Untitled Quiz

Understanding the Value Chain

• The value chain is a model to visualize and analyze the sequence of activities a company undertakes to create value for its customers
• It helps organizations understand their internal processes, identify sources of competitive advantage, uncover areas for improvement, and enhance profitability

The Value Chain

• Secondary Activities
  • Firm infrastructure
  • Human resource management
  • Technology development
  • Procurement
• Primary Activities
  • Inbound logistics
  • Operations
  • Outbound logistics
  • Marketing and sales
  • Service
• All activities contribute to margin value

Value Chain Analysis

• Examines each activity within the value chain
• Identifies areas for improvement
• Determines the impact of each activity on overall value creation

3 Steps to Value Chain Analysis

• Identify the key activities
• Analyze the costs and contribution of each activity
• Develop strategies to improve value creation

How do we measure financial performance?

• Return on Investment (ROI)
• Profitability
• Efficiency
• Market share
• Customer satisfaction

Supply Chain Performance Linkage to Financial Performance

• Improved supply chain performance can enhance financial performance
• Measures include:
  • Delivery time
  • Inventory levels
  • Cost of goods sold
  • Customer satisfaction
• Effective supply chain management impacts financial growth, profitability, and customer loyalty

Measured by its return on investment (ROI)

• ROI is the ratio of profit earned to the investment made
• Calculating ROI:
  • ROI = (Gain from Investment - Cost of Investment) / Cost of Investment

How Is ROI Calculated?

• Step 1: Calculate the profit from the investment
• Step 2: Divide the profit by the cost of the investment
• Step 3: Multiply the result by 100 to express it as a percentage

Improved Customer Value

• Reduced lead times
• Higher product availability
• Enhanced order accuracy
• Increased customer satisfaction

Improved Procurement and Operational Efficiency

• Lower procurement costs
• Reduced waste and inventory
• Improved production processes

Improved Speed and Rotation

• Shorter lead times
• Faster inventory turnover
• Increased revenue generation

Improved Asset Deployment and Utilization

• Optimized inventory levels
• Improved warehouse utilization
• Increased production capacity

Main Components

• Realized Revenue
  • Revenue generated from actual sales
  • Calculated by:
    • Contracted sales revenue (+/-) Bonus or penalties
• Contracted Sales Revenue
  • Revenue expected from sales based on agreements
  • Calculated by:
    • Units sold * Contracted sale index for each customer
• Cost of Goods Sold (COGS)
  • Total direct costs incurred in producing goods
  • Includes purchasing and production costs
• Gross Margin
  • Difference between realized revenue and COGS
  • Represents the profit margin on production
• Indirect Costs
  • Expenses not directly related to production
  • Includes overhead, stock, handling, administration, distribution, project costs, and interest
• Operating Profit
  • Profit generated from core business operations
  • Calculated by: Gross margin - Indirect costs
• Investments
  • Assets used in the business
  • Includes buildings, inventory, machinery, payment terms, and software

Supply Chain Strategy

• Defines how to manage the flow of goods and services to meet organizational goals
• Objective: Ensuring alignment with the overall organizational strategy
• Key factors:
  • Customer needs
  • Competitive landscape
  • Cost considerations
  • Resource availability

What is a competitive strategy?

• A plan that outlines how a company will compete in its industry
• Focuses on achieving a sustainable competitive advantage

What are the competitive priorities?

