Test Bank Supply Chain Management A Logistics Perspective, 11th Edition by Langley, Novack, Gibson, by ACADEMIAMILL

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Chap 01_11e Indicate whether the statement is true or false. 1. It is predicted that social networks such as Facebook and Twitter will influence supply chains because of their impact on customer demand and the speed of information transfer. a. True b. False 2. Best-in-class companies have developed a more flexible production schedule that allows for making inventory adjustments in 48 to 72 hours. a. True b. False 3. Sustainability reporting is a growing practice, either mandatory or voluntarily, due to the demand for transparency in the supply chains. a. True b. False 4. Outsourcing is a fairly new concept. a. True b. False 5. An organization practicing sustainable supply chain management expects its suppliers to conform to the same sustainability standards it holds. a. True b. False 6. Supply and demand has become less volatile as managers have become more adept at controlling the elements. a. True b. False 7. Globalization has had little effect on consumers. a. True b. False 8. Beginning in the late 1970s and into the 1980s, the US transportation industry was deregulated. The net result was a less competitive environment. a. True b. False 9. The first decade of the twenty-first century was a period of rapid change for organizations, especially businesses. a. True b. False

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Chap 01_11e Indicate the answer choice that best completes the statement or answers the question. 10. Which of the following is not part of the Supply Chain network? a. Plants b. Stores c. Terminals d. Distribution centers 11. Which of the following is not one of the external forces driving the rate of change and shaping our economic and political landscape? a. Government policy b. Technology c. Environmental concerns d. Globalization 12. Which of the following flows only one way as illustrated in the Integrated Supply Chain—Basics figure? a. Information b. Products and services c. Financials d. None of these answers 13. Performance measurement is important because: a. it allows firms to rate competitors. b. without it, managers would not know how the global economy is doing. c. companies presently operating in the European Economic Community need to understand how its competitors are doing. d. lower-level metrics in an organization must connect directly to the high-level performance to achieve goals. 14. Identify the proper sequence of the three "flows" in the supply chain. 1. Product 2. Cash 3. Information a. 1, 2, 3 b. 1, 3, 2 c. 2, 1, 3 d. 3, 2, 1 15. The challenge to develop and sustain an efficient and effective supply chain(s) requires organizations to address a number of issues. Which of the following is not included in them? a. Complexity b. Inventory deployment c. Inventory carrying costs d. Technology Copyright Cengage Learning. Powered by Cognero.

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Chap 01_11e 16. Complexity in the supply chain is caused by: a. the number of SKUs. b. locations of customers and suppliers. c. transportation requirements. d. all of these answers. 17. Henderson Air manufactures heating and air conditioning units. Once a day, Henderson’s computerized inventory system monitors the number of bolts and other fasteners the company needs to maintain production. If the amount of any type of fastener in inventory dips below preset standards, the computer automatically sends an order for more fasteners to Acme Fastener and Tool. This is an example of: a. information flowing backward from the customer to the supplier. b. information flowing forward from the supplier to the customer. c. information flowing laterally between the customer and the supplier. d. information flowing forward from the customer to the supplier. 18. Logistics, in its simplest form, a. is a military term, as it was developed originally to supply the battlefield. b. combines inbound logistics with the outbound logistics of physical distribution. c. is another term for transportation management. d. does not involve customer service or other related functions. 19. A critical outcome of the supply chain is to deliver: a. profits. b. the right product to the right place. c. cost/value. d. on management's expectations. 20. Most retailers are essentially supply chain companies since they: a. dominate the consumer market. b. own their warehouses and trucks. c. buy products produced by others. d. engage in off-shore sourcing. 21. Acme Fastener and Tool had a six-hour work stoppage yesterday, which means the company does not have its usual number of fasteners stored in inventory. Concerned that the inability to fulfill all current orders may have an adverse effect on some customers, Acme’s account executives are notifying all customers, including Henderson Air, that there could potentially be a small delay in delivering some orders. This is an example of: a. information flowing backward from the customer to the supplier. b. information flowing forward from the supplier to the customer. c. information flowing laterally between the customer and the supplier. d. information flowing backward from the supplier to the customer.

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Chap 01_11e 22. The Supply Chain Concept: a. is very new and considered cutting edge technology. b. is highly dependent on computerization. c. is not always well understood by senior managers. d. is developed from the previous physical distribution concept. 23. Don is comparing quotes from two different shippers. One shipper has offered a lower price but will require three weeks to ship his products, while the other has offered to deliver the goods to his customer in 10 days, but for a higher price. Don is evaluating: a. outbound logistics versus inbound logistics. b. cost performance versus schedule performance. c. cost versus value. d. profit versus customer service. 24. The demographics of our society has changed because: a. the "Baby Boom" generation is aging. b. of the increase in two-career families and single-parent households. c. of immigration. d. birth rates have changed. 25. Outsourcing involves: a. moving company facilities away from the home office. b. conducting business on a global scale. c. obtaining materials, parts, products, and services from other companies. d. building a factory in another country. 26. Ten years ago, Southwest Auto Parts would ship a standard number of various parts to all of its 147 locations once a month. Today, Southwest’s more sophisticated inventory system monitors the stock at each location and adjusts the number of each part accordingly in the monthly shipment to each store in order to prevent under- or overstocking the stores on any given part. Within an integrated supply chain, this is an example of change in: a. product flow. b. information flow. c. cash flow. d. demand flow. 27. Describe the concept of an "integrated logistics management" that begins with the supplier's supplier and ends with the final consumer, including both outbound-related factors and inbound-related factors. What are the benefits to considering outbound and inbound logistics as a whole?

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Chap 01_11e 28. Discuss how globalization and consolidation in supply have increased complexity.

29. Discuss how Performance Measurement can affect Supply Chain Management.

30. Explain how today's consumers are empowered and how they impact Supply Chain Management.

31. Of the 11 specific challenges to supply chain management discussed in the chapter, which one do you think is the most significant or would have the greatest impact on an organization? Provide at least one general example to support your answer.

32. What is the role of Transportation Management in connection with Supply Chains?

33. What is the significance of Globalization in Supply Chain Management?

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Chap 01_11e Answer Key 1. True 2. False 3. True 4. False 5. True 6. False 7. False 8. False 9. True 10. b 11. c 12. d 13. d 14. b 15. c 16. d 17. a 18. b 19. b 20. c 21. b 22. d 23. c 24. b 25. c 26. d

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Chap 01_11e 27. Supply chain management can be viewed as a pipeline or conduit for the efficient and effective flow of products, materials, services, information, and financials from the supplier's suppliers through the various intermediate organizations or companies out to the customer's customers, or a system of connected networks between the original vendors and the ultimate final consumer. Some of the factors related to inbound logistics include more efficient transportation planning and global sourcing of materials and supplies. The extended enterprise perspective of supply chain management, which considers inbound and outbound logistics as a whole, represents a logical extension of the logistics concept, providing an opportunity to view the total system of interrelated companies for increased efficiency and effectiveness. 28. Globalization and consolidation in supply chains have increased the complexity for organizations in terms of SKUs, customer and supplier locations, transportation requirements, trade regulations, taxes, and so forth. Companies need to take steps to simplify, as much as possible, the various aspects of their supply chains. For example, the number of SKUs has expanded for many companies, which exacerbates problems for inventory management and order fulfillment. Consequently, companies have been rationalizing SKUs to eliminate the slow movers and items that do not contribute to profitability. Locations also need to be analyzed to eliminate high-cost or duplicative operations. Customer service levels need to be rationalized, as do vendors or supplier alternatives. Layers of complexity develop and may seem necessary, but organizations need to continually evaluate those areas of complexity by evaluating processes, training people, and exploiting technology. 29. Most organizations have measures of performance or metrics in place to analyze and evaluate their efficiency and progress over different time periods. Sometimes, such measures are used for setting baseline performance objectives or expected outcomes, for instance, orders filled and shipped per day. Measurement is important, and at this juncture, it is important to recognize that lower-level metrics in an organization must connect directly to the high-level performance measures of the organization and the supply chain, which are usually net profit, return on investment, or assets and cash flow. In some instances, metrics are set that appear logical for the subunit of the organization but are suboptimal for the overall organization or supply chain. For example, the warehouse manager who is measured by the cost per cubic foot of units stored will be motivated to fill the warehouse to the ceiling. 30. Today's consumers are more enlightened and educated, and they are empowered more than ever by the information that they have at their disposal from the Internet and other sources. Their access to supply sources has expanded dramatically beyond their immediate locale by virtue of catalogs, the Internet, and other media. They have the opportunity to compare prices, quality, and service. Consequently, they demand competitive prices, high quality, tailored or customized products, convenience, flexibility, and responsiveness. They tend to have a low tolerance level for poor quality in products and services. Consumers also have increased buying power due to higher income levels. They demand the best quality at the best price and with the best service. These demands place increased challenges and pressure on the various supply chains for consumer products. 31. Students’ answers will vary, but must demonstrate thoughtful analysis and be supported by one or more examples. The 11 challenges are: supply chain networks, complexity, inventory deployment, the abundance of data, cost versus value, organizational relationships, performance measurement, technology, transportation management, supply chain security, and talent management.

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Chap 01_11e 32. Transportation can be viewed as the glue that makes the supply chain model function. The critical outcomes of the supply chain are to deliver the right product, at the right time, in the right quantity and quality, at the right cost, and to the right destination. Transportation plays an important role in making these "rights" happen. Another aspect of the importance of transportation is related to some of the strategies that are being used by companies to remain competitive in today's economy—for example, just-in-time inventory, lean logistics and manufacturing, and scheduled deliveries. The challenge has been exacerbated by economic changes among transportation providers; shortages of drivers, higher fuel costs, and changes in driver hour regulations have led to what some individuals have called a transportation crisis or the "perfect storm." Transportation has gone from being a readily available commodity to potential users, especially in the 1990s, to today where transportation is scarce in some market areas. 33. Arguably, globalization is the most frequently cited change factor by business leaders, and it has replaced the postWorld War II Cold War as the dominant driving force in world economics. The concept of the global marketplace or global economy has taken on new meaning for all enterprises (profit and nonprofit; small, medium, and large; products or services) and for individual consumers during the last two decades. Overall, globalization has led to a more competitively intense economic and geopolitical environment. This environment manifests itself in opportunities and threats, both economic and political. Some individuals have implied that there is no "geography" in the current global environment (figuratively speaking) or, perhaps more aptly, that time and distance have been compressed.

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Chap_02_11e Indicate whether the statement is true or false. 1. The Customs Trade Partnership Against Terrorism (C-TPAT) was put in place to assess the vulnerability of U.S. ports and to deny entry to ships from countries that do not meet U.S. security standards. a. True b. False 2. Water desalinization and fracking for oil and gas production are examples of technologies that can unleash resources and contribute to economic advantage. a. True b. False 3. Reduced order cycle time has become an important part of supply chain management since it can lead to lower inventory levels for customers, improved cash flow, lower current assets, and accounts receivable. a. True b. False 4. The Regional Trade Agreements (RTAs), the establishment of the General Agreement on Tariffs and Trade (GATT), and its 1995 successor, the World Trade Organization (WTO), have together led to multilateral trade promotion and lowered barriers to international business transactions. a. True b. False 5. U.S. ports play a major role in global supply chains since over 50 percent of global trade passes through them. a. True b. False 6. According to the Factor Endowment Theory, a country that lacks one or more of the four major production factors—land, labor, capital, and entrepreneurship—will not be able to successfully participate in global trade. a. True b. False 7. Given the importance of global trade to the United States, a delicate balance exists between security and the efficient flow of global commerce. a. True b. False 8. The central theme behind the theory of comparative advantage is that if one country has an advantage (lower cost) in the production of two products, they should focus on the production of both so that they gain the greatest advantage in trade when compared to other countries that may have a lesser advantage. a. True b. False

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Chap_02_11e 9. Many countries hope to improve trade by engaging in Regional Trade Agreements (RTAs), the best-known example of an RTA is the European Union (EU). a. True b. False 10. From a customer service perspective, one of the four important characteristics for global market and strategy is that technology companies counteract short product lifecycle with continual upgrades and new products. a. True b. False 11. The Trade Act of 2002 requires exporters to electronically submit shipping documents to U.S. Customs 24 hours before delivery to a port or 24 hours before vessel departure. a. True b. False 12. Advancements in technology and the growth of transportation services have prevented many smaller, less developed countries from participating in global supply chains. a. True b. False 13. In terms of volume of exports, the United States is the world’s leader in global trade flow. a. True b. False 14. The underlying logic of Adam Smith's theory was used to advance the rationalization that he called specialization of labor. a. True b. False 15. From a customer service perspective, one of the four important characteristics for global markets and strategy is that companies need to attempt to standardize to reduce complexity, but they have to recognize that global markets need some customization. a. True b. False 16. One could argue that the external role of technology in recent years has moved ahead of globalization as an agent or driver of change. a. True b. False 17. Strategies such as compression and lean supply chains take the same amount of work to achieve in the global environment as in the domestic environment. a. True b. False

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Chap_02_11e 18. Operating globally has become easier to accomplish for even individuals and small companies, because of the advances in information/communications technology. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 19. According to prediction, _____, _____, and _____ will all house so called “Megacities”, whereas _____ will not have any cities of this size. a. Asia; Europe; Latin America; North America b. Asia; Latin America; North America; Africa c. Africa; Europe; North America; Asia d. Asia; Latin America; North America; Europe 20. Where is a megacity most likely to develop? a. Asia b. Canada c. Europe d. Australia 21. Which of the following is an important issue for economic development and vitality of the economy? a. Migration b. Agriculture c. Entrepreneurship d. Healthcare 22. Which two countries account for approximately 36% of the total world population? a. China and United States b. United States and India c. India and Russia d. China and India 23. The Trade Act of 2002 requires exporters to electronically submit shipping documents to U.S. Customs _____ hours after delivery to a port. a. 5 b. 48 c. 12 d. 24

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Chap_02_11e 24. The top ten countries account for almost _____ of the total world population. a. 75% b. 55% c. 60% d. 45% 25. Which one of the countries below is not part of NAFTA? a. United States b. Canada c. Argentina d. Mexico 26. Adam Smith in his renowned treatise, The Wealth of Nations, provided not only a rationale for a market economy based upon competition, but also advanced a rationale for trade among nations called the: a. Theory of Comparative Advantage b. Theory of Absolute Advantage c. Theory of Temporary Advantage d. Theory of Competitive Advantage 27. Which of the following is a significant intended outcome of the United States–Mexico–Canada Agreement (USMCA), which recently replaced the older North American Free Trade Agreement (NAFTA)? a. An unimpeded flow of goods among the three nations b. Enhancements in the cross-border movement of goods and services c. A reduction in duties and customs fees for the trading partners d. All of these answers 28. As suggested, the aging populations in more developed countries will result in _____ health care costs and/but _____ in the size of the working population or labor pool. a. increased; a reduction b. increased; stagnation c. steady; a decrease d. nominal raises in; an increase 29. _____, _____, and _____ are the top three recipients of exports from the United States, in that order. a. China; Mexico; Canada b. Canada; China; India c. China; Canada; Mexico d. Mexico; Canada; Australia

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Chap_02_11e 30. Which of the following is not one of the essential factors for economic growth and increased development of global trade flows? a. Population growth and age distribution b. Urbanization c. Knowledge dissemination d. Geo-political standing 31. What contributions do successful supply chains make to companies?

32. Why are customer service and its related strategy so important for companies operating global supply chains? Do you think that customer service is more important than lower cost to the customers?

33. Explain the underlying rationale for global trade and explain the difference between comparative and absolute advantage.

34. Global trade clearly has a significant impact on the economies of various countries. Explain how global interdependence impacts countries overall (a macro basis), as well as how it impacts individual organizations doing business within various countries (a micro basis).

35. What are the essential factors for economic growth and increased development of global trade flows? Why are they so important in today's global economy?

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Chap_02_11e 36. In recent years, due to political unrest in various parts of the world, large numbers of people have migrated to other countries, particularly in Europe. How would the influx of a large group of people impact the economy of a developed nation with an aging population, such as Germany or Italy?

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Chap_02_11e Answer Key 1. False 2. True 3. True 4. False 5. False 6. False 7. True 8. False 9. True 10. True 11. False 12. False 13. False 14. True 15. True 16. True 17. False 18. True 19. d 20. a 21. a 22. d 23. d 24. c 25. c 26. b

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Chap_02_11e 27. d 28. a 29. c 30. d 31. A supply chain is boundary spanning, that is, encompassing a group of interrelated firms focused on delivering the best price or value products and services to the ultimate customer at the end of the supply chain. It was also noted that a supply chain can manage four important flows, namely, materials/products, information, financials, and demand. An important characteristic of today's world economy is the increasing regional economic integration. The globalized economy has led to multilateral trade promotion and lowered barriers to international business transactions. The best supply chains allow organizations to compete very successfully on a national, regional, and global basis.

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Chap_02_11e 32. From a customer service perspective, global markets and strategy have four important characteristics. First, companies attempt to standardize to reduce complexity, but they have to recognize that global markets need some customization. For example, in contrast to the U.S. market where large retail stores buy in volume quantities for delivery to their large warehouses, less-developed countries may have tiny retail stores that are only 80 to 100 square feet. This means deliveries of small quantities, more frequent deliveries, different packaging, etc. Customer service levels have to be adjusted for these markets in terms of delivery schedules, volumes, order fulfillment, and other areas. Second, global competition often reduces the product life cycle, as previously mentioned, since products can be copied or reengineered quickly by competitors. Technology companies are faced with this phenomenon even in the U.S. market, but globally other products are faced with similar experiences. Technology companies counteract with continual upgrades and new products. Apple, for example, had great success with its iPod, but it quickly followed this with the iPhone, and now the iPad, to maintain financial momentum. Shorter product life cycles present challenges for inventory management with respect to obsolete items. Customer service levels are also impacted because changes have to be made as the product matures in terms of sales volume and then declines, which reduces product profitability. Usually, companies cannot afford to provide the same level of customer service when the product volume declines. Third, traditional organizational structures and related business models frequently change since companies get more involved in outsourced manufacturing and some logistical activities such as transportation, warehousing, and order fulfillment. All of this impacts the supply chain and its related customer service activities. The collaboration indicated requires effective coordination among the various parties to ensure that customer service levels (on-time delivery, complete orders, reliability, etc.) are maintained. There are many challenges for supply chain managers. The soft side of global supply chain management presents significant challenges. The social and cultural elements come into play when dealing with foreign business partners and require daily effort to ensure smooth supply chain execution. This is because "soft" issues and physical problems are, in many cases, not mutually exclusive. Misunderstanding the culture and miscommunicating can cause havoc on the physical side of global supply chain planning and execution. Cross-cultural communication is made complicated by not only different languages and time zones, but also other culturally-rooted practices such as communication styles, different approaches to completing tasks, different attitudes toward conflict, and different decision-making styles, among other factors. Fourth, globalization introduces more volatility and complexity. It is much more likely that global supply chains will experience challenges with weather, terrorism, strikes, and other disruptions. The need for flexibility and responsiveness is a requisite for customer service throughout the supply chain. The expanded networks cover long distances and many are complex. Trade policy, regulations, tariffs, and currency exchange rates exacerbate the level of complexity for global supply chains. Furthermore, the number of intermediaries that can be involved adds another additional layer of complexity. When considering which is more important, customer service or lowered cost, one must take into consideration not only physical, but "soft," cultural factors as well. Some, more affluent sectors may be willing to pay an increased price for goods so long as those goods are backed by a good and robust customer service "tail"—think customer loyalty. However, more developing nations and countries, whose population may be more defined by "fickle" youth and rapid change of taste, customer service becomes less important when compared to price point. These phenomena must then be weighed against the physical cost of providing either prime customer service, competitive cost, or a delicate balancing of both.

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Chap_02_11e 33. Adam Smith in his renowned treatise, The Wealth of Nations, provided not only a rationale for a market economy based upon competition, but also advanced a rationale for trade among nations called the Theory of Absolute Advantage. Smith argued that countries would be better off if they would trade commodities where each country had an economic or cost advantage for one or more of the products that they produced. In other words, sell or trade products where they had a cost advantage and buy or trade for products where they did not have an advantage. Smith concluded that all participants in such transactions would be better off than trying to be self-sufficient. While the analysis was relatively simplistic, it was valuable advice, especially for that time period. The underlying logic of absolute advantage was also used by Adam Smith to advance the rationalization of what he called the "division of labor" or “specialization of labor.” The latter concept led to mass production or assembly lines in manufacturing plants. The underlying logic was that the specialization led to increased aggregate output and lower unit cost, and provided an opportunity for regional specialization and inter-region commerce for an overall economic benefit. The theory of comparative advantage was advanced about 40 years later by several economists. They maintained that even if one country had a comparative advantage (lower cost) in the production of two products, they should focus on the production of the one that they had the greatest advantage and trade for the other. The analyses were also somewhat simplistic because not all of the relevant costs were considered. However, the logic was sound as long as total landed costs were considered. The importance of both absolute and comparative advantage is they demonstrate that global trade and related global supply chain flows can be based not only upon scarcity of items among countries but also differences in the cost of production with implicit benefit to all parties involved. As one would expect, later economists explored more fully the rational of global trade and specialization. For example, the Factor Endowment Theory postulates that when a country has more of one of the four factors of production (land, labor, capital, and entrepreneurship), they may have a comparative advantage in producing one or more products. For example, a country with an abundance of capital and an educated workforce may produce high tech products and import labor intensive products and agriculture products.

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Chap_02_11e 34. Global supply chain flows reflect the world economy and the trade patterns between and among the countries of the world. There is an underlying economic rationale for global trade that can bring benefits to the various trading partners. That said, the “economic pie” is not evenly divided. The economic strength of the various countries is based upon their inherent “factors of production” and some related economic, social, and political factors. Overall, global economic progress is dependent upon a united effort from the more developed economies to aid in the development of the lesser developed countries. Global interdependence can be good news or bad news on a macro basis. On the positive side, it can result in lower prices, wider availability of goods and services, land and resource development, and new employment opportunities for countries and regions of the world, both developed and developing regions. On the negative side, the interdependence can lead to global economic downturns or recessions, as was the case from 2008 to 2009, requiring government intervention to mitigate the problems. The recovery process was slow in some countries, causing some economic turbulence. The micro level examines how individual firms respond to the increased complexity and competitiveness of a global economy. These changes have resulted in shorter product life cycles, new forms of competition, and new business models. Outsourcing, off-shoring, and insourcing have become part of the lexicon of twenty-first century businesses. Information technology has allowed supply chains to be redesigned for more efficiency and effectiveness as well as better execution. Supply chain management has become an important, and for some organizations, even critical ingredient for their competitive strategy and success in this global environment. These companies have transformed themselves by changing their supply chains to take advantage of global opportunities. 35. Essential factors for economic growth and increased development of global trade flows include population growth and age distribution, urbanization, land and resources, economic integration, knowledge dissemination, labor mobility, financial flows and investment in infrastructure by public and/or private sources, faster communication systems, and improved financial services for the effective flow of goods and services. These factors are the driving forces for globalization around the world, impacting the future course of global trade and development. 36. Migration can be disruptive and dysfunctional when it occurs in large numbers under conditions of political upheaval. Absorbing that crush of humanity strains a country’s existing economic and social systems, which, in the case of a country like Germany or Italy, is already strained due to supporting the aging population. However, the size of the potential workforce could also become a resource by attracting new industries that are labor intensive.

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Chap_03_11e Indicate whether the statement is true or false. 1. The time that elapses from when a customer places an order until the customer receives the order is referred to as order lead time. a. True b. False 2. To hold down distribution cost, the lowest cost carrier should always be used. a. True b. False 3. As a firm spends more on transportation service, cost of lost sales increases. a. True b. False 4. The network of activities, facilities, and personnel required to organize, schedule, and deploy the resources to stage the Olympics is an example of event logistics. a. True b. False 5. In a logistics system, warehousing should be optimized at the expense of related logistics activities, such as transportation and procurement. a. True b. False 6. The trend toward “pull” systems where the product is “pulled” in response to demand (as opposed to being “pushed” in advance of demand) increases inventory levels, which can increase total logistics costs even though production costs may decrease. a. True b. False 7. The utility created through the basic marketing activities is known as place utility. a. True b. False 8. As the dollar value of a product decreases, its inventory value decreases. a. True b. False 9. The inverse relationship that exists between the cost of lost sales and inventory costs is the inventory effect. a. True b. False

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Chap_03_11e Indicate the answer choice that best completes the statement or answers the question. 10. When a specific point in time, or level of production, is chosen and costs are developed for the various logistics cost centers, it is called: a. least cost analysis. b. short-run analysis. c. cost center analysis. d. link node analysis. 11. As the dollar value of a product increases, packaging costs: a. increase. b. decrease. c. stay the same. d. can't be determined. 12. As the dollar value of a product decreases, its transportation cost: a. increases. b. decreases. c. stays the same. d. can't be determined. 13. Marketers have begun to recognize the strategic value of place in the marketing mix, as well as the benefits resulting from high-quality logistical services. As a result, which has been recognized as the interface activity between marketing and logistics? a. Product b. Promotion c. Price d. Customer service 14. As the weight density of a product decreases, transportation cost per pound: a. increases. b. decreases. c. stays the same. d. can't be determined. 15. The utility that is created by delivering the proper quantities of an item to where it is demanded is referred to as _____ utility. a. form b. quantity c. time d. possession

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Chap_03_11e 16. The most important trade-off in logistics is between: a. warehousing and packaging. b. inventory and packaging. c. transportation and warehousing. d. transportation and inventory. 17. A _____ analysis examines a logistics system over a long time period or range of output. a. cost center b. dynamic c. link node d. least cost 18. What are fixed spatial points where goods stop for storage or processing? a. Nodes b. Links c. Cost centers d. Fulfillment centers 19. What activity is described as the movement of goods into a warehouse, the placement of goods in a warehouse, and the movement of goods from storage to order-picking areas and eventually to dock areas for transportation out of the warehouse? a. Materials handling b. Physical distribution c. Business logistics d. Order fulfillment 20. Which of the answers below is an example of the creation of form utility by a logistics activity? a. When lumber is cut and made into a chair b. When a firm's finance manager approves customer purchases on a credit basis c. When Dell combines components with software to produce a computer to a customer's specifications d. When bulk products are broken and repackaged at a distribution center 21. What is often the largest component of logistics costs? a. Inventory costs b. Transportation costs c. Shipper-related costs d. Administrative costs 22. A(n) _____ relationship exists between the cost of lost sales and inventory cost. a. reverse b. proportional c. inverse d. nonlinear Copyright Cengage Learning. Powered by Cognero.

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Chap_03_11e 23. An important sustainability issue that has received much more scrutiny in recent years is the: a. focus on adequate inventory levels. b. reduction in packaging waste by using alternate materials. c. effort to move warehouse storage closer to consumers. d. emphasis on materials handling and warehouse design. 24. Carrie, the logistics manager of an appliance manufacturer, has been tasked with designing the warehouse at the company’s new facility. At the moment, she is working out where trucks will deliver raw supplies and pick up finished products for shipment, which is an important element of: a. inventory control. b. transportation. c. materials handling. d. production planning. 25. As a firm spends more on transportation service, cost of lost sales: a. increase. b. decrease. c. stay the same. d. can't be determined. 26. The value that is added to goods through a manufacturing or assembly process is: a. form utility. b. place utility. c. time utility. d. possession utility. 27. The _____ includes activities such as order transmission, order receipt, order processing, order preparation (picking and packing), and order shipment. a. inventory process b. customer cycle c. order cycle d. order fulfillment process 28. A national drug store chain arranging to have Valentine greeting cards and candies in its stores by mid-January is an example of which utility? a. Place utility b. Quantity utility c. Time utility d. Form utility

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Chap_03_11e 29. Logistics creates which utility through the movement of goods from production points to markets where there is a demand for the finished product? a. Possession utility b. Place utility c. Time utility d. Form utility 30. Physical distribution has a special relationship to marketing. What is the nature of the relationship between logistics and marketing? Is the relationship becoming more or less important? Why?

31. What product characteristics affect logistics costs? Discuss the effects of these characteristics on logistics costs.

