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Chapter 9 - Supply Chain Management

Supply chain management: the synchronization of a firms processes and those of its

suppliers to match the flow of materials, services, and information with customer demand.

Inventory: a stock of items, including materials, orders, information, and people, that dlow

through or are used in a process to satisfy customer demand.

Raw materials (RM): materials and items used as inputs for the production of goods andservices.

Work in process (WIP): items partway through a process that are needed for a final product

or service.

Finished goods (FG): items that have completed the manufacturing or service process.

Backward integration: buy controlling interest in the firms major suppliers

Purchasing: the management of the buying and acquisition process, which includes sourcing

inputs, deciding which suppliers to use, and negotiating contracts.

Production: the management of the transformation process devoted to producing the good

or service.

Distribution: the management of the flow of finished goods from manufacturers to

customers and from warehouses to retailers, involving the storage and transportation of

products.

Materials management: supply chain decisions about the purchase of materials and

services, including placement and size of inventories.

Order placement process: the activities required to register the need for a product or erviceand to confirm the acceptance of the order.

Order fulfillment process: the activities required to deliver a product or service to a

customer.

Inventory pooling: a reduction in inventory and safety stock because of the merging of

variable demands from customers.

Forward placement: locating stock closer to customers at a warehouse, distribution centre,

wholesalers, or retailer.

Vendor managed inventories (vmi): an extreme application of the forward placement tactic

that involves locating the inventories at the customer.

Continuous replenishment: a VMI method in which the supplier monitors the inventory levels

at the customer and replenishes the stock as needed to avoid shortages.

Postponement: a tactic used by assemble-to-order and mass-customization firms that refers

to delaying the customizing of a product or service until the last possible moment.

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Channel assembly: the process of using members of the distribution channel to put together

components as if they were assembly stations in the factory.

Radio frequency ID (RFID): a method for identifying items through the use of radio signals

from a tag attached to an item.

Cross docking: the packing of products on incoming shipments so that they can be easily

sorted at intermediate warehouses and immediately transferred for outgoing shipment

based on their final destinations.

Green purchasing: using environmental criteria in purchasing decisions to favour suppliers

(and inputs) with strong environmental management systems, performance, or certification.

Competitive orientation: a supplier relation that views negotiations between buyer and seller

as a zero-sum game: whatever one loses, the other gains; short term advantages are prized

over long-term commitments.

Cooperative orientation: a supplier relation in which the buyer and seller are partners, each

helping the other to achieve mutually beneficial objectives.

Sole sourcing: the awarding of a contract for an item or service to only one supplier.

Electronic data interchange (EDI) a technology that enables the transmission of routine

business documents having a standard format from computer to computer over telephone

or direct leased lines.

Catalogue hubs: posting of a centralized electronic catalogue online that enables employees

to place orders for pre-approved items.

Exchange: an electronic marketplace where buying firms and selling firms come together to

do business.

Auction: an extension of the exchange in which firms place competitive bids to buy

something.

Value analysis: a systematic effort to reduce the cost or improve performance of products or

services, either purchased or produced.

Early supplier involvement: a program that includes suppliers in the design phase of a

product or service.

Presourcing: a level of supplier involvement in which suppliers are selected early in a

products concept development stage and are given significant, if not total, responsibility for

the design of certain components or systems.

Average aggregate inventory value: the total value of all items held in inventory by a firm.

o =(Naca) + (Nbcb) + ... + (Nncn), where Na = avg quantity of materials, part, component,

or product a

o ca = average cost per unit of materials, part, component, or product a

o n = Total number of materials, parts components, and products.

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Weeks of supply: an inventory measure obtained by dividing the average aggregate

inventory value by sales per week at cost. (aaiv/ Weekly sales(at cost)

Inventory turnover: a measure of the rate at which inventory is consumed, obtained by

dividing annual sales at cost by the avg aggregate inventory value maintained during the

year. (annual sales (cost)/ aaiv)

Bullwhip effect: the phenomenon in supply chains whereby ordering patterns show

increasing variance as you move upstream in the chain. (Disruptions include volumechanges, service and product mix changes, late deliveries, and under filled shipments).

Internal disruptions include internally generated shortages, engineering changes, new

service or product introductions, service or product promotions, and information errors.

Efficient Supply Chain: predictable demand (low errors), low cost, consistent quality (on

time), infrequent new products, low margins and product variety.

o Strategy emphasizes high volume, standard product/service, low capacity cushion,

low inventory investment (high turnover), shorten lead times (w/o driving cost),

choose suppliers (cost, qual, delivery).

Responsive Supply Chain: unpredictable demand (high errors), R&D, fast delivery times,

customization, volume flexibility, high performance design quality, frequent new products,

high margins and product variety.

o Strategy emphasize product/ service variety (customization), w/ high capacity

cushion, high inventory investment (for fast delivery), shorten lead times

aggressively, choose suppliers (delivery, customization)

Outsourcing: allotting payment to suppliers and distributors to provide needed services and

materials and to perform those processes that the organization does not perform itself.

Make-or-buy decisions: either involve more integration (make decision) or more outsourcing

(buy decisions).

Backward integration: a firms movement upstream toward the sources or raw materials and

parts.

Forward integration: a firms movement downstream by acquiring channels of distribution,

finished goods manufacturing, or supplemental service.

Offshoring: a supply chain strategy that involves moving processes to another country.

Pitfalls (moving too quickly, technology transfer, process integration).

Virtual supply chain: outsourcing some parts of process through web based information

tech-support packages.

Advantages (when demand is volatile, when high service/ product variety is important, lower

costs due to economies of scales, lower transportation costs).