Supply Chain Concepts

Variable costs

labor costs, utility costs, commissions, and the cost of raw materials that are used in production.
ex. inventory on hand/inventory investment

Fixed costs

A fixed cost is the other cost incurred by businesses and corporations. Unlike the variable cost, a company's fixed cost does not vary with the volume of production. It remains the same even if no goods or services are produced, and therefore, cannot be a

Supply Chain Efficiency Goal

This manufacturer's priorities are to improve asset utilization, increase inventory turnover and rationalize product handling.

Supply Chain Effectiveness Goal

This manufacturer's priorities are to improve product availability, minimize transit time variation and reduce order cycle time.

Cost Reduction Goal

This manufacturer's priorities are to reduce capital investments, inventory carrying costs and transportation costs.

Supply Chain Integration Goal

This manufacturer's priorities are to improve demand planning accuracy, optimize total cost of ownership and standardize processes and metrics.

Manage sources of supply strategically to reduce the total cost of owning materials and services -

would have the most direct effect on a manufacturer that is trying to develop gain-sharing arrangements. Suppliers would share the goal of reducing costs and be rewarded for contributing to greater profitability.

Customize the logistics network

would have the most direct effect on a manufacturer that is trying to maximize its asset utilization while differentiating itself from competitors.

Differentiate product closer to the customer

would have the most direct effect on a manufacturer that is trying to manage the proliferation of packaging requirements for different customers.

Segment customers

would have the most direct effect on a manufacturer that is trying to achieve time and place utility.

The three factors that most influence whether an organization should centralize or decentralize the management of a global supply chain are

complexity, length and maturity.

For new offshore sources or when entering new markets, many organizations begin by

organizing on a regional basis so the new region can receive the most attention from top management.

As the supply chain stabilizes,

new supply chains are best integrated into the wider supply chain organization to ensure efficient operations and adoption of best practices.

Mature supply chains are

often taken over by individual business units, so operations can be fine-tuned to the particular needs of individual products and markets.

Adopt channel-spanning performance measures to assess the collective success in reaching end-users effectively and efficiently -

would be most likely to have a high effect on asset utilization, cost reduction and revenue growth.

Develop a supply chain-wide technology strategy

would have a high effect on asset utilization but a medium effect on revenue growth and cost reduction.

Listen to market signals and align demand planning

would have a high effect on asset utilization but a medium effect on cost reduction and a low effect on revenue growth.

Segment customers based on the service needs

would have a high effect on revenue growth but a medium effect on asset utilization and a low to medium effect on cost reduction.

development chain

the set of activities and processes associated with new product introduction such as product design, make/buy decision, supplier selection, early supplier involvement and supplier selection.

product plan and design phase

include only decisions related to product architecture, make/buy and early supplier involvement.

Source phase

would include decisions related to strategic partnerships, supplier selection and supply contracts.

The supply chain intersects the

development chain at the production point.

Highest risks in its global supply chain

high demand uncertainty, low forecast accuracy, variable inventory levels and high production lead time

Customer-facing metrics

days sales outstanding and total order-to-delivery time metrics

Internal metrics

inventory days on hand and plant utilization

Supplier-facing metrics

days payables outstanding and raw materials inventory

Warehouse related metrics

errors per pallet and pallets loaded per hour

Multi-echelon planning system

This is an emerging application that looks beyond the inventory levels at a single location and optimizes inventory positions in the equivalent of three dimensions throughout a network of trading partners.

Supply chain event management system

monitors the supply chain for events that are out of tolerance and notifies a decision maker who can take corrective action.

Supply chain planning system

determines the best way to allocate resources, develop forecasts and establish schedules to support demand fulfillment.

Warehouse control system

synchronizes the activities of automated storage, picking and transportation solutions.

Competitive advantage

agile + adaptable + aligned


supply chains must be agile to respond to changing market conditions


adaptable to adjust to changing needs


aligned to link the interests of all organizations in the supply chain.

Large batches or small batches?

to balance manufacturing costs and transportation costs. The objective is to find the right balance between the two cost components, which must be done monthly or quarterly.

Tactical decisions

Tactical decisions are typically updated anywhere between once every quarter and once every year.

Micro decisions

refer to the sub-elements of a decision.

Operational decisions

refer to day-to-day decisions.

Strategic decisions

refer to decisions that have a long-lasting effect on an organization.

The metrics are

interdependent and certain metrics drive others. Understanding the interdependencies serves to illuminate the path of root cause analysis.

A manufacturer could map products in terms of their life cycles to supply chain partners, manufacturing network and distribution system to develop optimal supply chains for every product to build _________________ into its global supply chain. This would


Draw up contingency plans and develop crisis management teams that know how to invoke backup plans when the supply chain is disrupted and exchange data on changes in supply and demand with partners continuously so there is no information delay would build


Redefine supplier relationships so that both suppliers and the manufacturer share risks, costs and rewards equitably would build ______________ into the supply chain.


Plan is

the supply chain process that focuses on developing an overall strategy to synchronize supply with demand. It involves developing plans for managing resources, flows and relationships for optimal cost and service across the supply chain.

Deliver is

the supply chain process that focuses on fulfillment of customer demand for products and services.

Make is

the supply chain process that focuses on converting procured inputs into products and services.

Source is

the supply chain process that focuses on procurement of the key inputs needed to create products and services.

A manufacturer could establish inventory buffers by maintaining a stockpile of inexpensive, nonbulky components that often cause production bottlenecks to build ________ into its global supply chain. This would allow the manufacturer to finish production


Establish incentives that encourage all supply chain partners to act in a manner that is in the best interests of the supply chain would build ____________ into the supply chain.


Evaluate the needs of ultimate consumers to avoid demand distortions from the "bullwhip effect" and use product design-for-supply principles would both build ____________ into the supply chain.


Design and manage strategy is the

Best position. The first step is to eliminate as much uncertainty and risk as possible and then deal effectively with what remains.

Cost reduction strategy is

most likely actually increasing risk. Trends such as outsourcing, offshoring and lean manufacturing that focus on reducing costs significantly increase the level of risk.

Outsourcing strategy will

certainly feel the effects when suppliers do not deal effectively with risk.

Risk identification plans for strategy

be ill-prepared and also needs a risk mitigation plan.