Supply Chain Management Concepts

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Questions and Answers

Which of the following best defines predictable variability in a supply chain?

  • Unexpected fluctuations in demand that are challenging to forecast.
  • A combination of changes in supply and demand that are impossible to predict.
  • Variations in supply due to unforeseen circumstances.
  • Changes in demand that can be anticipated and forecasted. (correct)

Which of the following is NOT a method of managing supply in response to predictable variability?

  • Adjusting workforce time flexibility.
  • Using a seasonal workforce.
  • Implementing short-term price discounts. (correct)
  • Subcontracting production activities.

What is a key trade-off to consider when managing inventory and capacity in a supply chain experiencing predictable variability?

  • Balancing the cost of promotions against the cost of product development.
  • Balancing the cost of holding inventory against the cost of adapting capacity. (correct)
  • Balancing the cost of subcontracting against the cost of a seasonal workforce.
  • Balancing the cost of holding inventory against the number of product variants.

According to the content, which of the following is NOT a factor that leads to increased demand when promotions are used?

<p>Increased production complexity. (A)</p> Signup and view all the answers

Which of the following is a key consideration when deciding the timing of a promotion?

<p>All of the above. (D)</p> Signup and view all the answers

According to the provided material, when is a promotion favored during low-demand periods?

<p>When forward buying is high. (D)</p> Signup and view all the answers

Which situation favors promotions during peak-demand periods?

<p>High ability to steal market share. (B)</p> Signup and view all the answers

What impact does high retailer holding cost have on forward buying?

<p>It decreases forward buying by the retailer. (D)</p> Signup and view all the answers

According to the provided information, what is the impact on average inventory if a promotion is run during the off-peak period?

<p>Average inventory decreases. (D)</p> Signup and view all the answers

Under what conditions is promoting during a peak-demand month likely to decrease overall profitability, as mentioned in the text?

<p>When there is a small increase in consumption and a significant forward buy. (B)</p> Signup and view all the answers

What is the effect on profitability as the product margin declines in relation to promoting during the peak-demand period?

<p>It becomes less profitable. (D)</p> Signup and view all the answers

What should a company use when faced with seasonal demand to improve profitability?

<p>A combination of pricing, production, and inventory. (D)</p> Signup and view all the answers

What is necessary to maximize profitability for a company, according to the text?

<p>The entire supply chain working towards a common goal. (A)</p> Signup and view all the answers

Flashcards

What is predictable variability?

Predictable variability refers to changes in demand that can be anticipated and forecasted. These changes can significantly impact supply chain performance, leading to increased costs and reduced responsiveness.

How do we manage supply in a predictable demand environment?

Managing supply involves adapting your production capacity to handle predictable fluctuations in demand. This can include strategies like adjusting workforce size, using temporary workers, investing in flexible production processes, or outsourcing to subcontractors.

How do we manage inventory in a predictable demand environment?

Managing inventory for predictable demand involves using common components across different products and building up inventory for items with high or predictable demand. This helps you stay ahead of fluctuations.

Explain the inventory/capacity trade-off.

Balancing capacity and inventory is a crucial decision. Either you can maintain consistent production capacity and build up inventory for peak seasons, or you can adjust your capacity levels to match demand fluctuations, requiring potentially less inventory.

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How do we manage demand in a predictable demand environment?

Managing demand for predictable variability often involves using promotions, discounts, and other strategies to influence customer behavior and even out demand peaks and valleys. This can be achieved by stimulating growth, stealing market share, or even encouraging forward buying by customers.

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Forward Buying

A promotion during a low-demand period can encourage customers to stock up and purchase more than they need, ultimately shifting demand to a later time.

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Promotion Elasticity

The higher the percentage increase in demand due to a promotion, the less likely it is that the promotion will generate a large profit.

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Peak Demand

Increasing production during the off-peak season to meet peak demand can help to lower costs and reduce the impact of stockouts.

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Off-Peak Period

This is the period of time when demand is lower than average and resources are less utilized.

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Consumption Increase

The increase in demand that occurs due to a promotion, which may be a result of consumers buying more than they usually would or buying earlier than they would have.

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Forward Buy

This occurs when consumers purchase more of a product during a promotion than they would have otherwise, with the intention of using it later.

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Promotion Profit

The profit generated from purchases made during a promotion, including the difference between the regular price and the promotional price and the cost of the product.

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Supply Chain Management (SCM)

A comprehensive process that involves planning, executing, and monitoring the supply chain to meet customer needs and optimize profitability.

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Study Notes

Predictable Variability in Supply Chains

  • Predictable variability in demand can be forecasted, but it can negatively affect supply chain costs and responsiveness.
  • Two main approaches to managing predictable variability:
    • Manage supply: Adjust capacity, inventory, subcontracting, and backlogs.
    • Manage demand: Employ short-term price discounts and promotions.

Managing Supply

  • Capacity:
    • Flexible workforce scheduling (time flexibility, seasonal hiring).
    • Dual facilities (specialized and general-purpose).
    • Subcontracting.
    • Design flexibility into product production processes.
  • Inventory:
    • Use common components across multiple products.
    • Build inventory for items with high demand or predictable demand.

Inventory/Capacity Trade-Off

  • Maintaining consistent capacity levels leads to higher inventory levels to meet seasonal demand variations.
  • Low inventory levels require high capacity adjustments to handle peak demand periods.

Managing Demand

  • Promotions can drive demand growth via:
    • Market expansion.
    • Competitive advantage.
    • Forward buying (customers stock up).
  • Timing promotion factors:
    • Promotion's impact on demand.
    • Inventory holding costs.
    • Capacity adjustment costs.
    • Product margins.
  • Promotion timing table (Table 9-1):
    • High forward buying: promote during low demand.
    • Strong market share gain: promote during peak demand.
    • Large overall market increase: promote during peak demand.
    • High margin: promote during peak demand.
    • Low margin: promote during low demand.
    • High manufacturer/retailer holding costs: promote during low demand.
    • High capacity change costs: promote during low demand.
  • Promotion effectiveness: Analyze promotion impact on demand, and develop optimal aggregate plan.
  • When to promote: better to promote during peak or off-peak?

Supply Chain Performance (Table 9-3)

  • Promotion during peak demand can lead to increased inventory if the demand boost is affected mostly by inventory stocking rather than genuine customer demand.
  • Profitability can decrease if a promotion only marginally increases customer consumption but causes a significant forward buy.
  • Profitability increases as promotion increases consumer usage, with the proportion of forward buy decreasing.
  • Lower product margins make promoting during peak demand less desirable.

Conclusions about Promotion

  • Average inventory increases with promotions during peak periods and decreases during off-peak periods.

  • Promoting during peak demand can decrease profit if large forward buying occurs.

  • More profitable to promote during peak if the demand increase is primarily from customer usage (not forward buys).

  • Lower margins make peak demand promotions less profitable.

  • Optimizing profitability requires a coordinated approach involving pricing, production, and inventory management.

  • Achieving the best outcome requires the alignment and coordinated effort of the entire supply chain.

  • Strong organizational support and early warning alerts in the sales and operations planning (S&OP) process are crucial.

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