Chapter 3 Supply Chain Drivers and Metrics

True/False 1. The major drivers of supply chain performance are facilities, inventory, transportation, and information. Answer True Difficulty Moderate The major drivers of supply chain performance are customers, facilities, inventory, transportation, and information. Answer "alse Difficulty Moderate The two major types of facilities are production sites and stora#e sites. Answer True Difficulty Moderate The two major types of facilities are distri%ution sites and stora#e sites. Answer "alse Difficulty Moderate 'nventory is an important supply chain driver %ecause chan#in# inventory policies can dramatically alter the supply chain(s efficiency and responsiveness. Answer True Difficulty Moderate 'nformation is potentially the %i##est driver of performance in the supply chain as it directly affects each of the other drivers. Answer True Difficulty *asy 'nformation is potentially the %i##est driver of performance in the supply chain even thou#h it has little impact on each of the other drivers. Answer "alse Difficulty *asy A facility with little e-cess capacity will li.ely %e more efficient per unit of product it produces than one with a lot of unused capacity. Answer True Difficulty *asy A facility with little e-cess capacity will li.ely %e no more or less efficient per unit of product it produces than one with a lot of unused capacity. Answer "alse Difficulty *asy

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The hi#h utili1ation facility will have difficulty respondin# to demand fluctuations. Answer True Difficulty *asy The hi#h utili1ation facility will have no more difficulty respondin# to demand fluctuations than one with a lot of unused capacity. Answer "alse Difficulty *asy Stoc. .eepin# unit 2S345 stora#e is the warehousin# methodolo#y that uses a traditional warehouse to store all of one type of product to#ether. Answer True Difficulty Moderate 6arehouse unit stora#e is the warehousin# methodolo#y that uses a traditional warehouse to store all of one type of product to#ether. Answer "alse Difficulty Moderate The components of inventory decisions include cycle inventory, safety inventory, seasonal inventory, and sourcin#. Answer True Difficulty *asy The components of inventory decisions include capacity, cycle inventory, safety inventory, seasonal inventory, and sourcin#. Answer "alse Difficulty *asy Cycle inventory is inventory that is %uilt up to counter predicta%le varia%ility in demand. Answer "alse Difficulty *asy Seasonal inventory is inventory that is %uilt up to counter predicta%le varia%ility in demand. Answer True Difficulty Moderate Companies usin# seasonal inventory will %uild up inventory in periods of low demand and store it for periods of hi#h demand when they will not have the capacity to produce all that is demanded. Answer True Difficulty Moderate Companies usin# seasonal inventory will maintain a level inventory increase rate of production for periods of hi#h demand. Answer "alse Difficulty *asy

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A company(s a%ility to find a %alance %etween responsiveness and efficiency that %est matches the needs of the customer it is tar#etin# is the .ey to achievin# strate#ic fit. Answer True Difficulty Moderate

Multiple Choice 1. 6hich of the followin# is not a major driver of supply chain performance7 a. "acilities %. 'nventory c. Transportation d. 'nformation e. All of the a%ove are major drivers of supply chain performance. Answer e Difficulty *asy !. 6hich of the followin# is not a major driver of supply chain performance7 a. Customers %. "acilities c. 'nventory d. Transportation e. 'nformation Answer a Difficulty Moderate 3. The places in the supply chain networ. where product is stored, assem%led, or fa%ricated are .nown as a. facilities. %. inventory. c. transportation. d. information. e. customers. Answer a Difficulty *asy $. All raw materials, wor. in process, and finished #oods within a supply chain are .nown as a. facilities. %. inventory. c. transportation. d. information. e. customers. Answer % Difficulty *asy &. Movin# inventory from point to point in the supply is .nown as a. facilities. %. inventory.

