OPMT 350-01 Supply Chain Management (Fall 2016)
Home Work 2 (Chapters 4 – 8) (Due Tuesday, October 25 9:00 pm)
Name: Ibrahim Aljahdali
- How can strategic procurement contribute to the quality of products produced by a manufacturing organization?
Strategic Procurement means to acquire goods and services from the suppliers. These goods and services may include finished products, raw materials, parts and components, crop produce and all types of services. High-quality goods and services contribute a lot to the quality of the finished goods which ultimately have a positive impact on the production of the company and its profitability. Similarly, if the materials are of low quality, then the production will be of low quality as well. Hence, it is very important for the companies to focus on high-quality products and services so that they can improve their production. Focusing on the quality of the product may require the company to invest more to improve the production and output of the product.
- How does lowest TCO differ from lowest purchase price?
The focus of the lowest purchase price is on the price of each of the items, especially to obtain it from the suppliers at lowest possible price. However, the TCO not only focuses on the buying the goods and services at a lowest possible price from the suppliers but it also allows firms to get special offers from them as well so that the payment of the inventory can be prompt. Also, TCO also enables the supplier to provide more services such as allowance, delivery, and pick-up service for the client firms too. Here another aspect is of life-cycle costs which are related to the finished goods that are faulty or are of poor quality and might have some issues with warranty, or repair.
- Many people think of lean systems as being incompatible with mass customization and flexible manufacturing. Why is this conclusion incorrect?
There are three different kinds of lean systems, and each one of them runs on its principle and mechanics. There are different goals and objectives for each system as well. Nevertheless, if we have a closer look at each of these systems, we will come to know that each one of them is quite different from each other. Each of them looks to accomplish a mutual goal, and that goal is to manufacture the goods and services as quickly as possible and when they require it. The main purpose of the lean systems is to produce the goods and service as per the demand as per the time requirement of the customer as well. Here some challenges may come up as these systems require the firms to eliminate all the slack which according to many is required when it comes to customization of the products and services. Lean systems focus on reducing the costs and time of the setup and smoothen the production process to accomplish mass production and customization. The main objective of the lean system is to produce the goods when the customer wants it, and it should be exactly as per the demand. This is also the main emphases of the mass customization as well. However, the issue with the lean system is the company has to get rid of all the slack which is necessary to customize the orders. Hence, to achieve the main objective of lean customization systems and mass customization is integrated with one another.
- Discuss the S&OP process. What are the major trade-offs that must be considered?
There are various elements that are to be considered when we consider the concepts and processes of S&OP process. First, comes the financial factor as well as the revenue plans while the next one is sales development and in the end is the operations related to the supply chain. When we talk about the financial factor, the company has to use S&OP process for the purpose of trading off that will have to be done between increased revenue and costs associated with the supply chain processes. This has to be done because there are a high number of products. Then the sales development plan is made to sustain higher profits, and with it, the plan for resources will be made so that the partnerships can be developed and managed for future operations as well. If marketing has identified a new niche within the industry and the production wants to focus on the niche, does not mean that the manufacturing and supply chain has the same sort of resources to accomplish the targeted demand. The rapid response to the demand and other variations in the products and services while keeping the processes according to the schedules is crucial to remain efficient. Hence, these two groups have to coordinate so that the most suitable operations can be worked out and expectations can be met in a realistic manner.
5 (a) Discuss the relationship between service level, uncertainty, safety stock, and order quantity. How can trade-offs between these elements be made?
There are a couple of important principles for service level which include the availability of the items and the delivery speed and one aspect that can influence both of these principles is the uncertainty of demand. This uncertainty of demand makes it difficult to forecast what the customer require and when do they require it. To deal with this issue the firms have to obtain a high number of the raw materials in the stock, and this might cause surplus inventory and will increase the total cost. Hence, to reduce the uncertainty of regular demand information should be exchanged between the suppliers and the customer so that the amount of, etc. can be reduced within the inventory.
b) Customer-based inventory management strategies allow the use of different availability levels for specific customers. Discuss the rationale for such a strategy. Are such strategies discriminatory? Justify your position.
