SCM Exam 1 Review

8/11/2019 SCM Exam 1 Review

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*1) SCM Core Processes

Supply chain management (SCM)Planning and control of all activities across the supply chaina network

of companies that buy, produce, move, store and transformmaterials into finished products and services for

eventual consumption by the end-user (customer).

**Supply Chain Core Processes** Five Core processes

PlanThe strategic design (production process selection, location, staffing).

SourceSelect suppliers (quantity, quality, cost, and delivery).

MakeTransformation process optimization (resources, throughput, and schedule).

DeliverLogistics optimization (transportation, distribution, and customer service).

ReturnReverse logistics/closed-loop supply chains (3Rs recycle, remanufacture, & retire)

*2) Competitive Strategies

Differentiationbusiness focuses on achieving superior performance in one of the dimensions listed in

previous section. // it can try to be the service leader, the quality leader or the leader in other dimensions such as

reliability or performance, but it is not possible to be all of these things.//Many companies believe in

concentrating on only one central benefit. Increasing number of claims for a brand may result in disbelief in the

marketplace.

Positioningis defining a point in the consumers mind about what you do and who you are. Positioning is a

very important tool in determining competitive strategies. Every aspect of product, price, place, & promotion

must support the chosen positioning strategy.Examples, Mercedes promotes great engineering, Cresttoothpaste constantly promotes its anti-cavity protection.If two or more companies position themselves as the

best o the same benefit, then double benefit positioningmay be necessary.

Supply Chain StrategyConsists of developing a long-term plan for determining how to best utilize the

resources of the organization to implement and support the firms long-term business or corporate strategy.

Should be consistent with the overall organizations strategy and the firms competitive priorities.

Business or Corporate strategyProvides vision, establishes future goals, and keeps the organization moving

in the right direction consistent with the companys mission. Defines how the company is going to get there.


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*3) Three paragraphs on ERP- what we are trying to accomplish

Enterprise Resource Planning (ERP) systemsA key motivation for implementing an ERP system is the

ability it provides an organization to synchronize and automate the flows of material, process, information, &

cash throughout the supply chain. /seen as enabling technology to achieve better supply chain integration,which often results in improved financial performance/ became well known after German company SAP

introduced it/

*4) CPM & PERT- Differences between

Critical Path Method (CPM)Two independent techniques for project management were developed, in mid-

50s one by DuPont for their chemical plant maintenance project. / is a mathematically based algorithm for

scheduling a set of project activities. It is an important tool for effective project management. /

Program Evaluation & Review Technique (PERT)- is a network model that allows for randomness in

activity completion times. PERT was developed in the late 1950's for the U.S. Navy's Polaris project having

thousands of contractors. It has the potential to reduce both the time and cost required to complete a project.

- Critical Path Method (CPM) The length of time each activity in the project will take is known with

certainty. Therefore, the completion time of the entire project can be calculated with certainty

(Deterministic).

- Program Evaluation & Review Technique (PERT)The length of time each activity will take is not

known with certainty, but is instead estimated. Therefore, the project completion time cannot be

calculated with certainty. Completion time is expressed with probability distribution (Probabili stic or

Stochastic)


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*5) Section on outsourcing-know terms

Make-or-Buy decisionOne of the earliest strategic decisions to make in supply management is whether a

firm should make a product (or perform a service) internally or utilize an external supplier or service provider. /

A decision that needs to be made by every supply partner in the network/

Vertical IntegrationIf the firm decides to perform the function internally.

OutsourcingIf the firm decides to have the function perf ormed external ly.

OffshoringIs where afirm moves an operation(i.e., manufacturing or warehousing) to a foreign country, but

still retains ownership of that facility.

When a firm outsources an operation, they do not own the facility.

** AMD was an outsource provider for Intel, at a point in time when Intel was severely capacity constrained

(unable to meet demand through its own production capacity). Eventually, AMD took its newly developed

capabilities into the marketplace, & is now Intels chief rival.

Virtual or hollow corporationsSome firms have outsourced most of the functions across the supply chainnetwork, choosing instead to focus their resources on new product development & marketing.