c. transportation. d. information. e. customers. Answer c Difficulty *asy ). The data and analysis concernin# facilities, inventory, transportation, and customers throu#hout the supply chain is .nown as a. facilities. %. inventory. c. transportation. d. information. e. customers. Answer d Difficulty *asy +. The two major types of facilities are a. distri%ution sites and stora#e sites. %. production sites and distri%ution sites. c. production sites and stora#e sites. d. retail sites and distri%ution sites. e. distri%ution sites and inventory sites. Answer c Difficulty Moderate ,. 6hich component of the supply chain decision8ma.in# framewor. would %e esta%lished first7 a. Customer strate#y %. Supply chain strate#y c. Supply chain structure d. Competitive strate#y e. 9eplenishment strate#y Answer d Difficulty Moderate /. 6hich component of the supply chain decision8ma.in# framewor. would %e esta%lished second7 a. Customer strate#y %. Supply chain strate#y c. Supply chain structure d. Competitive strate#y e. 9eplenishment strate#y Answer % Difficulty Moderate 10. 6hich component of the supply chain decision8ma.in# framewor. would %e used to reach the performance level dictated %y the supply chain strate#y7 a. Customer strate#y %. Supply chain strate#y c. Supply chain structure d. Competitive strate#y

e. 9eplenishment strate#y Answer c Difficulty *asy 11. 6hich of the followin# is not a component of facilities decisions7 a. :ocation %. Capacity c. ;perations methodolo#y d. 6arehousin# methodolo#y e. All of the a%ove are components of facilities decisions. Answer e Difficulty Moderate 1!. 6hich of the followin# is not a component of facilities decisions7 a. 6arehousin# methodolo#y %. "orecastin# methodolo#y c. ;perations methodolo#y d. Capacity e. :ocation Answer % Difficulty Moderate 13. 6hich of the followin# statements concernin# decisions re#ardin# location of facilities is false7 a. Decidin# where a company will locate its facilities constitutes a lar#e part of the desi#n of a supply chain. %. A %asic trade8off here is whether to centrali1e to #ain economies of scale or decentrali1e to %ecome more responsive %y %ein# closer to the customer. c. Companies must also consider a host of issues related to the various characteristics of the local area in which the facility may %e situated. d. All of these statements are true. e. <one of these statements are true. Answer d Difficulty Moderate 1$. 6hich of the followin# is not an issue companies need to consider in facility location decisions7 a. =uality of wor.ers %. product development c. pro-imity to customers and the rest of the networ. d. cost of facility e. ta- effects Answer % Difficulty Moderate 1&. 6hich of the followin# is not an issue companies need to consider in facility location decisions7 a. =uality of wor.ers %. availa%ility of infrastructure c. pro-imity to customers and the rest of the networ.

d. cost of facility e. All of the a%ove are issues companies need to consider in facility location decisions. Answer e Difficulty Moderate 1). *-cess capacity a. allows a facility to %e very fle-i%le and to respond to wide swin#s in the demands placed on it. %. costs money and therefore can decrease efficiency. c. re=uires pro-imity to customers and the rest of the networ.. d. %oth a and % e. all of the a%ove Answer d Difficulty Moderate 1+. 6hich of the followin# is a characteristic of a facility with e-cess capacity7 a. will li.ely %e more efficient per unit of product it produces than one with a lot of unused capacity %. would %e very fle-i%le and to respond to wide swin#s in the demands placed on it c. would %e considered a hi#h utili1ation facility d. will have difficulty respondin# to demand fluctuations e. none of the a%ove Answer a Difficulty *asy 1,. A facility with little e-cess capacity a. will li.ely %e more efficient per unit of product it produces than one with a lot of unused capacity. %. would %e considered a hi#h utili1ation facility. c. will have difficulty respondin# to demand fluctuations. d. All of the a%ove are true. e. <one of the a%ove are true. Answer d Difficulty Moderate 1/. 6hich of the followin# would %e a characteristic of a facility with little e-cess capacity7 a. allows a facility to %e very fle-i%le and to respond to wide swin#s in the demands placed on it %. costs money and therefore can decrease efficiency c. re=uires pro-imity to customers and the rest of the networ. d. will li.ely %e more efficient per unit of product it produces e. none of the a%ove Answer d Difficulty Moderate !0. 6hich of the followin# is not a warehousin# methodolo#y7 a. 6arehouse unit stora#e %. Stoc. .eepin# unit 2S345 stora#e