32. Why do companies analyze their logistics systems from the perspective of nodes and links?

33. How does logistics add value for firms?

34. Logistics encompasses a relatively large number of managerial activities. Discuss five of these activities and why they are important to logistics systems.

35. Explain the relationship between logistics and supply chain management.

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Chap_03_11e 36. The text mentions four subdivisions of logistics. Pick one, define, and discuss.

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Chap_03_11e Answer Key 1. True 2. False 3. False 4. True 5. False 6. False 7. False 8. True 9. True 10. b 11. a 12. b 13. d 14. a 15. b 16. d 17. b 18. a 19. a 20. d 21. b 22. c 23. b 24. c 25. b 26. a

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Chap_03_11e 27. c 28. c 29. b 30. Logistics is sometimes referred to as the other half of marketing. The rationale for this definition is that the physical distribution or outbound side of an organization's logistics system is responsible for the physical movement and storage of products for customers and thus plays an important role in selling a product. In some instances, physical distribution and order fulfillment might be the key variables in selling a product; that is, the ability to provide the product at the right time to the right place in the right quantities might be the critical element in making a sale. Today, logistics is related to all four Ps of marketing—price, product, promotion, and place. The most significant trend is that marketers recognize the strategic value of place in the marketing mix and the increased revenues and customer satisfaction that might result from excellent logistics service. As a result, many organizations have recognized customer service as the interface activity between marketing and logistics and have aggressively and effectively promoted customer service as a key element of the marketing mix. Organizations in such industries as food, chemicals, pharmaceuticals, and technology have reported considerable success with this strategy to improve efficiency and effectiveness.

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Chap_03_11e 31. A number of product-related factors affect the cost and importance of logistics. Among the more significant of these are dollar value, density, susceptibility to damage, and the need for special handling. Dollar Value The product's dollar value typically affects warehousing costs, inventory costs, transportation costs, packaging costs, and even materials-handling costs. As the product's dollar value increases, the cost in each identified area also increases. Transportation prices reflect the risk associated with the movement of goods, and higher value products are often more susceptible to damage and loss and/or require more care in the movement. Transportation providers may also charge higher prices for higher-value products since these customers may be willing to pay higher rates for transportation service. Warehousing and inventory costs also increase as the dollar value of the product increases. Higher value means more working capital invested in inventory, resulting in higher total capital costs. In addition, the risk factor for storing higher-value products increases the costs of obsolescence and depreciation. Also, since the physical facilities required to store higher-value products are more sophisticated, warehousing costs increase with higher dollar value products. Packaging costs also usually increase because the organization uses protective packaging to minimize potential damage to the product. An organization spends more effort in packaging a product to protect it from damage or loss if it has higher value. Finally, materials-handling equipment used to meet the needs of higher-value products is very often more sophisticated. Organizations are usually willing to use more capital-intensive and expensive equipment to speed higher-value goods through the warehouse and to minimize the chance of damage. Density This refers to the weight/space ratio of the product. An item that is lightweight compared to the space it occupies has low density. Density affects transportation and warehousing costs. As density increases for an item, its transporting and warehousing costs decrease. When establishing their prices, transportation providers consider how much weight they can fit into their vehicles, since they quote their prices in dollars and cents per hundred pounds. Therefore, on high-density items, providers can charge a lower price per hundred pounds because they can fit more weight into their vehicle. Susceptibility to Damage The third product factor affecting logistics cost is susceptibility to damage. The greater the risk of damage to a product, the higher the transportation and warehousing cost. Because of a higher degree of risk and liability associated with more fragile goods, higher are the prices charged by both transportation and warehousing providers. These providers might also charge higher prices because of measures they must take to prevent product damage. Special Handling Requirements A fourth factor is special handling requirements for products. Some products might require specifically designed equipment, e.g., refrigeration, heating, or strapping. These special requirements will usually increase warehousing, transportation, and packaging costs.

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Chap_03_11e 32. From a node-link perspective, the complexity of logistics systems can vary enormously. A node system might use a simple link from suppliers to a combined plant and warehouse and then to customers in a relatively small market area. At the other end of the spectrum are large, multiple-product organizations with multiple plant and warehouse locations. The complex transportation networks of the latter can include three or four different modes and perhaps private as well as for-hire transportation. The node-link perspective, in allowing analysis of a logistics system's two basic elements, represents a convenient basis for seeking possible system improvements. As has been noted, the complexity of a logistics system often relates directly to the various time and distance relationships between the nodes and the links and to the regularity, predictability, and volume of flow of goods entering, leaving, and moving within the system.

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Chap_03_11e 33. Five principle types of economic utility add value to a product or service. Included are form, time, place, quantity, and possession. Generally, production activities are credited with providing form utility; logistics activities with time, place, and quantity utilities; and marketing activities with possession utility. Form or Transformation Utility refers to the value added to the goods through a manufacturing or assembly process. For example, such utility results when raw materials or components are combined in some predetermined manner to produce a finished product. This is the case, for example, when Dell combines components along with software to assemble a computer to a customer's specifications. The process of combining these different components represents a change in the product form that adds value to the finished product. Place Utility Logistics provides place utility by moving goods from production points to markets where demand exits. Logistics extends the physical boundaries of the market area, thus adding economic value to the goods. Logistics creates place utility primarily through transportation. For example, moving Huggies diapers from a Kimberly-Clark manufacturing facility in Wisconsin by motor carrier to markets where consumers need these diapers creates place utility. The market boundary extension, added by place utility, increases competition, which often leads to lower prices and increased profit opportunities through economies of scale. Time Utility Not only must goods and services be available where customers need them but also at the time when customers need them. Time utility is the economic value added to a good or service by having it at a demand point at a specific time when it is needed. Logistics creates time utility through proper inventory maintenance, the strategic location of goods and services, and transportation. For example, having heavily advertised products and sale merchandise available in retail stores at the time promised in the advertisement or being able to supply products when there is an emergency are good examples of time utility. Time utility is much more important today because of the emphasis on reducing lead time and minimizing inventory levels through logistics-related strategies to improve cash flow. Quantity Utility Today's global competition requires that products not only be delivered on time to the correct destination but also be delivered in the correct quantities to minimize inventory cost and prevent stock-outs. The utilities of when and where must be accompanied by how much. Delivering the proper quantities of an item to where it is demanded provides quantity utility. For example, assume that General Motors will be assembling 1,000 automobiles on a given day and is using a JIT inventory strategy. This will require that 5,000 tires be delivered to support the automobile production schedule. Assume that tire supplier only delivers 3,500 tires on time at the correct location. Even though the when and where utilities are created, the how much utility is not. Thus, GM will not be able to assemble the 1,000 cars as planned. Logistics must deliver products at the right time, to the right place, and in the right quantities to add utility and economic value to a product. All three are obviously interrelated. Possession Utility is primarily created through the basic marketing activities related to the promotion and sales of products and services. Promotion can be defined as the effort, through direct and indirect contact with the customer, to increase the desire to possess a good or benefit from a service. The role of logistics in the economy is related to and supports possession utility; time, place, and quantity utilities make sense only if demand for the product of service exists. Marketing also depends on logistics, since possession utility cannot be accomplished unless time, place, and quantity utilities are provided.

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Chap_03_11e 34. Transportation involves the physical movement or flow of raw materials or finished goods and involves the transportation agencies that provide service to the firm. Storage involves two closely related activities: inventory management and warehousing. A direct relationship exists between transportation and the level of inventory and number of warehouses required. It is important to examine the trade-offs related to the various alternatives in order to optimize the overall logistics system. Packaging involves the necessary packaging needed to move the product to the market. Logistics managers must analyze the trade-offs between the type of transportation selected and its packaging requirements. Materials handling is important to efficient warehouse operation and concerns the mechanical equipment for shortdistance movement of goods through the warehouse. Order fulfillment consists of the activities involved with completing customer orders. Order fulfillment concerns the total lead time from when the order is placed to actual delivery in satisfactory condition. Forecasting involves the prediction of inventory requirement and materials and parts essential to effective inventory control. Production planning concerns the determination of the number of units necessary to provide market coverage. The integration of production planning into logistics has become increasingly popular in large companies to effectively forecast and control inventory. Purchasing concerns the availability for production of needed parts, components, and materials in the right quantity, at the right time, at the right place, and at the right cost. Purchasing is included within the logistics area if it more effectively coordinates and lowers costs for the firm. Customer service plays an important part in logistics by ensuring the customer gets the right product at the right time and place. Logistics decisions about product availability and inventory lead time are critical to customer service. Site location is concerned with creating time and place relationships between plants and markets, or between supply points and plants. Site location impacts transportation rates and service, customer service, inventory requirements, and possible other areas. 35. The concepts of supply chain management and logistics must be compared or, more appropriately, related to each other. Supply chain management is defined using a pipeline analogy with the start of the pipeline representing the initial supplier and the end of the pipeline representing the ultimate customer. In other words, it was an extended set of enterprises from the supplier's supplier to the customer's customer. Another perspective on supply chain management is to view it as a network of the logistics systems and related activities of all the individual organizations that are a part of a particular supply chain. The individual logistics systems obviously play a role in the success of the overall supply chain. The coordination or integration of the logistics systems in a supply chain is a challenge; no logistics system operates in a vacuum. For example, the inbound part of a manufacturer's logistics system interfaces with the outbound side of the supplier's logistics system. The outbound portion of the manufacturer's logistics system interfaces with the inbound side of its customer's logistics system.

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Chap_03_11e 36. Business logistics: That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, service, and related information from point of origin to point of consumption in order to meet customer requirements. Military logistics: The design and integration of all aspects of support for the operational capability of the military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and efficiency. Event logistics: The network of activities, facilities, and personnel required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event. Service logistics: The acquisition, scheduling, and management of the facilities, assets, personnel, and materials to support and sustain a service operation or business. All four subdivisions have some common characteristics and requirements such as forecasting, scheduling, and transportation, but they also have some differences in their primary purpose. All four, however, can be viewed in a supply chain context; that is, upstream and downstream other organizations play a role in their overall success and long-run viability.

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Chap 04_11e Indicate whether the statement is true or false. 1. A channel of distribution is controlled by the marketing department, which selects the physical structures and intermediaries through which the product(s) flow. a. True b. False 2. In a commercial zone, the same transportation rate is applied from an origin to any point in the zone. a. True b. False 3. Logistics facilities and their locations are relatively variable and easily modified in the short term. a. True b. False 4. The grid technique determines the highest cost facility location in an area. a. True b. False 5. Labor-intensive industries place significant emphasis on the availability and cost of labor. a. True b. False 6. The first step in the supply chain network design process is to perform a supply chain audit. a. True b. False 7. The grid technique will evaluate all transportation rates equally. a. True b. False 8. Staples frequently sells its office supplies direct to other businesses (B2B) through its online ordering and delivery services, and it typically sells office supplies direct to consumers (B2C) through its stores. This is what’s known as “multi-channel” capabilities. a. True b. False 9. The quality of life locational determinant is most important to companies that must attract and retain an unskilled, static work force. a. True b. False 10. The efficiency and effectiveness of a logistics/supply chain operation are constrained by the location of plants and warehouses in its overall network. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 04_11e 11. An organization’s omni-channel strategy must align with its “go to market” strategy, which dictates how consumers will be able to gain access to the firm’s products or services. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 12. Heuristic models: a. provide an optimum solution. b. are able to accommodate broad problem definitions. c. have fallen from use because of SAILS. d. are typically "seat of the pants" solutions. 13. Simulation models: a. guarantee optimum solutions. b. generate SAILS reports. c. search directly for the best warehouse configuration. d. allow the decision maker to test the effects of alternative locations. 14. What is the effect of tapering rates on facility location? a. It pushes the raw materials sources toward the location. b. It pulls the facility toward the location. c. It pulls the location toward the source or the market. d. It makes the optimum location at the midpoint between raw material sources and the marketplace. 15. Which major locational determinant considers locating near the competition? a. Labor climate b. Quality of life c. Company preference d. Supplier networks 16. Application of the grid technique to the location of a city warehouse: a. is no different from applying it in any other situation. b. incorporates a blanket rate structure that applies the same rate from an origin to any point within the city or commercial zone. c. considers the costs of moving raw materials into the facility, and moving finished goods to the customers. d. accounts for information like highway access and facility availability within the grid coordinates.

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Chap 04_11e 17. Kelly’s firm processes and packages organic nuts and nut butters. Last year, the firm started selling its products to Costco, the discount retailer, in addition to traditional retail chains. This new opportunity is wonderful for Kelly’s firm, but the Costco-bound products require different packaging, and the volume and frequency of the Costco orders have placed a strain on the firm’s resources. Kelly may need to re-evaluate the firm’s supply chain network design due to which significant trend? a. Changes in customer service requirements b. Changes in corporate ownership c. Shifting locations of customer and/or supply markets d. Cost pressures 18. The optimization model is based on: a. precise mathematical procedures. b. sampling experiments. c. broad problem definitions. d. rule of thumb approaches. 19. When a blanket rate structure is used, which factor is eliminated as a locational determinant? a. Labor rate b. Transportation rate c. Raw material sources d. Market sources 20. The classic objective of a network design model has been to: a. establish the number, location, and size of finished goods distribution centers and associated product flows. b. find the best location for a forward-facing warehouse. c. examine the finished goods flow from the warehouse to the customer. d. measure and control site locations. 21. Southwest Auto Parts already had a massive distribution center in Utah serving its 147 stores scattered across seven U.S. states when it decided to start selling auto parts online. The firm’s management wanted to minimize startup costs by consolidating order fulfillment under the same roof, so which model of order fulfillment did the firm’s managers decide to use? a. Pool b. Dedicated c. Integrated d. Direct 22. This type of fulfillment model has the manufacturer delivering its products directly to the retailers' stores. a. Outsourced b. Store-fulfillment c. Flow-through d. None of these answers

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Chap 04_11e 23. Which of the following is true regarding optimization models? a. Optimization models are based on precise mathematical procedures that are guaranteed to find the "best" solution for the problem under evaluation. b. Optimization models are able to accommodate broad problem definitions, rather than provide an optimum solution. c. The grid technique is a powerful optimization model. d. Optimization models will guarantee increased profits. 24. The grid technique is used to determine a fixed facility location that represents the least-cost center for moving incoming materials and outbound product within a geographic grid. This least cost center is also referred to as a: a. zero point. b. source point. c. break-even point. d. center of gravity. 25. Kelly’s firm processes and packages organic nuts and nut butters, and it has just landed a new contract with Costco, the discount retailer. As wonderful as this new opportunity is, the Costco-bound nut butters demand a change in the supply chain network. These products require larger containers (24 oz. containers instead of the usual 16 oz. jars), which in turn require larger shipping cartons. Kelly is currently testing the various containers available from a range of suppliers to determine which are most compatible with the firm’s production line. Which step in the supply chain network redesign process is Kelly performing? a. Defining the supply chain network design process b. Performing a supply chain audit c. Examining the supply chain network alternatives d. Conducting a facility location analysis 26. Henderson Air used to source all of their supplies from three suppliers. However, to remain competitive in recent years, Henderson has started to source supplies from more suppliers in order to obtain the best prices. Some of these suppliers are overseas. As a result, the firm's inventory levels: a. have increased. b. have decreased. c. have stayed the same. d. can't be determined. 27. Which is an advantage of the grid technique for facility location? a. It establishes the final determination of the best site. b. Computationally, it is relatively easy to use. c. It is a dynamic approach with solutions remaining optimum over many time periods. d. It considers topographic conditions in choosing the optimum location.

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Chap 04_11e 28. The grid technique: a. is a variation of SAILS. b. assumes that the raw materials sources and finished goods markets are fixed. c. assumes that the raw materials sources and finished goods markets are variable. d. assumes nonlinear transportation rates. 29. Which of these is not a trend in today's logistics environment that may have significant effects on decisions involving logistics facility location? a. Strategically located cross-docking facilities b. Use of third-party logistics services c. Customer-direct delivery d. Addition of many wholesaler/distributor operations 30. Which is correct regarding tapering rates? a. The principle is based on the carrier's ability to spread certain fixed shipment costs over a greater number of miles. b. Transportation rates increase with distance directly in proportion to the distance. c. In a one-source, one-market situation, the impact of the tapering rate will be to pull the location toward a point midway between the source and the market. d. Uses transportation simplifications to recommend facility locations 31. When Zappos, a leading online shoe retailer, receives an online order through its website, the order is sent directly to the most appropriate distribution center for fulfillment. This is an example of: a. a logistics channel function. b. a marketing channel function. c. the intersection of logistics and marketing channels. d. None of these answers. 32. In the short run, the firm's network is _____ while in the long run it is _____. a. fixed; variable b. adoptable; reversible c. variable; reversible d. reversible; fixed 33. Define and discuss the Grid Technique, including its advantages and disadvantages.

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Chap 04_11e 34. Distinguish between the locational determinants of labor climate and quality of life.

35. What are the current trends governing site selection?

36. Briefly describe the six major steps that are recommended for a logistics network design process.

37. Define the principles of tapering rates, blanket rates, and commercial zones and the implication of each on location selection.

38. List and discuss potential supply chain modeling pitfalls to avoid.

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Chap 04_11e Answer Key 1. False 2. True 3. False 4. False 5. True 6. False 7. False 8. False 9. False 10. True 11. True 12. b 13. d 14. c 15. c 16. b 17. a 18. a 19. b 20. a 21. c 22. d 23. a 24. d 25. c 26. a

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Chap 04_11e 27. b 28. b 29. d 30. a 31. b 32. a 33. The grid technique is a simplistic, but well-known, heuristic approach to help companies with multiple markets and multiple supply points determine a least-cost facility location. Essentially, the grid technique attempts to determine a fixed facility (such as a plant or distribution center) location that represents the least-cost center for moving inbound materials and outbound product within a geographic grid. The technique determines the low-cost "center of gravity" for moving raw materials and finished goods. This technique assumes that the raw materials sources and finished goods markets are fixed and that a company knows the amount of each product it consumes or sells. The technique then superimposes a grid upon the geographic area containing the raw materials sources and finished goods markets. The grid's zero point corresponds to an exact geographic location, as do the grid's other points. Thus, the company can identify each source and market by its grid coordinates. The technique defines each source and market location in terms of its horizontal and vertical grid coordinates, and performs mathematical computations to find the ton-mile center. This equation will generate the least-cost location if transportation rates for raw materials and finished goods are the same. But transportation rates vary among commodities, and the ton-mile center equation does not reflect differences in the costs of moving commodities. The transportation rate pulls the location toward the location of the commodity with the higher rate. The higher rates of finished goods will draw the least-cost location toward the finished goods market and thereby reduce the distance the company moves these higher-rated goods. This will increase the distance the company transports lower-rated raw materials. Thus, the analysis must be refined to incorporate the transportation rates of different products. The grid technique's strengths are in its simplicity and its ability to provide a starting point for location analysis. Computationally, the technique is relatively easy to use. A company can generate the necessary data from sales figures, purchase records, and transportation documents (either the bill of lading or the freight bill). More exact market and source location coding is possible, as is modifying the rate-distance relationship quantification. A computer can easily handle such refinements. The grid technique also provides a starting point for making a location decision. Although transportation cost is not the only locational determinant, use of the grid technique can help at the early stage in the network design process by helping the decision maker to focus on an area or areas that are logistically advantageous. The grid technique has limitations that the decision maker must recognize. First, it is a static approach, and the solution is optimum for only one point in time. Changes in the volumes a company purchases or sells, changes in transportation rates, or changes in raw materials sources or market locations will shift the least-cost location. Second, the technique assumes linear transportation rates, whereas actual transportation rates increase with distance but less than proportionally. Third, the technique does not consider the topographic conditions existing at the optimum location; for example, the recommended site may be in the middle of a lake. Fourth, it does not consider the proper direction of movement; most moves occur along a straight line between two points, not "vertically" and then "horizontally." Copyright Cengage Learning. Powered by Cognero.

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Chap 04_11e 34. Location decision makers consider a number of factors in determining the labor climate of an area, region or country. Given the typically labor-intensive nature of many logistics/supply chain operations, the cost and availability of labor are major issues of concern. Other factors to be considered include the workforce's degree of unionization, skill level, work ethic, productivity, and the enthusiasm of local public officials. A particular region's or area's quality of life is difficult to quantify, but it does affect the well-being of employees and the quality of work they are expected to perform. The quality-of-life factor is more important to companies that must attract and retain a mobile professional and technical workforce capable of moving to any location. Quality of life variables include climate, housing costs, health care and environment, crime, passenger transportation, education, recreation, the arts, and economic opportunities. 35. A number of trends in today's logistics environment may have a significant effect on decisions involving logistics facility location. Included among these are the following: Strategic positioning of inventories, such that fast-moving, profitable items may be located at "market-facing" logistics facilities. Slower-moving, less profitable items may be located at more regional, or national, facilities. Aside from a general trend toward the elimination of many wholesaler/distributor operations, companies are moving to greater use of "customer-direct" delivery from manufacturing and other upstream supply chain locations. Many times, this bypasses and diminishes the need for complete networks of distribution facilities. There is a growing use of and need for strategically located cross-docking facilities that serve as transfer points for consolidated shipments that need to be disaggregated or mixed into typically smaller shipments for delivery to individual customers. An example of this would be the consolidation of multiple-vendor shipments into full trailer loads being shipped to retail stores or points of use. Applied to inbound movements, this concept can significantly reduce the need for inbound consolidation facilities. Due diligence for location and site selection decisions is placing great emphasis on access to major airports and/or ocean ports for import and export shipments. Greater use of providers of third-party-logistics services, who may assume part or all of the responsibility for moving a firm's products to its customers, and/or moving its inbound parts and materials to its manufacturing process. In the global setting, many of these companies are developing specialized abilities to facilitate the movements of import and export shipments.

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Chap 04_11e 36. Step 1: Define the Logistics/Supply Chain Network Design Process Of initial importance is the formation of a logistics/supply chain network transformation team to be responsible for all elements of the network design process. This team will first need to become aware of overall corporate and business strategies and the underlying business needs of the firm and the supply chains in which it is a participant. Also in this step, it is important to establish the parameters and objectives of the network design or redesign process itself. Issues pertaining to the availability of needed resources in the areas of funding, people, and systems must be understood at an early stage in the process. An additional topic to be addressed early on is the potential involvement of third-party suppliers of logistics services as a means of achieving the firm's logistics objectives. Step 2: Perform a Logistics/Supply Chain Audit The logistics/supply chain audit provides members of the transformation team with a comprehensive perspective on the firm's logistics process. In addition, it helps to gather essential types of information that will be useful throughout future steps in the redesign process such as customer requirements and key environmental factors; key logistics goals and objectives; profile of the current logistics/supply chain network; understanding of key logistic/supply chain activities and processes; benchmark, or target, values for logistics/supply chain costs and key performance measurements; identification of gaps between current and desired logistics/supply chain performance, and key objectives for logistics/supply chain network design. Step 3: Examine the Logistics/Supply Chain Network Alternatives The next step is to examine the available alternatives for the logistics/supply chain network. This involves applying suitable quantitative models to the current logistics system as well as to the alternative systems and approaches under consideration. The use of these models provides considerable insight into the functioning and cost/service effectiveness of the various possible networks. Also, at this point in the network design process, it is critical to understand the geographical parameters of the logistics/supply chain under study. Step 4: Conduct a Facility Location Analysis Once a general configuration of the desired logistics/supply chain network has been recommended, the next task is to carefully analyze the attributes of specific regions and locales that are candidates for sites of logistics facilities, distribution centers, cross-docking operations, etc. These analyses will have both quantitative and qualitative aspects. The effort in this step will be facilitated by the formation of a location selection team, which will collect information on specific attributes as well as to examine potential sites in terms of local factors such as topography, geology, and facility design. Step 5: Make Decisions Regarding Network and Facility Location The network and specific sites for logistics facilities recommended in Steps 3 and 4 should be evaluated for consistency with the design criteria that were identified in Step 1. This step should confirm the types of change that are needed to the firm's logistics network and should do so in the context of overall supply chain positioning. Step 6: Develop an Implementation Plan Once the overall direction has been established, the development of an effective implementation plan, or "blueprint for change," is critical. This plan should serve as a useful road map for moving from the current logistics/supply chain network to the desired new one.

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Chap 04_11e 37. Transportation rates increase with distance but not in direct proportion to distance. This tapering-rate principle results from the carrier's ability to spread certain fixed shipment costs, such as loading, billing, and handling, over a greater number of miles. As noted by Edgar M. Hoover, a tapering rate in a one-source, one-market situation pulls the location to either the source or the market but not to a point in between. A noted exception to the preceding rate structure is the blanket rate. The blanket rate does not increase with distance; it remains the same from one origin to all points in the blanket area. The carriers establish such rates to ensure a competitive price for a product in a given area, thereby ensuring demand for the product and its transportation. An example of a blanket rate would be the same rate on wine traveling from the West Coast to all points east of the Rocky Mountains, enabling the West Coast wine to compete with imported wines entering the East Coast. The blanket rate eliminates any transportation cost advantage or disadvantage that companies associate with a given location. The blanket rate, then, is a mutation of the basic rate–distance relationship that eliminates the transportation rate as a locational determinant; it is the exception rather than the rule in transportation rates. A specific blanket area is the commercial zone, the transportation definition of a particular city or town. It includes the municipality itself plus various surrounding areas. The commercial zone rates that carriers quote to a particular town or city also apply to points in the surrounding area within the commercial zone. The commercial zone's locational impact appears near the end of the location decision process when a company selects a specific site. If the specific site is beyond the limits of a municipality's commercial zone, rates that apply to the city do not apply to the site. Also, a site outside the commercial zone reduces carrier availability, especially the availability of motor carriers that define their operating scopes in terms of point-to-point operations.

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Chap 04_11e 38. A number of common pitfalls should be avoided in designing and implementing an optimum worldwide supply chain. Recognizing these in advance should help to maximize the value to be achieved through use of appropriate mathematical techniques for supply chain network design. Short-term horizon. Unless modeling features are designed, implemented, and used with a long-term perspective, significant suboptimization is likely to occur. Too little or too much detail. Too little detail can make it difficult to implement results due to insufficient information; too much detail can create unnecessary complexity, making it difficult to understand the results and more difficult to implement effectively. Thinking in two dimensions. While the use of two-dimensional maps certainly helps to provide insight into supply chain problems, the geometry of the networks may ignore cost and geographical dispersions of demand. Over significant distances, and particularly for global supply chain analyses, the curvature of the earth may distort distance calculations, in which case needed adjustments must be made. Using published costs. Many published costs tend to represent "list" prices that need to be modified to reflect what may result after significant negotiations occur between buyers and sellers of transport services. Inaccurate or incomplete costs. Analyses based on insufficiently accurate information lead to invalid results; inaccurate cost forecasts result in suboptimal allocations of resources, typically leading to seriously flawed strategies. Fluctuating model inputs. Given the prevailing uncertainties in many of the relevant inputs to today's network design models, it is important to conduct sensitivity analyses to be aware of the potential wide swings in key model inputs. Use of erroneous analytical techniques. The selected techniques and approaches should be matched with the level of precision desired; the identification of modeling objectives is an important forerunner to the selection of the techniques to be utilized. Lack of appropriate robustness analysis. Since most or all model inputs have at least an element of uncertainty, it is important to understand the consequences that could result from variation in actual behavior of key model inputs; robustness analysis can help to assure the practicality and validity of the results from the selected analyses.

