Chapter 4 Niccole Hyatt, PhD Chapter overview This chapter describes the elements of the supply chain and its management. The bullwhip effect is discussed. The various decisions in supply chain management are discussed and evaluated. These include outsourcing, purchasing, use of technology, warehousing, and vertical integration. Finally, the performance measures and trends in supply chain management are described. objectives Describe basic supply chains and supply chain management. Explain issues affecting supply chain management. Explain the role of purchasing. Illustrate how sourcing decisions are made. Describe the role of warehousing. Describe how supply chain management is implemented. What are the types of e-commerce? E-commerce, or using the Internet and Web to transact business, can be characterized by noting what entities are involved. Business-to-business (B2B) concerns businesses working together to allow one to receive inputs from another. B2B can be said to have started in the 1970’s with automated order entry systems that used telephone connections. In the late 1970s, electronic data interchange (EDI) provided standards for the computer-to-computer exchange of information such as invoices and purchase orders. Business to consumer (B2C) is a retail activity. Here companies use electronic means to deliver goods and services to consumers. What revenue models are used in e-commerce? Operators of e-commerce web sites can support their activities using one or more of several revenue models. A site that attracts users and then displays advertisements from other businesses is using the advertising revenue model. A site that charges a fixed periodic fee for access to its content is using a subscription revenue model. Some sites charge a fee for a completed transaction, such as a stock trade. This is the transaction fee model. Companies that earn directly from what customers buy use the sales revenue model. Finally, a site may earn its revenue by referring visitors to other sites. This is the affiliate revenue model. How does the supply chain work? I recently bought sodas in cans. The cans are produced by obtaining the raw materials from mines, followed by processing in a plant. The cans are filled with the liquid at the bottling companies. They are then placed in a warehouse. From there, they are shipped to the retailers who sell them to customers. Then, I can enjoy my soda! Service and manufacturing supply chains Service supply chains typically do not include external suppliers. In addition, the tier one supplier is a company that produces the final packaged product. Manufacturing supply chains typically include a greater variety of links in the chain in terms of the types of companies. Manufacturers have external suppliers in different tiers, as well as processing operations. What affects global supply chains? Global supply chains face several challenges. The members of the supply chain can be disp ...

1. Chapter 4
Niccole Hyatt, PhD
Chapter overview
This chapter describes the elements of the supply chain and its
management. The bullwhip effect is discussed.
The various decisions in supply chain management are
discussed and evaluated. These include outsourcing, purchasing,
use of technology, warehousing, and vertical integration.
Finally, the performance measures and trends in supply chain
management are described.
objectives
Describe basic supply chains and supply chain management.
Explain issues affecting supply chain management.
Explain the role of purchasing.
Illustrate how sourcing decisions are made.
Describe the role of warehousing.
Describe how supply chain management is implemented.
What are the types of e-commerce?
E-commerce, or using the Internet and Web to transact business,
can be characterized by noting what entities are involved.
Business-to-business (B2B) concerns businesses working
together to allow one to receive inputs from another. B2B can

2. be said to have started in the 1970’s with automated order entry
systems that used telephone connections. In the late 1970s,
electronic data interchange (EDI) provided standards for the
computer-to-computer exchange of information such as invoices
and purchase orders.
Business to consumer (B2C) is a retail activity. Here companies
use electronic means to deliver goods and services to
consumers.
What revenue models are used in e-commerce?
Operators of e-commerce web sites can support their activities
using one or more of several revenue models.
A site that attracts users and then displays advertisements from
other businesses is using the advertising revenue model. A site
that charges a fixed periodic fee for access to its content is
using a subscription revenue model. Some sites charge a fee for
a completed transaction, such as a stock trade. This is the
transaction fee model.
Companies that earn directly from what customers buy use the
sales revenue model. Finally, a site may earn its revenue by
referring visitors to other sites. This is the affiliate revenue
model.
How does the supply chain work?
I recently bought sodas in cans. The cans are produced by
obtaining the raw materials from mines, followed by processing
in a plant.
The cans are filled with the liquid at the bottling companies.
They are then placed in a warehouse.
From there, they are shipped to the retailers who sell them to

3. customers.
Then, I can enjoy my soda!
Service and manufacturing supply chains
Service supply chains typically do not include external
suppliers. In addition, the tier one supplier is a company that
produces the final packaged product.
Manufacturing supply chains typically include a greater variety
of links in the chain in terms of the types of companies.
Manufacturers have external suppliers in different tiers, as well
as processing operations.
What affects global supply chains?
Global supply chains face several challenges. The members of
the supply chain can be dispersed around the world. This can
increase shipping time and pipeline inventory.
Longer delivery times can make forecasting less accurate.
All the partners in the supply chain will not use the same
currency. Currency fluctuations can change prices between
contract and delivery.
Different countries will have varying levels of infrastructure
development. This can impact transportation, the availability of
trained workers, communications, and manufacturing
operations. Firms may need to provide many market specific
variants and versions of their products to meet local tastes,
conditions, and regulations. This is referred to as product
proliferation.