c. >o% lot stora#e d. Cross8doc.in# e. All of the a%ove are warehousin# methodolo#ies. Answer a Difficulty Moderate !1. The warehousin# methodolo#y that uses a traditional warehouse to store all of one type of product to#ether is a. warehouse unit stora#e. %. stoc. .eepin# unit 2S345 stora#e. c. jo% lot stora#e. d. cross8doc.in#. e. none of the a%ove Answer % Difficulty Moderate !!. The warehousin# methodolo#y in which all the different types of products needed to perform a particular jo% or satisfy a particular type of customer are stored to#ether is a. warehouse unit stora#e. %. stoc. .eepin# unit 2S345 stora#e. c. jo% lot stora#e. d. cross8doc.in#. e. none of the a%ove Answer c Difficulty Moderate !3. The followin# warehousin# methodolo#y is one in which #oods are not actually warehoused in a facility. 'nstead, truc.s from suppliers, each carryin# a different type of product, deliver #oods to a facility. There the inventory is %ro.en into smaller lots and =uic.ly loaded onto store8%ound truc.s that carry a variety of products, some from each of the supplier truc.s. a. warehouse unit stora#e %. stoc. .eepin# unit 2S345 stora#e c. jo% lot stora#e d. cross8doc.in# e. none of the a%ove Answer d Difficulty Moderate !$. All of the followin# are components of inventory decisions except a. cycle inventory. %. safety inventory. c. seasonal inventory. d. sourcin#. e. All of the a%ove are components of inventory decisions. Answer e Difficulty *asy !&. All of the followin# are components of inventory decisions except a. capacity. %. cycle inventory.

c. safety inventory. d. seasonal inventory. e. sourcin#. Answer a Difficulty *asy !). The avera#e amount of inventory used to satisfy demand %etween receipt of supplier shipments is referred to as a. cycle inventory. %. safety inventory. c. seasonal inventory. d. sourcin#. e. none of the a%ove Answer a Difficulty Moderate !+. The inventory that is %uilt up to counter predicta%le varia%ility in demand is called a. cycle inventory. %. safety inventory. c. seasonal inventory. d. sourcin#. e. none of the a%ove Answer c Difficulty Moderate !,. The inventory held in case demand e-ceeds e-pectation in order to counter uncertainty is called a. cycle inventory. %. safety inventory. c. seasonal inventory. d. sourcin#. e. none of the a%ove Answer % Difficulty Moderate !/. The set of %usiness processes re=uired to purchase #oods and services is .nown as a. cycle inventory. %. safety inventory. c. seasonal inventory. d. sourcin#. e. none of the a%ove Answer d Difficulty *asy 30. Cycle inventory decisions involve a. how much to order for replenishment. %. how often to place orders. c. a %asic trade8off %etween the cost of holdin# lar#er lots of inventory and the cost of orderin# product fre=uently. d. all of the a%ove e. a and % only