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Chap_05_11e Indicate whether the statement is true or false. 1. An advantage of e-sourcing and e-procurement is that there is little risk involved. a. True b. False 2. There are seven steps in the Strategic Sourcing Process. a. True b. False 3. Procurement serves as a critical link between members of the supply chain. a. True b. False 4. When a firm makes a "make" decision when analyzing whether to "make or buy," they may still have to purchase some types of inputs from outside suppliers. a. True b. False 5. Data management and analytics for tracking part numbers and supplier information are essential for companies of all sizes. a. True b. False 6. While organizations should seek to build strong relationships with suppliers, they should never ask or expect suppliers to provide input into processes such as product design, engineering assistance, or quality control. a. True b. False 7. Strategic sourcing is almost the same as procurement. a. True b. False 8. Commodities are items or services that are low in risk but high in value. a. True b. False 9. Some firms are moving towards increasing their number of suppliers in order to encourage competition and lower procurement costs. a. True b. False 10. Landed costs are independent of sales/FOB terms. a. True b. False

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Chap_05_11e 11. The first step in the Managing Strategic Sourcing Process is to develop a strategic plan, which includes forming a planning committee with key stakeholders. a. True b. False 12. The most important factor in supplier selection is usually financial health. a. True b. False 13. “Distinctives” are low-risk, high-value items that are fundamental to the company's finished product. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 14. In the Item Procurement Importance Quadrant, what describes high risk, low value? a. Generics b. Commodities c. Criticals d. Distinctives 15. Which approach represents a strategy in which the entire organization is focused on the examination of process variability and continuous improvement? a. Total Quality Management b. Six Sigma c. Lean Enterprise Management d. Theory of Constraints e. None of these answers 16. Zahira, the CEO of a regional chain of bread bakeries, wants to ensure healthy relationships with all of her firm’s suppliers, which is why she routinely invites account executives and other members of her suppliers’ teams to visit the bakeries, sample the products, and understand as much as they can about her business. This is Zahira’s way of: a. developing close relationships. b. communicating effectively. c. using business reviews. d. strategic planning in conjunction with suppliers. 17. Strategic sourcing as a process is far more broad and comprehensive than procurement. Overall, the process starts with the: a. development of a planning committee. b. creation of a list of suppliers. c. decision of whether to make or buy. d. formation of a list of “criticals.” Copyright Cengage Learning. Powered by Cognero.

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Chap_05_11e 18. In the Item Procurement Importance Quadrant, what item is described as low risk, low value? a. Generics b. Commodities c. Criticals d. Distinctives 19. In the Evaluate Supply Sources step, the firm: a. performs a spend analysis. b. decides which suppliers are located closest to the firm's plant to insure timely delivery. c. identifies all possible suppliers that might be able to satisfy the user's needs. d. defines the parameters of the sourcing strategy process. 20. What supplier selection criteria are described by production capability, labor relations, and operating controls? a. Capability b. Quality c. Reliability d. Financial 21. The concept that represents the sum of all costs associated with making and delivering products to the point where they are needed is called: a. purchase/acquisition cost. b. strategic sourcing costs. c. life cycle costs. d. total landed cost. 22. What supplier selection criteria are described by attitude, cultural compatibility, training aids, packaging, and repair service? a. Sustainability b. Financial considerations c. Reliability d. Desirable qualities 23. To help guide the strategic sourcing process, five core principles are recognized as key drivers to achieve the desired levels of value. Which of the following is not one of those core principles? a. Access the total value b. Develop individual sourcing strategies c. Evaluate internal requirements d. Drive continuous savings

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Chap_05_11e 24. In the Implement Sourcing Strategy step, the most important thing is to: a. agree on supplier selection criteria. b. choose a supplier or suppliers, depending on the objectives of the sourcing decision. c. verify which suppliers are either TQM or ISO 9000. d. finalize understandings and agreements with new suppliers. 25. Bonanza is a website that enables sellers to hold auctions for their items or products. Bonanza is an example of a(n): a. sell-side system. b. business-to-business sales system. c. online trading community. d. online marketplace. 26. What supplier selection criteria are described by price and financial stability? a. Capability b. Financial c. Quality d. Reliability 27. A type of e-commerce site where product or service information is provided by multiple third parties, such as Amazon or Expedia, is called a(n): a. online marketplace. b. B2C system. c. sell-side system. d. on-line trading community. 28. Which of the following is not an advantage of e-procurement? a. Lower operating costs b. More efficient procurement processes c. Greater access to more suppliers d. Easier access to secure information 29. In the Item Procurement Importance Quadrant, what is described as high risk, high value? a. Generics b. Commodities c. Criticals d. Distinctives

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Chap_05_11e 30. What are at least three types of certifications and registrations? What do they signify, and why are they important?

31. Summarize the advantages and potential drawbacks of e-procurement. If you were responsible for procuring supplies for a firm, how would you guard against the concerns?

32. There are four types of products and services that are purchased with varying degrees of importance. Name all four, and choose two to discuss in terms of risk and value.

33. There are three definitions to aid understanding of some of the similarities, differences, and linkages between purchasing, procurement, and strategic sourcing. Define them, and discuss the differences between the three.

34. There are seven steps in the Strategic Sourcing Process. Name at least five, and choose two to discuss in more detail.

35. Define and discuss the basic types of e-commerce business models used in procurement and sourcing.

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Chap_05_11e 36. Name several criteria that are important in supplier selection. Which one is the most important?

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Chap_05_11e Answer Key 1. False 2. True 3. True 4. True 5. False 6. False 7. False 8. True 9. False 10. False 11. True 12. False 13. False 14. d 15. a 16. a 17. a 18. a 19. c 20. a 21. d 22. d 23. d 24. b 25. c 26. b

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Chap_05_11e 27. a 28. d 29. c 30. A topic of interest to many buyers of products and services is the extent to which potential suppliers have achieved excellence in terms of process management and continuous improvement. As a result, over time several techniques and approaches have been developed that address issues relating to soundness of processes, results achieved, and continuous improvement. A few of the more prevalent approaches are:

Total Quality Management—Arising in the 1980s in response to Japanese competition and the teachings of Dr. W. Edwards Deming, TQM represented a strategy in which entire organizations were focused on an examination of process variability and continuous improvement. This approach, which was very popular into the mid-1990s, included a goal of improving a company's quality to only three defects per million through systematic incremental change in processes and careful statistical measurement of outcomes. Six Sigma—is similar to TQM in its focus on techniques for solving problems and using statistical methods to improve processes. But whereas TQM emphasizes employee involvement for the total organization, the Six Sigma approach involves training experts (known as green belts and black belts) who work on solving important problems while they teach others in the company. ISO 9000—is a program started in 1987 by the International Organization for Standardization. It has an objective of making sure that companies have standard processes in place that they follow: "Document what you do and do what you document." ISO 9000 involves a third-party registration program certifying that companies are following documented processes. Aside from the fact that these approaches typically require very significant commitments in terms of time, effort, and expense, buying organizations need to look closely to make sure that participation in these programs actually produces results that are of tangible value. While it is encouraging to know that certain potential suppliers have committed their organizations to approaches such as these, one needs to be sure to document the benefits and improvements that are likely to be created as a result. 31. Figure 5.11 lists the advantages and concerns related to e-procurement. Advantages include lower operating costs, improved procurement efficiency, reduced procurement expenses, improved communications, and greater access to more suppliers. However, students’ answers will need to address plausible precautions for guarding against potential drawbacks, including cybersecurity issues and other technology-related concerns, as well as the lack of face-to-face relationship building between buyers and suppliers.

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Chap_05_11e 32. Generics are low-risk, low-value items and services that typically do not enter the final product. Items such as office supplies and maintenance, repair, and operating items (MRO) are examples of generics. The administrative and acquisition processing costs are more significant than the purchase price of generics, and, for some generics, the administration and processing costs may exceed the price paid for the item or service. Commodities are items or services that are low in risk but high in value. Basic production materials (bolts), basic packaging (exterior box), and transportation services are examples of commodities that enhance the profitability of the company but pose a low risk. Distinctives are high-risk, low-value items and services such as engineered items, parts that are available from only a limited number of suppliers, or items that have a long lead time. The company's customers are unaware of or do not care about the uniqueness of distinctives, but these products pose a threat to continued operation and/or high procurement cost. Criticals are high-risk, high-value items that give the final product a competitive advantage in the marketplace. The procurement strategy for criticals is to strengthen their value through use of new technologies, simplification, close supplier relations, and/or value-added alterations. 33. Purchasing, procurement, and strategic sourcing are receiving considerable attention as organizations try to improve the overall efficiency and effectiveness of their supply chains. Purchasing: The transactional function of buying products and services. In a business setting, this commonly involves the placement and processing of a purchase order. Procurement: Refers to the process of managing a broad range of processes that are associated with a company's need to procure goods and services that are required to manufacture a product (direct) or to operate the organization (indirect). Strategic sourcing: Essentially, the strategic sourcing process is broader and more comprehensive than the procurement process. Strategic sourcing takes the process further, focuses more on supply chain impacts of procurement and purchasing decisions, and works cross-functionally within the business to help achieve the organization's overall business goals.

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Chap_05_11e 34. Step 1: Develop Strategic Plan The most effective way to initiate a MSSP process is to take the time to map out a formal plan for the design and implementation of the process itself. Included here is the creation of a cross-functional planning group to guide and oversee the overall strategic sourcing process, and the identification of key members of the strategic sourcing team. Also, there should be consensus on the scope and design of the MSSP process, which must include a preliminary understanding of what types of products and services may be within the responsibility of this initiative. Step 2: Understand Spend The planning group needs to develop a baseline understanding of what products and services are being procured, what purposes they serve, the financial implications of these purchases, etc. This needs to include a formal "spend analysis" that is designed to understand spend by supplier, category, and internal user and to profile current sourcing approaches and areas for improvement. Step 3: Evaluate Supply Source This critical step involves making sure that all potential sources of supply are identified and that useful mechanisms are in place for meaningful comparisons of alternative supply sources. Step 4: Finalize Sourcing Strategy Prior to embarking on the step of supplier selection, it is important to fully develop a sourcing strategy that defines the parameters of the process and the steps to be followed. Of particular interest in this process are the steps related to initial supplier research and screening, development of a responsive request for information (RFI) and request for proposal (RFP), site visits with follow-up discussions, and supplier selection. Step 5: Implement Sourcing Strategy This step begins with an evaluation of the suppliers that remain following the RFI and RFP processes and culminates in the award of a contract. Step 6: Onboarding and Transitioning Important elements of this step are the finalization of the contractual agreement, planning the transition process, and receipt or delivery of the product or service. This activity occurs with the first attempt by the supplier or suppliers to satisfy the user's needs. The completion of this activity also begins the generation of performance data to be used for the next step in the strategic sourcing process. Step 7: Collaborative Process Improvement A very important step in the strategic sourcing process is the measurement and improvement of supplier performance. This involves making a post-purchase performance evaluation.

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Chap_05_11e 35. The basic types of e-commerce business models used in procurement and sourcing are: Sell-side system: Online businesses selling to individual companies or consumers. Buy-side system: A buyer-controlled e-procurement or e-commerce service that is housed on the buyer's system and is administered by the buyer, who typically pre-approves the suppliers who have access to the system, and the process of the suppliers' products and services that have been prenegotiated. B2B and B2C: These terms refer to online businesses selling to businesses or consumers, respectively. They both are “sell-side” in that they represent sources of products and services that are available for purchase by customers. Online marketplace: A seller-operated service that consists of a number of electronic catalogs from vendors within a market. Online trading community: A system maintained by a third-party technology vendor where multiple buyers and multiple sellers in a given market can conduct business. The online community permits the buyers and sellers to conduct business transactions. 36. The most important factor in vendor selection is usually quality. Quality often refers to the specifications that a user desires in an item. The procurement professional compares the actual quality of a supplier's product with the specifications the user desires. In actuality, quality includes additional factors such as life of the product, ease of repair, maintenance requirements, ease of use, and dependability. In today's Six Sigma and lean environments, not only are quality standards higher, but suppliers are typically counted upon to take major responsibility for quality. Reliability comprises on-time delivery and performance history, the second- and third-ranked factors for most procurement professionals. Reliability is often considered a part of a total quality management program. Risk is a factor of great contemporary relevance. One way this may occur is if there is likely variability in the cost of purchased products or services that may result in higher prices. Other ways in which risk may occur include supply uncertainties and unusual variation in delivery lead times. Capability considers the potential supplier's production facilities and capacity, technical capability, management and organizational capabilities, and operating controls. Financial considerations include price. In addition to price, the buying firm considers the supplier's financial position. Financially unstable suppliers pose possible disruptions in a long-run continued supply of material. Desirable capabilities include several that may be helpful depending on the type of purchase being made and the type of relationship desired between the customer and the supplier. The impression or image that the supplier projects has a similar effect on supplier selection, as well as cultural compatibility. Other factors that may be important include training aids, packaging, and repair service availability.

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Chap_06_11e Indicate whether the statement is true or false. 1. Most processes are basically organized the same. a. True b. False 2. Savvy operations managers should use no more than five or six metrics per team or function to ensure they are measuring outcomes effectively. a. True b. False 3. Materials requirement plan (MRP) is most effective at managing independent demand items. a. True b. False 4. Flexibility and responsiveness must be balanced with cost savings during the transformation process. a. True b. False 5. Packaging is very important in the manufacturing operation. a. True b. False 6. World-class organizations can improve performance along multiple dimensions without making extensive performance tradeoffs or sacrifices. a. True b. False 7. Offshoring is a term that means relocating an activity to a contract manufacturer in another country. a. True b. False 8. Routing flexibility is a term used in connection with how spare parts move through the supply chain. a. True b. False 9. Companies now use strategies that are lean, flexible, or adaptive; they wait for customers to push products to the market. a. True b. False 10. A workcenter is a fixed layout where the product remains in place for the duration of production. a. True b. False

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Chap_06_11e 11. A manufacturing plant in which equipment components, such as material handling systems, tooling, pumps, and valves, are linked to electronically communicate with each other in order to consistently achieve peak performance is known as an “integrated” factory. a. True b. False 12. Resource requirements planning (RRP) is a long-run, macro-level planning tool. a. True b. False 13. Machine flexibility provides the ability to produce different types of products as well as change the order of operations executed on a product. a. True b. False 14. Capacity requirements planning (CRP) is used to check the feasibility of the materials requirement plan. a. True b. False 15. Manufacturing and production operations create form utility. a. True b. False 16. The "bullwhip" effect occurs when forecast errors are magnified and demand variability increases as orders move upstream from retailers to distributors to producers. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 17. A push-based strategy works well for supply chains that focus on: a. lean production. b. the anticipation of demand or without knowledge of customer orders. c. work centers and offshore sourcing. d. the immediate delivery of off-the-shelf, low-cost, standardized goods. 18. Three months ago, the new operations manager at Acme Fastener and Tool’s manufacturing plant implemented a system for measuring the total volume of output each week. He discovered that the plant’s weekly capacity was averaging about 83%, which he would like to raise to closer to 90%. What type of metric is this manager concerned with at the moment? a. Efficiency manufacturing b. Quality manufacturing c. Inventory d. Costs and profitability

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Chap_06_11e 19. In anticipation of strong sales, Apple manufactures mass quantities of its popular iPhone and ships them to Apple stores around the world. Which assembly process is Apple using in this situation? a. MTS b. ETO c. BTO d. ATO 20. Which of the following is not a reactive capability strategy? a. Machine flexibility b. Routing flexibility c. Resource requirements planning d. Offshoring 21. In assemble-to-order (ATO) production: a. customer orders are filled from finished goods inventories, and production orders are used to replenish finished goods inventories. b. the finished product is a combination of standard and custom-designed components that meet unique needs of a specific customer. c. the finished product is generally a combination of common components and a limited number of options or accessories made available to the customer. d. highly tailored products are created for the customer whose specifications require unique engineering design or significant customization. 22. Which of the following is not one of the common steps in the functioning of a manufacturing execution system (MES)? a. Taking a detailed order from a customer b. Deciding where to produce the order based on capabilities, capacity, and price c. Publishing instructions on the best way to manufacture the product d. Using KPIs and dashboards to track production performance 23. A newly launched twenty-first century addition to production strategy which leverages lean manufacturing strategies, Six Sigma best practices, and real-time actionable intelligence from the factory floor is called: a. just-in-time inventory. b. adaptive manufacturing. c. machine flexibility. d. capacity requirements planning. 24. Processes that can produce a range of products are said to have: a. economies of scale. b. economies of scope. c. routing flexibility. d. work centers.

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Chap_06_11e 25. Capacity is: a. determined by lean manufacturing. b. the maximum amount of square footage available for inventory storage in a facility. c. determined by raw materials flows. d. the maximum amount of work that an organization is capable of completing in a given period of time. 26. In an MRP system, this document identifies all of the components required to assemble an independent demand item. a. Inventory status file b. Bill of materials c. Master production schedule d. None of these answers 27. A project layout is: a. a floor plan of the production facility. b. a fixed location layout where the product remains in place for the duration of production. c. a product-focused layout in which machines and workers are arranged according to the progressive sequence of operations. d. a process-focused layout that groups together similar equipment or functions. 28. Monitoring the amounts of raw materials stored in inventory and available for production is a specific example of which core function of an MES? a. Process management b. Quality management c. Resource management d. Data collection and acquisition 29. Three months ago, the new operations manager at Acme Fastener and Tool’s manufacturing plant decided to increase the plant’s production volume so that machines were operating at a higher capacity, even though the previous levels were sufficient to meet all of the company’s orders. How would you characterize this manager’s mistake? a. Focusing on a discrete event instead of taking a broader view b. Focusing on an issue that is not a key priority aligned with organizational goals c. Using a KPI that is too narrow d. Encouraging an incorrect outcome 30. What is the "bullwhip effect," and how does it affect manufacturing?

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Chap_06_11e 31. The Manufacturing Enterprise Solutions Association (MESA) has identified eight categories of metrics commonly used by discrete, process, and hybrid/batch manufacturers. Explain which one or two categories of metrics you think is/are most important to track and why, and include several specific examples of metrics that support your opinion.

32. Discuss the role of packaging from a logistics perspective.

33. Discuss the role of production operations in Supply Chain Management (SCM).

34. Explain one of the following in detail: workcenter, manufacturing cell, assembly line, or continuous process facilities.

35. What is offshoring? How does it affect manufacturing and logistics?

36. Discuss the three planning timeframes, how they relate to capacity planning and materials planning, and the various tools associated with them.

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Chap_06_11e 37. Discuss the challenges facing production managers.

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Chap_06_11e Answer Key 1. False 2. True 3. False 4. False 5. False 6. True 7. True 8. False 9. False 10. False 11. False 12. True 13. True 14. True 15. True 16. True 17. d 18. a 19. a 20. c 21. c 22. a 23. b 24. b 25. d 26. d

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Chap_06_11e 27. b 28. c 29. d 30. One problem with basing production on supply chain partners' forecasts is the potential for the bullwhip effect to occur. Under this phenomenon, forecast errors are magnified and demand variability increases as orders move upstream from retailers to distributors to producers. The producers have to complete larger and more variable production batches to supply the often-changing downstream orders. This can lead to inefficient resource utilization as production capacity is not consistently engaged—sometimes being overworked, other times being idled. 31. Students’ answers will vary, but they should be able to support their answers with logical reasoning. The eight possible categories and specific examples are: Customer experience and responsiveness—on-time delivery, manufacturing cycle time, time to make changeovers, perfect order percentage Quality manufacturing—yield, customer rejects/returns, supplier’s quality incoming Efficiency manufacturing—throughput, capacity utilization, overall equipment effectiveness, schedule or production attainment Inventory—work-in-progress inventory turns Compliance—reportable health and safety incidents, reportable environmental incidents, number of noncompliance events/year Maintenance manufacturing—percentage of planned versus emergency maintenance work orders, downtime in proportion to operating time Flexibility and innovation—rate of new product introduction, engineering change order cycle time Costs and profitability—total manufacturing cost per unit excluding materials, manufacturing cost as a percentage of revenue, net operating profit, productivity in revenue per employee, average unit contribution margin, ROA/return on net assets, energy cost per unit, cash-to-cash cycle time, EBITDA 32. As product comes off the assembly line, the handoff from production operations to logistics begins. Packaging plays important roles in the smooth transfer of finished goods from the plant to the distribution center and customer locations. Package design issues can affect labor and facility efficiency. Well-designed packaging facilitates efficient handling and shipping of the products, keeping landed costs in check. Package design impacts an organization's ability to use space and equipment. The design must promote effective space utilization in the production facility and distribution centers. The physical dimensions of products and packaging must fall within the capabilities of existing materials-handling equipment at the factory, distribution centers, and customer locations. A major packaging concern is the ease of handling in relation to materials handling and transportation. Handling ease is quite important to the production manager, whose labor must be used to place the goods in the packages. Another primary concern is protecting the goods in the package. With customer service playing an ever-increasing role in the supply chain, companies need to integrate their packages with customers' materials-handling equipment. Also, packaging plays a key role in providing information about the package contents. Properly identified packages and reusable containers make it easier for production personnel to locate goods needed by the workcenter or assembly line. Barcodes, RFID tags, and other auto-ID tools can be attached to or built into the packaging to make product information more readily accessible. Copyright Cengage Learning. Powered by Cognero.

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Chap_06_11e 33. Many of the supply chain and logistics activities focus on operations—procurement operations that provide access to materials, transportation operations that support the flow of goods, distribution operations that streamline order fulfillment, and so on. Collectively, they create time and place utilities. However, the potential contributions of goods manufacturing and service production to supply chain effectiveness are often overlooked because they focus on a different, but also important, dimension of economic utility called form utility. All the activities and processes involved in changing the appearance or composition of a good or service—component fabrication, product assembly, and service request execution—focus on creating form utility. The goal is to make the product or service more attractive to potential and actual users so that demand is created. Form utility drives the need for supply chain capabilities (i.e., time and place utilities). It takes a great deal of effort and coordination to run an effective production operation that is supported by and also supports the supply chain. Processes must be effectively designed and flawlessly executed, supply chain tradeoffs must be understood and made, and economies of scale need to be achieved, all while the organization addresses competitive challenges and other problems. Manufacturers, contract assemblers, and service providers all engage in production processes. These organizations perform a group of related activities during which inputs are transformed into outputs. This production process also uses resources such as facilities, equipment, knowledge, labor, and capital to support the transformation. Feedback of key information is used to make adjustments within the process in an attempt to synchronize production more closely to demand. Ignoring these feedback signals will lead to excess inventory of unpopular products or inventory shortages of hot items. While the basic input–transformation–output principle applies to all production processes, no two are organized exactly alike or perform to the same level. Process functionality also plays a role in the success of an organization. The ability to perform different processes from those of competitors to create unique products and services can create a competitive advantage. 34. A workcenter is a process-focused layout that groups together similar equipment or functions. The materials move from department to department for completion of similar activities and tasks. This layout provides flexibility in that equipment, and personnel can be used where they are needed, lower equipment investment is needed, and supervisors gain expertise in their functions. The downsides of the workcenter layout are related to the materialshandling and movement costs, worker idle time between tasks, and the cost of training and developing a highly skilled workforce that can move between areas. The manufacturing cell is another process-focused layout that dedicates production areas to a narrow range of products that are similar in processing requirements. Setting up a manufacturing cell involves four activities: (1) identifying families of parts with similar flow paths, (2) grouping machines into cells based on part families, (3) arranging cells so materials movement is minimized, and (4) locating large shared machines at the point of use. An assembly line is a product-focused layout in which machines and workers are arranged according to the progressive sequence of operations need to make a product. Often used for mass-production of goods, the assembly steps are completed at workstations that are typically linked by materials handling equipment. An assembly line can begin as many different lines, each devoted to a different component of a product, with the lines converging upon one another, becoming fewer until only one line is left for the final product. Continuous process facilities are similar to assembly lines, with product flowing through a predetermined sequence of steps. The main difference is the continuous, rather than discrete, nature of the flow.

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Chap_06_11e 35. When an activity is relocated to a contract manufacturer in another country, it is commonly called offshoring. The business case for outsourcing varies by situation, but the reasons often focus on cost and capacity issues. The outsourcing strategy commonly provides a more viable means to variable capacity at a lower cost than the flexibility strategy. Other reasons for production outsourcing include the following: • The ability to focus on core competencies by getting rid of peripheral ones • Lack of in-house resources • Getting work done more efficiently or effectively • Increased flexibility to meet changing business and commercial conditions • Tighter control of budget through predictable costs • Lower ongoing investment in internal infrastructure • Access to innovation and thought leadership While outsourcing has proven to be a valuable strategy whose popularity has grown dramatically, it is important to conduct a full analysis of the benefits and drawbacks of offshoring. Moving production offshore raises transportation costs, inventory carrying costs of goods in transit, customs costs, and some hidden expenses. As production spreads out among multiple facilities in different countries, it becomes more difficult to maintain visibility and synchronize activities. Finally, companies may lose control over quality, intellectual property rights, and customer relationships.

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Chap_06_11e 36. (1) Long-range plans, which span a year or more, focus on major decisions regarding capacity and aggregate production plans; (2) medium-range plans, which span 6 to 18 months and involve tactical decisions regarding employment levels and similar issues; and (3) short-range plans, which range from a few days to a few weeks and deal with specific issues, and the details of production—quantities of items to be produced, schedules, and sequences. Capacity planning focuses on determining the appropriate production levels that the company is capable of completing. Capacity is the maximum amount of work that an organization is capable of completing in a given period of time. Resource requirements planning (RRP) is a long-run, macro-level planning tool. It helps the operations leaders determine whether aggregate resources are capable of satisfying the aggregate production plan. The next step is to create a rough-cut capacity plan (RCCP) to check the feasibility of the master production schedule. The medium-range RCCP takes the master production schedule and converts it from production to capacity required and then compares it to available capacity for each production period. If the RCCP and master production schedule are in sync, the schedule is set. If not, capacity can be adjusted through the planned use of overtime, subcontracting, resource expansion, or routing flexibility to meet production needs. Alternatively, the schedule can be revised downward. Finally, capacity requirements planning (CRP) is used to check the feasibility of the materials requirement plan. This short-range capacity planning technique determines, in detail, the amount of labor and equipment resources that were needed to accomplish production requirements. Materials planning, in general, focuses on balancing of future supply and demand. It involves managing sales forecasts, creating master schedules, and running materials requirement planning tools. The aggregate production plan (APP) is a long-range materials plan that translates annual business plans, marketing plans, and forecasts into a production plan for all products produced by a facility. The master production schedule (MPS) is a medium-range plan that is more detailed than the APP. The MPS breaks down the APP, listing the exact end items to be produced within a specific period. The materials requirement plan (MRP) is a short-range materials plan that converts information regarding enditems in the MPS into a set of time-phased component and part requirements. MRP focuses on scheduling and placing orders for dependent demand items so that they are available in the exact quantities on the date the independent demand item is to be manufactured. Lead time for ordering and receiving these dependent demand items must also be factored into the MRP process. For MRP to provide effective planning knowledge, the following three sets of information are needed: 1. Independent demand information 2. Parent-component relationship (BOM) 3. Inventory status of the final product and all components

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Chap_06_11e 37. Operations managers face numerous challenges and tradeoffs that must be managed successfully if the organization and supply chain are to achieve their performance goals. These challenges were highlighted by Ferrari and Parker in a Supply Chain Management Review article: "Intensified competition, more demanding customers, and relentless pressure for efficiency and well as adaptability are driving significant changes across many manufacturing industry settings." According to the authors, long-term profitable growth is dependent on manufacturing and supply chain organizations' abilities to address these challenges through process innovation. Competitive pressures are a major challenge for many established manufacturers and service providers. As the global reach of supply chains makes it possible to source product from nearly anywhere in the world, companies need to continually update their production capabilities and develop innovative responses to upstart competitors. Customers' demand for choice and rapidly changing tastes make life difficult for product makers. The expectation today of customized products that meet the specifications of individual buyers requires far different production processes than the assembly methods needed for standardized goods. The shrinking life cycle of products today also renders long production runs of these common goods obsolete. In response, companies like Dell and Nike have developed responsive capabilities by building supply chains around assemble-to-order production capabilities. Today, you can design your own Nike shoes at NikeiD.com. While the use of responsive, small quantity production processes is growing, company executives still demand productivity and efficiency. Leanness and adaptability are requirements for success, though many organizations struggle to make the transition from traditional production methods and strategies to more contemporary ones that can better balance product quality, process flexibility, fulfillment speed, and execution costs. Operations managers face many other operations challenges. Labor availability and productivity issues, synchronization of activities with the supply chain, and capital costs are just a few of the additional obstacles that must be overcome.

