Answer Key for Internal Assessment Test 1

ANSWER KEY FOR INTERNAL ASSESSMENT TEST – 1

Date: 20/09/2017 Max Marks: 40marks

Subject & Code:Supply Chain Management(16MBAMM306) Section : Mktg.

Name of faculty:Ravi Urs Time : 11:00 AM – 12:30PM

Note: Answer all questions

• Supply chain management is the process of managing the supply chain to meet the following objectives:

1. Meet the expected customer service level
2. Control cost of providing the expected service level to customers
3. Generate profit for the complete supply chain
4. It has to have a strategic fit with the competitive strategy

• A supply chain is a sequence of processes and flows that take place within and between different stages to fill a customer need for a product
• There are two different ways to view the processes performed in a supply chain

• In this view the supply chain processes are divided into a series of cycles
• The cycles are performed at the interface between two successive stages of a supply chain
• Given the five stages of a supply chain, there will be four process cycles:
• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle

1. Each cycle starts with the supplier marketing the product to customers
2. A buyer then places an order
3. The order is received by the supplier
4. The supplier supplies the order
5. The order is received by the buyer
6. The buyer may return some of the products or other recycled material to the supplier or a third party

• Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering
• The supplier attempts to forecast customer orders and reduce the cost of receiving the order
• The supplier then works to fulfill order on time and improve efficiency and accuracy of the order fulfillment process
• The buyer works to reduce the cost of the receiving process
• Reverse flow are managed to reduce cost and meet environment objectives

• In customer order cycle, demand is external to the supply chain and thus uncertain
• In other cycles, though demand is uncertain, it can be projected based on policies followed at that stage

• The second difference across cycles relates to the scale of order
• As we move from the customer to the supplier, the number of individual orders decline and the size of each order increases

• Thirdly, the sharing of information and operating policies across supply chain becomes more important as we move from customer to supplier

• It is useful when considering operational decisions because it clearly specifies the role of each member of the supply chain
• Because of the detailed process description it forces a supply chain designer to consider the infrastructure requirement to support the processes
• It is useful for setting up information systems to support supply chain management operations

• It confirms to conventional supply chain management system
• Execution is initiated in anticipation of customer demands
• At the time of execution of the push process customer demand is not known and must be forecast
• Push processes are known as speculative processes as they respond to speculated (or forecasted) demand
• Push processes operate in uncertain environment
• Products are manufactured to stock
• The order fulfillment is achieved from the inventory of finished products

• In pull process, execution is initiated in response to a customer order
• At the time of execution of the pull process customer demand is known with certainty
• Pull processes are known as reactive processes as they react to the customer demand
• Pull processes operate in certain environment
• The supplier does not stock finished products but holds higher quantity of semi-finished goods
• It is associated with lean manufacturing

1. Manufacturer storage with direct shipping

• In this option, product is shipped directly from the manufacturer to the end customer, bypassing the retailer
• The retailer takes the order and initiates the delivery request
• This option is also referred to as drop-shipping
• The retailer carriers no inventories
• Information flows from the customer, via the retailer, to the manufacturer
• It is most suitable for high-value, low-demand items with unpredictable demand where customers are willing to wait for delivery and accept several shipments
• It is also suitable when it allows manufacturer to postpone customization, thus reducing inventories
• It is ideal for direct sellers that are able to build-to-order

• It enables centralization of inventory at the manufacturer, thus lowering the inventory cost
• A manufacturer can aggregate demand across all retailers that it supplies
• This option is able to provide a high level of product availability with lower levels of inventory
• It is most suitable for high-value, low-demand items with unpredictable demand
• It provides an opportunity for the manufacturer to postpone customization until after a customer has placed the order (E.g. FlipKart)
• There is savings on fixed cost of facilities due to centralization of inventory, it eliminates the need for other warehouses
• It reduces the handling costs
• This option allows a high level of product variety to be available to the customer
• It makes a new product available to the market the day the first unit is produced
• It provides good customer experience in the form of delivery to customer location