*6) Dimensions of Service qualities (5)

1. Reliability the consistency of service; dependability

Example: always answering a 911 call, arriving on the scene with the

proper equipment and personnel trained to do the job

2. Assurance how the company shows it has the skills to do the job

Example:taking charge at the scene, clearing the area,becoming informed of hazards and relating that to the community

3. Tangibles the physical surroundings, fixtures, equipment, and uniforms

Example: the spotless lire station, clean trucks and equipment

(both at the station and upon arrival at the scene)

4. Empathy the care and understanding of a customer's needs

Example: caring for the fire victims in the appropriate manner,

understanding the impact of the loss of a loved one, a pet, a home, or a business

5. Responsiveness timeliness of serviceExample: response time to the scene


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*7) Garvins Cost of Quality

Garvin's Eight Dimensions of QualityPerformance: The product's primary operating characteristics.

Example: acceleration, handling or steering

Features: The secondary aspects of performance (the bells and whistles of products and services).

Example: CD-player, sun roof, leather seats

Reliability: The probability that a product malfunctions in a given period of time. How quickly theproduct fails for the first time and how often afterwards.

Example: starting on cold days, frequency of failures

Conformance: The extent to which a product's operating characteristics and dimensions meet the

pre-established technical standards.

Example: fit and finish, how many squeaks

Durability: The amount of use one gets from a product before it fails such that replacement is

preferable to repair, or is required.

Example: corrosion resistance, long-wearing fabric

Serviceability: The speed, competence and ease of repair. This dimension is important in acustomer's evaluation of a company's overall performance.

Example: access to spare parts, number of miles between servicing

Aesthetics: This dimension is more subjective and relates to how a product looks, feels, tastes, and

smells.

Example: color, control panel design

Perceived Quali ty: The reputation based on past performance of a company; a company's image.

Example: advertising, brand name


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*8) ISO 9000

International Organization of Standards (ISO 9000)- ISO 9000 is a set of quality assurances that applies to

all types of companies - large and small - in both the service and manufacturing sectors, and now also includeseducation and health services.

As an international set of standards, ISO 9000 requires a company to document its quality related procedures

and the adherence to those procedures. Companies seek ISO 9000 for two main reasons. First, companies want

to improve their internal operating efficiency. Second, many companies, especially outside the U.S., requireISO 9000 certification before they will do business. ISO 9000 is a series of international standards thatestablishes requirements for quality management systems.

Implications of ISO 9000

More than 100 countries have adopted ISO 9000 standards so far

Over 60,000 companies in the European Community are ISO 9000 certified Over 23,000 U.S. firm sites are ISO 9000 certified

Canada has over 6,900 certified company sites and Mexico over 930.

o -The EC has import restrictions on certain commodities that require suppliers be ISO 9000 certified

(Example: toys, machinery, medical related supplies)

ISO 9000:2000 Quality Management Principles

Principle 1: Customer Focus

Principle 2: LeadershipPrinciple 3: Involvement of People

Principle 4: Process Approach

Principle 5: System Approach to ManagementPrinciple 6: Continual Improvement

Principle 7: Factual Approach to Decision Making

Principle 8: Mutually Beneficial Supplier Relationships


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*9) 1.3 Strategic sourcing terms, know terminology

Strategic SourcingHas been defined as the procurement process of evaluating, selecting, and partnering with

key suppliers in order to achieve operational performance improvements that support both the organizations

supply chain strategy and its even broader corporate objectives.

*Example: CTS Corporation, a U.S.-based supplier of brake pedals, began experiencing problems with their

product ( the pedals would stick in the acceleration mode), the resulting recall of millions of Toyota cars, along

with Toyotas cars, alongwith Toyotas subsequent loss of market share, cost all of the supply network partners

dearly*

Spend Visibilityis the amount of the applicable spend data that a firm can access through its informationtechnology systems.

Demand Aggregationis a methodology where a buying firm consolidates its requirements across the entire

enterprise, in a particular commodity classification (i.e., MRO, cement, steel plate), or between related

classification groups, into a single purchasing request, so as to maximize their buying strength in themarketplace.

Supplier RationalizationThis is a process by which a buying firm determines the optimal number of

suppliers in a particular supply network and who those suppliers will be.

Sole-Sourceleverage is maximized when all of the business is given to only one supplier.

RedundancyMost firms try to build some redundancy into their supply chain networks, so mat if one

supplier cannot make delivery, than another supply partner will pick up the slack.

Leveraged SpendThrough demand aggregation and supplier rationalization, a buying firm can maximize itsbuying strength in themarketplace;

Portfolio Matrixhelps the strategic sourcing analyst to segment the supply requirements and then tailor the

sourcing strategy to those particular requirements. Although different variants of the portfolio matrix areevidenced in industry, perhaps the (most common type focuses on the interaction between the value of the items

in the category and the number of qualified suppliers available

E-procurement systemscomputerized systems designed to reduce costs associated with processing purchase

orders by supply management personnel. In an e-procurement system, prices are negotiated in advance and

company personnel can buy products directly from the supplier through an on-line catalog.Procurement cards (P-cards)typically issued by Visa and MasterCardto minimize the transaction costs

associated with small, miscellaneous purchases.