Answer d Difficulty Moderate 31. Cycle inventory is used %ecause a. the world is perfectly predicta%le. %. demand is uncertain and may e-ceed e-pectations. c. it involves ma.in# a trade8off %etween the costs of havin# too much inventory and the costs of losin# sales due to not havin# enou#h inventory. d. it focuses on processes that are e-ternal to the firm. e. it focuses on processes that are internal to the firm. Answer % Difficulty Moderate 3!. Seasonal inventory should %e used when a. a company can rapidly chan#e the rate of its production system at a very low cost. %. chan#in# the rate of production is e-pensive 2e.#., when wor.ers must %e hired or fired5. c. adjustin# to a period of low demand without incurrin# lar#e costs. d. the world is perfectly predicta%le. e. production rate is fle-i%le. Answer a Difficulty ?ard 33. Sourcin# involves a. decidin# the tas.s that will %e outsourced and those that will %e per8 formed within the firm. %. decidin# whether to source from a sin#le supplier or a portfolio of suppliers. c. identifyin# the set of criterion that will %e used to select suppliers and measure their performance. d. selectin# suppliers and ne#otiatin# contracts with them. e. all of the a%ove Answer e Difficulty *asy 3$. 6hich of the followin# are .ey components of transportation decisions when desi#nin# and operatin# a supply chain7 a. Mode of transportation %. 9oute and networ. selection c. 'n8house or outsource d. all of the a%ove e. none of the a%ove Answer d Difficulty Moderate 3&. 6hich of the followin# are .ey components of transportation decisions when desi#nin# and operatin# a supply chain7 a. Software selection %. Mode of transportation

c. Source selection d. 6arehouse selection e. none of the a%ove Answer % Difficulty *asy 3). 6hich of the followin# are .ey components of information that must %e analy1ed to increase efficiency and improve effectiveness in a supply chain7 a. @ush versus pull %. Coordination and information sharin# c. "orecastin# and a##re#ate plannin# d. @ricin# and revenue mana#ement e. all of the a%ove Answer e Difficulty Moderate 3+. 6hich of the followin# are .ey components of information that must %e analy1ed to increase efficiency and improve effectiveness in a supply chain7 a. Software selection %. Source selection c. 6arehouse selection d. "orecastin# and a##re#ate plannin# e. none of the a%ove Answer d Difficulty Moderate 3,. 6hen all the different sta#es of a supply chain wor. toward the o%jective of ma-imi1in# total supply chain profita%ility, rather than each sta#e devotin# itself to its own profita%ility without considerin# total supply chain profit, it is .nown as a. supply chain coordination. %. forecastin#. c. a##re#ate plannin#. d. revenue mana#ement. e. pricin#. Answer a Difficulty *asy 3/. The art and science of ma.in# projections a%out what future demand and conditions will %e is a. supply chain coordination. %. forecastin#. c. a##re#ate plannin#. d. revenue mana#ement. e. pricin#. Answer % Difficulty *asy $0. Transformin# forecasts into plans of activity to satisfy the projected demand is .nown as a. supply chain coordination. %. forecastin#.

c. a##re#ate plannin#. d. revenue mana#ement. e. pricin#. Answer c Difficulty *asy $1. The process %y which a firm decides how much to char#e customers for its #oods and services is a. supply chain coordination. %. forecastin#. c. a##re#ate plannin#. d. revenue mana#ement. e. pricin#. Answer e Difficulty *asy $!. The use of differential pricin# over time or customer se#ments to ma-imi1e profits from a limited set of supply chain assets is a. supply chain coordination. %. forecastin#. c. a##re#ate plannin#. d. revenue mana#ement. e. pricin#. Answer d Difficulty Moderate $3. 6hich of the followin# are technolo#ies that share and analy1e information in the supply chain7 a. *lectronic Data 'nterchan#e 2*D'5 %. 'nternet c. *nterprise 9esource @lannin# 2*9@5 d. Supply Chain Mana#ement 2SCM5 software e. all of the a%ove Answer e Difficulty *asy $$. 6hich of the followin# are technolo#ies that share and analy1e information in the supply chain7 a. 'nternet %. *nterprise Data @lannin# 2*D@5 c. *lectronic 9esource 'nterchan#e 2*9'5 d. Chain Mana#ement 2CM5 software e. none of the a%ove Answer a Difficulty Moderate