• This option is not suitable for items with predictable demand and low value
• Transportation costs are high because the average outbound distance to the end customer is large, and package carriers are used to ship the products
• A customer order including items from several manufacturers will involve multiple shipments, thus increasing the cost
• A good information infrastructure is needed between the retailer and manufacturer so that product availability detail can be given to customer even when the product is with the manufacturer
• It increases the cost of information infrastructure
• Response time tend to be long, as the shipping distance are generally longer from the manufacturer's centralized site
• If the customer order requires products to be shipped from multiple manufacturers then the shipment delays increase further
• Order tracking becomes harder to implement because it requires complete integration of information systems at both the retailer and the manufacturer
• It is likely to have difficulty in handling returns, which may hurt customer satisfaction
• Handling returns will also be costly as it involves multiple manufacturers

1. Manufacturer storage with direct shipping and in-transit merge

• This option combines pieces of the order coming from different locations so that the customer gets a single delivery
• It has been used by direct sellers such as Dell or any company using drop shipping
• It is best implemented if there are no more than four or five sourcing locations

• It enables centralization of inventory at the manufacturer, thus lowering the inventory cost
• A manufacturer can aggregate demand across all retailers that it supplies
• It provides an opportunity for the manufacturer to postpone customization until after a customer has placed the order
• It is most suitable for high-value, low-to-medium demand items with unpredictable demand
• Transportation costs are lower than drop-shipping because of the merge that takes place at the carrier hub before delivery to customer
• It simplifies receiving for the customer and also reduces cost of receiving
• Customer experience is likely to be better than with drop-shipping because the customer receives only one delivery for an order
• Up to the point of merge, the order from each manufacturer is tracked separately, after that, the order can be tracked as a single unit

• Coordination needed for merging of the different shipments
• When there are too many sources, this model can be very difficult to coordinate and implement
• The party performing the in-transit merge has higher facility costs because of the merge capability required
• Overall supply chain facility and handling costs are somewhat higher than drop-shipping
• A very sophisticated information infrastructure is needed to allow in-transit merge. The investment is higher than drop-shipping
• Response time will be higher than drop-shipping because of the need to perform the merge
• Problems in handling returns are very likely

1. Distributor Storage with Carrier Delivery

• In this model the inventory is held with the distributors/retailers in intermediate warehouses, and package carriers are used to transport products to the final customer
• It is suitable for products with medium-to-higher demand
• This model is not suitable for extremely slow-moving products

• Postponement of orders can be implemented with distributor storage, where distributors can have some assembly capability
• Distributor storage requires less inventory compared to a retail network
• Transportation costs are lower for distributor storage compared to manufacturer storage, because an economic mode of transportation (e.g. truckloads) can be employed for inbound shipments to the warehouse
• The outbound orders to the customers can be bundled into a single shipment, further reducing transportation cost
• Shipping and handling costs are comparable to manufacturer storage
• The information infrastructure needed in this model is significantly less than that needed for manufacturer storage
• There is no need for coordination between the manufacturer and customer
• Real-time visibility between customer and distributor is needed, whereas real-time visibility between customer and manufacturer is not. This reduces the cost of information infrastructure
• Response time under distributor storage is better than under manufacturer storage, as distributors are located closer to customers
• Customer convenience is very high in this model because a single shipment reaches the customer in response to an order
• Order visibility becomes easier than manufacture storage because there is a single shipment from the warehouse to the customer and only one stage of the supply chain is fulfilling the order
• Returnability is better than with manufacturer storage because all returns can be processed at the warehouse itself. The customer also returns only one package.

• Relative to manufacturer storage, this model requires higher inventory
• Distributors/Retailers generally aggregate demand uncertainty at a lower level than a manufacturer who can aggregate demand across all distributors/ retailers
• Facility costs (of warehouses) are somewhat higher with distribution storage because of aggregation
• Warehouse storage limits to some extent the variety of products that can be offered
• Time to market under distributor storage is somewhat higher than under manufacturer storage because of the need to stock another stage in the supply chain

1. Distributor Storage with Last-Mile Delivery

• Last-mile delivery refers to the distributor/retailer delivering the product to the customer's home instead of using a package carrier
• The distributor warehouse has to be much closer to the customer
• It is suitable for relatively fast-moving items for which some level of aggregation is beneficial
• It may be justifiable if customer orders are large enough to provide some economies of scale