Maverick SpendThe first factor is internal and involves purchasing personnel buying outside of the supply

contract, from suppliers who were not selected by the strategic sourcing analyst to supply the items. This non-

contract spend is classified as maverick spend.

Spend LeakageThe failure of supplier to adhere to the supply contract terms and conditions.


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*10) Portfolio Matrix, two key variables, the quadrants and difference between them

Portfolio Matrixhelps the strategic sourcing analyst to segment the supply requirements and then tailor the

sourcing strategy to those particular requirements. Although different variants of the portfolio matrix are

evidenced in industry, perhaps the (most common type focuses on the interaction between the value of the items

in the category and the number of qualified suppliers available.

After a buying firm has leveraged its spend, a determination is made as to which supply strategy should be

pursued. A portfolio matrix is one of the key analytical tools for developing the sourcing strategy. The keyassumption underlying the portfolio matrix is that no one strategy fits all supply situations. Therefore, theportfolio matrix helps the strategic sourcing analyst to segment the supply requirements and then tailor the

sourcing strategy to those particular requirements. Although different variants of the portfolio matrix are

evidenced in industry, perhaps the (most common type focuses on the interaction between the value of the itemsin the category and the number of qualified suppliers available.

Critical:

This quadrant is characterized by a high value category that has few qualified suppliers. Items in this categoryarc typically specialized or customize parts and may be proprietary to only one firm. This category is critical

because of the risks associated with potential supply disruptions and the adverse impact that this would have on

the supply chain network. The sourcing strategy should focus on building a collaborative relationship with thissupplier, since we arc interdependent with this firm. The sourcing strategy should also focus on trying to help

the supplier reduce the cost of the item(s) in the short-run, as well as looking for alternative sources of supply in

the long-run.

Leverage:

This quadrant is characterized by a high value category, but with many qualified suppliers. Items in this

category are fairly standard across the industry. Because of the high category value and many qualifiedsuppliers, this quadrant is ideal for aggregation of demand, supplier rationalization, and leveraged spend: This

quadrant typically offers the highest potential savings from strategic sourcing strategies. Besides the above, the

sourcing strategy should focus on a long-term supply contract, with a cooperative supply relationship.

Market:This quadrant is characterized by a low value category, but with many qualified suppliers. Items in this category

are standardized across the industry. As such, it is very difficult to differentiate between product offerings, sothe primary basis of competition is through price. The sourcing strategy should focus on minimizingtransactions costs, due to the low value of the items. One strategy that many firms have implemented in this

area is e-procurement systemscomputerized systems designed to reduce costs associated with processing

purchase orders by supply management personnel. In an e-procurement system, prices are negotiated in advanceand company personnel can buy products directly from the supplier through an on-line catalog.

Transactional:

This quadrant is characterized by a low value category, with few qualified suppliers. Items in this category maybe standardized across the industry, but may need to be procured locally. Because the value is low, procuring

locally makes sense. The sourcing strategy should focus on minimizing transactional costs. Many firms now

employ procurement cards (P-cards)typically issued by Visa and MasterCardto minimize the transactioncosts associated with small, miscellaneous purchases.


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*11) Direct V indirect spending

Direct Material SpendDirect spend refers to purchases of goods and services that are directly incorporated

into a product being manufactured.Largest component of most companys totalproduction cost. (Expenses are

captured in the Cost of Goods Sold, section of the Income statement)

Indirect Material SpendIndirect spend refers to purchases of goods and services that are not directly

incorporatedinto a product being manufactured. * are miscellaneous (overhead) expenses a company incurs

that are not associated with building the firms core products (ex. travel, Insurance, marketing literature, &

utilities)*

*12) New product development (know key concepts & terms) 2 Q

New Product Development- The need to get new products to the marketplace ahead of one's competitors.

Most firms continue to develop new products in a sequential fashion, with each department in the design

process working independent of each other. To make matters worse, these departments do their design work

only after the previous department in the process has completed their work in its entirety. The net result is thatthe new product development process is slow, costly, and fraught with quality problems, due primarily to the

lack of communication that typically occurs between the relevant departments.