Firms should do whatever they have to keep their core customers. Core customers are the people who buy a bigger percentage of the products of the company and they are loyal to the customers as well. If these core customers are being lost by the company, then it has to rethink its operational strategies because these are the people who are most loyal in the market and if they start to turn away from the company then there is a serious issue in the strategic structure of the firm. It is crucial for the firm to use the management strategies which are customer-focused in different perspectives. Not all the customer segments contribute to the sales in the same manner. There are plenty of cases where a single client contributes to the majority of the sales of a company and that one client alone has a major influence on the manufacturing processes of that firm as well. This can be understood by the Pareto principle which explains the same ideology that 80% of the sales are accounted for the 20% of the products. ABC rule also explains the idea and this rule is based on how fast the goods can move. Different companies have differed rate of selling in the market as well hence; the company has to develop different strategies for each product, and this can influence the sale and production of other products as well. Hence, clients who choose their suppliers have to make them work so that they can meet the demand in time otherwise it will only contribute towards the cost.
(c ) Discuss the importance of collaboration in the developing of supply chain inventory strategies.
It will be helpful for the supplier so that in time demand could be seen. The thing, which needs to be done, is to develop the strong information system so that the distribution channel could be made efficient. Looking at the example we come to know that the Quick response can be discussed as the supplier and the firm comes together and the ultimate goal is to satisfy the customer. By this order cycle, time is reduced.
(d) How does the cost of carrying inventory impact the traditional earnings? Statement of the enterprise?
It is clear that if the caring inventory is more than the earning of the company is reduced. However, if the inventory cost is reduced then profits can be maximized. There are a couple of reasons behind that; we can see that company have many costs which they need to minimize, however, the inventory cost is one of them which should be reduced so that profits could be maximized. The capital cost of the company is hurt due to the increased inventory cost. There needs to be a complete plan in which the land, building, machinery and other needs to be known, and it should be analyzed so that the inventory would be able to fulfill those requirements and there would be no additional cost for the company.
The tax is also imposed on the holding the inventory. However, there is also insurance cost on the inventory that is stored by the company, and here the profits are utilized as well. Another problem, which is observed in the carrying inventory, can be said that carrying the inventory too long will also hurt the company as the style will run out of fashion and the cost of the product needs to be minimized so that the stock would be cleared by the company. This is the financial loss for the company. However, it also needs to be checked that with the passage of time the inventory cost is increased day by day. We can say that all these costs do have the negative impact on the company. Further, the company can use these earnings somewhere else in the company as well. In the end, I will say that if the company does not decrease the cost, then the loss of profits will be seen.
6. (a) Compare and contrast the transport principles of economy of scale and economy of distance. Illustrate how they combine to create efficient transportation.
If we discuss the economies of scale on transportation, then I would say that as the size increases or the number of units increases the cost is decreased. The economies of distance are same as the economies of scale and work in the same manner. As long, the distance is as compared to the distance the shipment price will be less. Therefore, if the manager is prudent then he will make some wise decisions as the consignment would be large and the distance will be more as well. As in this case, the price will be decreased, and the profits can be retained in the company as compared to small and multiple shipments.
(b) Explain the value proposition offered by freight forwarding. Provide an example that illustrates why shippers would be attracted to using the services of a freight forwarder as contrasted to arranging their transportation.
The reason behind that is they do offer the large shipments on the lower prices most of the time. However, it is noticed that they ship the goods faster than the small shipments. Therefore, it can be seen that the starting point of the shipment is large in number, however, after that they are divided into smaller numbers, and then the responsibility is shifted to others. The freight-forwarding concept is helpful for both, shipping company and the freight-forwarding firm.
The reason behind that is the freight forwarding company is responsible for all type of goods starting from the manufacturing part till the delivery. However, it is observed that there are so many rules and regulations for the company who are transporting the goods from one end till the other end and it manages all type of queries as well. The extra time should not be focused to find out any other mean of communication; the best thing can be that the business finds some other good factors that would make revenue for the company. Looking at the example, we can say that if any business needs to send the shipment from America to the South America.
It is quite possible that the shipment company first need to go to Brazil they come back to that side. In the route, the shipment will be less costly this is good for the company. However, there will be different regulations as well which will be imposed on the sender and the shipment company but they will deal with that all. Therefore, at this time the businesses should focus more on the production rather than to change the shipment company who could send the goods faster.
7 Railroads have the largest percentage of intercity freight ton-miles, but motor carriers have the largest revenue. How do you explain this relationship?
Yes, it is correct as the railroad does carry more goods; the reason is that all the heavy material is carried through the railways; however, it cannot reach the ultimate destination point. On the other hand, the motor carriers are fast efficient and reach the end destination as well. Therefore, it is costly as well and that is the reason it generates more revenues.