Operations MAnagement for MBAs – Flashcards
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How did Palm increase their profit margin by 30% and reduce overall cost by 27%.
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Developed deeper relationships with suppliers. Were able to get better consistency of products at lower prices. Went from 150 to 50 suppliers
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Liz Claiburne is eliminating 40% of clothing labor cost by...
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creating a "supply chain city" in Dongguan, Southern China
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Best Buy's reduced orders did what further down the chain
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Suppliers all across the chain reduced production over reacting to the original reduction adding at each level until at the bottom of the chain until Best Buy had shortages of stocks despite decline in demand
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What does RFID stand for
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Radio frequency identification. Computer chips or smart tages attached to items as they are transported through the chain. Use wireless technology to track inventory. Walmart was early adopter. Can save money on labor and help to manage inventory more effectively . WalMart spending at 4.6 B in 2007.
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Why was WalMart interested in the investment of RFID technology
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They couldn't see into their backroom storage areas. Better information from better visibility translated into better information whith which to base replenishment orders which in turn would provide a better overall customer experience by helping it get inventory onto the store shelves in a tiely manner
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What is draw back of RFID
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Cost. Has a payback of 2 years. Would like to get cost down to .05. Started at .75 for smaller quantities.
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What is a VMI
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Vendor Managed Inventory - supplier manges inventory , customers still own. Suppliers use point of sale data to determine the timing and quantity of inventory replenishment orders.
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Who has partnership with IBM to provide VMI services to the grocery industry?
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Rich Products a @2 billion fmaily owned food company from Buffalo. . Groceries provide information to IBM daily about inventory withdrawals and inventory balances
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What is the term for "activities involved in supplying an end user with a product or service"?
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Supply Chain
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How is downstream determined in a supply chain?
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Supply chain going toward the final product and the ultimate customer. The ultimate consumer may be a supplier in another chain. Can have multiple upand down stream customers and suppliers
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How is upstream determined in a supply chain?
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Supply chain going toward the raw materials. Through the various suppliers.
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What flows along the supply chain
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Goods plus information, funds, papaer, people and other items flowing in both directions. Should think of as a process rather than chain. Involves functional areas and activities such as product/service design, finance, accounting, marketing, human resources and engineering.
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What is SCM
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Supply Chain Management. Involves process of managment of entire chain from order at ultimate consumer back to raw materials (upstream)
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Who is best known for their perfection of Supply Chain Management and Lean manufacturing?
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Toyota - teach their suppliers their methods, then give incentives for their suppliers to teach their suppliers so that efficiencies are carried over the chain upstream to raw materials. This gives overall saving to ultimate consumer downstream.
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Give reasons why SCM has exploded grown in interest
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New information technologies such as intranets, email, EDI and Internet. Greater global competition has increased our interest and ability to improve processes along the entire chain.
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SCM also includes what mangerial thrusts
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Quality management. Inventory management, enterprise resource planning and lean production (JIT)Also includes marketing, engineering, product/service design, financial aspect in terms of payments and float, purchasing elements such as sole sources and tehcnological inintiatives . Can all be attributed to the advent of the internet.
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What is the focus of the value chain
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Customer values of timeliness quality function. Supply chain focuses on efficiency
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How do the value chain and the supply chain differ
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Supply chain focuses one efficiency value chain focuses on timeliness, quality and function which are customer values
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Pull systems consist of what?
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Just-in-time deliveries lean manufacturing Dictate a different view of the value chain called a demand chain. Order coming from customers generate a pull of products through the supply chain. By using the pull system suppliers can order just what they need for the order.
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Demand Chain
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Customer orders pull the product through the chain, improving cost and benefits. Related to Lean manufacturing
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Manufacturing oriented supply chains goods tend to flow
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in one direction downstream.
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Service supply chains and dual customer supplier role
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services flow in both directions with the customer both upstream and downstream from the service provider.
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What cost can be eliminated through the use of better information sharing and managerial oversight
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Costs of multiple shipments, costs of inappropriate functionsality, costs of low quality, costs of late delivery.
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What percentage of total operating cost does the supply chain represent?
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50% or more of total operating costs
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What savings have firms seen who have implemented supply chain management
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45% supply chain cost advantage 50% lower inventory 17% faster delivery of final product Larger market shares and higher customer loyalty
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What should be the focus of a supply chain for fashion goods
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Timeliness because fashions change quickly
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What should be the focus of a supply chain for basic commodities with standard benefits such as food, home supplies
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Cost reduction will be the focus
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How much did Palm Inc save through their strategic emphasis on supply chain management
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20-30% reduction in materials costs 27% reduction in overall costs Increase in inventory turns from 3 to 22 30% increase in profit margins
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What is the focus of the supply chain management crusade
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Focus on entire value chain Lean production JIT TQM Purchasing Product/service design
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Define Supply Chain Management
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Coordination and integration of all supply chain activities into seamless process Enables organizations to plan and collaborate across supply chain Goal is to deliver right product to right place at right time in order to maximize profit
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Another definition for Supply Chain Managements
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Supply, storage, and movement of materials information, personnel, quipment, and finished goods within the organization and between its environment
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What is the goal of supply chain management
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To integrate the entire process of satisfying the customers's needs all along the supply chain.