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Chap 07_11e Indicate whether the statement is true or false. 1. Demand management might be defined as focused efforts to estimate and manage customers' demand, with the intention of using this information to shape operating decisions. a. True b. False 2. A weighted moving average assigns higher weights to more recent periods. a. True b. False 3. Forecasting has become extremely accurate, especially since the development of the S&OP process. a. True b. False 4. External balancing methods involve managing production and inventory flexibility to help offset the imbalance of supply and demand. a. True b. False 5. Phantom demand is created by over-ordering during peak demand. a. True b. False 6. Outbound-to-customer logistics systems are also referred to as physical distribution. a. True b. False 7. Dependent demand is directly influenced by independent demand. a. True b. False 8. Collaborative planning, forecasting, and replenishment (CPFR) has not been considered to be a good process, as it excludes transportation. a. True b. False 9. The essence of demand management is to estimate and manage customer demand so that demand and supply are balanced to the point where there are zero stockouts and zero safety stocks. a. True b. False 10. A sales and operations planning process (S&OP) can produce a forecast internally that all functional areas agree upon and can execute. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 07_11e 11. Bias measures how accurate the forecast is compared to actual demand. a. True b. False 12. Materials management and physical supply are terms that cannot be used interchangeably. a. True b. False 13. The collaborative planning, forecasting, and replenishment (CPFR) process begins with the sharing of marketing plans between trading partners. a. True b. False 14. Mean absolute deviation (MAD) is a good metric of forecast accuracy because it shows whether a forecast is above or below actual demand. a. True b. False 15. The second step in the monthly sales and operations planning process (S&OP) is supply planning. a. True b. False 16. Exponential smoothing can use constants higher than 1, but not more than 5. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 17. Three business co-owners are setting up a new manufacturing facility, and they are currently identifying partners to perform certain functions needed in the demand chain. Which aspect of demand management are they addressing? a. Flow of products b. Flow of services c. Flow of capital d. Flow of information 18. Which of the following does a forecast always assume? a. Base demand always moves in a positive direction b. Business cycles do not exist c. The past always repeats itself d. Every forecast is seasonal

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Chap 07_11e 19. The internal balancing method deals with: a. price and lead time. b. inventory and production flexibility. c. functional silos. d. channel selection. 20. Diego needs to forecast demand for his company’s products, using the data he already possesses. He has an average of previous demand, and he knows the most recent demand because he believes it’s a better predictor of future demand. Which forecasting technique should he use? a. Simple moving average b. Weighted moving average c. Exponential smoothing d. Benchmarking 21. Henderson Air practices the principles of lean manufacturing, including setting up its production lines so they can easily and efficiently be switched to produce various product lines. Which strategy is this firm using to balance supply and demand? a. Price b. Lead time c. Inventory d. Production flexibility 22. While evaluating recent demand forecasts, Caleb discovered that his company made an error, resulting in a stockout. Which type of forecast error calculation is he using that reveals this information? a. MAD b. CFE (bias) c. MAPE d. MSE 23. The weighted moving average method assigns: a. a value in each period being averaged. b. a weight greater than 1. c. information based on a simple average. d. a weight to each previous period. 24. Acme Fastener and Tool is having major problems with demand management. The VP of Sales is very focused on increasing productivity according to forecasts, but the operations manager routinely presents obstacles to increasing production above current levels. Of the following, which problem is the firm experiencing? a. Focus on tactics b. Lack of attention on operational planning c. Overemphasis on forecasting d. Functional silos

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Chap 07_11e 25. The essence of demand management is to estimate and manage _____ and use this information to make operating decisions. a. channel orders b. vendors and suppliers c. customer demand d. SO&P processes 26. One type of demand fluctuation is caused by random variation. What is random variation? a. Errors in inventory management b. Errors not caught by using exponential smoothing c. A development that cannot normally be anticipated d. Failure to properly execute the SO&P process plan 27. When Brianna calculates her forecasts, she uses a type of forecast error measure that squares each period error so the negative and positive errors don’t cancel each other out. Which method is Brianna using? a. Cumulative sum of forecast errors b. Exponential smoothing for trends c. Mean squared error d. Mean absolute deviation 28. What are some of the logistical problems that may arise when supply and demand for a product are not aligned properly? What are some of the methods used to soften the effects of this imbalance?

29. There are four types of forecast error measures that can be used. Name them, and choose one to discuss.

30. A process that organizations can use to arrive at a consensus forecast is called Sales and Operations Planning (S&OP). Discuss the five steps used to implement this process.

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Chap 07_11e 31. What are the differences and similarities between outbound and inbound logistics systems? Which types of industries would place heavier emphasis on outbound systems? On inbound systems? Explain your choices.

32. What are the similarities between the CPFR and S&OP processes? What are the differences?

33. There are at least three forecasting methods. Name them and choose one to discuss in more detail, including advantages and disadvantages.

34. There are two types of demand. What are they, and how do they influence the supply chain?

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Chap 07_11e Answer Key 1. True 2. True 3. False 4. False 5. True 6. True 7. True 8. False 9. False 10. True 11. True 12. False 13. True 14. False 15. False 16. False 17. b 18. c 19. b 20. c 21. d 22. b 23. d 24. d 25. c 26. c

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Chap 07_11e 27. c 28. Among logistical problems, the lack of coordination between departments (i.e., the existence of "functional silos") results in little or no coordinated response to demand information. Second is that too much emphasis is placed on forecasts of demand, with less attention on the collaborative efforts and the strategic and operational plans that need to be developed from the forecasts. Third is that demand information is used more for tactical and operational than for strategic purposes. In essence, and since in many cases historical performance is not a very good predictor of the future, demand information should be used to create collective and realistic scenarios of the future. Primary emphasis should be on understanding likely demand scenarios and mapping their relationships to product supply alternatives. The end result will be to better match demand as it occurs with appropriate availability of needed product in the marketplace. 29. The first type of forecast error measure is called the cumulative sum of forecast errors (CFE). It calculates the total forecast error for a set of data, taking into consideration both negative and positive errors. This is also referred to as bias. This gives an overall measure of forecast error. However, taking into consideration both negative and positive errors, this method can produce an overall low error total although individual period forecasts can either be much higher or much lower than actual demand. The second measure of forecast error is mean squared error (MSE), which squares each period error so the negative and positive errors do not cancel each other out. MSE also provides a good indication of the average error per period over a set of demand data. The third type is Mean Absolute Deviation (MAD) and is closely related to MSE. By taking the absolute value of each error, the negative and positive signs are removed and a good indication of average error per period is calculated. This measure is popular because it is easy to understand and provides a good indication of the accuracy of the forecast. The final measure of forecast error is mean absolute percent error (MAPE), and it relates the forecast error to the level of demand so different types of forecasts can be compared. 30. The S&OP Benchmarking Consortium in the Center for Supply Chain Research adopted a five-step process in arriving at this consensus forecast. Step 1 (Run sales forecast reports) requires the development of a statistical forecast of future sales. This would be done using one or more forecasting techniques. Step 2 (Demand planning phase) requires the sales and/or marketing departments to review the forecast and make adjustments based on promotions of existing products, the introductions of new products, or the elimination of products. This revised forecast is usually stated in terms of both units and dollars since operations are concerned with units and finance is concerned with dollars. Step 3 (Supply planning phase) requires operations (manufacturing, warehousing, and transportation) to analyze the sales forecast to determine if existing capacity is adequate to handle the forecasted volumes. This requires analyzing not only the total volumes but also the timing of those volumes. Step 4 (Pre-S&OP meeting) asks individuals from sales, marketing, operations, and finance to attend a meeting that reviews the initial forecast and any capacity issues that might have emerged during Step 3. Initial attempts will be made during this meeting to solve capacity issues by attempting to balance supply and demand. Alternative scenarios are usually developed to present at the executive S&OP meeting (Step 5) for consideration. These alternatives would identify potential lost sales and increased costs associated with balancing supply and demand. The sales forecast is also converted to dollars to see if the demand/supply plan meets the financial plan of the organization. Step 5 (Executive S&OP meeting) is where final decisions are made regarding sales forecasts and capacity issues. This is where the top executives from the various functional areas agree to the forecast and convert it into the operating plan for the organization.

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Chap 07_11e 31. In an effort to serve their customers, many firms have placed significant emphasis on what may be termed their outbound to customer logistics systems. Also referred to as physical distribution, this essentially refers to the set of processes, systems, and capabilities that enhance a firm's ability to serve its customers. Correspondingly, the topic of inbound to operations logistics systems refers to the activities and processes that precede and facilitate value adding activities such as manufacturing, assembly, and so on. Other terms that focus on these elements of the supply chain include materials management and physical supply. Although many of the principles of inbound logistics are conceptually similar to those of outbound logistics, there are important differences that must be recognized. As a practical matter, in many firms the outbound to customer logistics system receives far more attention than the inbound to operations system. While this is changing quickly, it is largely due to the historical priority firms have had on improving service to their customers. 32. One of the similarities between the CPFR and S&OP processes is both are structured to arrive at a consensus forecast for the same products during the same time period. In addition, sharing of data is critical in both processes and both processes are a continuous closed-loop process that uses feedback as input. Another similarity is both processes have a supply and demand phase, however one of the differences between the two processes is S&OP has a separate phase for supply and a separate phase for demand, whereas CPFR has supply and demand in one phase. Another difference is the S&OP process describes how organizations structure their planning process to arrive at a consensus forecast internally, whereas CPFR describes how a consensus forecast is created externally. 33. Simple Moving Average The simple moving average is probably the simplest to develop method in basic time series forecasting. It makes forecasts based on recent demand history and allows for the removal of random effects. The simple moving average method does not accommodate seasonal, trend, or business cycle influences. This method simply averages a predetermined number of periods and uses this average as the demand for the next period. Each time the average is computed, the oldest demand is dropped and the most recent demand is included. A weakness of this method is that it forgets the past quickly. A strength is that it is quick and easy to use. Weighted Moving Average In the simple moving average method, each previous demand period was given an equal weight. The weighted moving average method assigns a weight to each previous period with higher weights usually given to more recent demand. The weights must be equal to one. The weighted moving average method allows emphasis to be placed on more recent demand as a predictor of future demand. However, the results from the weighted moving average method are still not very good forecasts of demand. There are three possible causes for this. First, the weights assigned to the previous periods might not accurately reflect the patterns in demand. Second, the number of periods used to develop the forecast might not be the appropriate number. Finally, the weighted moving average technique does not easily accommodate demand patterns with seasonal influences. Exponential Smoothing Exponential smoothing is one of the most commonly used techniques because of its simplicity and its limited requirements for data. Exponential smoothing needs three types of data: (1) an average of previous demand, (2) the most recent demand, and (3) a smoothing constant. The smoothing constant must be between 0 and 1. Using a higher constant assumes that the most recent demand is a better predictor of future demand. Exponential smoothing forecasts will lag actual demand. If demand is relatively constant, exponential smoothing will produce a relatively accurate forecast. However, highly seasonal demand patterns or patterns with trends can cause inaccurate forecasts using exponential smoothing.

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Chap 07_11e 34. Two types of demand exist: (1) independent demand, which is the demand for the primary item, and (2) dependent demand, which is directly influenced by the demand for the independent item. For example, the demand for bicycles would be called independent. It is the demand for the primary, or finished, product and is directly created by the customer. The demand for bicycle tires would be called dependent, because the number of tires demanded is determined by the number of bicycles demanded. Most forecasting techniques focus on independent demand. For example, a bicycle manufacturer will forecast the demand for bicycles during a given period. Given that level of demand, the manufacturer knows that two tires will be required for each bicycle demanded. As such, there is no need for the bicycle manufacturer to forecast the demand for tires. From a different perspective, the tire manufacturer will need to forecast the demand for tires, because these are its independent demand items. However, the tire manufacturer will not need to forecast the demand for rims since each tire requires one rim. So, each organization in a particular supply chain will have different definitions for independent and dependent demand items. Forecasting, however, will still usually be done at the independent demand item level.

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Chap 08_11e Indicate whether the statement is true or false. 1. Customer service is of equal importance to both logistics and marketing. a. True b. False 2. Customer relationship management is a new concept only recently receiving attention. a. True b. False 3. Firms today are beginning to use techniques such as activity-based costing to more accurately allocate costs to customers based on the specific costs of servicing a customer's orders relative to how, how much, what, and when a customer orders. a. True b. False 4. Although it is generally impossible for an organization to anticipate customer service failures, employees can be trained to address mistakes quickly when they occur. a. True b. False 5. Activity Based Costing (ABC) allocates costs to activities based on a fixed predetermined measure (e.g., cases). a. True b. False 6. There are ten principal activities to the OTC model. a. True b. False 7. With the proper information on how a customer's interaction with the shipper drives the firm's costs, the firm can then segment its customers by profitability. a. True b. False 8. Customer service is anything that touches the customer. a. True b. False 9. From a marketing perspective, logistics customer service can be thought of as a feature of the augmented product that adds value for the customer. a. True b. False

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Chap 08_11e 10. Not only does Internet technology speed up the order management process, it increases the velocity of cash back to the selling organization, which is a significant benefit. a. True b. False 11. "Order to cash" and "order cycle" are the same. a. True b. False 12. A driving force behind the attention to OTC cycle variability is safety stock. The absolute length of the order cycle will influence demand inventory. a. True b. False 13. A stockout always results in a back order. a. True b. False 14. Reserve Inventory and Determine Delivery Date has traditionally been referred to as order processing. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 15. National Sports Apparel manufactures high school and college athletic uniforms for a wide range of team sports, as well as cheerleading uniforms. Nearly every order requires some degree of customization, especially in the numbers and insignias that are printed or sewn onto the uniforms. Which of the following would be an important metric for National Sports to measure? a. Order cycle time b. Line fill rate c. Logistics operations responsiveness d. Postsale logistics 16. Shelly’s data shows that out of the last 100 orders shipped, 92 orders were filled completely and correctly. Of these, 89 were reported as being received on time, but one of them had an inaccurate invoice enclosed. What is Shelly’s perfect order rate? a. 100% b. 92% c. 89% d. 88%

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Chap 08_11e 17. EnviroTech manufactures equipment used for drilling oil. If EnviroTech equipment belonging to one of the firm’s customers breaks down on the job, the customer could lose hundreds of thousands of dollars while waiting for the equipment to get back up and running. Thus, an important part of EnviroTech’s business is providing replacement parts for the equipment it sells as quickly as possible. Which of the following would be an important metric for EnviroTech to measure? a. Order cycle time b. Line fill rate c. Logistics operations responsiveness d. Postsale logistics 18. As the level of substitutability for a product increases, its stockout costs to the manufacturer: a. increase. b. decrease. c. stay the same. d. can't be determined. 19. The traditional role of customer service at the interface between marketing and logistics manifests itself through the _____ dimension of the marketing mix. a. price b. place c. product d. promotion 20. Traditional customer profitability analyses would start with _____ less returns and allowances (net sales) and subtract the cost of goods sold. a. gross sales b. back orders c. the forecast d. gross margin 21. Those customers who are in the "Danger Zone" segment are: a. likely to switch to a competitor. b. have been a customer for less than a year. c. the least profitable. d. are using ABC to drive down the price. 22. Which of the following order cycle lengths would require the buyer to hold the most total inventory during lead time? a. 10 days, +/- 2 days b. 10 days, +/- 4 days c. 8 days, +/- 5 days d. 9 days, +/- 3 days

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Chap 08_11e 23. Taylor’s company has been growing rapidly, and she now recognizes that she can no longer serve all of her customers personally. In determining which customer relationships to maintain herself and which to reassign to her new sales assistant, she has recognized that some customers have bought a lot of her products because they allowed her to become deeply involved in their businesses, while other customers don’t want a lot of attention and just want to place a few small orders occasionally. Taylor must be taking which step in implementing a CRM process? a. Segmenting the customer base by profitability b. Identifying the best product/service package for each customer segment c. Developing and executing the best processes d. Measuring performance and continuously improving 24. The term replenishment cycle refers to: a. orders for raw material. b. material management. c. the acquisition of additional inventory. d. inventory and material management. 25. Shondine’s car broke down unexpectedly on Monday evening as she was driving home from work. She had it towed to the dealership on Tuesday morning, but the necessary replacement part wasn’t in stock. The dealer’s service department received the parts order on Wednesday afternoon, and Shondine’s car was finally ready for her to pick up on Thursday afternoon, after the new part had been installed. In the car repair industry, these three full days are known as: a. the order-to-cash cycle. b. customer wait time. c. customer cycle time. d. lead time. 26. The SCOR model provides suggested metrics: a. across multiple dimensions for each of the five Level One processes. b. for segmenting customers. c. for proving a base for ABC costing. d. that allow marketing to evaluate channel selection. 27. What are the steps in the CRM process? a. Segment customer base, then measure service, and improve b. Segment customer base, then identify service/package c. Measure service, then improve d. Segment customer base, identify service/package, then measure service, and improve 28. There are two parts to the order management process. The first is _____ and the second is _____. a. managing the order after it is received; influencing how the customer orders b. shipping the order; taking the order c. influencing how the customer orders; managing the order after it is received d. the Internet model; the traditional model Copyright Cengage Learning. Powered by Cognero.

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Chap 08_11e 29. Define and discuss the Order Management System.

30. Describe an experience you or someone close to you had in which an organization failed to provide good customer service. Using the key elements of service recovery explained in the text, describe how the organization either applied these elements to rectify the situation or could have used these elements more effectively to rectify the situation.

31. Define and discuss Activity-Based Costing (ABC), including its impact on profitability.

32. Compare and contrast the concepts of order-to-cash cycle time and order cycle time.

33. Customer service is often viewed as the primary interface between logistics and marketing. Discuss the nature of this interface and how it might be changing.

34. Describe the two phases of order management. How are they different? How are they related?

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Chap 08_11e 35. Explain the impacts of order cycle time length and variability on both buyers and sellers.

36. Explain how order management and customer service are related.

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Chap 08_11e Answer Key 1. True 2. False 3. True 4. True 5. False 6. False 7. True 8. True 9. True 10. True 11. True 12. True 13. False 14. True 15. c 16. d 17. d 18. a 19. b 20. a 21. c 22. b 23. a 24. c 25. b 26. a

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Chap 08_11e 27. d 28. c 29. The order management system represents the principal means by which buyers and sellers communicate information relating to individual orders of product. Effective order management is a key to operational efficiency and customer satisfaction. To the extent that an organization conducts all activities relating to order management in a timely, accurate, and thorough manner, it follows that other areas of company activity can be similarly coordinated. In addition, both present and potential customers will take a positive view of consistent and predictable order cycle length and acceptable response times. By starting the process with an understanding of customer needs, organizations can design order management systems that will be viewed as superior to competitor firms. 30. Students’ answers will vary, but they should include a logical application of the following three elements to their unique situations. Anticipating the needs for recovery: In any organization, certain areas of operations will present higher than normal opportunities for failures to occur. These areas need to be identified, and corrective action plans need to be developed before the error occurs. A good example of this can be seen in the passenger airline industry. Delayed and/ or cancelled flights leave many passengers stranded at airports throughout the United States every day. Airlines have developed plans to accommodate these passengers either through rebooking on another flight or through providing a hotel room until the next flight is available. In this chapter, the concept of the order-to-cash cycle was introduced through SCOR model D1. This model provides an excellent framework for an organization to identify where service failures might occur and to develop plans to mitigate those failures, subject to the cost of failure. Acting fast: The longer a dissatisfied customer waits for a problem to be solved, the higher the level of dissatisfaction will grow. Being able to fix service failures quickly relies on the ability of the organization to know where a failure is likely to occur and have plans in place to fix them. Included in this concept is the need to communicate with the dissatisfied customer as to how and when the failure will be fixed. For example, a seller has determined that it does not have adequate inventory to fill a buyer’s order. This is a common occurrence for which a seller needs to have alternative plans because of the potential high stockout costs. In a service recovery mode, the seller notifies the buyer immediately (usually by phone or e-mail) that current inventory levels are not adequate but additional inventory will become available within, say, two days to fill the order completely. With this action, the seller has acted fast to identify the problem as well as taken steps to communicate with the buyer the actions that will be taken to remedy the situation. Training and empowering employees to identify potential service failure areas and take actions to satisfy the customer: Remember, however, that this must be done considering the cost of a service failure. Frontline employees, usually customer service representatives, need to understand the cost of failure to the entire organization, must be given the appropriate tools for addressing the failure, and must be given a sense of ownership of the failure and the resulting loss of customer satisfaction. Nothing can be more frustrating to a dissatisfied customer than to wait for resolution while recovery actions are being discussed through multiple echelons of an organization’s management structure. Granted, some failures will be so large as to require upper management intervention. However, customer contact personnel need to be given the authority to handle service failures quickly and appropriately.

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Chap 08_11e 31. Traditional cost accounting is well-suited to situations where an output and an allocation process are highly correlated. On the other hand, traditional cost accounting is not very effective in situations where the output is not correlated with the allocations base. This is the more likely scenario in logistics. This is where we can see the effectiveness of activity-based costing (ABC), which can be defined as, "A methodology that measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, then activities are assigned to cost objects based on their use. ABC recognizes the causal relationships of cost drivers to activities." ABC assigns resources to an activity (for example, labor cost for picking product), identifies the cost drivers (for example, labor cost for picking a pallet versus picking an inner-pack), and then allocates those costs to products, customers, markets, or business units. ABC more accurately reflects the actual cost of performing an activity than does traditional cost accounting. 32. When referring to outbound-to-customer shipments, the term order to cash (or order cycle) is typically used. The term replenishment cycle is used more frequently when referring to the acquisition of additional inventory, as in materials management. Basically, one organization's order cycle is another's replenishment cycle. Traditionally, organizations viewed order management as all of those activities that occur from when an order is received by a seller until the product is received by the buyer. This is called the order cycle. The OTC cycle is all of those activities included in the order cycle plus the flow of funds back to the seller based on the invoice. The OTC concept is being adopted by many organizations today and more accurately reflects the effectiveness of the order management process. 33. Customer service is often the key link between logistics and marketing within an organization. If the logistics system, particularly outbound logistics, is not functioning properly and a customer does not receive a delivery as promised, the organization could lose both current and future revenue. Manufacturing can produce a quality product at the right cost and marketing can sell it, but if logistics does not deliver it when and where promised, the customer will not be satisfied. The traditional role of customer service is at the interface between marketing and logistics. This relationship manifests itself in this perspective through the "place" dimension of the marketing mix, which is often used synonymously with channel-of-distribution decisions and the associated customer service levels provided. In this context, logistics plays a static role that is based upon minimizing the total cost of the various logistics activities within a given set of service levels, most likely determined by marketing. However, logistics today is taking on a more dynamic role in influencing customer service levels as well as in impacting an organization's financial position. Again, appropriate examples here would include both Dell and Walmart that have both used logistics and customer service to reduce product prices, increase product availability, and reduce lead times to customers. These two organizations have gained an appreciation for the impact of dynamic logistics systems on their financial positions.

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Chap 08_11e 34. Order management defines and sets in motion the logistics infrastructure of the organization. In other words, how an organization receives an order (electronically versus manually), how it fills an order (inventory policy and number and location of warehouses), and how it ships an order (mode choice and its impacts on delivery times) are all dictated by how an organization manages an order. There are two phases of order management. First, influencing the order is the phase where an organization attempts to change the manner by which its customers place orders. Second, the concept of order execution is the phase that occurs after the organization receives the order. These two phases are related in that both phases of the order management system represent the principal means by which buyers and sellers communicate information relating to individual orders of product. Effective order management is a key to operational efficiency and customer satisfaction. To the extent that an organization conducts all activities relating to order management in a timely, accurate, and thorough manner, it follows that other areas of company activity can be similarly coordinated. In addition, both present and potential customers will take a positive view of consistent and predictable order cycle length and acceptable response times. By starting the process with an understanding of customer needs, organizations can design order management systems that will be viewed as superior to competitor firms. 35. While interest has traditionally focused more on the overall length of the OTC cycle, recent attention has been centered on the variability or consistency of this process. Industry practices have shown that while the absolute length of time is important, variability is more important. A driving force behind the attention to OTC cycle variability is safety stock. The absolute length of the order cycle will influence demand inventory. The concept of the order cycle is used here because the focus is on the delivery of product to the buyer and not on the flow of cash to the supplier. For example, assume that the order cycle (time from order placement to order receipt) takes 10 days to complete and the buyer needs five units per day for its manufacturing process. Assuming the basic economic order quantity (EOQ) model is being used by the buyer, the buyer will place an order when it has 50 units of demand inventory on hand. Assuming that the supplier has been able to reduce the order cycle to eight days, the buyer will now place an order when it has 40 units of demand inventory on hand. This is a reduction of 10 units of demand inventory on hand during lead time for the buyer. 36. How an organization receives an order (electronically versus manually), how it fills an order (inventory policy and number and location of warehouses), and how it ships an order (mode choice and its impacts on delivery times) are all dictated by how an organization manages an order. Customer service, on the other hand, is anything that touches the customer. This includes all activities that impact information flow, product flow, and cash flow between the organization and its customers. Customer service can be described as a philosophy, as performance measures, or as an activity. Customer service as a philosophy elevates customer service to an organization-wide commitment to providing customer satisfaction through superior customer service. This view of customer service is entirely consistent with many organizations' emphasis on value management, elevates it to the strategic level within an organization, and makes it visible to top executives. Most organizations employ all three definitions of customer service in their order management process. Customer service is involved in both influencing a customer's order as well as in executing the customer's order.

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Chap 09_11e Indicate whether the statement is true or false. 1. Inventory plays a dual role in organizations. Inventory impacts the cost of goods sold as well as supporting the balance sheet, a new concept only recently receiving attention. a. True b. False 2. EOQ can only be used for "push" inventory. a. True b. False 3. Ordering cost refers to the expense of placing an order for additional inventory, including the cost or expense of the product itself. a. True b. False 4. MRPII will not allow an organization to integrate financial planning with operations and logistics. a. True b. False 5. The JIT concept has three underlying elements: zero inventories; short, consistent lead times; and small, frequent replenishment quantities. a. True b. False 6. "Batching economies" and "cycle stocks" are the same. a. True b. False 7. A reason to hold inventory arises when an organization anticipates that an unusual event might occur that will negatively impact its source of supply. a. True b. False 8. Inventory management is not as important as it once was due to other factors that have come into play. a. True b. False 9. Information technology’s impact on inventory has been labeled an exchange of “information for inventory.” a. True b. False 10. The reorder point depends on the orders in-house at that time. a. True b. False

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Chap 09_11e 11. The ABC analysis is based on Pareto's law. a. True b. False 12. JIT, MRP, and MRP II all incorporate some version of the basic EOQ model into their philosophies. a. True b. False 13. Purchase economies and transportation economies are not complementary. a. True b. False 14. In comparison with the basic EOQ approach, the fixed interval model does not require close surveillance of inventory levels. a. True b. False 15. Storage space costs are not variable. a. True b. False 16. Assuming that total customer demand remains the same, the square-root rule estimates the extent to which aggregate inventory need will change as an organization increases or decreases the number of stocking locations. a. True b. False 17. ABC analysis uses a single criterion to classify SKUs from most important to least important. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 18. Capital cost focuses on the cost of capital tied up in _____ and the resulting lost opportunity from investing that capital elsewhere. a. plants b. inventory c. distribution centers d. WIP

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Chap 09_11e 19. Trekker Luggage and Travel Gear needs to manufacture 10,000 suitcases for an upcoming order. Each suitcase requires 4 rivets. Trekker currently has 35,000 rivets in stock. Which of the following is true? a. Due to dependent demand, Trekker does not have an adequate amount of rivets in stock to complete the order. b. Due to independent demand, Trekker does not have an adequate amount of rivets in stock to complete the order. c. Due to dependent demand, Trekker has an adequate amount of rivets in stock to complete the order. d. Due to independent demand, Trekker has an adequate amount of rivets in stock to complete the order. 20. Batching economies or cycle stocks usually arise from three sources. Which of these is not a source? a. Procurement b. Transportation c. Production d. Demand 21. As Q decreases for EOQ, the cost per order: a. increases. b. decreases. c. stays the same. d. can't be determined. 22. Especially for wholesalers and retailers involved in the distribution channels for consumer packaged goods, inventory management is a careful balancing act between: a. supply and demand. b. controlled supply and variable demand. c. lower inventory levels and acceptable customer service levels. d. variable inventory levels and consistent customer service levels. 23. WIP inventories: a. are not included on the balance sheet. b. are associated with manufacturing. c. are the same as VMI inventories. d. are not impacted by EOQ. 24. The fixed order interval EOQ model is best used for SKUs with: a. variable demand. b. stable demand. c. unknown demand. d. seasonal demand.

