measures and improvement approaches. As an extension of the systems point of view, the
system dynamics inherent in the supply chain are discussed and the coordination in the supply
chain is emphasized. Five areas where measurement of supply chain performance should be
made are described. The five areas are delivery, quality, flexibility, time, and cost. The basic
In teaching the chapter, it is helpful to illustrate the systems interactions in a supply chain
and show how supply chain performance can be measured and improved through the use of
concrete examples. The references by Lee (2004), Choi (2011), Croson and Donohue (2006) and
Powell (2011) will be useful in preparing lectures. The books by Hugos (2011) and Simchi-Levi
et al. (2008) are useful general references.
d. A TEXTBOOK
1. Supply chain management is the design and management of seamless, value-added
processes across organizational boundaries to meet the real needs of the customer.
Demand management is managing the demand for goods or services along the supply
chain. Therefore, demand management is complementary to supply chain management
and controls the levels of demand on the system through marketing decisions.
3. Supply chain management is an important area to study because of the following reasons:
a. the total time for materials to travel through the supply chain can be very long and
since materials spend much of their time waiting in inventory, there is a great
opportunity to reduce the total supply chain cycle time and gain corresponding
reduction in inventory along with increased flexibility, reduced costs and better
deliveries
4. How do lead times and forecast errors affect supply chain performance?
Delivery is one key measure of supply chain performance. Lead time can affect how
long it takes to complete an order. If the lead time is extended and not accounted for
properly, shipments can arrive late, adversely affecting deliver performance. Increased
lead time can also increase the overall length of the total supply chain throughput.
In addition, forecast errors can cause a supplier or manufacturer to under or over estimate
5. Three examples of increased coordination needed to manage supply chains are:
a. When demand varies at the retail level, the demand changes more drastically at
the wholesale and supplier levels than at the retail level due to the accelerator
6. Coordination can be increased both internally to the firm and with customers and
suppliers by organizing cross-functional teams, partnerships with customers and
suppliers, better information systems, a flatter organizational structure, synchronization
of activities and others.
7. a. Total supply chain throughput time = 30 + 90 + 40 + 20 = 180 days
b. Supplier cash-to-cash cycle time = 30 + 20 – 30 = 20 days
Factory cash-to–cash cycle time = 90 + 45 – 45 = 90 days
Wholesaler cash–to–cash cycle time = 40 + 30 – 60 = 10 days
Retailer cash-to-cash cycle time = 20 + 40 – 37 = 23 days
8. a.
Throughput
Time
Throughput
Rank
Cash-to–
cash
Cash-to–
cash rank
Added unit
cost
Added unit
cost rank
On time
delivery
On time
delivery
rank
Supplier
30 days
2
20 days
2
$10
1
85%
3
Factory
90 days
4
90 days
4
$25
3
95%
1
Wholesaler
40 days
3
10 days
1
$10
1
75%
4
Retailer
20 days
1
23 days
3
$30
4
95%
1
Different metrics yield varying performance of the four supply chain participants. A
weighted average of the rankings might be used assuming each metric is equally
important. For example:
Supplier weighted average performance: .25(2)+.25(2)+.25(1)+.25(3) = 2.00
9. Structural changes are frequently long-range in nature and require considerable capital
while infrastructure changes are made within a given structure or configuration of the
supply chain. Hence, the time frame for change, budget, and flexibility of the supply
chain are some elements that must be considered in determining whether improvements
should be in structure, infrastructure, or both. Ultimately, the kind of change that will
reap the most benefit to all parties of the supply chain should be pursued.
10. The approach to structural improvement that will lead to the greatest improvement in the
measures selected for improvement should be chosen. The tradeoff between the benefits
and the costs or disruption to the supply chain must also be weighed. Moreover, any
changes must be consistent with the operations strategy and goals of all parties in the
supply chain.
11. A firm will decide to outsource all of its inventory, distribution and logistics to a third
party when the benefit it will attain as a result of outsourcing is much greater than the
cost of outsourcing. Also, there should be a reliable and well-coordinated third party in
the supply chain to provide the management of inventory, distribution and logistics.