• Cost
• Quality
• Delivery
• Flexibility

Competitive Strategy Drives Supply Chain

• To meet customer needs and achieve competitive advantage, organizations must develop supply chains that align with their competitive strategy
• Competitive priorities influence supply chain design, operations, and performance

Competitive Priorities

• Cost: Minimize costs to achieve price competitiveness
• Quality: Focus on delivering high-quality products or services
• Delivery: Ensure timely and reliable delivery to meet customer deadlines
• Flexibility: Adapt to changing customer needs and market conditions

Capacity

• The maximum output that a resource can produce in a given period
• Critical for meeting demand and avoiding bottlenecks

Inventory Costs

• The expenses associated with holding inventory, including:
  • Storage costs
  • Insurance
  • Opportunity costs (lost revenue from investment)
  • Obsolescence costs

Overall Inventory Level

• The amount of inventory on hand at a given time
• Measured as:
  • Stock weeks: Number of weeks of supply

Production Plan Adherence

• Measures how closely actual production output aligns with the planned schedule
• Percentage of products that meet production targets

Service Level

• Measures how timely and accurately customers’ orders are fulfilled
• Measured as:
  • Percentage of orders shipped on time and in full (OTIF)

Tradeoffs - Performance vs Costs

• Tradeoffs between competitive priorities and cost
• Decisions based on cost-benefit analysis
• Higher performance usually comes with higher costs
• Finding an optimal balance based on organizational needs

Tradeoffs - cost vs profit

• Balancing spending on supply chain improvements with profitability
• Investing too much may reduce profits due to high costs
• Investing too little may impact customer satisfaction and profitability

Sales & Supply Chain Decisions

• Sales: - Trade units - Picking time - Shelf life
• Supply Chain: - Safety stock - Stock weeks

What is a contracted index?

• A numerical measure used in agreements to adjust prices based on market changes
• Tracks fluctuations in the price of materials or products, allowing for fair adjustments to the sale price
• Benefits both buyers and sellers by ensuring accurate and consistent pricing

Contract Index

• Promise/Requirement: The agreed-upon quantity and specifications of the product or service
• Contract index: The numerical value used to adjust prices based on market fluctuations
• Basic price (*): The base price of the product or service
• Purchase/Sales price: The final price paid or received, adjusted by the contract index
• Contract index values: Based on widely accepted industry benchmarks or custom indexes

Measuring the impact of the change in contract index...Sales Decisions:

• Higher Index: May result in increased selling prices, impacting revenue
• Lower Index: May result in reduced selling prices, impacting revenue

Service Level

• A measure of how well a company fulfills customer orders on time and in full
• Impact on ROI: Higher service levels lead to improved customer satisfaction, increased sales, and higher ROI
• Understanding service level is critical for planning, forecasting, and resource allocation

What is service level and how is it measured? Impact on ROI?

• Service level: Measurement of how frequently a company meets customer needs and timely delivery
• Measured by: Percentage of on-time deliveries, order accuracy, perfect order fulfillment rate
• Impact on ROI: Positive correlation, higher level of service, higher customer satisfaction, repeat business, and ultimately improved ROI

What causes low service levels?

• Inventory shortages
• Production delays
• Logistical issues
• Order inaccuracies

What is the impact of low service levels?

• Lost sales
• Negative impact on customer relations
• Reduced profits
• Increased operational costs

Understanding Order Deadline

• This determines when a customer expects to receive the order
• Critical for planning production and logistics
• Short deadlines may require expedited shipping and additional resources

What are the shortage rule options?

• Backorder: Hold the order until stock becomes available
• Lost order: Refuse the order and avoid missing the shipment deadline
• Partial shipment: Send what you can from available inventory now.
• Substitute: Send an alternate product to fulfill the order

Purchasing Delivery Reliability

• Measures how consistently a supplier delivers on time and in full
• Important for managing lead times and planning inventory
• Low delivery reliability can lead to production delays and stockouts

Purchasing...Understanding Delivery Window

• The time frame within which deliveries from suppliers are expected
• Important for planning production and inventory
• Must be carefully considered for timely order fulfillment and avoiding delays

Lead times?

• The time between ordering a product or service and its actual receipt
• Includes: Production time, delivery time, processing time
• Key for determining production schedules and ensuring timely deliveries
• Longer lead times can increase production costs and affect customer satisfaction

How to determine the net change in revenue based on the new and old contract index?