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Chap 09_11e 25. Inventory is an asset on the balance sheet and a _____ on the income statement. a. liability b. footnote c. statement d. variable expense 26. Seasonal stocks are not influenced by: a. EOQ. b. weather. c. transportation. d. holidays. 27. The square-root rule is based on a number of reasonable assumptions. Which of the following is not one of these assumptions? a. Inventory transfers between stocking locations are common practice. b. Lead times do not vary, and thus inventory centralization is not affected by inbound supply uncertainty. c. Customer service levels, as measured by inventory availability, are constant. d. Demand at each location is normally distributed. 28. In the event of a "stockout," one of the things that could happen is: a. the vendor's plant shuts down. b. the cost of capital is increased. c. the SCOR process would come into play. d. extra shipping costs may be incurred. 29. A DRP system is usually coupled with a _____ system in an attempt to manage the flow and timing of both inbound materials and outbound finished goods. a. Kanban b. VMI/consignment c. MRP d. JIT 30. Henderson Air manufactures heating and air conditioning systems. Recently, the management team decided to implement a new method of classifying inventory based on two key criteria: value (as measured by the contribution to profit) and risk (as measured by the negative impact of not having the product available when needed). Which classification method is Henderson Air using? a. ABC b. Axis model c. Square-root method d. Quadrant model

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Chap 09_11e 31. What are push and pull systems? Name at least one inventory management system that is a push or pull system.

32. Discuss dependent versus independent demand as it is related to inventory.

33. Discuss capital cost, and include both the hurdle rate and weighted average cost of capital (WACC) in your answer.

34. Compare and contrast the fixed quantity version of EOQ with the fixed interval version. In which situations would each be used?

35. How can inventory carrying cost be calculated for a specific product? What suggestions would you offer for determining the measure of product value to be used in this calculation?

36. What is vendor-managed inventory (VMI)?

37. Discuss how seasonality can affect inventory.

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Chap 09_11e Answer Key 1. False 2. False 3. False 4. False 5. False 6. True 7. True 8. False 9. True 10. False 11. True 12. True 13. False 14. True 15. False 16. True 17. True 18. b 19. a 20. d 21. b 22. c 23. b 24. b 25. d 26. a

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Chap 09_11e 27. a 28. d 29. c 30. d 31. The "pull" approach relies on customer orders to move product through a logistics system, while the "push" approach uses inventory replenishment techniques in anticipation of demand to move products. A principal attribute of pull systems is that they can respond quickly to sudden or abrupt changes in demand because they produce to an order and have very little, if any, finished goods inventory. This is especially true for products where the final addition of value can be postponed. Alternatively, push systems produce to inventory in anticipation of demand, thus making their ability to adapt to changing demand volumes and preferences limited. Pull systems usually run on short-term forecasts, allowing them the flexibility to adapt to swings in demand. On the other hand, push systems use longer-term forecasts that allow for scale economies in manufacturing but result in high finished goods inventories. These high levels of finished goods inventories can make shelf life a problem in push systems, while this is not an issue for pull systems. Characteristically, JIT is a pull system since organizations place orders for more inventory only when the amount on hand reaches a certain minimum level, thus "pulling" inventory through the logistics system as needed. Having established a master production schedule, MRP develops a time-phased approach to inventory scheduling receipt. Because they generate a list of required materials in order to assemble or manufacture a specific amount of finished products, MRP and MRP II approaches are push based. 32. Demand for a given inventory item is termed independent when such demand is unrelated to the demand for other items. Conversely, demand is defined as dependent when it is directly related to, or derives from, the demand for another inventory item or product. For example, the demand for a laptop computer is independent, while the demand for its computer chip is dependent. This dependency can be vertical (the laptop needs the chip for assembly) or horizontal (the laptop needs an instruction manual for final delivery to customer). So, for many manufacturing processes, basic demand for raw materials, component parts, and subassemblies depends on the demand for the finished product. In contrast, the demand for the end-use items, which are typically sold to a customer, is independent of the demand for any other higher-order manufactured item. An important point to remember is that developing inventory policies for items exhibiting independent demand requires that forecasts be developed for these items. Alternatively, forecasting is less relevant for items having dependent demand, since the required quantities for these items depend entirely on the demand for the end-use product. So, once the difficult task of forecasting demand for end-use items is completed, determining the demand for dependent items requires simple calculations based on the bill of materials for that item.

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Chap 09_11e 33. Sometimes called the interest or opportunity cost, capital cost focuses on the cost of capital tied up in inventory and the resulting lost opportunity from not investing that capital elsewhere. For example, all organizations borrow money from external sources to fund operations. This money might be in the form of equity (from stock issues) or debt (borrowing from banks). In either case, borrowed money has a cost associated with it. For equity, it is dividends; for debt, it is interest payments. In either case, an organization incurs a cost for borrowing money. If an organization decides to use this money to buy raw materials, build manufacturing plants, and hire labor to produce finished products for storage, then this inventory carries this "borrowed money" cost while sitting waiting to be sold. As such, capital tied up in inventory still requires dividend or interest payments to the funding source. The opportunity cost of this inventory is the return on capital the organization might have realized if it had invested in another opportunity rather than in raw materials, plants, and labor. The capital cost is frequently the largest component of inventory carrying cost. An organization usually expresses it as a percentage of the dollar value of the inventory held. In practice, determining an acceptable number to use for capital cost is not an easy task. One way of calculating capital cost for inventory decision making might use an organization's hurdle rate, the minimum rate of return on new investments. In this way, the organization makes inventory decisions in the same way that it does for investing in new facilities, advertising, and so on. Another way of calculating capital cost is for an organization to use its weighted average cost of capital (WACC). WACC is the weighted average percent of debt service of all external sources of funding, including both equity and debt. This method reflects the direct debt service costs of having capital tied up in inventory. 34. As its name implies, the fixed order quantity model involves ordering a fixed amount of product each time reordering takes place. The exact amount of product to be ordered depends on the product's cost and demand characteristics and on relevant inventory carrying and reordering costs. Organizations using this approach generally need to develop a minimum stock level to determine when to reorder the fixed quantity. This is called the reorder point. When the number of units of an item in inventory reaches the reorder point, the fixed order quantity (the EOQ) is ordered. The reorder point, then, triggers the next order. The second form of the basic approach is the fixed order interval approach to inventory management, also called the fixed period or fixed review period approach. In essence, this technique involves ordering inventory at fixed or regular intervals; generally, the amount ordered depends on how much is in stock and available at the time of review. Organizations usually count inventory near the interval’s end and base orders on the amount on hand at that time. In comparison with the basic EOQ approach, the fixed interval model does not require close surveillance of inventory levels; thus, the monitoring is less expensive. This approach is best used for inventory items that have a relatively stable demand. Using this approach for volatile demand items might quickly result in a stockout since time triggers orders rather than inventory levels. If demand and lead time are constant and known in advance, then an organization using the fixed order interval approach will periodically reorder exactly the same amount of inventory. If either demand or lead time varies, however, the amount ordered each time will vary, becoming a result of demand as well as lead time length.

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Chap 09_11e 35. Calculating the cost to carry (or hold) a particular item in inventory involves three steps. First, the value of the item stored in inventory must be determined. Each organization has predetermined accounting practices to determine the value of inventory for balance sheet purposes. The most relevant value measure for determining carrying costs is the cost of goods sold or the direct labor, materials, and overhead consumed by that item plus the direct costs of moving that item from the manufacturing facility into a distribution center for storage. Second, determine the cost of each individual carrying cost component and add them together to determine the total direct costs consumed by the item while being held in inventory. Two types of costs should be considered here: variable-based costs and value-based costs. Variable-based costs are those that are specifically out-of-pocket expenditures, for example, inbound freight expense to the distribution center. Value-based costs are those that use the total value (or total direct costs consumed) of the item at the location where carrying costs are being determined, for example, taxes. Normally, inventory carrying costs are calculated on an annual basis. This assumes that the item will be held in storage for a one-year time period. These two costs must be adjusted for the actual length of time the item will be in storage. One word of caution when calculating inventory carrying costs: a decision must be made (in accordance with the organization's accounting standards) as to which costs are "one-time" and which costs are "reoccurring." This will be especially true when the length of time an item is stored will be greater than one year. 36. Essentially, vendor-managed inventory (VMI) usually means that the manufacturer will manage the inventory of its products (and possibly related products) at the retailer's warehouse(s) and reorder as appropriate for customer fulfillment. The manufacturer may also have a representative at the designated retail warehouse locations to assure accurate and timely delivery. The retailer should experience lower costs associated with inbound logistics, and the manufacturer should be able to offset its additional cost with increased sales (fewer stockouts, more complete orders, etc.) because of the more accurate and timely information of product orders at the store level. 37. Organizations that are faced with seasonality issues are constantly challenged when determining how much inventory to accumulate. Organizations that process agriculture products are a good example of supply seasonality. While the supply of the raw material is available during only one part of the year, demand is stable throughout the year. Therefore, the finished product usually has to be stored until it is sold. That is, when the raw material is available, it needs to be converted to finished product. This scenario often involves high storage costs and high obsolescence costs. An alternative scenario might be to store the raw material, or some preprocessed version of it, and use it to make the finished product as the demand dictates. Sometimes seasonality can impact transportation, particularly if domestic water transportation is used. Another example would be the seasonality of the construction industry in the United States and its impact on the availability of flatbed tractor trailers. Although construction takes place in many areas of the United States year round, the northern states experience a slowdown in construction activity during the winter months. As spring approaches in the north, construction activity increases dramatically. The peak springtime construction season places a heavy demand on a fixed capacity of flatbed trailers to move construction supplies.

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Chap 10_11e Indicate whether the statement is true or false. 1. Of the five product handling processes, three involve the short-distance movement of product while the other two relate to storage of product. a. True b. False 2. The drawback of centralized inventory is the long distance to customers, which typically extends lead times and results in higher transportation costs. a. True b. False 3. Organizations may benefit substantially from the establishment of one or several warehouses to reduce transportation costs. a. True b. False 4. KPIs cannot be used in connection with distribution center activities as they do not provide tangible, relevant data. a. True b. False 5. After the layout of the operations is determined, attention shifts to the facility size of the operations within the distribution operation. a. True b. False 6. Productivity is measured as the ratio of real output to real input. a. True b. False 7. Because many products are seasonal, it is challenging for a distribution manager to effectively utilize space and equipment resources and to retain high-quality labor. a. True b. False 8. Slotting is defined as the placement of product in a facility for the purpose of optimizing materials-handling and space efficiency. a. True b. False 9. One of the primary tradeoffs at the facility level is space versus equipment. a. True b. False

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Chap 10_11e 10. Customers use distribution KPIs to objectively assess the speed of service provided by the distribution operation. a. True b. False 11. Asset utilization is very important in a 3PL warehouse. a. True b. False 12. Contract warehousing is different than 3PL warehousing. a. True b. False 13. It is not difficult to find and train high-quality personnel for DC operations. a. True b. False 14. When establishing a distribution strategy, the first and most obvious consideration is the product. a. True b. False 15. The first facility consideration is to determine the size of each operation within the network. a. True b. False 16. Order accuracy and order completeness are the same. a. True b. False 17. Efficiency of distribution facilities and networks is not nearly as critical as their speed. a. True b. False 18. Proper product slotting can improve labor productivity and generate other advantages for the organization and its customers. a. True b. False 19. WMS is more than a simple database that provides stock location information. a. True b. False

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Chap 10_11e Indicate the answer choice that best completes the statement or answers the question. 20. The primary tradeoffs and relationships between resources include the following: a. space vs. equipment. b. equipment vs. people. c. people vs. space. d. all of these answers. 21. The key financial consideration in choosing between private and 3PL distribution options is: a. warehouse location(s). b. competency of in-house staff. c. volume of product being moved. d. type of product being handled. 22. Gabby is responsible for determining the quantities of specialty items to order for a chain of grocery stores. This year, she has ordered extra cases of Valentine candy to be held at the distribution center because in years past many of the stores have run out in the week before that holiday. This is an example of which aspect of distribution operations? a. Supporting production requirements b. Fulfilling omni-channel demand c. Protecting against uncertainty d. Balancing supply and demand 23. The _____ dimension of materials handling is concerned with the preparation of goods for production or for order fulfillment. a. quantity b. space c. time d. movement 24. Matt is the distribution center manager for a toy manufacturer. The last quarter of every year presents a huge challenge for him in terms of managing the tremendous volume of toys moving through the distribution center, including tracking the SKUs of all products. This example represents which aspect of DC management? a. Labor availability issues b. Demand variation c. Higher customer requirements d. Value-added activities 25. Olivia’s workstation includes an industrial robot that she uses for machining parts. Which of the following best characterizes this equipment? a. Transport b. Positioning c. Unit load formation d. Storage Copyright Cengage Learning. Powered by Cognero.

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Chap 10_11e 26. LogicForce’s warehouse management system is designed to inform the internal sales force, as well as customers if and when an order is delayed. Which of the following best describes this WMS feature? a. Labor management b. Automated data collection c. Task interleaving d. Systems convergence 27. The primary facility operations focus is: a. on the movement and storage of product. b. on inventory control and personnel issues. c. in making sure KPIs are fulfilled. d. the WMS system. 28. One important interaction that must be considered is the tradeoff between distribution and _____. a. transportation b. finance c. marketing d. services 29. The roles of the distribution center include _____. a. balancing supply and demand b. protecting against uncertainty and promoting transportation economies c. promoting transportation economies d. balancing supply and demand, protecting against uncertainty, and promoting transportation economies 30. LogicForce’s warehouse management system monitors each picker’s daily performance so that rewards and incentives can be awarded to the most productive, efficient employees. Which of the following best describes this WMS feature? a. Labor management b. Automated data collection c. Fulfillment flexibility d. Systems convergence 31. Which of these is not a support function? a. Inventory control b. Safety, maintenance, and sanitation c. Information technology d. Movement and storage

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Chap 10_11e 32. Name the five product handling functions and discuss each.

33. Discuss the choices for facility ownership, including public and contract warehousing.

34. Discuss facility layout and what factors should be considered. Which do you think is most important, and why?

35. What are the primary capabilities, advantages, and disadvantages of direct distribution, DCs, and cross-docks?

36. When designing a DC, what interior layout objectives and slotting principles must be considered? Why?

37. Discuss inventory positioning and the differences between centralized and decentralized inventory.

38. Distribution operations help organizations overcome challenges, support other processes, and take advantage of economies of scale. Name and briefly discuss five roles that these operations play.

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Chap 10_11e Answer Key 1. False 2. True 3. True 4. False 5. False 6. True 7. True 8. True 9. True 10. False 11. False 12. False 13. False 14. True 15. True 16. False 17. False 18. True 19. True 20. d 21. c 22. c 23. c 24. b 25. b 26. d

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Chap 10_11e 27. a 28. a 29. d 30. a 31. d

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Chap 10_11e 32. Product handling involves five primary processes: (1) receiving—transferring goods into the facility from the transport network, (2) put-away—moving goods into storage locations, (3) order picking—selecting goods for customer orders, (4) replenishment—moving product from storage locations to picking slots, and (5) shipping—loading goods for delivery to the customer. All five involve short-distance movement of product, while put-away also focuses on the storage activity. At the receiving operation, the inbound carrier is scheduled to deliver the goods at a specific time so as to improve labor productivity and unloading efficiency. The goods are unloaded from the delivery vehicle onto the receiving dock. During the process, receiving clerks check the goods in to ensure that they match the purchase order and packing slips. Once on the dock, the goods are sorted by SKU, stacked on pallets to the correct ti-hi (where ti is the number of cartons stored on a layer and hi is the number of layers on the pallet), and secured using tape or shrink-wrap. The delivery is also inspected for damage and shortages. Problems are noted on the carrier's delivery receipt, and the receipt is signed. Prior to transfer, the items are tagged with pallet labels that assign storage locations in the facility or designate the goods for direct transfer to the shipping dock if needed to immediately fill a customer order. The put-away operation focuses on the physical movement of product from the receiving dock to assigned storage locations in the facility. Forklift operators check the pallet configuration to validate quantities and product safety, verify the storage location on the pallet label, pick up the pallet, and scan the bar code on the pallet label. The product is moved to the proper storage location (or sometimes the picking location, if the product is new or the slot is empty) and placed in the rack. After the process is completed, inventory records are updated to reflect receipt of the item, its storage location, and availability for customer order. The order-picking process focuses on the selection of goods to fulfill customer orders. Order fulfillment personnel travel through the facility from pick slot to pick slot and pull the requested quantity of each product identified on the pick list. The pick list may be generated as a paper checklist, labels that are placed on the carton, a computer display, or a voice-activated picking system. Once picked, the items may be labeled and put on a conveyor system for transfer to the shipping area or assembled on a pallet or cart designated for the customer. If the latter method is used, the order fulfillment personnel transfer the order to the shipment staging area and prepare it for delivery. The items are secured to the pallet or cart by means of tape, stretch wrap, or strapping, and a shipping label is created and attached. Finally, the complete customer order is staged in a predesignated area for loading onto the appropriate outbound delivery vehicle. The replenishment operation plays an important supporting role for order picking, moving product from storage locations in the facility to the designated pick slots. These storage locations are often inaccessible to the order fulfillment personnel, and specialized equipment is needed to retrieve the product. Replenishment forklift operators focus on keeping an adequate supply of product in each pick slot. When a pick slot is empty, the order fulfillment personnel will have to make a second trip to retrieve the required quantity of product. These additional trips are labor intensive and may cause split deliveries or delay the dispatch of customer orders. Hence, it is critical to synchronize order-picking and replenishment activities, shifting personnel back and forth between the functions as needed. The final movement process occurs at the shipping operation. In some facilities, empty trailers are dropped at shipping dock doors and loaded as orders arrive from the picking operation. In other operations, a "live" loading process takes place when the outbound carrier arrives at the shipping dock. The goods are moved from the staging area to the loading dock, counted and inspected as required, and loaded into the carrier's vehicle. The carrier signs the bill of lading that has been prepared by the shipper, indicating receipt of the goods, and departs from the facility.

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Chap 10_11e 33. The final piece of a network design strategy is the facility ownership question—should an organization own and operate private distribution facilities or contract with third-party logistics providers for distribution services? This issue is difficult to address without first determining facility roles, numbers, and locations. After these issues have been resolved, it is easier to understand the scope of tasks to be undertaken and to evaluate the organization's options for handling distribution requirements. They essentially have three choices: (1) private facilities, (2) public facilities, and (3) contract facilities. Private DCs are internal facilities owned by the organization producing or owning the goods. The focus of the facility is to store goods and distribute them to customers. Owning and operating facilities provide the organization with greater control over fulfillment processes and inventory. Also, economies of scale can be achieved if the volume of activity is high enough. If this is the case, the cost per unit delivered to the customer is less, and the retailer can charge a lower price or maintain a higher profit margin. Private facilities are company assets that can be depreciated and can also provide a source of income by renting or leasing excess space to those who need storage facilities. In order to make a private distribution cost-effective, the facility needs high product throughput, requires stable demand, and should be located in or near a dense market area. Additionally, the organization must have distribution expertise, the resources to build facilities, and the desire to operate them. If these attributes are not present, the firm should look to third party logistics (3PL) service providers to handle distribution and warehousing. Public warehousing is the traditional external distribution option. A public warehouse rents out space to individuals or firms needing storage capacity. Additional service offerings vary by 3PL provider. Some provide a wide array of services including packaging, labeling, testing, inventory maintenance, delivery, data processing, and pricing to different types of customers. Others focus more on providing short-term storage solutions for specific types of goods —general merchandise, refrigerated goods, household goods, and bulk storage. Public warehousing capacity is often rented on a short-term, transactional basis without significant commitments or unique service requirements. Contract warehousing is a customized version of public warehousing in which an external company provides a combination of distribution services that the organization itself has traditionally provided. These 3PL providers dedicate space, labor, and equipment to a client's specific product needs with the goal of providing integrated, accurate distribution services. These facilities can meet the specialized handling requirements for critical products such as pharmaceuticals, electronics, and high-value manufactured goods. The customized nature of contract facilities leads to strong relationships between the 3PLs and a small group of highly important clients. These external distribution services should be considered for several reasons. First, buying the services on an asneeded basis alleviates capital investment in private distribution facilities. Second, short-term commitments for 3PL capacity maintain maximum distribution network flexibility. Another benefit of outsourcing distribution responsibilities is that you do not have to manage the personnel issues (hiring, training, benefits, etc.) associated with owning and operating the facility. Essentially, distribution becomes a variable cost activity that is run by 3PL experts who can often leverage their investments and capacity across multiple customers.

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Chap 10_11e 34. Students’ answers will vary, but should be supported with logical reasoning. After the facility size is determined, attention shifts to the layout of the operations within the distribution operation. The company must make decisions regarding aisle space, shelving, materials-handling equipment, and the interior dimensions of the facility. Organizations design the interior of the distribution facility to support timely, accurate, and efficient customer order fulfillment. A number of objectives must be kept in mind during the planning process, with utilization of the facility's cubic capacity being first and foremost on the list. One storage area design feature that lends itself to this objective is the use of larger storage bays with more limited access. The turnover or throughput level will affect the storage bays' actual size. For example, when turnover is very low, as in supply warehouses, the bays can be wide and deep, with limited access, and the aisles can be narrow. Increased turnover necessitates quick access for better customer service and, consequently, smaller bays and wider aisles. Product protection is another key objective. The layout must accommodate the physical characteristics of the products being handled. For example, hazardous materials such as explosives, flammable items, and oxidizing items must be separated from other items so as to eliminate the possibility of damage. Also, high-value goods must be safeguarded against pilferage, and temperature-sensitive products must receive proper refrigeration or heat. Finally, distribution personnel should avoid stacking or storing light or fragile items near other items that could cause damage. Proper use of automation and materials-handling equipment is an important goal. Both offer great potential to improve distribution efficiency. Careful planning should include consideration of the risks of investing in automation— obsolescence due to rapid technological change, market fluctuations, and return on the large investment. Mechanized materials-handling equipment generally works best when items are regular in shape and easily handled, when order selection is the middle range of activity, and when product moves in high volumes with few fluctuations. Another objective is process flexibility. The facility design should not be so permanent as to limit the facility from handling new product lines and providing value added services when new requests emerge. For example, reconfigurable racking and multifunctional materials-handling equipment can prevent the building from becoming obsolete if demand patterns change significantly. Continuous improvement is the ultimate facility objective. An organization should not design an initial layout and then assume that it will work perfectly. Goals and standards for costs, order-handling efficiency, and customer service must be set and monitored on a regular basis. If measurements reveal that optimal facility performance is not being achieved, steps must be taken to improve productivity. The final facility consideration is product placement within the facility. Before order fulfillment operations begin, goods must be located or slotted in the facility. Slotting is defined as the placement of product in a facility for the purpose of optimizing materials-handling and space efficiency. The main objective of slotting is to minimize, or in some instances even eliminate, travel and the amount of time that a stock-keeping unit is handled. This is important because travel and other nonproductive tasks can account for up to 60 percent of distribution labor hours.

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Chap 10_11e 35. An issue that has a major impact on the distribution strategy and network structure is the product flow requirements of the supply chain. Two options are available: (1) direct shipment of goods from the manufacturer to retailer or retailer to consumer or (2) movement of goods through distribution facilities to customers. Direct shipping operations bypass distribution facilities, fulfilling retail store requests from the primary production point (manufacturer's factory or warehouse) rather than interim distribution facilities that hold inventory. Similarly, Internet retailers directly distribute goods to the end consumer without the need for retail outlets. Direct shipping avoids the need to build and operate distribution facilities, reduces inventory in the system, and often compresses order cycle time. Direct shipping works particularly well when customers place orders for truckload quantities or when product perishability is an issue. For example, it is better to have bread and milk delivered directly to a grocery store than to a DC as they are high-volume products and direct shipping maximizes product shelf life. On the downside, it is expensive to deliver small quantities to buyers (reduced transportation efficiencies), and there is no safety stock readily available to protect against demand surges. Furthermore, many companies are not capable of fulfilling orders for case and individual unit quantities. Thus, it is important to consider product characteristics, demand volume and variability, and related issues before making the decision to establish a direct shipping strategy. Properly planned distribution facilities can address the shortcomings of direct shipping. These facilities, including traditional warehouses, DCs, and cross-docking facilities, provide the supply chain with additional capabilities. Warehouses and DCs can hold goods in anticipation of customer orders, provide a buffer of safety stock to protect against contingencies, and handle small quantity orders efficiently from transportation and fulfillment standpoints. Cross-docks can provide a high-velocity alternative to direct shipping at lower transportation cost with product mixing capabilities. Of course, it is necessary to analyze the inventory, transportation, and service tradeoffs before choosing between direct shipping and the use of distribution facilities. The ultimate answer may be to employ a combination of the two strategies to ensure distribution efficiency and customer satisfaction. Many companies, like Walmart and Target, use a wide variety of distribution methods depending on product volume, size, and supplier proximity.

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Chap 10_11e 36. The main objective of slotting is to minimize product handling and employee travel in the building. This is important because travel and other nonproductive tasks can account for up to 60 percent of distribution labor hours. Three criteria are commonly used to slot product within a distribution facility: (1) popularity, (2) unit size, and (3) cube. The popularity criterion locates high volume (popular) items near the shipping area and the low volume (unpopular) items away from the shipping area. Reduced order-picking time and effort are achieved. Proper product slotting can improve labor productivity and generate other advantages for the organization and its customers. Several benefits will be generated by effective product slotting: Picking productivity—Travel time is a significant portion of a picker's daily activity. A good product slotting strategy can reduce travel time, thereby reducing picking labor. Efficient replenishment—By sizing the pick face location based upon a standard unit of measure (case, pallet) for the product in question, you can significantly reduce the labor required to replenish the location. Work balancing—By balancing activity across multiple pick zones you reduce congestion in the zones, improve material flow, and reduce the total response time for a given order or batch of orders. Load building—To minimize product damage, heavy product is located at the beginning of the pick path ahead of crushable product. Product may also be located based on case size to facilitate pallet building. Accuracy—Similar products are separated to minimize the opportunity for picking errors. Ergonomics—High velocity products are placed in easy to reach locations which reduce bending and reaching. Heavy or oversized items are placed on lower levels or in a separate area where material handling equipment can be utilized. Pre-consolidation—Storing and picking product by family group can reduce downstream sorting and consolidation activity. For example, grocery DCs may slot products according to store aisle location to facilitate rapid restocking.

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Chap 10_11e 37. Inventory positioning focuses on the issue of where inventory is located within the supply chain. One strategy is to hold a centralized stock of inventory at a single location such as the origin point or some other advantageous location in the supply chain. Product is distributed to customers across the network from this central stocking point. The benefit of this consolidation strategy is greater control over the inventory and reduced demand variability due to risk pooling. The central or national inventory pool supports higher in-stock availability, though there is a need for less safety stock. The drawback of centralized inventory is the long distance to customers, which typically extends lead times and results in higher transportation costs. Despite these drawbacks, manufacturers of high-value, low-weight products such as prescription pharmaceuticals often rely on one strategically placed inventory pool. The transportation costs associated with next-day and second-day order delivery are offset by the reductions in inventory carrying costs, the enhanced visibility of product flows, and the improved control over order-filling processes, product pedigree issues, and recall events. The alternate inventory positioning strategy is to hold product in multiple customer-facing positions. Stocking inventory regionally or locally helps to reduce customer delivery costs and order cycle time. Product is positioned closer to demand points and can be readily dispatched to meet customer requirements. This decentralized inventory strategy works well for high-volume, low-cost products with low demand uncertainty such as laundry detergent, pet food, and cereal. The decentralized inventory strategy is not without challenges. First, more facilities are required to stock the product, leading to higher handling costs, the risk of product damage, and the potential for product pilferage, not to mention the additional expenses of running the facilities. Also, average inventory levels will rise as each facility will have to hold safety stock to cover demand variation within the region. To combat these issues, some organizations have shifted toward more centralized distribution systems with fewer stocking points. Which inventory positioning strategy is best? There is no single answer, and many organizations use both strategies. 38. Balancing supply and demand—Whether seasonal production must service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday wrapping paper), distribution facilities can stockpile inventory to buffer supply and demand. Protecting against uncertainty—Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes. Allowing quantity purchase discounts—Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can hold the additional quantities until needed, reducing the purchase cost per unit. Supporting production requirements—If a manufacturing operation can reduce costs via long production runs or if outputs need to age or ripen (e.g., wine, cheese, fruit), the output can be warehoused prior to distribution. Promoting transportation economies—Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping "air" and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements.

