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UT Knoxville BUAD 331 - Exam 2 Study Guide
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BUAD 331 Exam # 2 Chapters 5-7,9Chapter 5:Order Cycle: Elapsed time from recognition of need until product is available for use or resale- Normally linked to IT systems- Buyer-seller relationship - Using good & recognizing you need more of it Fulfillment Decisions (from Seller’s perspective) - Decision Rules: o What should we produce or purchase?o How much should we produce or purchase?o Where should we position the product?- Buyer has to be much more sophisticated here Service level: typically what % of the time are we going to satisfy customers. Shoot for 95% of the time. Anticipatory Fulfillment: demand is supported by deploying inventory in anticipation of projected sales levels and location—PUSHing it out there. - Uses product push: generally undesirable in a company’s supply chain because it is in front of demand. Forecasts are always wrong in some way. - Uses EOQ Model:o EOQ balances fixed order costs against inventory carrying costs to determine least cost order frequency to determine optimum order quantityo IGNORES variances (assuming demand is the exact same everyday)o Also ignores lead time by assuming inventory will always arrive on time o No buffer inventory o On shelf availability - Improved EOQ Model: o Adds safety stock o Model will work in the real world o Issue? Inventory must be held in anticipation of customer needsAnticipatory Order Fulfillment Operations:- Demand fluctuation (demand goes up and down due to other items, economy, and competition) - For low value products anticipatory is the best bet.Lean Fulfillment “containing little fat”- NO EOQ - Visual management system - Collaborative plan - Kanban system – rapid replenishment - Small inventory ahead of demand - Lean works best in HIGH VOLUME, LOW VARIETY and predictable environment Reducing Cycle Stock - Inventory carrying costs - Trying to shift order or set-up costs to the rightBeating Safety Stock Monster:- Reduce demand and supply variance lets us reduce safety stock - To optimize fulfillment, you must lower both CYCLE and SAFETY stock o Lower cycle stock by reducing average lead time o Lower safety stock by reducing  Demand variance: use demand integration  Supply variance: use lean supplier relationships Lean Order Fulfillment Operations:- Shrink total order cycle time to reduce cycle stock and improve responsiveness to demand and manage variation to reduce safety stock - Lean more complex system to implement than anticipatory Agile Fulfillment “Nimble” - Company holds capacity. No goods or services without demand. Nothing happening untilcustomer demand. Most customized products come from this. - Eliminates uncertainty by postponing form and/or time utility and place utility until order received and then rapidly respond when order is received. o Customer vs Product Focuso Cross-functional and cross-organizational process integration o Leveraging relationships o Information visibility - NO EOQ- 100% customer demand - Needed in less predictable environments where the demand for VARIETY is HIGH Agile Order Fulfillment Operations- The longer you wait, you can keep your options open - Postpone some steps in the total SC order cycle until actual demand occurs, then accelerate cycle time using higher unit cost operations - Simplicity in production Major Shift in Mentality- The move to lean and then agile operations requires a paradigm shift from a push demand management philosophy to collaborative pull management - Anticipatory is PRODUCT FOCUSED PUSH - Lean and Agile is CUSTOMER FOCUSED PULL Hybrid Combinations:- Hard to distinguish if a supply chain uses more of one fulfillment than the other - Very few companies have pure fulfillment, most ARE hybrids Flexibility in Order Fulfillment - Postpone form and/or placement of product until order received- Use LEAN principles to fulfill - ACCELERATE movement of product downstream - Order penetration point: point that customer order penetrates in the supply chain process (demand penetration/decoupling point as far upstream as possible)Supply  Production  Central DC  Regional DCNeed to know enough aboutSupply chain to choose an optionChapter 6: Time  Money1. Shortening product (and service) life cycles a. Less time available to develop new products, to launch them and to meet marketplace demand 2. Customer’s drive for reduced inventories Option A: Forward position inventory. Push based, demand forecastingOption B: Manufacture to stock.Hold in central DC to where it’ll sell bestOption C: Manufacture to ordera. Firms are focusing on reducing inventories to release capital locked up in inventory and holding costs. Instead, the supplier must substitute responsivenessfor inventory whenever possible 3. Volatile markets make forecasting dangerous a. Forecasting is always wrong; the further the forecast horizon the worse the forecast b. Aggregate forecasts are more accurate Stages of the Product Life Cylce: 1. Introductory (agile)2. Growth (agile) 3. Maturity (lean)4. Decline (lean) Pipeline Management- Value added time (VAT) = total cycle time product is actually worked on (usually expressed as a %)o Provides Form, Place or Time Utilityo Often as little as 5% of the total time- Non-value added time (NVAT) = total cycle time product may spend waiting, being moved, being inspected or being countedo Does not Provide Form, Place, or Time Utility- The goal of Pipeline Management is to reduce the length of the pipeline and/or speed up the flow through the pipeline!Question for every activity in a supply chain: “Does this activity add value for the customer or does it simply add cost?” EVERYTHING must relate to adding customer value. Responsiveness vs. Reliabilty - Speed, defined as responsiveness, is not the only thing that is important in SCM - The consistency of that speed is related to RELIABILITY Chapter 7:Information extends the Supply Chain (Slide 1):- It is the use of shared info that enables cross-functional, horizontal management to become a reality. - It is info shared between partners in the supply chain that makes possible the responsiveflow of product from one end of the pipeline to the other.- Value-added exchange of information Information facilitates responsiveness (Slide 2):- Daily sales data drives the replenishment order system- Head office receives information from stores and relays information to suppliers and logistics service


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UT Knoxville BUAD 331 - Exam 2 Study Guide

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