Essay/Problems 1. :ist and define the four major drivers of supply chain performance. Answer Facilities are the places in the supply chain networ. where product is stored, assem%led, or fa%ricated. The two major types of facilities are production sites and stora#e sites. Inventory is all raw materials, wor. in process, and finished #oods within a supply chain. 'nventory is an important supply chain driver %ecause chan#in# inventory policies can dramatically alter the supply chain(s efficiency and responsiveness. Transportation entails movin# inventory from point to point in the supply chain. Transportation can ta.e the form of many com%inations of modes and routes. Information consists of data and analysis concernin# facilities, inventory, transportation, and customers throu#hout the supply chain. 'nformation is potentially the %i##est driver of performance in the supply chain as it directly affects each of the other drivers. Difficulty: Moderate !. *-plain the supply chain decision8ma.in# framewor. and the role of the four major drivers. Answer: The #oal of a supply chain strate#y is to stri.e the %alance %etween responsiveness and efficiency, resultin# in a strate#ic fit with the competitive strate#y. To reach this #oal, a company uses the four supply chain drivers discussed earlier. "or each of the individual drivers, supply chain mana#ers must ma.e a trade8off %etween efficiency and responsiveness. The com%ined impact of these four drivers then determines the responsiveness and efficiency of the entire supply chain. Most companies %e#in with a competitive strate#y and then decide what their supply chain strate#y ou#ht to %e. The supply chain strate#y determines how the supply chain should perform with respect to efficiency and responsiveness. The supply chain must then use the supply chain drivers to reach the performance level the supply chain strate#y dictates. Difficulty: Moderate 3. *-plain the %asic trade8off %etween responsiveness and efficiency for each of the major drivers of supply chain performance. Answer: The fundamental trade8off when ma.in# facilities decisions is %etween the cost of the num%er, location, and type of facilities 2efficiency5 and the level of responsiveness that these facilities provide the company(s customers. The fundamental trade8off when ma.in# inventory decisions is %etween responsiveness and efficiency. 'ncreasin# inventory will #enerally ma.e the supply chain more responsive to the customer. This choice, however, comes at a cost as the added inventory decreases efficiency. Therefore, a supply chain mana#er can use inventory as one of the drivers for reachin# the level of responsiveness and efficiency the competitive strate#y tar#ets.

The fundamental trade8off for transportation is %etween the cost of transportin# a #iven product 2efficiency5 and the speed with which that product is transported 2responsiveness5. The transportation choice influences other drivers such as inventory and facilities. 6hen supply chain mana#ers thin. a%out ma.in# transportation decisions, they frame the decision in terms of this trade8off. Aood information systems can help a firm improve %oth its responsiveness and efficiency. The information driver is used to improve the performance of other drivers and the use of information is %ased on the strate#ic position the other drivers support. Accurate information can help a firm improve efficiency %y decreasin# inventory and transportation costs. Accurate information can improve responsiveness %y helpin# a supply chain %etter match supply and demand. Difficulty: Moderate $. *-plain the role of each of the major drivers of supply chain performance. Answer: Facilities are the where of the supply chain if we thin. of inventory as what is %ein# passed alon# the supply chain and transportation as how it is passed alon#. They are the locations to or from which the inventory is transported. 6ithin a facility, inventory is either processed or transformed into another state 2manufacturin#5 or it is stored %efore %ein# shipped to the ne-t sta#e 2warehousin#5. Inventory e-ists in the supply chain %ecause of a mismatch %etween supply and demand. An important role that inventory plays in the supply chain is to increase the amount of demand that can %e satisfied %y havin# product ready and availa%le when the customer wants it. Another si#nificant role inventory plays is to reduce cost %y e-ploitin# any economies of scale that may e-ist durin# %oth production and distri%ution. 'nventory is spread throu#hout the supply chain from raw materials to wor. in process to finished #oods that suppliers, manufacturers, distri%utors, and retailers hold. 'nventory is a major source of cost in a supply chain and it has a hu#e impact on responsiveness. The location and =uantity of inventory can move the supply chain from one end of the responsiveness spectrum to the other. 'nventory also has a si#nificant impact on the material flow time in a supply chain. Another important area where inventory has a si#nificant impact is throu#hput. 'nventory and flow time are synonymous in a supply chain. Mana#ers should use actions that lower the amount of inventory needed without increasin# cost or reducin# responsiveness, %ecause reduced flow time can %e a si#nificant advanta#e in a supply chain. Transportation moves product %etween different sta#es in a supply chain. :i.e the other supply chain drivers, transportation has a lar#e impact on %oth responsiveness and efficiency. "aster transportation, whether in the form of different modes of transportation or different amounts %ein# transported, allows a supply chain to %e more responsive %ut reduces its efficiency. The type of transportation a company uses also affects the inventory and facility locations in the supply chain. Information could %e overloo.ed as a major supply chain driver %ecause it does not have a physical presence. 'nformation, however, deeply affects every part of the supply chain. 'ts impact is easy to underestimate as information affects a supply chain in many different ways. 'nformation serves as the connection %etween the supply chain(s various sta#es, allowin# them to coordinate and %rin# a%out many of the %enefits of ma-imi1in# total supply chain profita%ility. 'nformation is also crucial to the daily operations of each sta#e in a supply chain.