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Chap 11_11e Indicate whether the statement is true or false. 1. A carrier is never excused from a claim. a. True b. False 2. Because it is important to control the freight and manage key events as product moves across the supply chain, many carriers use satellites, cellular networks, and wireless technologies to maintain equipment and freight visibility. a. True b. False 3. Product value is an important factor in modal selection. a. True b. False 4. The rail industry is divided into linehaul freight carriers and shortline carriers, and rail equipment can be organized into loads and transported as manifest, unit, or intermodal trains. a. True b. False 5. “Tendering” refers to the process of receiving a shipment from a carrier. a. True b. False 6. The main strategy behind routing guides is to maintain very tight control of transportation costs. a. True b. False 7. All modes of transportation provide the same basic service. a. True b. False 8. Some organizations may choose to outsource their transportation needs to third-party logistics (3PL) firms, which may include international freight forwarders, non vessel-owning common carriers, and customs brokers. a. True b. False 9. The responsibility for transportation management is typically not assigned to any one management discipline in an organization. a. True b. False

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Chap 11_11e 10. Generally speaking, truck, pipeline, and air modes are used for high-value products, while water and rail modes are used for low-value products. a. True b. False 11. Pipeline costs are predominantly fixed. a. True b. False 12. The three general types of for-hire carriers include truckload carriers, intermediate vehicle carriers, and small package carriers. a. True b. False 13. Intermodal growth has been flat. a. True b. False 14. Transportation plays a key role in supply chain design, strategy development, and total cost management. a. True b. False 15. A bill of lading is nonnegotiable. a. True b. False 16. Motor carrier cost is highly variable. a. True b. False 17. A key requirement for service quality monitoring is information, but data alone does not provide the necessary holistic perspective of a carrier’s service quality. a. True b. False 18. Nonintegrated air carriers do not supply door-to-door service. a. True b. False 19. Railroads have accessibility limitations. a. True b. False

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Chap 11_11e 20. In global supply chains, “on-shoring” and “near-shoring” strategies have virtually eliminated the risk and expense of transporting goods vast distances. a. True b. False 21. Software tools related to the movement of goods across the supply chain are lumped together in a general category called transportation management systems (TMS). a. True b. False 22. Regardless of mode—truck, train, plane, ship, pipeline, or fiber optic wire—transportation facilitates time and place utility. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 23. The distances in today's global supply chains produce: a. higher cost. b. longer transit times. c. more disruptions. d. all of these answers. 24. Which management area in an organization does not normally have transportation responsibility? a. Marketing b. Manufacturing c. Procurement d. Logistics 25. This mode of transportation is the one most often used in intermodal shipments. a. Air b. Motor carrier c. Rail d. Ocean 26. Which of the following formulas is used to calculate the Perfect Delivery Index, a common transportation metric? a. Total on-time deliveries / Total deliveries b. Total units damaged, lost, or stolen / Total units shipped c. Shortage % ´ Damage-free % ´ Billing accuracy % d. On-time % ´ Damage-free % ´ Billing accuracy %

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Chap 11_11e 27. Which of these is not a freight document? a. Routing guide b. Bill of lading c. Freight bill d. Freight claims form 28. LogicForce’s transportation management system has determined that DHL is the best carrier for a particular shipment, based on a comparison of different carriers’ costs, times, and services. Which tool within the TMS has made this determination? a. Routing and scheduling b. Load tendering c. Status tracking d. Appointment scheduling 29. As a product's susceptibility to loss and damage increases, its transportation cost: a. increases. b. decreases. c. stays the same. d. can't be determined. 30. Economic deregulation sparked competition among carriers in several areas. Which of these is not an area of competition? a. Accessibility b. Pricing c. Performance d. Services 31. Challenges for the trucking industry include: a. lack of flexibility. b. limited equipment options. c. oversupply of qualified drivers. d. competition. 32. Air carriers were historically looked upon as: a. emergency only carriers. b. having equipment shortages. c. a fringe participant. d. insignificant.

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Chap 11_11e 33. The main strategy behind routing guides is to: a. maintain exact control. b. comply with or enforce FOB terms. c. promote supply chain excellence. d. select between modes. 34. To avoid complications, LogicForce’s transportation management system has arranged for TransPrime to pick up a shipment on Friday at 10 a.m. on docks 1 and 2, and for Worldwide Shipping to deliver a shipment on Friday at 1 p.m. on docks 5 and 6. Which tool within the TMS has made these arrangements? a. Load tendering b. Routing and scheduling c. Appointment scheduling d. Status tracking 35. What is modal selection? What are the key determinants in choosing a mode?

36. What are the three types of freight documentation? Discuss how each is used.

37. Define and discuss Transportation Management Systems (TMS).

38. Discuss the elements of carrier selection, and how it differs from mode selection.

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Chap 11_11e Answer Key 1. False 2. True 3. True 4. True 5. False 6. False 7. True 8. True 9. False 10. False 11. True 12. False 13. False 14. True 15. True 16. True 17. True 18. True 19. True 20. False 21. True 22. True 23. d 24. b 25. b 26. d

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Chap 11_11e 27. a 28. b 29. a 30. a 31. d 32. a 33. c 34. c 35. A critical transportation management issue is modal selection; it affects how quickly and efficiently products will flow across portions of the supply chain. If an organization has determined that controlling the transportation process and using external service providers (for-hire carriers or 3PLs) are in its best interest, it must then determine which mode(s) of transportation to use. Choosing among the six modal options is a function of three factors—modal capabilities, product characteristics, and modal freight pricing. All modes provide the same basic service of moving freight from point to point in the supply chain. However, the modes serve different customer requirements and goods in terms of value, tonnage, and ton-miles. The reason for the different uses is that each mode has unique attributes and capabilities that impact its ability to serve specific customer requirements. Numerous studies have been conducted over the years to identify the most important performance capabilities in modal selection. These studies commonly identify accessibility, transit time, reliability, and product safety as the key determinants in choosing a mode. Of course, cost is another critical consideration in modal selection. Accessibility determines whether a particular mode can physically perform the transport service required. Accessibility considers the mode's ability to reach origin and destination facilities and provide service over the specified route in question. The geographic limits of a mode's infrastructure or network and the operating scope that governmental regulatory agencies authorize also affect accessibility. Accessibility problems often eliminate a mode from consideration during the selection process. Accessibility advantage: Given the road networks in most countries, motor carriage is more accessible to sellers and buyers than any other mode for domestic transportation. Accessibility disadvantage: Air, rail, and water. All face accessibility limitations due to infrastructure issues. Still, all three modes serve virtually every major market, thanks to intermodalism. Transit time is the total elapsed time that it takes to move goods from the point of origin to the destination (i.e., door to door). This includes the time required for pickup activities, terminal handling, linehaul movement, and customer delivery. Companies typically monitor average transit time for their service providers. Transit time is impacted by the speed of the mode and the ability of the mode to handle pickup and delivery responsibilities.

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Chap 11_11e Transit time advantage: Air transportation is very fast for the linehaul move but loses some velocity as pickup and delivery activities must be handled by truck. Motor carriage is also relatively fast because it can provide more direct movement from origin to destination far more often than any other mode. Transit time disadvantage: Rail, water, and pipeline are extremely slow with average transit speeds of 22 miles per hour, 5–9 miles per hour, and 3–4 miles per hour, respectively.

Reliability is a critical issue. Many companies feel that transit time reliability is more important than speed as it impacts their ability to plan supply chain activities. Reliability refers to the consistency of the transit time provided by a transportation mode. It is easier to forecast inventory needs, schedule production, and determine safety stock levels if it is known with some certainty when goods will arrive. Reliability is measured by the statistical variation in transit time. Modal reliability is impacted by a variety of factors including equipment and labor availability, weather, traffic congestion, freight-handling requirements, number of terminal stops involved, and other factors. Internationally, reliability is impacted by distance, port congestion issues, security requirements, and border crossings, especially when the two countries do not have a proactive trade agreement. Reliability advantage: Motor carriers and air carriers, as they are the most reliable (variability relevant to average transit time). Reliability disadvantage: Water carriers and rail carriers. With capacity and congestion challenges, they have become less consistent. As a result, some customers have reduced their use of these modes when possible.

Product Safety Safety is critical to the achievement of customer service, cost control, and supply chain effectiveness. From a safety standpoint, goods must arrive at the destination in the same condition they were in when tendered for shipment at the origin. Proper precautions must be taken to protect freight from loss due to external theft, internal pilferage, and misplacement, as well as damage due to poor freight-handling techniques, poor ride quality, and accidents. Safety is often pursued through substantial protective packing. Safety advantage: Air transportation and motor carriage have the best reputations for product security. Their equipment provides excellent ride quality and protection from the elements. Faster transit times also reduce the opportunity for theft and other mishaps. Safety disadvantage: Rail and water face significant challenges to maintaining product integrity. Goods moving via rail encounter a great deal of vibration, swaying, and jarring. Water transportation often exposes goods to the elements, excessive movement, and rough handling during the loading and unloading processes. Cost The cost of transportation is an important consideration in the modal selection decision, especially when a lowvalue commodity needs to be moved. Transportation costs include the rate for moving freight from origin to destination plus any accessorial and terminal fees for additional services provided. Examples of these additional costs include inside delivery to a retailer located inside a mall, packing freight in crates for international delivery, or setting up a delivery of furniture in a residential location. A number of factors are taken into consideration when freight rates are developed, including weight of the shipment, distance from origin to destination, nature and value of the product, and the speed required.

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Chap 11_11e Cost advantage: The cost of transportation service varies greatly between and within the modes. In general, pipeline, water, and rail service are low-cost transportation methods. The tradeoff, of course, is slow speed, which forces a company to hold a greater level of inventory to meet demand during these longer transit times. Cost disadvantage: Motor carriage and air transportation are high-cost modes compared to the others. On average, motor carriage is about 10 times more expensive than rail, and air service is more than twice the cost of motor carriage. Given the varying capabilities and cost of each transportation mode, it is obvious that modal selection is not a quick and easy process. 36. The bill of lading is probably the single most important transportation document. It originates the shipment, provides all the information the carrier needs to accomplish the move, stipulates the transportation contract terms including the scope of the carrier's liability for loss and damage, acts as a receipt for the goods the shipper tenders to the carrier, and in some cases shows certificate of title to the goods. The bill of lading is created by the shipper of the goods and is either negotiable or nonnegotiable. A straight bill of lading is nonnegotiable, and the carrier must deliver the goods only to the specific receiving organization and destination in return for freight charge payment. An order bill of lading is negotiable and serves as a title to the goods listed on the document. The owner of the goods has the right to transfer title to the goods to another party and reroute the shipment to a location other than the one listed on the bill of lading. Bills of lading also differ by type of move and whether the transportation is domestic or international. The freight bill is the carrier's invoice for the fees the carrier charges to move a given shipment. The freight bill lists the shipment, origin and destination, consignee, items, total weight, and total charges. The freight bill differs from the bill of lading in that the freight bill sets forth the charges applicable to the shipment while the bill of lading sets forth the terms of the shipment and is a document of title. A freight claims form is a document that the transportation buyer files with the carrier to recoup monetary losses resulting from the carrier's failure to properly protect the freight. The shipper must file in writing freight claims with the carrier within a timeframe specified in the contract. Freight claims can be filed for visible damage or shortages that are detected when the product is received and inspected, for concealed losses that are not discovered until packages are opened, or for financial losses due to unreasonable delays. Carrier liability is limited if the shipper elected to send the goods under a released value in exchange for lower freight rates. Carriers are not liable for freight claims if the damage is attributable to some uncontrollable factor, such as a natural disaster, military attack, extreme fragility, etc.

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Chap 11_11e 37. Software tools related to the movement of goods across the supply chain are lumped together in a general category called transportation management systems (TMS). TMS is defined as information technologies used to plan, optimize, and execute transportation operations. This simple definition captures the essence of TMS, presenting it as a melting pot of applications used to assist managers in nearly every aspect of transportation from basic load configuration to complex transportation network optimization. The planning capabilities of TMS assist transportation buyers and managers with the key pre-shipment decisions discussed earlier. These individuals cannot adequately evaluate the thousands of potential lane/mode/carrier/service/price combinations in their supply chains without technological help. TMS tools allow organizations to consider a vast array of transportation options in a matter of minutes versus hours or days of manual design activity. In addition, freight planning tools can be linked to order management systems, warehouse management systems, and supply chain planning tools to gain timely, more comprehensive information. With this knowledge, better supply chain decisions and tradeoffs can be made. Critical TMS planning applications include routing and scheduling, and load planning. TMS execution tools help transportation managers streamline some of their shipment activities. With multiple shipments needing delivery each day, manual processes are susceptible to errors, missed deadlines, and customer service failures. Various TMS capabilities automate repetitive activities to reduce labor costs and accuracy problems. For example, standardized templates can be used to ensure that complete and accurate shipment data are provided in transportation documents. Other tools post detailed shipment information to a shared network or a Web site to promote shipment visibility and provide greater freight control. Three of the key execution tools include load tendering, status tracking, and appointment scheduling. TMS analytical tools provide organizations with the ability to make postshipment evaluations of carrier performance, customer service, and network cost. The data required for analysis can be spread across the entire supply chain in a variety of documents and information systems. It is critical to collect these data in a timely fashion so that the KPIs can be measured, performance assessed and benchmarked, and corrective action taken. TMS help organizations assemble and make sense of the vast array of transportation data that are generated by freight movement. Two useful analytical applications are performance reporting and scorecarding, and freight bill auditing.

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Chap 11_11e 38. Carrier selection is a specialized purchasing decision that typically will be made by a logistics, transportation, or traffic manager who has expertise and experience in the purchase of transportation services. After the modal decision has been made, attention turns to selecting the individual transportation service providers within the mode. Like the modal decision, carrier selection is based on a variety of shipment criteria and carrier capabilities: transit time average and reliability, equipment availability and capacity, geographic coverage, product protection, and freight rates. A major difference between modal and carrier selection is the number of options. Modal selection involves six primary options, but the carrier selection may involve fewer or many more alternatives. In the case of rail transportation, many markets are only served by a single carrier and the choice is limited. At the other extreme is truckload transportation where dozens of carriers serve a particular market. Another difference is the frequency of the decision. Carrier selection requires more active and frequent engagement of the transportation buyer than does the more long range modal selection decision. This engagement does not focus on choosing a new carrier for each freight move; it focuses more on the transportation buyer remaining vigilant and managing the performance of chosen carriers. It is critical to monitor each carrier's service level and freight rates on an ongoing basis. Should carrier performance deteriorate, it may be necessary to select new service providers. The type of service provided within a mode impacts carrier selection. Most carriers have their roots in one of two types of service—direct service or indirect service—between which customers must choose. Within a mode, most carriers have the capabilities to provide a similar level of service, but these service levels can and do vary greatly from one transportation company to another. Also, since the cost structures are essentially the same for carriers in a given mode, their rates tend to be aligned for a given movement. Given this similarity, transportation rates tend not to be the most important criterion in carrier selection. Service performance is the key determinant for this decision. Carrier selection research suggests that reliability of ontime delivery and on-time pickup, technical capabilities, carrier response to emergencies, information sharing, freight damage experience, carrier financial stability, and total transit time are among the most important criteria to transportation service buyers. Carrier selection strategy commonly focuses on concentrating the transportation buy with a limited number of carriers. Using a small group of carriers helps the organization leverage its purchasing dollars for lower overall rates, build relationships with service providers who gain a better understanding of freight flows and requirements over time, and effectively monitor performance of the carrier base. In many cases, the core carriers become an indispensable extension of the organization's transportation management team; they are able to manage freight flows across the supply chain with limited direction or oversight. The ability to rely on the transportation expertise of trusted core carriers also allows the organization to focus its attention on other supply chain issues.

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Chap 12_11e Indicate whether the statement is true or false. 1. Collaboration is usually defined as a "business practice that encourages individual organizations to share information and resources for the benefit of all." a. True b. False 2. Once a 3PL provider is chosen, it is not necessary for an organization to seek continuous improvements as the 3PL will handle that function. a. True b. False 3. A financial based 3PL is a firm that takes a financial interest in an organization in order to underwrite the outsourcing of that firm's logistics. a. True b. False 4. The first stage in the process model for forming and sustaining supply chain relationships involves the process by which a manufacturer becomes fully aware of its logistics and supply chain needs. a. True b. False 5. A horizontal relationship refers to firms on the same level in the supply chain. a. True b. False 6. A third-party logistics (3PL) firm is defined as a company that owns trucks and warehouses so as to offer integrated services. a. True b. False 7. One anticipated trend for the future is a narrowing of service offerings into specialty niches. a. True b. False 8. The range of relationships with 3PLs ranges from being a vendor to being a vertical supplier. a. True b. False 9. Vertical integration refers to collaboration typically among buyers and sellers in the supply chain. a. True b. False

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Chap 12_11e 10. Information systems executives are becoming increasingly involved in implementing 3PL relationships, which is not surprising, considering the key role of IT in many of today’s logistics and supply chain processes. a. True b. False 11. Drivers and facilitators are internal issues that an organization must address before seeking a 3PL. a. True b. False 12. The "IT gap" refers to the difference between the internal IT capabilities of 3PL users and the IT expertise of the 3PL providers. a. True b. False 13. A recent annual 3PL study indicates that 3PL customers feel third-party suppliers should each focus on a narrow set of specialized services, rather than offering a broader range of generalized services. a. True b. False 14. A distinguishing characteristic of successful supply chains is the ability to achieve “alignment” between people, processes, and technologies. a. True b. False 15. 4PL providers not only provide a broader scope of services to their clients and customers, but typically may be more strategically involved. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 16. Full collaboration is the dynamic combination of: a. buyers, sellers, retailers, and 3PLs. b. buyers, sellers, retailers, 3PLs, and appropriate government agencies. c. both vertical and horizontal collaboration. d. buyers and sellers only. 17. National Auto Parts has a collaborative relationship with one of its suppliers, Dri-Shield Windshield Wipers. National’s inventory system feeds data directly to this supplier so that Dri-Shield can deliver optimal levels of inventory at the best times to National’s stores. Which of the following best describes this example of collaboration? a. Vertical b. Horizontal c. Lateral d. Full Copyright Cengage Learning. Powered by Cognero.

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Chap 12_11e 18. TransNational Trucking has recently invested over $1 million in wireless technologies designed to give the trucking company greater visibility into shipments as they travel door to door. In what way is TransNational adding value to its customers? a. Onboarding new customers more effectively b. Realizing cost reductions c. Utilizing information technology capabilities d. Expanding global capabilities 19. Which of the following did not rank as one of the top three benefits of using 3PL in the 24th Annual 3PL Study? a. Reduced costs b. Reduced shipping time c. Improved customer service d. Improved logistics effectiveness 20. Which of the following statements best describes the reason the IT gap has not been eliminated in recent years? a. The primary cause of the continuing IT gap is service providers’ reluctance to invest in appropriate technology. b. An inability to integrate IT systems between shipper organizations and service providers continues to cause an IT gap. c. Until shipper organizations and service providers are willing to collaborate on designing and implementing shared IT systems, the IT gap will persist. d. The continuing IT gap can be attributed to the complexity of the IT-needs of the shipper organizations and the extent to which their IT capabilities themselves need to be improved. 21. Horizontal collaboration refers to a relationship that is _____ and/or _____. a. 3PLs to 3PLs; service provider to service provider b. buyer to buyer; seller to seller c. flat across the chain; involving partners equal in size d. collaboration with horizontal; vertical competitors 22. Approximately two-thirds of 3PL customers think their providers supply: a. tactical or operational services. b. strategic or integrative services. c. trucking and warehouse services. d. a firm that can supply a competency that is not core to the firm. 23. Many organizations are working more closely with: a. customers. b. customers and suppliers. c. third-party logistics firms. d. customers, suppliers, and various types of logistics suppliers.

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Chap 12_11e 24. What are some example types of services that may be available from a 4PL provider?

25. What are some of the types of activities often outsourced?

26. What is meant by "collaboration" between supply chain organizations? What are the different types of collaboration?

27. What does it take to have an area of "core competency"? Provide an example.

28. How would you distinguish between a vendor, a partner, and a strategic alliance? What conditions would favor the use of each?

29. Define what a "transactional" relationship is, and discuss how this occurs in logistics.

30. How would you distinguish between the following terms: alignment, relationships, and collaboration?

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Chap 12_11e 31. What are the basic types of 3PL firms, and which are most prevalent?

32. Generally, there are two types of logistics relationships. Name both types, and pick one to discuss in more detail.

33. Describe the steps in the process model for forming and implementing successful supply chain relationships. What step(s) do you feel is (are) most critical?

34. Define and discuss the term "4PL."

35. What are some of the more common "drivers" and "facilitators" of successful supply chain relationships?

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Chap 12_11e Answer Key 1. True 2. False 3. False 4. True 5. False 6. False 7. False 8. False 9. True 10. True 11. False 12. False 13. False 14. True 15. True 16. c 17. a 18. c 19. b 20. d 21. b 22. a 23. d

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Chap 12_11e 24. 4PL providers not only provide a broader scope of services to their clients and customers, but typically may be more strategically involved than 3PLs would be. Essentially a supply chain integrator, a 4PL may be thought of as a firm that "assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution." As indicated in Figure 12.6, some of the value-adding services offered by 4PLs include managing multiple providers of 3PL services (i.e., LLP or lead logistics provider); taking on more risk than 3PLs (e.g., taking an equity involvement in inventory ownership); providing advanced IT services; strategic consulting; and "control tower" services that provide comprehensive visibility throughout the supply chain. 25. The logistics services most frequently outsourced are those that are more operational, transactional, and repetitive in nature. Looking at the results over all of the regions studied, the most frequently outsourced services include domestic transportation (83%), international transportation, (75%), warehousing (74%), customs brokerage (58%), and forwarding (53%). The less frequently outsourced logistics services tend to be customer-related, involve the use of information technology, and are more strategic in nature. 26. Whether the relationship may or may not be with a provider of logistics services, today's supply chain relationships are most effective when collaboration occurs among the participants who are involved. Collaboration may be thought of as a "business practice that encourages individual organizations to share information and resources for the benefit of all." According to Dr. Michael Hammer, collaboration allows companies to "leverage each other on an operational basis so that together they perform better than they did separately." He continues by suggesting that collaboration becomes a reality when the power of the Internet facilitates the ability of supply chain participants to readily transact with each other and to access each other's information. While this approach creates a synergistic business environment in which the sum of the parts is greater than the whole, it is not one that comes naturally to most organizations, particularly those offering similar or competing products or services. In terms of a logistics example, consider that consumer products manufacturers sometimes go to great lengths to make sure that their products are not transported from plants to customers' distribution centers with products of competing firms. While this practice does have certain logic, a willingness of the involved parties to collaborate and share resources can create significant logistical efficiencies. Also, it makes sense, considering that retailers routinely commingle competing products as they are transported from distribution centers to retail stores. When organizations refuse to collaborate, real losses may easily outweigh perceived gains. The contemporary topic of importance is "collaboration." Most simply, collaboration occurs when companies work together for mutual benefit. Since it is difficult to imagine very many logistics or supply chain improvements that involve only one firm, the need for effective relationships is obvious. Collaboration goes well beyond vague expressions of partnership and aligned interests. It means that companies leverage each other on an operational basis so that together they perform better than they did separately. It creates a synergistic business environment in which the sum of the parts is greater than the whole. Types of collaboration include: Vertical collaboration refers to collaboration typically among buyers and sellers in the supply chain. This refers to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. Transactions between buyers and sellers can be automated, and efficiencies can be significantly improved. Companies can share plans and provide mutual visibility that causes them to change behavior. A contemporary Copyright Cengage Learning. Powered by Cognero.

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Chap 12_11e example of vertical collaboration is collaborative planning, forecasting, and replenishment (CPFRÒ), an approach that helps buyers and sellers to better align supply and demand by directly sharing critical information such as sales forecasts. Horizontal collaboration refers to a relationship that is buyer to buyer and/or seller to seller, and in some cases even between competitors. Essentially, this type of collaboration refers to business arrangements between firms that have parallel or cooperating positions in the logistics or supply chain process. Horizontal collaboration can help find and eliminate hidden costs in the supply chain that everyone pays for by allowing joint product design, sourcing, manufacturing, and logistics. Full collaboration is the dynamic combination of both vertical and horizontal collaboration. Only with full collaboration do dramatic efficiency gains begin to occur. With full collaboration, it is intended that benefits accrue to all members of the collaboration. The development of agreed-upon methods for sharing gains and losses is essential to the success of the collaboration. 27. When the decision relates to using an external provider of logistics services (e.g., trucking firm, express logistics provider, third-party logistics provider), the first question is whether or not the provider's services will be needed. A suggested approach to making this decision is to make a careful assessment of the areas in which the manufacturing firm appears to have core competency. For a firm to have core competency in any given area, it is necessary to have expertise, strategic fit, and ability to invest. The absence of any one or more of these may suggest that the services of an external provider are appropriate. If the relationship decision involves a channel partner such as a supplier or customer, the focus is not so much on whether or not to have a relationship but on what type of relationship will work best. In either case, the question as to what type of relationship is most appropriate is one that is very important to answer. 28. The range of relationship types extends from that of a vendor to that of a strategic alliance. In the context of the more traditional "vertical" context, a vendor is represented simply by a seller or provider of a product or service, such that there is little or no integration or collaboration with the buyer or purchaser. In essence, the relationship with a vendor is "transactional," and parties to a vendor relationship are said to be at "arm's length" (i.e., at a significant distance). While this form of relationship suggests a relatively low or nonexistent level of involvement between the parties, there are certain types of transactions for which this option is desirable, such as one-time or even multiple purchases of standard products and/or services. Alternatively, the relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives. The strategic alliance by definition is more strategic in nature and is highly relational in terms of the firms involved. This form of relationship typically benefits the involved parties by reducing uncertainty and improving communication, increasing loyalty and establishing a common vision, and helping to enhance global performance. Alternatively, the challenges with this form of relationship include the fact that it implies heavy resource commitments by the participating organizations, significant opportunity costs, and high switching costs. Leaning more toward the strategic alliance end of the scale, a partnership represents a customized business relationship that produces results for all parties that are more acceptable than would be achieved individually. Partnerships are frequently described as being "collaborative."

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Chap 12_11e 29. The range of relationship types extends from that of a vendor to that of a strategic alliance. In the context of the more traditional "vertical" context, a vendor is represented simply by a seller or provider of a product or service, such that there is little or no integration or collaboration with the buyer or purchaser. In essence, the relationship with a vendor is "transactional," and parties to a vendor relationship are said to be at "arm's length" (i.e., at a significant distance). While this form of relationship suggests a relatively low or nonexistent level of involvement between the parties, there are certain types of transactions for which this option is desirable. One-time or even multiple purchases of standard products and/or services, for example, may suggest that an "arm's length" relationship would be appropriate. 30. A distinguishing characteristic of successful supply chains is the ability to achieve "alignment" between people, processes, and technologies that are essential to the planning and operational aspects of supply chains. Essentially, alignment refers to a commonality of functionality and purpose that reinforces accomplishment of supply chain goals and objectives. Three example types of alignment are highly relevant to supply chain management. Supply chain and organizational strategies. Organizational success requires that the strategies, plans, and functioning of the supply chain are aligned with those of the overall organization. Supply and demand. Principally within an individual organization, alignment between supply and demand will help to maximize the extent to which products and services are available to customers when and where they are needed, and to minimize waste and inefficiency of resources throughout the supply chain. Supply chain and trading partners. Going beyond the boundaries of an individual organization, there are significant benefits to making sure that the organization, its suppliers, and customers are aligned. Many organizations have directed significant attention toward working more closely with supply chain partners, including not only customers and suppliers but also various types of logistics suppliers. Considering that one of the fundamental objectives of effective supply chain management is to achieve coordination and integration among participating organizations, the development of more meaningful "relationships" throughout the supply chain has become a high priority. Also, "collaboration" is viewed as a principal strategy to achieve alignment, and is closely related to the pursuit of effective relationships. As suggested by the late Robert V. Delaney in his Eleventh Annual State of Logistics Report, relationships are what will carry the logistics industry into the future. In commenting on the current rise of interest in e-commerce and the development of electronic markets and exchanges, he states, "We recognize and appreciate the power of the new technology and the power it will deliver, but, in the frantic search for space, it is still about relationships." This message not only captures the importance of developing logistics relationships but also suggests that the ability to form relationships is a prerequisite to future success. Also, the essence of this priority is captured in a quote from noted management guru Rosabeth Moss Kanter who stated that "being a good partner has become a key corporate asset; in the global economy, a well-developed ability to create and sustain fruitful collaborations gives companies a significant leg up." 31. Although most 3PL firms promote themselves as providers of a comprehensive range of logistics services, it is useful to categorize them in one of several ways. Included are transportation-based, warehouse/distribution-based, forwarderbased, shipper/management-based, financial-based, and information-based firms. Transportation-based 3PLs are the most widely used 3PLs.

