BUAD 331 Supply Chain Management Exam # 1 Study Guide Chapters 1-4Chapter 1: What is a business?- At its core, a business generates, manages, and fulfills customer demand. What does a business do?- Businesses create three types of “utility”o Form- manufacturing and productiono Place- convenient to youo Time- time frame acceptable to you Supply Chain Management- The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. - Visualize supply chain as a pipeline or a river - Not a clear definition of what it is Paradigm Change:- Old Paradigm o Strong brandso Large advertising budgetso Aggressive selling- New Paradigmo Win through capabilities and competencies o Managing core processes better than competitors o Sped along by commoditization of products and industriesNew Paradigm companies were built upon a supply chain value propositionCompetitive Advantage: Product Excellence x Process Excellence - Product excellence- how good is the product - Process excellence- do we execute the promise we make better than our competition- Delivering higher levels of customer service at lower cost will lead to a competitive advantage Deliver maximum value to end customers while simultaneously increasing quality, productivity, and operational excellence.- Increasing value advantage:o Tailored service o Reliabilityo Responsiveness - Increasing productivity advantage:o Capacity utilizationo Asset turns o Integration Value- Business is about providing value to the customer—this will result in profit, market share, and growth- The value chain is Michael Porter’s conceptualization of how businesses provide the value - SCM is at the core of how businesses create valueLogistics Management- Is the part of SCM that plans, implements, and controls, the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of originand the point of consumption in order to meet customer requirements Supply Management (procurement or purchasing)- The identification, acquisition, access, positioning, management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectivesOperations- The manufacturing, production, or creation form of utility The Great Divide- This is where many businesses fail - Space in the difference in philosophy that companies don’t usually communicate - Demand/Supply integration The 4 R’s- Responsiveness (demand driven instead of forecast driven)- Reliability (primarily delivered through supply chain management)- Resilience (coping with uncertainty)- Relationships (network competition) Chapter 2: Logistics and Customer ValueSupply Chain Management and Logistics is all about customer service. SCM customer service is:- Cost - Quality - Availability - SpeedCustomer value: perceptions of benefits/total cost of ownership= Cost * service/cost * time Logistics and SC are really the only areas of the business that have the ability to influence both the numerator and denominator of the CV equation. A successful Logistics and SC process produces customer value, which keeps customers, who attract more customers.Customer service is a process for providing significant value-added benefits to the supply chain in a cost-effective way. This definition illustrates the trend to think of customer service as a process-focused orientation that includes SCM concepts.Consumer franchise x Customer franchise x supply chain efficiency= market effectiveness 3 Levels of Customer Service:1. Basic service- achieve internal standards a. Specified performance cycle of fill rate 2. Satisfaction- meet customers’ expectations a. Arrive on time with right product as measured by the customer 3. Success- customer’s choicea. Logistics operation can provide product and service in a manner that ensures long term customer Default Strategy- Everyone gets the same service o “Average” supplier to key accountso Superior supplier to other customerso High inventorieso Excessive expeditingTailored Customer Service Strategy:- Determine strategic profitability of a customer - Categorize customers based upon strategic performance - Establish different customer strategy for each category - Customer segments get different levels of serviceo Stronger franchise with best customerso Lower logistics costso Higher inventory turnso Reduced expeditingChapter 3: Measuring Logistics Cost and PerformanceWhat are the performance metrics we should be looking at if we want to change the behavior of the firm?3 ways to improve value for the firm:- Increase revenue—what service elements can we enhance for customers to get them to pay us more?- Reduce costs—have to do all types of operations to provide these services…SCM involves reducing these costs by making it more efficient- Better utilize assets—Invest in people, equipment, etcWith this cash flow….need to invest some of it to keep the business going….invest in people, buildings, equipment, etcWorking capital—capital you can convert into cash in a relatively short amount of time (INVENTORY)The Cost of Inventory:- Capital costso Investment in inventory - Service costso Insurance and Taxes on inventory - Storage space costs o Rented, public, and manufacturing warehouses- Inventory risk costs o Obsolescence, damage, shrinkageCash-to-Cash Cycle = Days of Inv + Days Accts Rec – Days Accts PayTraditional Goal: To increase scope and accuracy in functional measurement- Asset Management: inventory measures- Cost: costs of activities, functions- Productivity: relationship of input to output (usually labor and equipment)- Quality: physical and information- Customer Service: reliability, timeliness, etc.Traditional Assessment Deficiencies:• Bias toward cost and internal customer service metrics• Belief that internally generated customer service and quality metrics reflect a customer perspective• Customer service metrics are not jointly defined• Metrics are “on-average, over-time” rather than de-averaged absolute metrics• Functionally-oriented--Unable to assess performance along horizontal process• Unable to assess financial perspectiveProcess MetricsFocus on the total process of performance rather than the functional view - Internal Supply Chain o Perfect Order (customer view) Overall assessment of ability to achieve high levels of