• Facility costs are less compared to network of retail stores
• The information infrastructure in this model is similar to that for distributor storage with package carrier. Only it requires additional capability for scheduling deliveries
• Response times are faster than using package carriers
• The cost of providing product availability is higher than every option other than retail stores
• The customer experience is very good, particularly for heavy, hard-to-carry items
• Time to market is higher than even the distributor storage with package carrier
• Order visibility is less of an issue as products are delivered within 24 hours
• Returnability is best in this model because truck making delivery can also pickup rejected items

• This model requires higher levels of inventory than the other options (expect for retail store)
• It has a lower level of aggregation
• Among all the distribution networks, transportation costs are highest for last-mile delivery
• It may be less expensive in large, dense cities
• It may be suitable for bulky products where customer is ready to pay
• Facility and processing costs are very high using this option, as it requires large number of facilities
• Product variety is generally lower than for distribution storage with carrier delivery
• It is not suitable for places with very high labor costs

1. Manufacturer or Distributor Storage with Customer Pickup

• In this model, inventory is stored at the manufacturer or distributor warehouse but customers place their orders online or on the phone and then travel to designated pickup points to collect their merchandise
• Orders are shipped from the storage site to the pickup points as needed

• Inventory costs in this model can be kept low, with either manufacturer or distributor storage to exploit aggregation
• Transportation cost is lower than for any solution using package carrier because significant aggregation is possible when delivering orders to a pickup site
• Using existing facilities can lower the additional facility cost
• Processing costs at the manufacturer or warehouse are comparable with other models
• Response time can be matched to other models
• Variety and availability can be matched to other models
• Sometimes the customer considers this option as being more convenient as it does not require the customer to be at home at the time of delivery
• Customer not willing to pay online can pay at the time of pickup
• The customer inconvenience can be reduced by proximity of pickup point to customers
• Time to market for new products can be as short as with manufacturer storage
• Returns can potentially be handled at the pickup site. This makes it easy for customers as they have a physical location to bring the product to.

• Facility costs are higher if new pickup sites have to be built.
• Processing costs at the pickup site are high because each order must be matched with a specific customer. It is the biggest hurdle for success of this model.
• A significant information structure is needed to provide visibility of the order until the customer picks it. Very good coordination is needed among the retailer, the storage location and the pickup location
• There is some loss of customer experience as the customer must pick his own orders
• Order visibility is extremely important because the customer must be informed when the order has arrived. The order should be easily identified once the customer arrives to pick it up. This implementation requires integration of several stages in the supply chain

1. Retail Storage with customer Pickup

• It is the most traditional type of supply chain
• Inventory is stored locally in retail stores
• Customers walk into the retail store or place an order online or by phone and pick it up at the retail store
• It is best suited for fast-moving items or items for which customers value rapid response

• Transportation cost is much lower than with other models because inexpensive modes of transportation can be used to replenish product at the retail store
• A minimum information infrastructure is needed if customers walk into store and place order
• Very good response time can be achieved
• Customer experience depends on whether the customer wants to shop or not
• Order visibility is important when orders are placed online or on phone
• Returns can be handled at the pickup site

• Local inventory increases inventory costs because of the lack of aggregation
• Facility costs are higher because many local facilities are required
• For online orders, a significant information infrastructure is needed to provide visibility of the order until customer picks it up
• Product variety stored locally is lower than under other models
• It is more expensive than all other models to provide product availability
• Time to market is the highest in this model as the new product has to penetrate the entire supply chain before it is available to customers

• Strategic fit means that both the competitive and supply chain strategies must have aligned goals
• It refers to consistency between the customer priorities that the competitive strategy hopes to satisfy and the supply chain capabilities that the supply chain aims to build
• This building of strategic fit is the key consideration during the supply chain design

• The first step in achieving strategic fit is to assign roles to different stages of the supply chain to ensure appropriate level of responsiveness
• It will be necessary to assign different levels of responsiveness and efficiency to each stage of the supply chain to achieve the desired level of responsiveness required across the supply chain