide support for the essential elements of the various service packages it delivers. Manufacturers try to control inventory by managing the flow of materials. Since a good is very rarely a pure service or a pure manufactured product, most companies will experience both issues. Ease of coordination answers will vary but may depend on the dynamic nature of the item, of the market, and other factors outside the control of the operations manager. Reference: Supply Chains for Services and Manufacturing Difficulty: Moderate Keywords: manufacturing, service, inventory, service package, supply chain 82) What are some financial measures of supply chain performance? Which one is the most important and why? Answer: The authors do not designate any single financial measure as the most important, so answers will vary. The financial measures discussed in this chapter are Total Revenue, Cost of Goods Sold, Operating Expenses, Cash Flow, Working Capital, and Return on Assets. Reference: Inventory Placement Difficulty: Moderate Keywords: centralized placement, inventory pooling, service levels, forward placement Learning Outcome: Compare common approaches to supply chain design. 83) Discuss the trade-offs with locating the inventory at the factory versus locating it closer to the customer at a warehouse, distribution center, wholesaler, or retailers. Answer: Locating inventory at a company's factory or warehouse constitutes centralized placement, thereby allowing a firm to take advantage of inventory pooling. Inventory pooling permits the producer to reduce the total inventory in the system, yet retain high service levels since one customer's high demand may be offset by another customer's low demand. The disadvantage of holding inventory in one location is the additional expense and time required to get the product in the hands of the customer. Another approach to inventory location is forward placement. Forward placement reduces delivery times and puts the inventory closer to the customer so that in some cases (when it is located at a retailer), it can be seen and might trigger a purchase. The disadvantages of forward placement run counter to the advantages of pooling. Reference: Inventory Placement Difficulty: Moderate Keywords: centralized placement, inventory pooling, service levels, forward placement Learning Outcome: Compare common approaches to supply chain design. 84) What is mass customization and what advantages does a producer benefit from if they can realize it? Answer: Mass customization is the ability of a producer to produce on demand a wide variety of customized services or products at reasonably low costs. The three important advantages are: Managing Customer Relationships. Mass customization requires detailed inputs from customers so that the ideal service or product can be produced. The firm can learn a lot about its customers from the data it receives. Once customers are in the database, the firm can keep track of them over time. A significant competitive advantage is realized through these close customer relationships based on a strategy of mass customization. Eliminating Finished Goods Inventory. Producing to a customer's order is more efficient than producing to a forecast because forecasts are not perfect. The trick is to have everything you need to produce the order quickly. Increasing Perceived Value of Services or Products. With mass customization, customers can have it their way. In general, mass customization often has a higher value in the mind 20 of the customer than it actually costs to produce. This perception allows firms to charge prices that provide a nice margin. Reference: Mass Customization Difficulty: Easy Keywords: mass customization Learning Outcome: Compare common approaches to supply chain design. 85) What's the difference between postponement and channel assembly? Provide examples of both. Answer: Examples will vary. Postponement is a concept whereby some of the final activities in the provision of a product or service are delayed until the orders are received. Channel assembly takes this concept a step further and brings supply chain partners farther downstream into the postponement process. These supply chain partners, closer still to the customer, are responsible for making final differentiating modifications to the product. Reference: Mass Customization Difficulty: Moderate Keywords: postponement, channel assembly, mass customization Learning Outcome: Compare common approaches to supply chain design. 86) Compare and contrast efficient versus responsive supply chains. Answer: The purpose of efficient supply chains is to coordinate the flow of materials and services to minimize inventories and maximize the efficiency of the manufacturers and service providers in the chain. Responsive supply chains are designed to react quickly to market demands by positioning inventory and capacities to hedge against uncertainties in demand. Efficient supply chains work best where demand is predictable with low forecast errors; competitive priorities are low cost, consistent quality, and delivered on time; newproduct introduction is low; and profit margins are low. Responsive supply chains work best when demand is unpredictable with high forecast errors. Competitive priorities are development speed, fast delivery times, customization, high-performance design quality; new product-introduction is frequent; contribution margins are high; and product variety is high. Efficient supply chains should use a make-to-stock or standardized services operations strategy, low-capacity cushion, and low inventory investment. They should shorten lead time without increasing costs and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality. Responsive supply chains should use assemble-to-order, make-to-order, or customized services emphasizing product or service variety; high-capacity cushions; and inventory levels set to enable fast delivery time. They should aggressively shorten lead time and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality. Reference: Strategic Implications Difficulty: Hard Keywords: efficient supply chain, responsive supply chain Learning Outcome: Compare common approaches to supply chain design. 