• Step 1: Calculate the difference between the new and old contract index
• Step 2: Determine the percentage change in the index
• Step 3: Calculate the change in revenue by multiplying the percentage change in the index by the contracted sales revenue
• Step 4: Add the change in revenue to the old contracted sales revenue
• Step 5: Adjust the revenue for any bonus or penalties involved

Understanding stock

• Safety stock: Extra inventory kept on hand to mitigate against unexpected demand or supply chain disruptions
• Stock weeks: Represents the number of weeks of supply available based on current inventory levels

What is safety stock? And how can you determine how much you need?

• Safety stock: Extra inventory kept on hand to mitigate against unexpected demand or supply chain disruptions
• Determining how much you need: Consider:
  • Demand variability (how unpredictable is the demand?)
  • Lead time variability (how unpredictable is the delivery process?)
  • Service level goal (how often do you want to meet customer demand?)

What drives the need for safety stock?

• Demand fluctuation
• Lead time variability
• Service level requirements
• Disruptions to the supply chain
• Product obsolescence

Safety stock protects you from uncertainty and stock outs

• Higher safety stock: Reduces the risk of stockouts but increases costs
• Lower safety stock: Increases the risk of stockouts but reduces costs
• Finding the right balance: Consider your risk tolerance and service level targets

Safety Stock Determination - Components

• Demand uncertainty: How much does demand fluctuate?
• Lead time uncertainty: How much does the time it takes to receive an order vary?

Safety Stock Determination - Finished Product

• Demand: How much of the finished product is expected to be sold?
• Lead time: How long does it take to get the finished product?

Safety Stock Estimation

• Consider available data, historical trends, and industry benchmarks

Operations...Capacity and Resource Availability

• Impact of lack of capacity:
  • Increased lead times
  • Reduced service levels
  • Higher production costs
  • Missed sales opportunities

Operations - Pallet Locations

• Determining the number of pallet locations:
  • Available warehouse space
  • Product size and configuration
  • Inventory turnover rates

Utilization = usage/capacity

• Utilization: Measures how effectively a resource is being used
• Factors influencing pallet location needs:
  • Pallet size
  • Warehouse layout
  • Product flow
  • Inventory management practices
  • Seasonality

Remember...

• Maintaining adequate capacity is essential for fulfilling orders and minimizing production delays
• Balancing capacity with demand is critical for optimizing operational efficiency and profitability

What is lot size? And how can it be determined?

• Lot size: The quantity of a product produced or ordered in a single batch
• Determining lot size: Consider:
  • Production capacity
  • Demand forecast
  • Storage costs
  • Set-up costs

What is inventory and its purpose?

• Inventory: A collection of all the raw materials, work-in-progress, and finished goods stored by a company
• Purpose of inventory:
  • Meeting customer demand
  • Smoothing production schedules
  • Taking advantage of economies of scale
  • Protecting against supply chain disruptions

What are the costs associated with inventory?

• Holding costs: Expense of storing inventory (e.g., warehouse costs, insurance, obsolescence)
• Ordering costs: Expenses related to placing an order (e.g., administration, transportation)
• Shortage costs: Penalties for running out of stock (e.g., lost sales, customer dissatisfaction)
• Opportunity costs: Lost potential return from investing inventory capital

What is a production interval and frozen period?

• Production interval: The time period dedicated to a specific production run
• Frozen period: A time frame during which orders and production plans are not allowed to change

How should you evaluate the production interval which is best for each period?

• Consider:
  • Demand patterns
  • Customer lead times
  • Production capacity
  • Inventory levels

How does the frozen period, production interval and safety stock impact obsolescence?