Time-based Competitionhas placed a premium on the efficiency of the new product development process

Concurrent EngineeringThe use of these cross-functional, product development teams, at the very

beginning of the design project.

ManufacturabilityOne of the chief tasks of the design team is to evaluate every aspect of the new product

design for manufacturability. The primary focus of manufacturability is to reduce the complexity of the newproduct and to eliminate potential production problem areas from the design, so that company will be able to

manufacture the product efficiently and productively.

Value Engineeringfocuses on eliminating or changing product features in the design that do not add value.

Non-Value-Added(Non-value-added product) features cost more than the value of the feature as perceived

by customers. The result of both is a new product design that is cost effective and efficient to make.


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*13) Seven steps to strategic sourcing process

Step 1: Spend Analysis- is a detailed analytical assessment of how much the company is spending in a

particular category or commodity classification (i.e. steel pipe, concrete, office equipment, etc.), who their topssuppliers are in the category, and from where the purchases are originating (geographical dispersion).

Step 2: Supply Market Assessment- After conducting an effective spend analysis and determining true

category spend, the sourcing analyst must conduct a detailed analysis of the current supply market to determine

the competitive dynamics that exists between the relevant suppliers.

Step 3: Total Cost Analysis- The strategic sourcing analyst should then prepare a detailed analysis of howmuch it "should cost" the supplier to produce the desired product or service. If the buying firm can determine

the supplier's cost structure, then they can also determine how much margin they have in the product.

Step 4: Supplier Identification/Evaluation- Once the supply market has been assessed and a detailed totalcost analysis completed, the strategic sourcing analyst will compile a list of suitable suppliers who can provide

the required produce(s) and/or service(s). The primary objective of this stage is to reduce this compiled supplier

selection pool down to only the most qualified suppliers.

Step 5: Sourcing Strategy- The first four steps in the strategic sourcing process are designed to provide thebackground data necessary to craft an effective sourcing strategy. In a general sense, every strategic sourcing

strategy involves maximizing the buying firm's power or leverage in relation to suppliers in the marketplace.

Step 6: Supplier Negotiation/Selection- Once an assessment of the best suppliers is completed and a

determination of the appropriate sourcing strategy has been completed, then the strategic sourcing analystoften in conjunction with the category managerwill hold direct negotiations with the key suppliers). The

selection criteria includes: price, availability, lead-time (time from order to delivery), quality, and total cost of

ownership (TCO).

Step 7: Sourcing Strategy Implementation- Once a supply agreement has been reached, the strategicsourcing analyst will document the potential savings that should result from implementation of the supplycontract The potential savings can be substantial, ranging from 2 to 25% of total spend from the previous year.6

Unfortunately, most companies fail to realize all of the potential savings from the new supply contract due to

two key factors.

1stfactor - The first factor is internal and involves purchasing personnel buying outside of the supply contract,

from suppliers who were not selected by the strategic sourcing analyst to supply the items.

2nd

factor - The second factor that can reduce the potential savings associated with a new supply contract is

where the selected supplier does not fully adhere to the terms and conditions of the supply contract. The failureof supplier to adhere to the supply contract terms and conditions is classified as spend leakage.


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*14) Difference on definitions on user quality, * that are user base, or manufacture base*

A customer perspective of quality is highly subjectivein the "eye of the beholder". A customer'sexternal perspective of quality will focus on product features and enhancements, while a customer's

internal perspective of product quality will focus on how well the product accomplishes the task forwhich it was purchased.

A manufacturer perspective of quality will be more objective, focused on more measurable aspects of

the product. A product-based definitionof quality will focus on key measures and metrics (size,torque, horsepower, etc.), while a manufacturing-based definition of quality will focus on how wellthe product conforms to the standards or tolerance levels specified by the customer .

Customer Manufacturer

External User-based:

Features

Improvements

Product-based:

Measurable variables (length, width, density)

Internal User-based:

Fitness for use

Better performanceValue-based:

Relationship of usefulness to price or

satisfaction

Manufacturing-based:

Conformance to standards

Zero defects

*15) Page on tools for continuous improvement (process chart & fish bone)

Continuous improvement - is the phi losophy of continual ly seeking ways to improve operations. Cars that

consumers believed reliable in the past are now only regarded as having average quality. To meet dynamiccustomer needs, the organization itself must be dynamic. Continuous improvement involves employeeempowerment and identifying benchmarks. In addition, key SQC diagnostics and analytic tools will help to

facilitate your progress.

