MGSC - 492 Exam 1

MGSC - 492 Exam 1 What is the lifeblood of supply chain? - ✔✔Inventory What is the inventory turns formula? - ✔✔the annual Cost of Goods Sold / the average annual inventory Example of a company who has annual C ...

MGSC - 492 Exam 1 What is the lifeblood of supply chain? - ✔✔Inventory What is the inventory turns formula? - ✔✔the annual Cost of Goods Sold / the average annual inventory Example of a company who has annual Cost of Goods Sold of $200,000 and the average annual inventory has been $50,000. - ✔✔Inventory turns would be 4 = $200,000 / $50,000 Example of inventory turns: - ✔✔Management in the above example sets the inventory turns goal to 8. Currently they are at 4. If cost of goods remain the same (same sales), $200,000, then theoretically, they should get by with $25,000 annual inventory, $200,000 cost of goods sold / 8 inventory turns =$25,000 The savings the first year would be $25,000 = $50,000 - $25,000 What are the three major components of inventory carrying cost? - ✔✔1) Capital Cost 2) Storage Cost 3) Risk Cost What is Capital Cost? - ✔✔When you purchase inventory you not only pay the price for the inventory and inspection cost, but transportation and if overseas customers charges. This gets inventory on your books. Capital cost is the cost of using your money and not getting a return. If you have money in inventory and the going money rate is 6%, then the capital cost is 6% of the amount you have in inventory. Another way of thinking about this is if you borrow funds and the rate is 6% interest and buy inventory with it, you will pay the bank 6% in interest over a period of time. So, it cost you 6% interest to own the inventory. What is Storage Cost? - ✔✔The cost of the warehouse space, the cost of the warehouse labor, cycle counting, and any equipment. This will increase as the amount of inventory increases. What is Risk Cost? - ✔✔When inventory is stored it is at risk. It can become damaged - there can be accidents in the distribution center that makes the inventory no longer usable (a fork truck crushes a box of small copper parts), it can be pilfered (stolen), it can become obsolete, etc. Inventory Carrying Costs Example - ✔✔From our accountants we are told the inventory carrying cost in this company is 30% and this cost is annual (every year). Before the improvement the average annual inventory was $50,000, then the cost of carrying the inventory every year was $50,000 * 30% = $15,000. But since the inventory was reduced to $25,000, the inventory carrying cost is $25,000 * 30% = $7,500. So, the difference is $7,500 = $15,000 - $7,500. So, with the new reduction in inventory, the company is saving $7,500 each year that they do not have to pay in interest, storage cost, and risk cost that are written off. Days of Supply Example - ✔✔There are 600 pieces on hand with an average daily usage of 30. The days of supply for this part is 600/30 = 20 days. So, in 20 days, the part should run out. ABC analysis - ✔✔20% of the parts will contribute to 80% of the inventory value ABC Analysis Example - ✔✔You have a part whose order qty is 800. The average inventory for this part over time is 400 (800/2). A fixed lot multiple of 20 would generate an order in the ERP System for 60 if the net requirement was 59. Average Inventory Calculations with Safety Stock - ✔✔Order qty is 800 and safety stock is 100. The average inventory is (800/2) + 100 = 500 How much does logistics represent of GDP in countries? Is it lower or higher in developing countries? - ✔✔Logistics represents between 8 and 18 percent of the GDP in countries. Developing countries will have a higher percentage. Every industry has its own _________ and each company has its own _______. - ✔✔Every industry has its own characteristics and each company has its own variations in strategy, size, range of product, market coverage, etc. How does cash flow for customer returns? - ✔✔For customer returns the cash flows from left to right - back to the customer. Major Components of Distribution and Logistics - ✔✔-Transport 47% in study in 2014 -Warehousing 21% -Inventory 24% (inventory carrying costs) -Packaging 3% -Information 5% (includes customer service) Two Key Factors in Importance of Logistics in Industry - ✔✔-Small companies tend to have proportionately higher cost than large. -Companies with higher product value tend to have proportionally lower logistics costs. -Low value like cement has a higher cost - very heavy. In the physical flow of materials: - ✔✔-20%-30% getting the product in and consolidation from the suppliers -30%+ in storage and distribution of finished product. What is