• Longer frozen period: Increased risk of obsolescence if demand changes
• Shorter production interval: More frequent production runs, potentially lower risk of obsolescence
• Higher safety stock: Reduced risk of stockouts, potentially lower risk of obsolescence

Determine the material required based on demand using MRP

• Material Requirements planning (MRP): A planning system that utilizes material requirements planning (MRP) to determine the components required for each product based on forecasted demand
• Steps involved in MRP:
  • Forecast demand (how much product will you need?)
  • Determine the bill of materials (BOM) (what components are needed for each product?)
  • Calculate the required material by multiplying the BOM with the demand
  • Generate purchase orders (place orders for the necessary materials)
  • Monitor inventory levels (check if the required materials are available?)

Lecture 9 - Round 1 Debrief, Round 2 Prep and Inventory Concepts

New Decisions - Sales & Purchasing

• Trade unit: The quantity of product sold or purchased in a single transaction
• Picking time: Time required to gather and prepare an order for shipment
• Shelf life: The length of time a product can be stored without becoming unusable

Sales - Trade Unit

• Customers often purchase varying amounts of each product
• Trade unit: The quantity of product sold in a single transaction

Sales - Trade Unit

• Determining the "best" trade unit:
  • Consider customer demand
  • Inventory carrying costs
  • Transportation costs
  • Customer satisfaction

How to evaluate?

• Analyze customer order patterns
• Compare trade unit options
• Assess trade-offs between cost and customer service

Pro's and Con's

• Large trade unit: Lower order and shipping costs but higher inventory carrying costs
• Small trade unit: Higher order and shipping costs but lower inventory carrying costs

New Decision - Sales

• Trade unit calculator: Tool to help determine the optimal trade unit based on demand and other factors
• Factors to consider:
  • Product demand
  • Lead times
  • Average order size
  • Transportation costs
  • Customer preferences

Trade Unit Calculator

• Determine the optimal trade unit based on demand and other factors

What to consider by customer/product?

• Order frequency: How often do customers order?
• Average order size: How much do customers typically buy?
• Product demand: How popular is the product?

New Decision Sales

• Shelf life: The length of time a product can be stored without becoming unusable
• Factors influencing shelf life
  • Product characteristics
  • Storage conditions
  • Packaging

Lecture 11 - Logistics Management

Logistics

• The process of planning, implementing, and controlling the flow of goods, services, and related information
• Purpose: Ensuring the efficient and timely delivery of goods and services from point of origin to point of consumption

The Challenge:

• Meeting customer needs: Delivering on time and within budget
• Minimizing costs: Optimizing transportation, storage, and handling expenses
• Managing complexity: Coordinating multiple functions and stakeholders

Total Landed Costs

• The total cost of a product, including all expenses incurred from origin to final destination
• Includes:
  • Purchasing cost
  • Transportation
  • Storage
  • Handling
  • Insurance

Transportation Management

• Making decisions about transportation modes, carriers, routes, and schedules
• Objective: Efficiently and cost-effectively moving goods to the intended destination

Government's Role:

• Regulation: Setting standards for carrier safety, environmental protection, and trade practices
• Infrastructure: Investing in roads, ports, and airports

Government Regulations

• Safety regulations: Ensuring the safe operation of transportation vehicles
• Environmental regulations: Minimizing the environmental impact of transport operations
• Trade regulations: Controlling the flow of goods across borders

Goal of trade agreements

• Facilitating international trade
• Reducing trade barriers between countries

Modes of Transportation

• Road (Trucking): Flexible and widely available but can be susceptible to traffic congestion and weather delays
• Rail: Cost-effective for long distances but less flexible than trucking
• Water (Shipping): Cost-effective option for large quantities over long distances but subject to port congestion and weather disruptions
• Air: Fastest mode of transport but most expensive
• Pipelines: Suitable for transporting liquids and gases but lack of flexibility and potential environmental concerns

By Water - Ocean Freight

• Cost-effective option for transporting large quantities over long distances
• Suitable for: Bulk commodities, manufactured goods, and containerized cargo

By Water - Inland Waterways

• Transportation on rivers, canals, and lakes
• Suitable for: Heavier goods and bulk materials