12. Off-shoring is moving a product or part that a company is making to an offshore location.
The part or product is still be made by the same company. Out sourcing is giving a
product or part that has been made by the company to another company to make. The
part or product could be made in the same country or off-shore. A global sourcing
approach is making the product and parts in whatever part of the world and by whatever
companies offer the best approach. An example is the Boeing 787 Dreamliner where
13. When setup time can be dramatically reduced, it will be possible to produce economically
in small lot sizes. This will result in reduction in inventory, faster inventory turnover,
less uncertainty and shorter replenishment cycle time which means that market demands
can be better met and the accelerator effect in the supply chain can also be minimized.
14. Cross-functional teams provide coordination that is lacking across various departments
and functions of a business and the various parties in a supply chain. Since coordination
is the key to supply chain improvement, cross-functional teams are widely used to
enhance coordination and cooperation towards the achievement of non-conflicting goals.
15. Cross docking is an innovation in transportation wherein supplier’s shipments taken from
various docks at the warehouses are transferred directly to the customer’s truck at another
dock thereby reducing time spent by items in warehouse inventory. This speeds up the
warehousing function and provides the economy of full truckload shipments.
16. Students’ answers will vary depending on different sources they are using. An example of
a company using an online catalog is Amazon.com, third-party auctions are used by e-
bay, and companies like Target, Dell Computer, Siemens, GE, Herman-Miller, IBM, and
Proctor & Gamble have private exchanges.
17. A classic example of problems with order fulfillment is the situation in which the rate of
online order demand is higher than the capacity of the company to fulfill the orders. The
reverse situation can also occur where the orders are less than the capacity resulting in
high costs. Another problem is how to handle returns in merchandise from customers.
18. E-procurement reduces transaction costs between trading partners in a supply chain. It
also improves the quality and timeliness of the information exchange, which directly
impacts core operations of companies such as: forecasting, planning, manufacturing and
transportation. E-procurement not only benefits the company placing the orders, but the
company receiving the orders and possibly all companies upstream and downstream in
the supply chain.
19. The total cost of ownership considers all costs incurred along the supply chain, not just
the purchasing price of a product. For example, added costs are related to inventory
carrying, foreign duties, shipping, rework, warranty, emergency airfreight, regulatory
compliance, foreign trips, wage inflation, currency appreciation, intellectual property
protection, and political instability. When all these costs are considered, a different
decision might be made concerning outsourcing or offshoring.
20. A company can insure it has a resilient supply chain by planning for disruptions in
advance, detecting them early, and acting quickly. This is done in three stages: proactive
planning, minimize the damage and post-disruption recovery. What can be done in each
of these stages is shown in Table 10.3. For example, the proactive planning stage
includes: enterprise wide assessments, risk adjusted sourcing, contingency planning for
business continuity, identifying authorities for decision making during a disruption,
3. Supply chain management is an important area to study because of the following reasons:
a. the total time for materials to travel through the supply chain can be very long and
since materials spend much of their time waiting in inventory, there is a great
opportunity to reduce the total supply chain cycle time and gain corresponding
reduction in inventory along with increased flexibility, reduced costs and better
deliveries
4. How do lead times and forecast errors affect supply chain performance?
Delivery is one key measure of supply chain performance. Lead time can affect how
long it takes to complete an order. If the lead time is extended and not accounted for
properly, shipments can arrive late, adversely affecting deliver performance. Increased
lead time can also increase the overall length of the total supply chain throughput.
In addition, forecast errors can cause a supplier or manufacturer to under or over estimate
5. Three examples of increased coordination needed to manage supply chains are:
a. When demand varies at the retail level, the demand changes more drastically at
the wholesale and supplier levels than at the retail level due to the accelerator
6. Coordination can be increased both internally to the firm and with customers and
suppliers by organizing cross-functional teams, partnerships with customers and
suppliers, better information systems, a flatter organizational structure, synchronization
of activities and others.
7. a. Total supply chain throughput time = 30 + 90 + 40 + 20 = 180 days
b. Supplier cash-to-cash cycle time = 30 + 20 – 30 = 20 days
Factory cash-to–cash cycle time = 90 + 45 – 45 = 90 days
Wholesaler cash–to–cash cycle time = 40 + 30 – 60 = 10 days
Retailer cash-to-cash cycle time = 20 + 40 – 37 = 23 days
8. a.