"or instance, a production schedulin# system uses information on demand to create a schedule that allows a factory to produce the ri#ht products in an efficient manner. A warehouse mana#ement system uses information to create visi%ility of the warehouse(s inventory. The company can then use this information to determine whether new orders can %e filled. Difficulty: ?ard &. *-plain the role of each of the major drivers of supply chain performance in the competitive strate#y. Answer: Facilities and their correspondin# capacities to perform their functions are a .ey driver of supply chain performance in terms of responsiveness and efficiency. "or e-ample, companies can #ain economies of scale when a product is manufactured or stored in only one locationB this centrali1ation increases efficiency. The cost reduction, however, comes at the e-pense of responsiveness, as many of a company(s customers may %e located far from the production facility. The opposite is also true. :ocatin# facilities close to customers increases the num%er of facilities needed and conse=uently reduces efficiency. 'f the customer demands and is willin# to pay for the responsiveness that havin# numerous facilities adds, however, then this facilities decision helps meet the company(s competitive strate#y #oals. Inventory plays a si#nificant role in a supply chain(s a%ility to support a firm(s competitive strate#y. 'f a firm(s competitive strate#y re=uires a very hi#h level of responsiveness, a company can use inventory to achieve this responsiveness %y locatin# lar#e amounts of inventory close to the customer. Conversely, a company can also use inventory to ma.e itself more efficient %y reducin# inventory throu#h centrali1ed stoc.in#. The latter strate#y would support a competitive strate#y of %ein# a low8cost producer. The trade8off implicit in the inventory driver is %etween the responsiveness that results from more inventory and the efficiency that results from less inventory. The role of transportation in a company(s competitive strate#y fi#ures prominently when the company is considerin# the tar#et customer(s needs. 'f a firm(s competitive strate#y tar#ets a customer that demands a very hi#h level of responsiveness, and that customer is willin# to pay for this responsiveness, then a firm can use transportation as one driver for ma.in# the supply chain more responsive. The opposite is true as well. 'f a company(s competitive strate#y tar#ets customers whose main decision criterion is price, then the company can use transportation to lower the cost of the product at the e-pense of responsiveness. As a company may use %oth inventory and transportation to increase responsiveness or efficiency, the optimal decision for the company often means findin# the ri#ht %alance %etween the two. Information is a driver whose importance has #rown as companies have used it to %ecome %oth more efficient and more responsive. The tremendous #rowth of the importance of information technolo#y is a testimony to the impact information can have on improvin# a company. :i.e all the other drivers, however, even with information, companies reach a point when they must ma.e the trade8off %etween efficiency and responsiveness. Difficulty: ?ard