Air

• Air freight: Used for high-value, time-sensitive, and perishable goods

Air freight

• Provides the fastest delivery times, but it is also the most expensive mode of transport

Land Transportation

• Railroad: Cost-effective, large capacity, and can be used for long distances but less flexible than trucking

Trucking Segments

• Long haul: Transports goods across long distances, often between states or provinces
• Short haul: Transports goods over shorter distances, often within a city or region
• Local trucking: Provides door-to-door delivery within a particular area
• Specialized carriers: Transport goods that require specific handling or equipment, such as refrigerated trucks, flatbeds, and tankers

Intermodal

• Combining multiple modes of transportation to maximize efficiency
• Example: Shipping goods by rail to a port and then by ship to a customer’s location

Pipelines

• Transportation of liquids and gases through underground pipes
• Suitable for: Crude oil, natural gas, water, and other fluids

Service Selection

• Consider:
  • Transportation cost
  • Delivery time
  • Reliability
  • Carrier availability

Fresh Connections - Transportation Modes

• Supply chain uses a combination of truck and boat transportation:
  • Trucks used to transport goods from suppliers
  • Boats used to ship bulk commodities
• Finished products are transported by trucks: Ensuring timely delivery to customers

The cost of transporting

• Factors influencing transportation costs:
  • Distance
  • Weight
  • Mode of transport
  • Carrier availability
  • Fuel prices

Lecture 12 - Tradeoffs and Financial Implications

What is ROI?

• Return on investment: A measure of how much profit is generated from an investment
• Calculates the effectiveness of an investment

How is ROI calculated?

• (Gain from Investment - Cost of Investment) / Cost of Investment

Trade-Offs

• Cost vs. performance: Balancing the need to minimize costs with the need to meet customer expectations
• Centralization vs. decentralization: Deciding whether to manage the supply chain centrally or to delegate responsibilities to individual departments
• Inventory vs. service: Finding the right balance between carrying inventory and meeting customer service needs

In the supply chain..Cost benefit analysis

• Analyzing the costs and benefits of different supply chain decisions
• Weighing the potential risks and rewards of each decision
• Evaluating the return on investment of supply chain improvements

Understanding the financial implications of decisions

• Assessing the impact of supply chain decisions on profitability, cash flow, and other financial metrics
• Analyzing the cost-benefit analysis of different options

Increase Safety Stock

• Increased safety stock: A supply chain strategy that is used to minimize the risk of stockouts
• Higher inventory levels: Can improve service but also carry higher costs
• Important to find a balance between stock levels and costs

Customer Service Level

• Improved customer service levels: Lead to higher satisfaction and increased retention
• Higher service levels: May result in higher costs, but can also drive revenue growth

What about component Safety stock?

• Holding safety stock for components essential to fulfill orders for finished products

Calculations Must Knows:

• Calculating ROI:
  • ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
• Calculating gross margin:
  • Gross margin = Realized revenue - Cost of goods sold
• Calculating operating profit:
  • Operating profit = Gross margin - Indirect costs
• Calculating safety stock:
  • Safety stock = (Demand variability * Lead time variability) + Service level factor
• Calculating inventory turnover:
  • Inventory turnover = Cost of goods sold / Average inventory
• Calculating lead time:
  • Lead time = Time from order placement to order receipt
• Calculating service level:
  • Service level = (Number of orders fulfilled on time) / (Total number of orders)
• Calculating utilization:
  • Utilization = (Usage / Capacity)

Warehouse Capacity

• Understanding the maximum storage capacity of the warehouse
• Factors influencing warehouse capacity:
  • Warehouse size
  • Pallet configuration
  • Storage height

Bottling Line Capacity

• Understanding the maximum output capacity of the bottling line
• Factors influencing bottling line capacity:
  • Bottling line speed
  • Number of bottling lines
  • Production scheduling