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Chap 12_11e 32. The first is what may be termed vertical relationships, which refers to the traditional linkages between firms in the supply chain such as retailers, distributors, manufacturers, and parts and materials suppliers. These firms relate to one another in the ways that buyers and sellers do in all industries, and significant attention is directed toward making sure these relationships help to achieve individual firm and supply chain objectives. The second type of logistics relationship is horizontal in nature and includes those business agreements between firms that have "parallel" or cooperating positions in the logistics process. To be precise, a horizontal relationship may be thought of as a service agreement between two or more provider firms based on trust, cooperation, shared risk and investments, and following mutually agreeable goals. Each firm is expected to contribute to the specific logistics services in which it specializes, and each exercises control of those tasks while striving to integrate its services with those of the other logistics providers. 33. Step 1: Perform Strategic Assessment. This first stage involves the process by which the manufacturer becomes fully aware of its logistics and supply chain needs and the overall strategies that will guide its operations. Step 2: Decision to Form Relationship. Depending on the type of relationship being considered by the manufacturing firm under consideration, this step may take on a slightly different decision context. Step 3: Evaluate Alternatives. Using a methodology by which the apparent levels of drivers and facilitators may suggest the most appropriate type of relationship to consider. If neither the drivers nor the facilitators seem to be present, then the recommendation would be for the relationship to be more transactional, or "arm's length" in nature. Step 4: Select Partners. While this stage is of critical concern to the customer, the selection of a logistics or supply chain partner should be made only following very close consideration of the credentials of the most likely candidates. Step 5: Structure Operating Model. The structure of the relationship refers to the activities, processes, and priorities that will be used to build and sustain the relationship. Step 6: Implementation and Continuous Improvement. Once the decision to form a relationship has been made and the structural elements of the relationship identified, it is important to recognize that the most challenging step in the relationship process has just begun. Depending on the complexity of the new relationship, the overall implementation process may be relatively short, or it may be extended over a longer period of time. Finally, the future success of the relationship will be a direct function of the ability of the involved organizations to achieve both continuous and breakthrough improvement. A number of steps should be considered in the continuous improvement process. In addition, efforts should be directed to creating the breakthrough, or "paradigm-shifting," type of improvement that is essential to enhance the functioning of the relationship and the market positioning of the organizations involved. 34. Although the concept has been around for some time, the "fourth-party logistics" (4PL) provider is becoming more evident in the business world. Essentially a supply chain integrator, a 4PL may be thought of as a firm that "assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution." Some of the types of services that may be provided by a 4PL include managing multiple 3PLs (lead logistics provider), taking on more risk than 3PLs, providing advanced IT services, providing strategic consultancy, and "control tower" services.

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Chap 12_11e 35. The partnership model discussed in the text incorporates the identification of "drivers" and "facilitators" of a relationship. It indicates that for a relationship to have a high likelihood of success, the right drivers and facilitators should be present. Drivers are defined as "compelling reasons to partner." For a relationship to be successful, the theory of the model is that all parties "must believe that they will receive significant benefits in one or more areas and that these benefits would not be possible without a partnership." Drivers are strategic factors that may result in a competitive advantage and may help to determine the appropriate type of business relationship. Although other factors may certainly be considered, the primary drivers include the following: •Asset/cost efficiency •Customer service •Marketing advantage •Profit stability/growth Facilitators are defined as "supportive corporate environmental factors that enhance partnership growth and development." As such, they are the factors that, if present, can help to ensure the success of the relationship. Included among the main types of facilitators are the following: •Corporate compatibility •Management philosophy and techniques •Mutuality of commitment to relationship formation •Symmetry on key factors such as relative size, financial strength, and so on

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Chap 13_11e Indicate whether the statement is true or false. 1. Customers and suppliers should be included in the development of metrics. a. True b. False 2. Another metric classification scheme that has been receiving increased attention is that developed by the Supply Chain Council and contained in the Supply Chain Operations and Reference (SCOR) model. a. True b. False 3. The two most important financial documents in an organization are the income statement and the debt-asset sheet. a. True b. False 4. The focus on performance measurement is a recent event in industry. a. True b. False 5. Another very important logistics service metric is order cycle time (OCT), which influences productivity, debt, cash flow, and profit. a. True b. False 6. Scorecards and key performance indicators (KPIs) are the same thing. a. True b. False 7. Supply chain management involves the control of raw material, in-process, and finished goods inventories. a. True b. False 8. The strategic profit model (SPM) makes the same calculations as a spreadsheet analysis but with two additional ratios, asset turnover and ROI. a. True b. False 9. Whether managers decide to focus on excellent service quality, low cost, or efficiency, the metrics they establish must be consistent with corporate strategy. a. True b. False 10. An index combines two or more metrics into a single indicator. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 13_11e 11. A metric is complex to define, usually involves a calculation or a combination of measurements, and is often in the form of a ratio. a. True b. False 12. Four major categories that provide a useful way to examine logistics and supply chain performance are time, quantity, cost, and supporting metrics. a. True b. False 13. Many organizations want to be effective and efficient, but simply stating these objectives is not adequate unless metrics are used to gauge whether these objectives are achieved. a. True b. False 14. The equivalent sales increase for supply chain cost saving is found by dividing the cost saving by the organization's profit margin. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 15. The cost of supply chain failures is calculated as the cost of _____ orders plus the cost of _____ orders. a. rectified; refused b. replacement; refused c. rectified; returned d. refused; returned 16. An "executive dashboard" is: a. a small number (usually less than five) of KPIs. b. used by senior management to track profits. c. metrics used by an organization's suppliers. d. a trend that has only recently developed. 17. What is the best financial metric to show the profit an organization generates in relationship to assets utilized? a. ROA b. Profit c. Return on net worth d. Stock price 18. Earnings before interest and taxes (EBIT) is calculated: a. sales – cost of goods sold – total operating cost. b. gross margin – total operating cost. c. sales – transportation costs – warehouse costs – inventory carrying costs. d. none of these answers. Copyright Cengage Learning. Powered by Cognero.

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Chap 13_11e 19. The current logistics management approach is supported by which performance measurement concepts? a. Metrics b. Total cost c. Least total cost d. The D1 concept developed by the Supply Chain Council. 20. Which of the following is not an element of order management? a. Reducing stockouts b. Reducing order processing times c. Optimizing mode mix d. Optimizing order fill rate 21. Another driving influence for supply chain reexamination has been the desire of organizations to change their supply chain focus from a “cost” center to: a. a profit center. b. a logistics-oriented system. c. an investment center. d. a value-adding activity. 22. The decision to alter the supply chain process is essentially _____ issue. a. a management b. an optimization c. a supply chain d. a customer satisfaction 23. There are four major categories that provide a useful way for examining logistics and supply chain performance. They are time, _____, cost, and supporting metrics. a. delivery b. KPIs c. competition d. quality 24. Scorecard and key performance indicators (KPIs) refer to: a. sporting events. b. metrics to manage logistics operations. c. management's evaluation of supply chain staff. d. measuring output.

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Chap 13_11e 25. In the SCOR model there are five major categories of metrics that need to be used to measure the performance of Process D1: reliability, _____, agility, costs, and asset management. a. ROA b. responsiveness c. supply chains d. cash-to-cash cycle 26. Channel structure management includes decisions regarding the use of _____, channel inventories, information systems, and channel structure. a. customers b. outsourcing c. order cycles d. KPIs 27. Effective order management can have an impact on: a. reducing supply chain costs. b. increasing revenues. c. improving ROA. d. all of these answers. 28. Which of the following is not a supply chain decision area regarding ROA improvement? a. Channel structure management b. Inventory management c. Order management d. Information management 29. Gross margin equals: a. sales – COGS. b. sales + taxes - COGS. c. COGS – sales. d. COGS – taxes. 30. Discuss the metric classification scheme that has been developed by the Supply Chain Council and defined in the Supply Chain Operations and Reference (SCOR) model to measure the performance of Process D1: Deliver Stocked Product.

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Chap 13_11e 31. Discuss the revenue-cost savings connection and include the formula.

32. What is the "order-to-cash" cycle?

33. Discuss the differences between the terms metric, measure, and index.

34. What role should employees, in general, play in the development of performance metrics? Why is this role important?

35. Discuss the supply chain financial impact on an organization.

36. There are seven factors in the successful development of supply chain metrics. Name them, and select any two to discuss in more detail.

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Chap 13_11e Answer Key 1. True 2. True 3. False 4. False 5. False 6. True 7. True 8. False 9. True 10. True 11. True 12. False 13. True 14. False 15. a 16. a 17. a 18. b 19. c 20. c 21. c 22. b 23. d 24. b 25. b 26. b

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Chap 13_11e 27. d 28. d 29. a 30. According to the Supply Chain Council, there are five major categories of metrics that need to be used to measure the performance of Process D1: (1) reliability—the performance of the supply chain in delivering the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation, to the correct customer; (2) responsiveness—the speed at which the supply chain provides products to customers; (3) agility—the flexibility of the supply chain in responding to marketplace changes to gain or maintain competitive advantage; (4) costs—the expenditures associated with operating the supply chain; and (5) asset management—the effectiveness of an organization in managing assets to support demand satisfaction and including the management of all assets (fixed and working capital). 31. Logistics and supply chain managers find it advantageous to transform cost reductions into equivalent revenue increases to explain to top management the effects of improved supply chain cost performance. To accomplish this, the following equations can be used: Profit = Revenue – Costs where Cost = (X%)(Revenue) then Profit = Revenue – (X%)(Sales) = Revenue(1 – X%) where (1 – X%) = Profit Margin Sales = Profit/Profit Margin Assuming that everything else remains unchanged, a logistics cost saving will directly increase pretax profits by the amount of the cost saving. If a logistics cost saving increases profit by the same amount, the revenue equivalent of this cost saving is found by dividing the cost saving by the profit margin, as shown in the preceding equations. 32. The order-to-cash cycle includes all of the activities that occur from the time an order is received by a seller until the seller receives payment for the shipment. Typically, the invoice is sent to the customer after the order is shipped. If the terms of sale are net 30 days, the seller will receive payment in 30 days plus the time needed to process the order. The longer the order-to-cash cycle, the longer it takes for the seller to get its payment. The longer the order-to-cash cycle, the higher the accounts receivable and the higher the investment in "sold" finished goods. So, the length of the order-to-cash cycle directly relates to the amount of capital tied up and not available for other investments. 33. Traditionally, the term measure was used to denote any quantitative output of an activity or process. Today, the term metric is being used more often in place of the term measure. A measure is easily defined with no calculations and with simple dimensions. Logistics examples would include units of inventory and backorder dollars. A metric is more complex to define and usually involves a calculation or a combination of measurements, often in the form of a ratio. Logistics examples would include inventory future days of supply, inventory turns, and sales dollars per stock-keeping unit. An index combines two or more metrics into a single indicator. Usually an index is used to track trends in the output of a process. A logistics example of an index is the perfect order.

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Chap 13_11e 34. First, the development of a metrics program should be the result of a team effort. Successful metrics implementations involve development teams comprised of individuals representing functional areas within the firm that will be impacted by the metrics. Because this phase of development requires metric identification and definition, it is critical that all impacted areas agree on the appropriate metrics and their definitions. This agreement will lead to a more successful implementation and use of the metrics to manage the business. Identify metric "owners" and tie metric goal achievement to an individual's or division's performance evaluation. This provides the motivation to achieve metric goals and use metrics to manage the business. 35. A major financial objective for any organization is to produce a satisfactory return for stockholders. This requires the generation of sufficient profit in relation to the size of the stockholders' investment to ensure that investors will maintain confidence in the organization's ability to manage its investments. Low returns over time will see investors seek alternative uses for their capital. High returns over time, however, will buoy investor confidence to maintain their investments with the organization. The absolute size of the profit must be considered in relation to the stockholders' net investment, or net worth. For example, if Company A makes a profit of $1 million and Company B makes a profit of $100 million, it would appear that Company B would be a better investment. However, if A has a net worth of $10 million and B $10 billion, the return on net worth for a stockholder in Company A is 10 percent ($1 million/$10 million) and for Company B it is 1 percent ($100 million/$10 billion). An organization's financial performance is also judged by the profit it generates in relationship to the assets utilized, or return on assets (ROA). An organization's return on assets is a financial performance metric that is used as a benchmark to compare management and organization performance to that of other organizations in the same industry or similar industries. As with return on net worth, return on assets is dependent on the level of profits for the organization. The supply chain plays a critical role in determining the level of profitability in an organization. The more efficient and productive the supply chain, the greater the profit potential of the organization. Conversely, the less efficient and less productive, the higher the supply chain costs and the lower the profitability. 36. First, develop a metrics program that is the result of a team effort. Second, involve customers and suppliers, where appropriate, in the metrics development process. Third, develop a tiered structure for the metrics. Many organizations develop a small number (usually less than five) of KPIs or "executive dashboard" metrics that are reviewed at the executive level for strategic decision making. Fourth, identify metric "owners" and tie metric goal achievement to an individual's or division's performance evaluation. Fifth, establish a procedure to mitigate conflicts arising from metric development and implementation. A true process metric might require a functional area within an organization to suboptimize its performance to benefit the organization as a whole. Sixth, establish supply chain metrics that are consistent with corporate strategy. Finally, establish top management support for the development of a supply chain metrics program.

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Chap 14_11e Indicate whether the statement is true or false. 1. Unless the technology components of an SCIS are properly linked, firms will not be able to capitalize on the benefits of systems integration, real-time data access, or process optimization. a. True b. False 2. The purpose behind digitized SCM networks is to collect data from disparate, siloed sources, cleanse the data, and aggregate it into a single version of the truth that reflects what is actually happening in the supply chain. a. True b. False 3. Technological capabilities ultimately determine the success or failure of SCIS, rather than the technology users. a. True b. False 4. RFID tags are growing in popularity in retail stores as a means of tracking inventory and point-of-sale activities. a. True b. False 5. Information is useful only if it can drive effective decision making. a. True b. False 6. Enterprise resource planning (ERP) systems are internal applications that enable firms to monitor inventory levels. a. True b. False 7. Recent data shows that sales of supply chain management and procurement software is on the rise in the U.S.— a 12.5 percent increase in 2018 alone. a. True b. False 8. Before selecting and implementing new software, managers must conduct a needs assessment, which includes addressing the links between effective business processes, appropriate technology, and supply chain performance. a. True b. False 9. Spreadsheets and database software no longer have a place in SCIS as newer tools have supplanted them. a. True b. False

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Chap 14_11e 10. There are three principle supply chain information requirements that support effective decision-making. First, the information in a system must meet quality standards to support fact-based decision making. Second, the information must readily flow within and between organizations. Third, the information must support multiple types of supply chain decisions. a. True b. False 11. It has been said that information is the lifeblood of business, driving effective decisions and action. Quality of information is less and less important, given advances in technology. a. True b. False 12. SCIS software selection is relatively straightforward as the choices have been simplified. a. True b. False 13. A supply chain information system (SCIS) allows managers to monitor supply chain conditions and respond quickly with corrective actions to avoid problem escalation. a. True b. False 14. Thanks to recent advantages in technology, there are many solutions available that will fix flawed supply chain processes and make effective use of even poor quality data. a. True b. False 15. Supply chain information technologies can provide timely, cost-efficient sharing of information between suppliers, manufacturers, logistics services providers, and customers. a. True b. False 16. Companies with highly digitized supply chains and operations can expect efficiency gains of 6.2 percent annually, while boosting revenue by 4.9 percent a year. a. True b. False 17. Event management systems monitor the supply chain for events that are problems or exceptions, such as a shortage of parts at a manufacturing location or the breakdown of a truck delivering an important order. a. True b. False 18. A significant challenge in SCIS management is the integration of various applications created by different vendors, a problem that is exacerbated by the fact that these competing vendors refuse to address integration issues or to foster better synchronization. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chap 14_11e Indicate the answer choice that best completes the statement or answers the question. 19. Which of the following trends is the driving force in the growth of information technology in supply chain management? a. Globalization b. Increasing complexity c. Reliance on data d. All of these answers 20. Supply chain software includes technologies that: a. address virtually every function and task that occurs in the supply chain. b. help organizations plan, execute, and control supply chain activities in real time. c. help to maintain visibility of inventory. d. all of these answers. 21. Which of the following is not part of the seven “rights” of logistics? a. Information b. Cost c. Quality d. Place 22. ERP systems: a. are taking the place of SCIS systems. b. provide a single, unified solution that spans an enterprise. c. require RFID to be fully functional. d. focus primarily on manufacturing issues. 23. TransNational Shipping is preparing to invest more than $1 million in a new system that applies machine learning, AI, and analytics to create and automate rules for shipping, sourcing, and logistics. This is an example of which type of technology expected to emerge in the future? a. Digital supply chain twin b. Intelligent order management c. Quantum computing d. AI cloud computing 24. There are three principle supply chain information requirements that support effective decision-making. Which of the following is not one of the three? a. Information must meet quality standards to support fact-based decision-making. b. Information must readily flow within and between organizations. c. Information must support multiple types of supply chain decisions. d. Information must be in the form of real-time data.

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Chap 14_11e 25. Now that Henderson Air, a manufacturer of heating and air conditioning units, has moved to a just-in-time production process, the firm expects its suppliers to provide inventory replenishment orders within 24 hours. This is an example of which quality that enables process excellence? a. Optimization b. Segmentation c. Velocity d. Agility 26. The best description of a supply chain information system (SCIS) is: a. software that manages the supply chain. b. technology that has enhanced the ability of companies to pay more attention to customers. c. information systems that provide management with supply chain data that facilitates timely decision making. d. process management software that may or may not use ASP applications. 27. Like many organizations, Acme Fasteners & Tools has purchased various components of its supply chain management system one at a time, bit by bit over the years. Some of these components communicate well among themselves, while other components have never been fully integrated into the system. Which of the following best describes this common issue in SCM? a. Expecting a solution to resolve a flawed supply chain b. Failing to align technology with processes c. Creating gaps in the technology system d. Failing to prepare for successful implementation 28. When supply chain partners have access to the same real-time information and use it to gain consistent insights and drive collaborative decisions, it is called: a. optimization. b. segmentation. c. cross-chain visibility. d. synchronization. 29. Managers have several options for software development and implementation. They include: a. internal development. b. licensed software solutions from vendors. c. software as a service. d. all of these answers. 30. Summarize supplier relationship management software and customer relationship management software. In what ways are these two categories of software similar?

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Chap 14_11e 31. What is the role of enterprise resource planning (ERP) systems in SCM?

32. Compare the two SCM software purchasing options—licensed software and SaaS.

33. Review the methods used by supply chain managers to mitigate SCIS implementation risks.

34. Describe how a supply chain information system enables process excellence and links the essential elements.

35. Discuss the relative advantages of best-of-breed software versus supply chain suites.

36. Name at least four of the seven golden rules supply chain managers should follow to successfully guide an IT implementation process and avoid disruptions. Which rule do you think is most important, and why?

37. Explain how SCM supports both strategic and tactical planning, as well as routine decision making. Include examples to support your answer.

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Chap 14_11e 38. Identify the four primary categories of supply chain software and discuss their primary functions.

39. Discuss the role of information in the supply chain, and identify the three principle requirements for supply chain information.

40. Summarize at least five of the eight attributes of information quality.

41. Traditional linear supply chains are gradually being replaced by an integrated supply chain ecosystem. Explain what this means, including at least three key benefits of this evolution.

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Chap 14_11e Answer Key 1. True 2. True 3. False 4. False 5. True 6. False 7. True 8. True 9. False 10. True 11. False 12. False 13. True 14. False 15. True 16. False 17. True 18. False 19. d 20. d 21. c 22. b 23. b 24. d 25. c 26. c

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Chap 14_11e 27. c 28. d 29. d 30. Supplier relationship management (SRM) is a controlled and systematic approach to managing an organization’s sourcing activities for goods and services. SRM goals include: streamlining and improving strategic information flows between a buyer and its suppliers, establishing governance and performance management models, and to increasing innovation either through process improvement, product development, or both. SRM software aims to simplify the management process and supplier performance evaluation process to drive effective results. SRM software also supports supplier risk management, product life-cycle management, and contract management to ensure compliance throughout the lifecycle of the relationship. By achieving these goals, SRM and related software help to reduce costs and improve the capability of the end product for the consumer. Effective alignment of capable SRM software with strong procurement processes will yield the ability to consistently acquire needed inventory at the best available prices. Interactions will be conducted and managed in a systematic, integrated fashion across business units, and across functions. And, supplier assets, expertise, and capabilities will be leveraged for maximum competitive advantage. Customer relationship management (CRM) focuses on the practices, strategies, and technologies that companies use to manage and analyze customer interactions and data throughout the relationship lifecycle. CRM software consolidates customer information in a database so business users can more easily access and manage it. The system serves as a vital nerve center to manage the many connections between sellers and buyers in a supply chain. It facilitates information sharing and accessibility. The goals of CRM software are to improve business relationships with customers, promote retention, and drive sales growth. Each goal requires the organization to learn more about customer needs, behaviors, and demand patterns in order to develop stronger bonds. Though CRM appears to be a marketing tool, the information can also be used by supply chain managers. Better customer insights support demand planning for peak seasons and promotions, reduce inventory levels and operational costs, and support customer segmentation for supply chain service level alignment. Students should be able to recognize that both types of software utilize data to streamline the process and enhance service.

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Chap 14_11e 31. Enterprise resource planning (ERP) systems incorporate internal and external systems into a single unified solution that spans the enterprise. ERP systems includes the software that supports business functions and processes, computing hardware for hosting and executing software applications, and back-end network architecture for data communication across and within information systems. A centralized and shared database system links the business processes, allowing information to be entered once and made available to all users. Though they can be quite expensive and challenging to implement, ERP systems are widely used. A primary appeal lies in the ability of ERP systems to update and share accurate information across business processes. ERP-linked processes typically include accounting and finance, planning, engineering, human resources, purchasing, production, inventory/ materials management, order processing, and more. Primary benefits include increased efficiency through greater visibility, decreased costs through streamlined or automated processes, remote information access via paperless operations, better informed decision making through enhanced knowledge, and stronger inventory management through greater accuracy and control. Over time, the traditional separation of supply chain technologies from ERP systems has faded. First, the boundaries are blurring as supply chain tools need to share the information stored in an ERP system. Second, the major ERP systems vendors have developed suite-based systems with optional supply chain modules, some created in-house, some acquired. Though these ERP vendor suites include WMS, TMS, and other tools that deliver solid functionality, a one-stop solution, and common structure that reduces implementation time, they do not have the deeper layers of capabilities offered by best in class solutions. The best of breed supply chain tools include more industry-specific capabilities like continuous planning instead of weekly or monthly planning, allowing companies to react quickly to events in their supply chain. Finally, ERP systems are lighter in automating processes, collaborative workflow and configuring limits and active alerts. 32. Historically, supply chain software buyers had one option—license software from vendors and install it on the buyer's client-server systems. This is a logical method for supply chain processes with intense computational activity requirements. The downside of licensing is the capital investment and complex deployment. Buyers have to pay for the software up front; address implementation issues; and manage software upgrades, fixes, and maintenance costs. The Internet and cloud computing have changed the purchase landscape. Buyers can now use applications that are not permanently installed on the company's network. In the software as a service (SaaS) distribution model, applications are hosted by a vendor or service provider and made available to customers over a network. One SaaS option is hosted application management in which a technology provider hosts commercially available software for customers and delivers it over the Web. The other SaaS option is software on demand. In this model the provider gives customers network-based access to a single copy of an application created specifically for SaaS distribution. SaaS is gaining in popularity as more supply chain tools are offered via this method. Fast implementation, low capital requirements, scalability, easy Web-based access, and simplified software upgrades are reasons for deploying this model. However, potential adopters must also review the potential problems of SaaS. Security of sensitive company data must be evaluated. Service outages at the host site, regulatory compliance, and application performance management also warrant attention.

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Chap 14_11e 33. While information technology holds great promise for enhancing supply chain performance and organizational competitiveness, success is not guaranteed. Supply chain managers must carefully evaluate their technology options and steer clear of the pitfalls associated with systems adoption or upgrades. A fundamental risk is highlighted by the term "solution." It is unrealistic to assume that supply chain technologies will readily solve or fix flawed supply chains. Technology alone cannot make ill-conceived processes highly productive or make effective use of poor quality data. Managers must avoid buying into the "solution" hype, resolve their process challenges prior to technology adoption, and remember the true role of technology–process enablement. Weak technology–process alignment is another barrier to success. Software may be chosen by executives and technology specialists that do not understand supply chain processes or requirements. This can lead to ill-fitting solutions that fail to achieve their promise. To mitigate this risk, supply chain managers must be engaged in the technology selection process. It is their responsibility to ensure that the tools fit the need, support collaboration, and provide visibility into all key aspects of the supply chain. Technology gaps can be a significant problem for organizations. Often, "point solutions" fix an individual supply chain problem but don't address related issues or processes. Also, software may be purchased and deployed in piecemeal fashion, leading to a patchwork quilt of technologies rather than a seamless information network. To reduce these gaps, organizations should create stable enterprise-wide platforms and adopt an integrated supply chain software suite. This will improve data flows between supply chain processes and participants for accurate analysis and informed decision making. Cross-chain systems integration with suppliers, service providers, and customers is a stumbling block for some organizations. Chief information officers at logistics service providers view integration with customers' information technologies as their single biggest challenge. On the customer side, supply chain network complexity and creating visibility across the supply chain are top challenges. To overcome these integration woes, trading partners need to link their computer systems and transform the supply chain into a network of beneficial relationships. Poor planning and preparation for technology implementation is also problematic. Some organizations do not create a change management plan. This increases the risk of implementation delays, lost connectivity, and supply chain disruptions. Others fail to address the all-important topics of cultural change, user acceptance, and training. These people issues were cited among the primary reasons why supply chain technology purchases fail to achieve the desired return on investment (ROI). The logical action is to follow a staged, logical approach to adopting new technologies and to establish adequate budgets for technology installation, integration, and training. As these mitigation strategies suggest, systems risks can be overcome. Many organizations successfully deploy SCIS to promote cost control, visibility, and service improvement. The key for supply chain leaders is to view technology implementation as a business improvement project. And, they must actively engage in the planning, purchase, and implementation of new tools. They cannot delegate responsibility and control to the IT team, consultants, or software suppliers. Realize that developing the systems capabilities of a Gartner Supply Chain Top 25 company is a long-term proposition. Fostering process excellence, linking multiple networks of people, processes, and technology, and mitigating technology risks are huge challenges, even with an established, best-in-class SCIS. Extensive time, financial resources, and top management commitment are required to select, implement, and maintain a quality system that supports supply chain excellence. 34. As supply chains grow increasingly complex, organizations need technology to help them thrive. Managing global relationships, collaborating with logistics service providers, and serving omni-channel consumers requires advanced Copyright Cengage Learning. Powered by Cognero.