Throughput
Time
Throughput
Rank
Cash-to–
cash
Cash-to–
cash rank
Added unit
cost
Added unit
cost rank
On time
delivery
On time
delivery
rank
Supplier
30 days
2
20 days
2
$10
1
85%
3
Factory
90 days
4
90 days
4
$25
3
95%
1
Wholesaler
40 days
3
10 days
1
$10
1
75%
4
Retailer
20 days
1
23 days
3
$30
4
95%
1
Different metrics yield varying performance of the four supply chain participants. A
weighted average of the rankings might be used assuming each metric is equally
important. For example:
Supplier weighted average performance: .25(2)+.25(2)+.25(1)+.25(3) = 2.00
9. Structural changes are frequently long-range in nature and require considerable capital
while infrastructure changes are made within a given structure or configuration of the
supply chain. Hence, the time frame for change, budget, and flexibility of the supply
chain are some elements that must be considered in determining whether improvements
should be in structure, infrastructure, or both. Ultimately, the kind of change that will
reap the most benefit to all parties of the supply chain should be pursued.
10. The approach to structural improvement that will lead to the greatest improvement in the
measures selected for improvement should be chosen. The tradeoff between the benefits
and the costs or disruption to the supply chain must also be weighed. Moreover, any
changes must be consistent with the operations strategy and goals of all parties in the
supply chain.
11. A firm will decide to outsource all of its inventory, distribution and logistics to a third
party when the benefit it will attain as a result of outsourcing is much greater than the
cost of outsourcing. Also, there should be a reliable and well-coordinated third party in
the supply chain to provide the management of inventory, distribution and logistics.
12. Off-shoring is moving a product or part that a company is making to an offshore location.
The part or product is still be made by the same company. Out sourcing is giving a
product or part that has been made by the company to another company to make. The
part or product could be made in the same country or off-shore. A global sourcing
approach is making the product and parts in whatever part of the world and by whatever
companies offer the best approach. An example is the Boeing 787 Dreamliner where
13. When setup time can be dramatically reduced, it will be possible to produce economically
in small lot sizes. This will result in reduction in inventory, faster inventory turnover,
less uncertainty and shorter replenishment cycle time which means that market demands
can be better met and the accelerator effect in the supply chain can also be minimized.
14. Cross-functional teams provide coordination that is lacking across various departments
and functions of a business and the various parties in a supply chain. Since coordination
is the key to supply chain improvement, cross-functional teams are widely used to
enhance coordination and cooperation towards the achievement of non-conflicting goals.
15. Cross docking is an innovation in transportation wherein supplier’s shipments taken from
various docks at the warehouses are transferred directly to the customer’s truck at another
dock thereby reducing time spent by items in warehouse inventory. This speeds up the
warehousing function and provides the economy of full truckload shipments.
16. Students’ answers will vary depending on different sources they are using. An example of
a company using an online catalog is Amazon.com, third-party auctions are used by e-
bay, and companies like Target, Dell Computer, Siemens, GE, Herman-Miller, IBM, and
Proctor & Gamble have private exchanges.
17. A classic example of problems with order fulfillment is the situation in which the rate of
online order demand is higher than the capacity of the company to fulfill the orders. The
reverse situation can also occur where the orders are less than the capacity resulting in
high costs. Another problem is how to handle returns in merchandise from customers.
18. E-procurement reduces transaction costs between trading partners in a supply chain. It
also improves the quality and timeliness of the information exchange, which directly
impacts core operations of companies such as: forecasting, planning, manufacturing and
transportation. E-procurement not only benefits the company placing the orders, but the
company receiving the orders and possibly all companies upstream and downstream in
the supply chain.
19. The total cost of ownership considers all costs incurred along the supply chain, not just
the purchasing price of a product. For example, added costs are related to inventory
carrying, foreign duties, shipping, rework, warranty, emergency airfreight, regulatory
compliance, foreign trips, wage inflation, currency appreciation, intellectual property
protection, and political instability. When all these costs are considered, a different
decision might be made concerning outsourcing or offshoring.
20. A company can insure it has a resilient supply chain by planning for disruptions in
advance, detecting them early, and acting quickly. This is done in three stages: proactive
planning, minimize the damage and post-disruption recovery. What can be done in each
of these stages is shown in Table 10.3. For example, the proactive planning stage
includes: enterprise wide assessments, risk adjusted sourcing, contingency planning for
business continuity, identifying authorities for decision making during a disruption,