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33 Cards in this Set

  • Front
  • Back

Supply Chain

A supplychainconsists of the flow of products and services from:

–Raw materials manufacturers

–Component and intermediate manufacturers

–Final product manufacturers

–Wholesalers and distributors and


Connectedby transportationand integratedthrough information,planning, andother coordinationactivities.

Supply Chain Flow

1. 2nd tier suppliers: raw material

2. 1st tier suppliers: component manufacturers

3. End Product Manufacturer

4. 1st tier customers: wholesalers, distributors

5. 2nd tier customers: retailers

6. Final customers


Flow from final customer to 2nd tier supplier: orders, cash, recycling, and returns


Flow from 2nd tier supplier to final customer: product, service, and credit


Supply management, operations management, and distribution are all integrated in firm relationships

Bullwhip Effect

Orders to suppliers have larger variance than sales to a buyer. These distortions amplify as they move upstream. Collaborative planning/forecasting/replenishment (CPFR) can lead to reduced bullwhip effect.

Bullwhip Effect Causes

1. Production being based on wholesaler forecasts rather than actual customer demand

2. Price fluctuations

3. Infrequent/periodic order policies

4. Rationing/shortage gaming

Current Trends

1. Expanding the supply chain: breadth (foreign resources) and depth (second and third tier suppliers and customers)

2. Increasing supply chain responsiveness

3. More "green" supply chain

4. Reducing costs


Foundations of SCM

1. Supply management

2. Operations

3. Distribution

4. Integration

e-Procurement Process

1. Material user inputs a materials requisition including quantity/date needed.

2. Materials requisition submitted to buyer

3. Buyer assigns qualified supplier to bid

4. Buyer reviews closed bids and selects a supplier

Make-or-Buy Decision

Outsourcing: buying materials/components from suppliers instead of making them in house.

Backward vertical integration: refers to acquiring sources of supply

Forward vertical integration: refers to acquiring customers operations.

Reasons for Buying

Cost advantage

Insufficient capacity

Lack of expertise/tech


Less risk, less capital investment

Greater flexibility

Reasons for Making

Protect proprietary technology

No competent supplier

Better quality control

Use existing idle capacity

Control of lead-time, transport, and warehousing costs

Lower cost

Make-or-Buy Analysis

Fixed Cost + Variable Cost = Fixed Cost + Variable Cost.

If break even quantity is larger than annual demand, then buy

SCM Trends

-outsourcing of non-core activities to suppliers

-reduction in supply base as companies shift from multiple to single sourcing

-long-term buyer-supplier relationships

-partnerships rather than adversarial trading

Total Cost of Ownership

Total Engine Cost: Forecast*Cost per unit

Tooling Cost: given

Transportation: next card

Ordering cost: (Forecast/Order size)*cost per order

Carrying cost: (Order size/2)*cost per unit*given %

Quality cost: Total engine cost*given %

Transportation cost

Calculate weight of load (Order size*lbs per unit)

Find cost per mile ton based on this

(Distance to be traveled * weight of load)/1 ton mile

take that times cost per mile

Supplier Scorecard

Rating * Weight = Final Value

Centralized Purchasing

Purchasing department located at the firm's corporate office makes all the purchasing decisions.

Decentralized Purchasing

individual, local purchasing departments, such as plant level, make their own purchasing decisions.

Third-party Logistics (3PL)

An external supplier that performs all or part of a company's logistics functions

May include transportation, warehousing, distribution, finances, vendor managed inventory, etc.

Independent Demand vs. Dependent Demand

Independent: finished goods

Dependent: raw materials, component parts, sub-assemblies, etc.

Qualitative forecasting

Based on opinion and intuition. Used with data limited, unavailable, or not relevant.

Delphi method

Quantitative Forecasting

uses mathematical models and historical data to predict future demand

-time series analysis

-causal relationships


Components of Demand


-Trend (increasing/decreasing)

-Cyclical variation (wavelike movements longer than a year)

-Seasonal element (peaks/valleys, repeat over consistent interval)

-Random variation

Time Series Models

Simple/Weighted Moving Average

Exponential Smoothing

Trend Projection

Naive Forcasting-forecast is equal to demand of last period


Running sum of forecast error: sum of error (Actual demand-Forecast)


Mean Absolute Deviation: Sum of absolut errors/number of periods


Mean absolute percentage error

the sum of (absolute errors/actual demand)*100 divided by N

Exponential Smoothing

Forecast for prev. period + alpha(actual demand for prev period - forecast for prev. period)


Sum of the each individually squared errors/N


Tracking signal= RSFE/MAD

Good TS between -4 & +4


Collaborative Planning, Forecasting, and Replenishment is a toold used to coordinate demand forecastiong, production and purchase planning, and inventory replenishment