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Chap 14_11e information systems functionality. That is, information systems must support cross-chain visibility, agility, velocity, synchronization, adaptability, segmentation, and optimization. When properly deployed, these supply chain process enablers help organizations achieve significantly higher levels of performance on both revenue growth and earnings measures when compared to their industry peers. Cross-Chain Visibility: Managers need to control key supply chain activities. Having the most current data about the supply chain is a prerequisite for effective decision making and rapid problem response by managers. Visibility tools provide quick access to global supply chain information, generate supply chain alerts, support management by exception, and facilitate trading partner collaboration. Ultimately, greater visibility supports process variability reduction, performance optimization, and supply chain cost control. Agility: In rapidly changing market conditions, supply chain managers must quickly recalibrate plans and respond to supply and demand volatility. Agile supply chains have the capability, capacity, and flexibility to deliver consistent or comparable cost, quality, and customer service under changing conditions. Appropriately designed systems have strong decision support analytics that model various scenarios. This helps supply chain managers to better understand volatility and respond appropriately. Velocity: The speed of product flows across the supply chain must be aligned with customer expectations. These velocity requirements are situation dependent—emergency replenishment and new product introductions require greater velocity than a normal replenishment of existing products. The ability to adjust speeds accordingly is essential. Capable systems capture order cycle time requirements, sequence orders, and identify the best delivery methods to ensure that fulfillment velocity meets customer deadlines. Synchronization: The goal of a multi-organization supply chain is to function as a single entity that produces and distributes the inventory needed to meet customer requirements. By synchronizing data, resources, and processes, the supply chain partners can coordinate supply and demand over time. Technology facilitates the real-time information sharing between partners that drives consistent insights and collaborative decisions. Inventory optimization software, workforce management applications, and advanced demand management tools have been shown to improve the alignment of supply and demand. Adaptability: Organizations must strategically adapt the design and capabilities of a supply chain to evolving conditions. They can capitalize on demographic trends, political shifts, emerging economies, and other new opportunities through alteration of their supply chain operating model. This requires a flexible, geographically dispersed network supported by strong technology to analyze options and properly allocate network capacity. By linking supply chain technologies to sales and marketing systems, companies can sense and respond to real-time market needs and shape demand when capacity is limited. Segmentation: Organizations must dynamically align their demand and supply response capabilities to optimize net profitability across each customer segment. Offering differentiated service levels to each segment, the organization can increase sales and reduce costs. They avoid the "one size fits all" strategy that under-serves important customers and creates unnecessary costs. Technology can help an organization define logical segments, understand the cost to serve them, and prioritize service execution so that key groups receive appropriate attention. Optimization: To achieve peak supply chain performance, an organization must consider numerous trade-offs, effectively deploy its resources, and make the best possible decision. Supply chain optimization technologies use mathematical modeling tools to quickly run through the options to find the solution that facilitates success for all supply chain stakeholders. These tools can be used to study network design options, determine appropriate inventory levels, Copyright Cengage Learning. Powered by Cognero.

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Chap 14_11e develop routing decisions, and more. The goal is to maximize service for the minimal possible operating costs. These seven supply chain process enablers are by no means comprehensive or static. First, information systems must support initiatives related to supply chain innovation, performance analysis and improvement, risk management, and profitability. Second, these enabling technologies must evolve over time to meet new competitive challenges and changing customer requirements. Supply chain managers would be wise to regularly review these enablers and modify them as needed. Putting the seven process enablers into practice and generating their value is not a simple task. A company cannot purchase software for a single process and expect to fundamentally improve its supply chain. Instead, an investment is required in a supply chain information system (SCIS) that provides critical knowledge links and automated information flows between internal processes and with external partners. SCIS enable firms to streamline their supply chain processes and provide management with more accurate information about what to produce, store, and move. It is important to note that immediate success is not guaranteed. Many SCIS implementations have produced less than stellar initial results. A SCIS initiative will go much smoother and add greater value when time is taken to properly link the technology to people and processes in an intentional and integrated fashion. The technology must be connected across the supply chain. People need to adapt to the full capabilities of the SCIS. And, processes need to be updated to make use of the information that is generated through the SCIS. Properly connected technology generates access to data for informed supply chain decision making. Compared to a manual or partially integrated system, the data in a well-crafted and properly linked network supports data collection and synchronization through automated capture tools. Linking the SCIS across facilities and companies using an Internet or electronic data interchange (EDI) platform allows information to be quickly shared among collaborating companies at low cost. With a capable, connected SCIS and data that are accurate, standardized, and readily available, focus must turn to the people element of the network. The people tasked with implementing and integrating the technology need the requisite skills, as well as adequate staff and financial resources to complete the work. Also, the day-to-day SCIS users must be properly trained in the appropriate use of the tools. Acclimating users to the SCIS and helping them understand why the tools were adopted will facilitate acceptance and positively impact supply chain performance. After the technology foundation has been established and users understand the SCIS capabilities, the existing supply chain processes must be reviewed. The risk of not doing this is that inefficient, outdated, or unnecessary processes will be automated, providing little return on the SCIS investment. As needed, operating procedures must be updated and new goals for supply chain productivity, accuracy, timeliness, and cost should be established. Doing so will help supply chain managers fully leverage the process-enhancing capabilities of the SCIS. The linkage of strong technology, properly trained users, and improved processes, creates a robust operating environment. Using the right SCIS, managers will be properly positioned to effectively plan and execute supply chain processes, make informed decisions, and respond quickly to potential problems. A comprehensive SCIS will also generate scorecards and dashboards that managers can use to continuously monitor, analyze, and improve performance.

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Chap 14_11e 35. If an organization chooses to purchase software, it has to determine what types of applications are needed and how they should be purchased. One option is to purchase individual applications from leading providers in each software category, commonly called “best-of-breed” solutions. Another option is to buy an integrated software suite from a single vendor. The middle ground option is to purchase the main applications from a single supply chain software suite vendor and selectively add best-of-breed solutions. Each strategy has its merits. Single vendor suites require less implementation time and cost versus a variety of tools from different vendors since there are fewer compatibility and connectivity issues. Also, there is only one vendor involved. This reduces complexity and coordination effort. Single vendor suites also require less training time as users only need to learn one package. However, some suites do not contain the advanced functionality, industry focus, or customization capabilities found in best-of-breed applications. The challenge for the technology buyer is to understand the implementation issues; their organization’s need for tailored, advanced capabilities; and the fluid nature of the vendor landscape. 36. The golden rules for success are: 1. Get sponsorship of senior leaders. 2. Choose the right technology solutions. 3. Select an implementation leader who applies strong project management methods. 4. Choose the right consultants to support implementation. 5. Staff the project team with the best and brightest people. 6. Manage “scope creep” to avoid implementation delays. 7. Secure adequate resources for training and post-go-live support. Students’ opinions will vary but should be supported by logical reasoning.

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Chap 14_11e 37. With SCM taking on a more important and visible role in most organizations, the need for information greatly expands. Managers at every level of the supply chain require different types of information to excel in their roles. This intelligence is needed for strategic decision making, tactical planning, routing decisions, and execution and transaction processing. Strategic decision making focuses on the creation of long-range supply chain plans that are aligned with the organization’s mission and strategies. The required information is often unstructured and may differ from one project to the next. For example, supply, demand, and operational cost data must be captured from a variety of sources to conduct a strategic network design project. In contrast, a new product development decision requires design, capacity, and supplier capability information. This data is used to evaluate strategic alternatives and conduct what-if analysis using decision support tools. Tactical planning focuses on cross-organization linkages and supply chain activity coordination. The information must be readily available, support planning processes, and be in a flexible format that can be modified by the supply chain participants for use in their systems. For example, S&OP requires information sharing about demand patterns, promotional plans, supply capacity, inventory, and related data to create a unified operating plan. Routine decision making leverages operational level information for rules-based action. The input data needs to be standardized so that the information system can generate appropriate solutions. For example, an automated transportation routing guide uses a shipment’s origin, destination, product characteristics, weight and dimensions, and service level requirements data to recommend an appropriate mode and carrier. Decision makers retain the ability to review and adjust the recommended solution as needed. Students’ examples will vary.

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Chap 14_11e 38. Supply chain software applications harness the computational power and communication abilities of an SCIS to help managers make timely, appropriate decisions. The primary SCM software categories include planning, execution, event management, and business intelligence. Supply chain planning applications help organizations evaluate requirements for materials, capacity, and services so that effective fulfillment plans and schedules can be developed. The tools help managers gain accurate, detailed insight into issues that affect the development of supply chain processes. The solutions use complex algorithms, optimization techniques, and heuristics to solve supply chain objectives within the stated planning horizon. Use of execution tools is extensive due to their rapid ROI and positive impact on supply chain performance. Companies deploy a variety of execution software to implement their strategies and manage supply chain flows of product, information, and money. Effective integration of these tools supports data sharing and cross-chain visibility. Supply chain event management (SCEM) tools collect data in real time from multiple sources across the network and convert them into information that gives managers a clear picture of how their supply chain is performing. The software allows companies to automate the monitoring of supply chain events as they occur on a day-to-day basis. When a problem or exception occurs, managers receive real-time notifications so that corrective action can be taken. Problems such as parts shortages, truck breakdowns, and network disruptions can be avoided or mitigated, saving time and money. Business intelligence (BI) tools automate the analytical work and present the results in visual formats that are easier to understand. Relevant information becomes readily available to supply chain managers for informed planning and decision making. In addition to the data collection and analysis capabilities, BI software supports self-service reporting, performance scorecarding versus goals, development of graphical dashboards, and activity monitoring in support of event management. These BI tools also provide access to data residing on multiple SCIS without the need for technology department involvement. Hence, cross-chain collaboration is supported. 39. It has been said that information is the lifeblood of business, driving appropriate decisions and actions. Across the supply chain, store inventory replenishment decisions are based on point-of-sale data, carrier selection is driven by delivery service goals, and production schedules are derived from forecasts. Essentially, information connects the extended supply chain, providing managers with insights about activities taking place at distant supplier and customer locations. This cross-chain visibility to demand, customer orders, delivery status, inventory stock levels, and production schedules gives managers the ability to properly assess situations and develop appropriate responses. There are three principle supply chain information requirements that support effective decision making. First, the information in a system must meet quality standards to support fact-based decision making. Second, the information must readily flow within and between organizations. Third, the information must support multiple types of supply chain decisions. 40. To ensure that actionable knowledge readily flows across the supply chain, information must display a variety of key characteristics. Chief among these attributes are accuracy, accessibility, relevancy, and timeliness. Also important are issues of transferability, usability, reliability, and value. Accuracy: Supply chain information must depict reality. A true picture of the supply chain that is free of errors facilitates logical decision making. In contrast, decisions based on inaccurate information can lead to inventory shortages, transportation delays, government fines, and unhappy customers. For example, retailers rely upon accurate Copyright Cengage Learning. Powered by Cognero.

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Chap 14_11e checkout scans to drive replenishment. If a clerk scans one bottle of soda four times when a customer actually purchases four different flavors, the store-level inventory information becomes inaccurate and the wrong products will be replenished. Accessibility: Accurate information must be available to supply chain managers who have a legitimate need for it, regardless of their location or employer. For example, Kenco supply chain managers need ready access to demand information from Whirlpool to manage inventory and product customization for home appliances. Obtaining access to needed information can be difficult because supply chain data often are dispersed among multiple locations on different information systems that are owned by external organizations. Technical issues must be addressed and trust built between the organizations sharing information. Relevancy: Supply chain managers must have access to pertinent information for analysis and decision making. Extraneous data and unnecessary details must be avoided as they shroud important details, waste time, and distract decision makers. When a Honda expeditor logs on to the FedEx Web site to track a critical delivery, he doesn’t need to know about every inbound shipment. He wants quick access to the status of the critical shipment in question, allowing him to respond accordingly to keep the production line running. Timeliness: To be relevant, supply chain information must be up-to-date and available in a reasonable time frame. Timely data flows from a highly synchronized supply chain information system (SCIS) allow managers to monitor supply chain conditions and respond quickly with corrective actions to avoid problem escalation. For example, rapid discovery of quality problems with a specific model of cable modems would allow a communications company to restock their service trucks with a different brand or model. The defective model would not be installed in customers’ homes, reducing frustration and costly repeat service calls. Transferability: Information also needs to be transferred quickly between locations and system in the supply chain to facilitate accessibility and timeliness. A paper-based supply chain cannot support these requirements. Hence, information must reside in electronic formats that can be readily transmitted and converted. Fortunately, the Internet and cloud computing platforms make information transfers relatively easy, inexpensive, and safe, though organizations must take precautions to ensure the security of sensitive data. Usability: Information is useful only if it can drive effective analysis and decision making. Up-front efforts must be made to define information requirements and capture appropriate data. This will avoid the time and costs of capturing extraneous data that will not be used by supply chain decision makers. Also, information is only usable if it can be seamlessly translated from one format to another with no discernible loss of data. Reliability: The information contained in reports and transaction data sets must come from reliable and authoritative sources within the organization and from trusted supply chain partners. The data provided must be accurate, unaltered, and reasonably complete to support the intended uses. When incomplete or estimated data is provided, a clear explanation of the missing values and assumptions is needed so that a supply chain manager’s analysis can be adjusted accordingly. Value: Achieving these seven quality standards is neither an easy nor a cost-free proposition. The hardware and software needed to capture and disseminate quality supply chain data can be quite expensive. A recent study indicates that the average supply chain software spend for licensing, integration, and training is nearly a half million dollars. Supply chain executives must ensure that proposed information technology investments truly enhance knowledge and produce tangible performance benefits.

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Chap 14_11e 41. Compared to traditional linear supply chains, digitization and smart technology combine to create an integrated supply chain ecosystem. Benefits of this emerging structure include: Transparency—provides a complete view of the supply chain Communication—makes information available to all supply chain members simultaneously Collaboration—creates natural development of collaboration to capture intrinsic supply chain value Flexibility—rapidly assesses end customer demand changes Responsiveness—supports real-time response on planning and execution

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Chap 15_11e Indicate whether the statement is true or false. 1. Shippers see more strategic and IT-based processes such as supply chain planning and network modeling and optimization as great areas of opportunity to leverage big data. a. True b. False 2. While the emerging trends of AI and automation will eliminate many jobs from the industry, new types of jobs will be created to support the use of these technologies. a. True b. False 3. Reverse flows in logistics have decreased. a. True b. False 4. The first principle of supply chain management is to segment customers based on profit. a. True b. False 5. The fourth principle of supply chain management is to differentiate products closer to the customer. a. True b. False 6. Disruptive innovation refers to the belief that many emerging and developing markets (Brazil, India, China, and others) are driving innovation of simple, no-nonsense products and services that replicate more complex offerings available in the developed markets. a. True b. False 7. Both reverse and closed-loop systems are important strategies that impact sustainability in a positive manner. a. True b. False 8. The seven principles of supply chain management have stood the test of time very well. a. True b. False 9. Predictive analytics is the level that incorporates available data to answer questions such as what, where, and when certain supply chain activities, processes, or events are happening. a. True b. False

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Chap 15_11e 10. Central to an understanding of supply chain analytics is to recognize that one of the highest priorities at many organizations today is to take a giant leap from data to information, and then from information to understanding. a. True b. False 11. While reverse flows were traditionally thought to incur extra, non-value-added cost, they are now widely viewed as creating opportunities for sustainability and even added service to customers. a. True b. False 12. The Internet of Things (IoT) allows devices to communicate and interact with other devices over the Internet. Supply chain analytic devices and other applications are not yet connected to the IoT, but supply chain professionals may find opportunities to do so in the future. a. True b. False 13. Companies have discovered that there are no revenue opportunities to offset the costs in sustainability practices. a. True b. False 14. Some SCM positions are evolving and taking on more importance. For example, the chief supply chain officer and other functional leaders are being required to act as strategists more than ever before. a. True b. False 15. There is a strong feeling among some supply chain experts that the mitigation of risk is the best driver of sustainability initiatives. a. True b. False 16. Experts recognize three “mega” themes among the game-changing supply chain technologies on the horizon: mobility, digitization, and artificial intelligence. a. True b. False 17. IBM Watson is a prescriptive analytics system that can help to understand data, learn from it, and reason through it. a. True b. False 18. Nike uses active sensors in high-value merchandise that send out telemetry data, tracking the package's traveling speed and conditions. Applying analytics to this data has the potential to largely reduce supply chain reaction times to avoid delays in shipments. a. True b. False

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Chap 15_11e 19. Although “omni-channel” supply chains have developed in response to a continually increasing range of customer needs and preferences, this concept has had relatively little effect on logistics and supply chain networks. a. True b. False 20. “Green” initiatives are an important aspect of environmental sustainability. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 21. Which one is not one of the four requirements for cognitive systems? a. Adaptive b. Interactive c. Iterative d. Conducive 22. Which one of the various stages of sophistication and robustness associated with supply chain analytics focuses on questions such as what is likely to happen, what are the likely trends, and what are the results if certain events occur? a. Descriptive b. Predictive c. Prescriptive d. Cognitive 23. Which one of the choices below is not one of the various stages and levels of sophistication and robustness that is associated with supply chain analytics? a. Descriptive b. Predictive c. Indicative d. Cognitive 24. Which is not one of the seven principles of supply chain management a. Source strategically b. Customize the logistics network c. Segment customers based on service needs d. Standardize where feasible 25. Which of the following does not belong in the list of the seven principles of supply chain management? a. Segment customers based on service needs b. Differentiate products closer to the customer c. Develop an outsourcing strategy to maximize asset utilization d. Adopt channel-spanning performance measures

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Chap 15_11e 26. A closed-loop system manages: a. green laws. b. waste flow. c. both forward and reverse flows. d. recycling. 27. Google smart glasses are voice-controlled devices/computers equipped with GPS and motion sensors that interact with the Internet. A supply chain professional could use the built-in camera on the glasses to stream images to Google computers or to receive information in response to specific queries. This is an example of which major trend in digitization? a. Artificial intelligence b. Cloud computing c. Augmented reality d. Additive manufacturing 28. Why is sustainability such a complex and challenging issue for organizations?

29. Identify the top five workforce issues facing the supply chain industry. Provide recommendations for resolving at least one of these issues.

30. Distinguish between frugal and disruptive innovation. Provide your own example of one of the two types of innovation.

31. Explain the supply chain analytics maturity model.

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Chap 15_11e 32. Explain the concept of reverse flows.

33. Name any five of the seven principles of supply chain management, and choose two to discuss in more detail.

34. To what extent have the seven principles of supply chain management remained current? What are some of the major changes that have occurred since they were first developed?

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Chap 15_11e Answer Key 1. True 2. True 3. False 4. False 5. True 6. False 7. True 8. True 9. False 10. True 11. True 12. False 13. False 14. True 15. True 16. False 17. False 18. False 19. False 20. True 21. d 22. b 23. c 24. d 25. c 26. c

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Chap 15_11e 27. c 28. The goals of sustainability are challenging and it may be helpful to consider sustainability as a journey that will take time and effort to improve. It is also worth pointing out that significant progress has been made in this area, particularly in recent years. While there were earlier times when a focus on sustainability was viewed by many as an unnecessary practice that would increase costs and impair financial sustainability, recent developments have been able to create a positive cause-and-effect relationship between environmental improvements and financial sustainability. In the current economic environment, growing numbers of organizations have conceded that there can be revenue opportunities to offset the increased costs, particularly when sustainability practices extend beyond responsible recycling and disposal. For example, many organizations were able to identify ways to improve their consumer packaging practices that would be environmentally friendly and more efficient from a cost perspective. A classic example was a change made with the mutual consent of P&G and Walmart to reduce the size of the plastic containers used in the sale of liquid detergents by reducing the water content of the product and making it more concentrated. While it was important that the smaller size container would produce the equivalent number of washer loads, this created several benefits to the improvement of environmental sustainability. Included were reduced packaging and transportation and the increased efficiency in utilizing space in warehouses and store shelves. Thus, this translated into a win-win in terms of costs and sustainability. The reduction in unnecessary packaging has become a growing practice among a variety of retail organizations and manufacturers to the benefit of overall environmental sustainability. There are other examples of changes in supply chain practices such as vehicle routing, increased load size, vendor purchasing practices, etc., which have lowered cost and reduced environmental pollution also. One important dimension of supply chain sustainability that cannot be overlooked is the impact that such efforts can have upon reducing risk. There is a strong feeling among some supply chain experts that the mitigation of risk is the best driver of sustainability initiatives. One of the biggest risks for efficient and effective supply chains is the climate change associated with the pollution of the environment. The growing number of disasters associated with weatherrelated events from draught and wildfires to hurricanes and floods have captured the attention of businesses, government agencies, and the general public. The human carnage, suffering, and destruction associated with such events are well documented. Supply chains in such countries as Brazil, China, and India are potentially more vulnerable because of sustainability issues in those countries. As noted previously, these same countries are important to a growing number of supply chains, which should be a concern to all of their collaborators. 29. Respondents to the 2019 23rd Annual 3PL Study reported that the top five workforce issues currently facing their organization are attracting talent (59 percent), developing leaders (48 percent), retaining high performers (40 percent), enhancing employee motivation and engagement (38 percent), and enhancing workforce performance (37 percent). Students’ recommendations will vary.

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Chap 15_11e 30. As we consider ways in which types of innovation may differ, it is useful to consider the distinction between “frugal” and “disruptive” innovation: Frugal innovation refers to the belief that many emerging and developing markets (Brazil, India, China, and others) are driving innovation of simple, no-nonsense products and services that replicate more complex offerings available in the developed markets. The population trends and burgeoning middle classes of these developing markets are fueling demand for the types of products and services offered in developed markets, though stripped of all the “bells and whistles.” An example of this is the Jiangnan TT, the cheapest car in China, with a list price of just under US$2,500. Disruptive innovation is based on the theory that new entrants coming into an existing market can gain footholds in areas neglected by incumbent companies. 3D printing is an example of a disruptive innovation that is having significant impacts for our supply chains. As a general comment, the basic business capabilities and innovations developed by Amazon have resulted in significant disruption to traditional supply chain processes and operations.

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Chap 15_11e 31. The various stages and levels of sophistication and robustness that are associated with supply chain analytics: Descriptive. This level incorporates available data to answer questions such as what, where, and when certain supply chain activities, processes, or events are happening? This may take the form of routine data gathering, such as inventory levels, or perhaps ad hoc exercises to address a specific problem. More generally, availability of descriptive data is the foundation of more robust processes relating to competitive intelligence, etc. The conduct of logistics and supply chain activities and processes can generate exceptionally large amounts of descriptive data. Essentially, descriptive analytics help to provide fundamental information about the functioning of an activity or process, and represent a capable starting point for more advanced and robust types of analytics. Predictive. The level of inquiry takes a significant step forward in that the predictive stage focuses on questions such as what is likely to happen, what are the likely trends, and what are the results if certain events occur? Answering questions such as these involves formal analyses of available and relevant data, much of which may have been gathered initially for descriptive purposes. In addition, however, it is likely that additional data gathering and analysis may be needed to assure the usefulness and validity of predictions that may be made. Prescriptive. As the questions shift to the topic of what should be done, this indicates a need for the utilization of prescriptive analytics. When facing the challenge of determining how to configure a large-scale supply chain network, for example, it is essential to use capable tools and processes that can prescribe what needs to be done. This may indicate the need to apply optimization technologies in an effort to identify a best solution to the current statement of the problem. One part of the challenge here is to figure out how to convert predictive findings from the previous level to the somewhat elevated aspirations for the prescriptive level. This challenge becomes even more complex when it becomes necessary to address factors, events, and circumstances that are likely to exhibit significant variability in the planning horizon that lies ahead. Cognitive. Suggesting a helpful definition of this level is considerably more challenging than for the previous three levels. This is because the cognitive level typically introduces social context and meaning into the analytical processes, as well as very high-level mathematical and statistical capabilities. Some of the recognized approaches used at the cognitive level include artificial intelligence (AI), machine learning, and pattern recognition. Characteristically, cognitive approaches address problems that may be ambiguous and uncertain, and where data may change frequently and often is conflicting. Four requirements for cognitive systems include the following: Adaptive—ability of systems to learn as information changes Interactive—ease of use for those who are doing the analyses; likely will involve cloud capabilities Iterative and stateful—identify additional data needs and relevant questions that can enhance the analysis Contextual—involve a wide variety of inputs and sources of information

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Chap 15_11e 32. A basic supply chain was illustrated in Chapter 1. The description of this supply chain suggested there were four important flows to manage: materials, information, financials, and demand. Furthermore, it was noted that some of these flows could be two-directional. For example, while materials typically flow “downstream” in the supply chain from suppliers to the ultimate consumer, these same materials also may move back through the supply chain for a variety of reasons. While these reverse flows were traditionally thought to incur extra, non-value-added cost, they are now widely viewed as creating opportunities to create sustainability and even added service to customers. Similar logic applies to the flows of information, financials, and demand throughout the supply chain. Along with the continued growth of e-Commerce, there have been significant increases in the extent to which products purchased using the Internet will be returned at some point in time. As estimated by Statista, the costs of returning packages in the United States amounted to U.S. $381 billion in 2017, and were expected to increase to U.S. $550 billion by 2020. While this increase is significant, it does not include restocking expenses or inventory losses. Regarding the state of e-Commerce returns, the figures below relating to customer behavior are worth considering. While it is clear that the concept of returns is a frequently expected element of the customer experience, this does result in businesses adding workers, returns management facilities, and management capabilities to handle reverse logistics. 41 percent buy variations of a product with the intent of returning 42 percent have returned an online purchase in the last six months 89 percent have returned an online purchase in the last three years 90 percent “highly value” (advertised) free returns While there are still some organizations that may view product returns as an inconvenience or an expense, the more prevalent philosophy is that returns may prove to be a competitive advantage instead of an annoyance.

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Chap 15_11e 33. Principle 1: Segment Customers Based on Service Needs Essentially, this principle suggests a departure from traditional approaches to customer segmentation based on industry, product, or trade channel to an approach that segments customers based on logistics and supply chain needs. Examples would include service requirements, fulfillment priorities, frequency of service, etc. Principle 2: Customize the Logistics Network Rather than design logistics and supply chain capabilities to meet the average service requirements of all customers, this principle stresses the need to develop supply chain approaches that are responsive to the needs of individual customer segments. Principle 3: Listen to Signals of Market Demand and Plan Accordingly In contrast to traditional forecasting approaches that sometimes result in multiple departments creating separate forecasts for the same products, the objective here is to see that demand planning is responsive to and aligned with market signals such as point-of-sale information. Principle 4: Differentiate Products Closer to the Customer When successfully implemented, this principle helps to improve customer service via fewer stockouts and also takes significant inventory carrying cost out of the supply chain. By postponing product differentiation to the latest possible moment and by gaining greater understanding and control of cycle times, supply chain efficiency and effectiveness will be positively impacted. Principle 5: Source Strategically Although customers of all types should have fact-based knowledge of the cost of purchased products and services, over the long term, suppliers' cost experiences will be passed along to customers in terms of higher prices. Excellent supply chain management requires customers and suppliers to work together in a creative, positive way to meet overall supply chain objectives. Principle 6: Develop a Supply Chain-Wide Technology Strategy The priority here is to replace inflexible, poorly integrated transactional systems with enterprise-wide systems. Principle 7: Adopt Channel-Spanning Performance Measures When individual companies in a supply chain ask the question, "How are we doing?" The response should be in the context of the overall supply chain.

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Chap 15_11e 34. Anderson's assessment is captured in the following points. In response to the comment that "the insights (from this article) remained remarkably fresh 10 years later," lead author Dr. David L. Anderson wrote that he went back and reread the article to see if he agreed. His assessment is captured in the following points: 1. The seven principles basically survive the test of time. Although I might include some thoughts around global supply chain risks, add a section on insourcing/outsourcing strategies, update the case studies, and tighten up the procurement strategy discussion, I still believe companies cannot go wrong by adopting these principles as the basis of their supply chain strategies. 2. We still have a long way to go on supply chain strategy implementation. The fact that the principles are still relatively fresh implies that many companies have not done the best job implementing strategies that underlie the principles. 3. Technology and data will be the major game changer going forward. UPC, RFID, and GPS-related data were not around when we wrote the article. The growing availability of "real-time" supply chain data as well as the tools to enable us to use the data in planning and executing supply chains will be the key factor that separates the winners and losers in supply chain management over the coming decade. Now that we are nearly another 10 years past the original publication of this timeless article, it is clear that these seven principles continue to be highly relevant to the contemporary challenges related to managing effective supply chains.

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