Employee Empowerment: It is commonly stated that 85% of quality problems have to do with

materials and processes, not with employee performance. Therefore, it is an important task to design the

right processes and equipment. Since employees deal with the system on a daily basis, they understand

the shortcomings of the system better than anyone else. Therefore their involvement in design andimprovement of processes and equipments is crucial.

Benchmarking: Find out who performs a particular process best and learn from it. Look for the best(world leader) not just within the same industry


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*16) Key components of TQM

Total Quality Management Systems

TQM is management and control activities based on the leadership of top management and based on the

involvement of all employees and all departments, from planning and development to sales and service .

These management and control activities focus on quality assurance by which those qualities which satisfy the

customer are built into products and services during the above processes and then offered to consumers.

System-wide approach to qual i ty.

Main Characteristics of TQM Systems

Customer Focus

Continuous Improvement

Leadership

Top Management Commitment

Participation and Teamwork

Customer FocusThe very purpose of a company is to meet customer needs. Therefore, they must continuously measure

customer satisfaction, maintain excellent communication with the customer, and design processes andproducts based on the customer inputs.

Customer Focus Example:

Solectron Corporation, a provider of manufacturing services, polls all their customers everyMonday in four areas: quality, delivery, communication, and service. On Tuesday, divisionsmust come up with plan of action packages to address any negative comments. On Thursday,

senior managers, including the CEO and COO, meet to review all packages.

Continuous Improvement - see question 15 above!!!

Leadership/Top Management Commitment (Selected Examples)

Define quality as a strategic issue- When Xerox senior managers in the early 90's started their quality efforts, they resolved: it

would be a worldwide process; would involve all employees; would use a common approach to

quality improvement and problem-solving; every employee would be trained; taming wouldcascade down through the organization.

Commit to a company

-Wide cultural change Interlock in Wellington, New Zealand, has changed the entire structure of

employee relationships by using titles such as coaches and team captains instead of supervisor,manager, division chief, etc., in order to emphasize teamwork.

Participation and Teamwork

Empower workers - they're closest to the customer/problem/process

- At Ritz-Carlton hotels, all employees from the bellhop up, are empowered to "move heavenand earth" to satisfy customers. All employees are required to assist any other employee helping

a customer when requested, regardless of normal duties.


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External Suppliers and TQM

Many organizations used to treat suppliers with indifference, often even with hostility. Instead of having many

potential suppliers, each competing to give the organization the cheapest price, TQM emphasizes a different

relationship. In an organization that implements TQM, suppliers are treated as business partners, with all partiesworking to deliver a quality product. One of Deming's 14 points is called

Single-sourcing (sole-sourcing)- I t is based on the notion that i f a company has a major por tion of asuppl ier 's business, then the suppl ier i s more wil li ng to cooperate.Companies that have adopted TQM do not

expect to have to inspect materials and parts from their suppliers. This means that, for an organization to

succeed, its suppliers must implement TQM as well.

*17) Conceptual intro to the control Chart, what it does, and it is trying to communicate with processSection 1.6

1. Statistical quality control (SQC)using statistical techniques for measuring and improving the quality of

processes and includes statistical process control (SPC).

2.

Two sources of variability: Common cause variabilitynatural variation

Assignable cause variabilityvariation due to specific reason

3. Statistical process control (SPC)using statistical techniques to measure and analyze the variation in processes.

4. Control chartingis the procedure used to show when the variation in the process is within the limits of the

natural variation and when it foes out of control.

5. Basic types of control chart:

Variables data: the characteristics are actually measured and can take on a value along a continuous scale.

X &Rcharts (pronounced X-bar andR charts

Attributes Data: When the quality characteristic being investigated is noted by either its presence or

absence and then classified as either defective or non-defective.

P-charts (measures the proportion defects in a process)

C-charts (measures the number of defects per unit of output)

6. X- Charts (mean charts)measures changes to the central tendency of a process.

7. R- Charts (range charts)indicate whether a gain or loss in variability has occurred.

8. Control Limits (UCL= Upper Control Limit and LCL= Lower Control Limit, with the mean of the data as the

central line)for X and R charts are established as follows

X- Charts

UCLx= X + A2R LCLx= X- A2R

R- Charts

UCLr = D4R LCLr = D3R

Charts used with attributes Data (p- Chart)

The mean proportion defective

P= Total Number of Defectives 0p= p(1- P)

Control limits are

UCL = p+Z * LCL = p-Z *

Total Number Inspected n


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*Assume Z = +or3 If no number given*

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SCM Exam 1 Review