the Total Logistics Concept? - ✔✔Treating the many different elements of distribution and logistics as one single integrated system. Complexity provides some significant implications for logistics: - ✔✔-Extended supply lead times -Production postponement with local added values -Complicated node management -Multiple freight transport options -Extended and unreliable transit times -The need for greater visibility in the supply chain 1st element of logistics-related customer service - ✔✔Pre-transaction elements: these are logistic customer service factors that arise prior to the actual transaction taking place 2nd element of logistics-related customer service - ✔✔Transaction elements: Directly related to the physical transaction 1. Order cycle time 2. Order preparation 3. Inventory availability 4. Delivery alternatives 5. Delivery time 6. Delivery reliability 7. Delivery of complete order 8. Condition of goods 9. Order status information 3rd element of logistics-related customer service - ✔✔Post-transaction elements: after delivery has taken place For main multifunctional dimensions of customer service - ✔✔1. Time - usually order fulfillment cycle time 2. Dependability - such as guaranteed fixed delivery times of accurate, undamaged orders. 3. Communications - such as the ease of order taking or effect queries response. 4. Flexibility - the ability to recognize and respond to a customer's changing needs. It is __________ possible to devise a policy that absolutely optimizes the cost/service balance. - ✔✔seldom Companies usually adopt one of two main approaches in customer service. - ✔✔1. A cost minimization approach where specific service objectives are laid down and met at a minimum cost. 2. A service maximization approach where a distribution budget is fixed and the "best" service supplied within this cost constraint. The cost of providing a given service is marked _______ the nearer it reaches the "perfect service" (aka 100%) - ✔✔higher A service increase from 95 to 97 percent may well have ________________ noticeable impact on the customer. - ✔✔little, if any What is the Perfect Order? - ✔✔A measure that attempts to account for all the main attributes that go towards the completion of an order that ABSOLUTELY satisfied customer requirements. -Delivered complete to the quantities ordered. -Delivered complete exactly to the customer's requested date and time. -No delivery problems (damage, shortage, refusal) -Accurate and complete delivery documentation. What is a Service Level Agreement? - ✔✔A contract drawn up between a supplier or service provider and the end user or customer that defines the level of service expected. -Usually external but can be internal for large companies Major factors of the customer service explosion - ✔✔1) The growth in customer expectations 2) The growing professionalism of buyers 3) Markets have become increasingly service-sensitive - there is little else to differentiate between products 4) The diminution of brand loyalty, particularly with respect to fast-moving consumer goods where immediate product availability is the vital factor 5) The development of new ideas such as relationship marketing where fulfilling service expectations is the key and customer retention is a priority 6) The availability of information systems that enable more accurate, more timely, more reliable and thus more effective measure of service to be used. Market Characteristics - ✔✔Size, spread, and density of the market is important. If the market is large, widely spread out, then a "long" channel is used. A long channel is one where there are several different storage points and a number of different movements as the product is transferred from the point of production to the final customer. A short channel is used if there are few buyers in a limited geographical area Product Characteristics - ✔✔High-value items are more likely to be sold direct via a short channel (also the security aspect of a high-value item makes a short channel much more attractive - less opportunity for loss. Complex products require ______ sell. - ✔✔Complex products require DIRECT sell. New products may be distributed via a ______ channel. - ✔✔New products may be distributed via a THIRD PARTY channel. Time sensitive products need a ______________. - ✔✔Time sensitive products need a FAST or SHORT channel. Products with handling constraints may require a ____________ distribution channel. - ✔✔Products with handling constraints may require a SPECIALIST PHYSICAL distribution channel. Competitive Characteristics - ✔✔Two main options: -Sell the product alongside of similar competitive products.