87) Last year, RJT Enterprises had average inventories (raw materials, work-in-process, and finished goods) of $7.5 million. During this same year the cost of goods sold was $30 million. The company operates 50 weeks per year. a. What is their total inventory (measured as weeks of supply)? b. What is their inventory turnover? Answer: Weeks of supply = average aggregate inventory value/weekly sales at cost = 7.5 million/(30 million/50) = 12.5 weeks Inventory turnover = annual sales (at cost)/average aggregate inventory value = 30 million/7.5 million = 4 Reference: Measures of Supply Chain Performance Difficulty: Moderate Keywords: turnover, weeks of supply, inventory value AACSB: Analytic skills 21 88) Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The current inventory levels are $1,500,000 and $3,775,000, respectively. In addition, finished goods inventory is $3,500,000, and sales (at cost) for the current year are expected to be about $28 million. Assume they operate 50 weeks per year. a. What is their total inventory (measured as weeks of supply)? b. What is their inventory turnover? Answer: a. Weeks of supply = average aggregate inventory value/weekly sales at cost = (1,500,000 + 3,775,000 + 3,500,000)/(28,000,000/50) = 15.7 weeks b. Inventory turnover = annual sales (at cost)/average aggregate inventory value = 28 million/8.775 million = 3.19 Reference: Measures of Supply Chain Performance Difficulty: Moderate Keywords: turnover, weeks of supply, inventory value AACSB: Analytic skills 89) A television manufacturer would like to reduce its inventory. To this end, you are asked by the operations manager to assess its inventory level. You have the following information on average inventories from last year's financial statement: Raw materials Work-in-process Finished goods $1,500,000 $1,200,000 $800,000 In addition, the cost of goods sold last year (50 weeks) was $20 million. a. What is its total inventory (measured as weeks of supply)? b. What is its inventory turnover? Answer: a. Weeks of supply = average aggregate inventory value/weekly sales at cost = (1,500,000 + 1,200,000 + 800,000)/(20,000,000/50) = 8.75 weeks b. Inventory turnover = annual sales (at cost)/average aggregate inventory value = 20 million/3.5 million = 5.71 Reference: Measures of Supply Chain Performance Difficulty: Moderate Keywords: turnover, weeks of supply, aggregate inventory value AACSB: Analytic skills 22 90) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $1,250,000 and the per-page cost was one cent. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $850,000 and charge three cents per page. At what point would the university be indifferent between owning their printers and leasing their printers? Answer: Q= Q= Q = 20,000,000 pagse Reference: Outsourcing Processes Difficulty: Moderate Keywords: outsourcing, break-even analysis AACSB: Analytic skills 91) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $850,000 and the per-page cost was two cents. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $600,000 and charge ten cents per page. At what point would the university be indifferent between owning their printers and leasing their printers? Answer: Q= Q= x = 3,125,000 pages A slow Tuesday afternoon in the College of Business computer lab. Reference: Outsourcing Processes Difficulty: Moderate Keywords: outsourcing, break-even analysis AACSB: Analytic skills 23 92) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $850,000 and the per-page cost was one cent. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $600,000. The only issue to be decided was what the per-page cost would be for the leased printers. On average, the university had been printing about 10,000,000 pages per year. What would a break-even per-page printing cost be given the average printing volume? Answer: Q= 10,000,000 = x = $0.035 per page A slow Tuesday afternoon in the College of Business computer lab. Reference: Outsourcing Processes Difficulty: Moderate Keywords: outsourcing, break-even analysis AACSB: Analytic skills 24 93) Champion Cooling Company remanufactures window air conditioners during the offseason months for sales during the scorching months of June, July, and August in the Oklahoma City area. Their average inventory of air conditioners is shown in the following table. The company operates 50 weeks a year and has average weekly sales of $3,750 and expects to sell $135,000 worth of product in a year. Unit Type 110 Volts 18,000 BTU or smaller 220 Volts Larger than 18,000 BTU Avg. Inventory (at cost) 65 90 50 Value of Each $250 $350 $500 a. What is their average aggregate inventory value? b. What is their total inventory (measured as weeks of supply)? c. What is their inventory turnover? Answer: a. Avg Aggregate Inventory Value = Avg Aggregate Inventory Value = 65 × $250 + 90 × $350 + 50 × $500 = $72,750 b. Weeks of Supply = Weeks of Supply = c. = 19.4 ≈ 20 weeks Inventory Turnover = Inventory Turnover = = 1.86 Reference: Measures of Supply Chain Performance Difficulty: Moderate Keywords: turnover, weeks of supply, aggregate inventory value AACSB: Analytic skills 25