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What is a 3PL
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3rd Party Logistics company.
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What can a 3PL do
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Handle the distribution of the organizations products, receiving incoming materials, managing the organization's warehouses, managing the purchasing function, and handling product returns. Balance of activities as to what is done inhouse to those outsourced varies by business
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Why would a company outsource to a 3PL
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Allows the company to focus on its core competencies Reduces the capital investments in the infrastruct needed to support these activites Converts a significant portion of what was a fixed cost into a variable cost Gains access to the best practices and technologies that it might not be able to afford or develop if the function was kept in house.
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What is one requirement of a Supply chain strategy?
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Strategy needs to be tailored to meet the needs of its customers, not always lowest cost Examples: With basic commodities then cost reduction is focus With fashion goods, timieliness
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What part of total operating expenses do supply chain costs represent
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More than 50% and in some cases 75%
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What is included in the broad concept of supply chain
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Supply storage Movement of materials Information Personnel Equipment Finished goods within the org. and between it and its environment
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AS efficiency improves in production techniques what has what is taking a greater and greater fraction of the total cost and time
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Procurring the requisite inputs and distributing the resulting goods and services
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What are some measures of supply chain performance
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Lower inventories - means less Working Capital needed and higher ROA ratio Lower cost to carry inventories will be seen in a reduced cost of goods sold (COGS) and so a higher contribution margin, return on sales and operating income.
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Where is a lower inventory cost reflected
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In Working capitals being lowered and Return on asset ratio being higher
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Lower cost to carry inventory will be seen in:
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reduced cogs and higher contribution margin, return on sales and operating income.
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Cash Conversion Cycle
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Helps assess how well a company is managing its capital Amount of time the organizations cash is tied up in working capital before being retuned by customers as they pay for delivered products or services
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How is the Cash Conversion Cycle calculated
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CCC = I +AR-AP Inventory (I) =( Inventory/Annual COGS) X 365 Accounts Receivable (AR) = (AR/Annual Net sales) X 365 Accounts Payable (AP) =(Accounts Payable/Annual COGS) X 365 Inputs must be standadized into days
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If CCC is positive then?
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# days capital is tied up waiting for payment
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If CCC is negative then?
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# days organization can receive cash from sales before paying suppliers. The smaller the better
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Where should a company locate if they process natural resources
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Near the resource if there is a loss in size or weight during the process High economies of scale exist for the product The raw material is perishable
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What is the bullwhip effect
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Each segment further down the whip goes faster than the one above it Same effect often observed in supply chains.
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What are the transportation modes
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Air - small or expensive easy to lose items Water - large or heavy items Rail - Truck - perishable items, seasonal,
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Aggregate Average Inventory Value - tells us what
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A measure related to inventory reduction. Firms assets represented by inventory
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What are two reasons outsourcing has grown according to Paul Craig Roberts on Lou Dobbs
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The fall of communism and the economic insulation it had maintained The advent of telcommunications and computer technology that physically allowed work that previously had to be done locally or regionally
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What is hollowing out
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When a company has outsources it core competency for so long that it can no longer produce the product it orginally manufactures. The new outsourced producers can then produce the items under their own brand Example: television and electronic manufactueres
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What is a contract manufacturere
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outsource entire process to 3rd parties. Core competency is in system innovation or design. is a major element of SCM strategy for firms like Cisco, Dell , IBM. Considered manufacture service providers
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What can be outsources with less consequences
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Things that are not core competencies, Things like accounting, human resources, R&D even product design and IT
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Why is supply chain in important
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Because it represents 50% or more of total operating cost Can save a lot of money through better management of the supply chain
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How is procurement different from purchasing
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purchasing implies a monetary transaction procurement is the responsibility for acquiring the goods and services the organization needs by any means. - includes scrap and recycles as well as purchased materials. Procurement can make consideration of environmental aspects
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What is reversed logistics
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Where packaging must reverse the logistics chain and flow bact to the producer who originated it for disposal or reuse.
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Why is a supply chain so important
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It represents 50% or more of total operating costs Supply chain managment can give a 45% cost advantage and lower inventory by 50% with products that are delived 17% faster Gives a larger market share and higher customer loyalty
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What are the key elements of effective purchasing
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Leverage their buying power Commit to a small number of dependable suppliers Work with and help suppliers reduce total costs
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AAIV - aggregate average inventory value
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Raw materials + Work-in-process + finished goods
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% Assets in Inventories
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AAIV/total assets
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Turn over of Inventory
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Annual COGS/AAIV
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Days of supply
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AAIV/Daily COGS to do weekly divide by weekly COGS or multiply daily amount by 7 and then use to divide.