4. Partnering Advantages and disadvantages
Partnering is the development of a close relationship with a
supplier based on trust, shared information, and vision.
The advantages are the ability to reduce costs, and improvement
in quality and planning.
The disadvantages are the violation of trust that can cause
problems and the inability to quickly change suppliers if
problems arise. Recall the Ford/Firestone quality fiasco that is
currently being litigated. The presumption of trust may have
caused the delay in detecting quality problems.
How is rfid used?
RFID uses unpowered microchips to transmit encoded
information through antennae. RFID tags may be attached to
cases, pallets, or containers.
They can eliminate the need to unpack, count, or scan contents
in order to keep track of material movements and inventory
levels.
Questions?
Niccole Hyatt, PhD
Chapter 3
Niccole Hyatt, PhD

5. overview
This chapter explains the definition, strategic impact and steps
of product design. It discusses the use of break-even analysis to
decide which product(s) to produce. This chapter also describes
the different types of production processes and explains the
steps used in process design and selection. It presents the
process flowchart and the impact of technological advancements
on process design. Finally, the issues of designing service
operations are discussed.
objectives
Define product design and explain its strategic impact on
organizations
Describe steps to develop a product design
Use break-even analysis as a tool in deciding between
alternative products
Identify different types of processes and explain their
characteristics
Understand how to use a process flowchart
Understand how to use process performance metrics
Understand the link between product design and process
selection
Understand current technological advancements and how they
impact process and product design
Understand issues of designing service operations
What is product design?
Product design is the process of determining all the features and

6. characteristics of a product or service.
The design of the product or service must match the business
strategy in order for the company to be successful.
For example, if we create a product with numerous features, it
would probably be more expensive to produce. This would not
help us if our goal is to provide a low cost product.
What is the product life cycle?
The four stages of the product life cycle are introduction,
growth, maturity, and decline. (See figure 3-4.)
Introduction is the stage where the product is introduced to the
market and starts to sell. The demand is slowly growing in this
stage.
Growth is the stage where demand takes off.
Maturity is the stage when the demand has peaked and started to
level off.
The last stage of decline occurs when another product replaces
the current product. During this stage, demand declines.
What is concurrent engineering?
Concurrent engineering is a team-based approach to product
design. The team of people from different areas works
simultaneously on the design.
It is important because this ensures that we don’t have problems
taking the product from engineering to production.
Production can help ensure an easy transition if they are
involved in the design. Thus the product becomes easier to
manufacture. The old approach of separate departments working
with the design at different times was costly and inefficient.
Concurrent engineering has resulted in a shorter development

7. time with better quality.
benchmarking and reverse engineering
Benchmarking involves the usage of information gathered from
world class companies in order to improve your company’s
performance.
Reverse engineering is the study of an actual product by
disassembling it to determine how it was created.
Intermittent and repetitive operations
The two general types of processes are intermittent operations
and repetitive operations. Intermittent operations produce a
variety of products in smaller quantities. Since a variety of
products are produced, a standard flow does not exist.
Intermittent operations tend to be labor intensive.
Repetitive operations produce few products in larger quantities.
Resources are organized in a line flow in repetitive operations.
Since we are producing few products in large quantities, we can
invest a lot of money in equipment.
What is vertical integration?
Vertical integration refers to the number of supply chain
decisions that are made within a company. For example, a
company that manufactures wood furniture could also own the
land that supplies the trees that are then cut down and processed
by the plant. This is an example of backward integration.
For forward integration, the same company would then sell

8. directly to the final customer who uses the furniture instead of
selling to a retailer. Companies that are more likely to become
vertically integrated are ones who have the capital available to
do so.
Vertical integration is more effective for continuous operations
in which the number of input materials is small. Fine (1998)
points out that successful companies move back and forth
between being vertically integrated and not in order to remain
competitive over longer periods of time.
What is a service package?
Service package refers to the group of features that comprise
the service.
The three elements of the service package are the physical
goods, benefits related to the senses, such as taste and smell,
and psychological benefits.
Think about places that provide a good experience to you and
your family.
What is included in a service package?
At McDonald’s, the physical goods are the food, as well as the
functional seating, along with the play area for children. The
sensual benefits are the consistent taste of the food and the
sound of happy children. The psychological benefits are quick
food and a more relaxing time for parents since kids can occupy
themselves with the Happy Meal and/or play area.
At Barnes and Noble, the physical goods are the books, café
items, and places to read and/or chat. The sensual benefits are
the smell of the café items and the sight of interesting things to
read. The psychological benefits are the comfort and status of

9. the experience.
At Disney, the physical goods are the rides, shows, restaurants,
gift shops, etc. The sensual benefits are the sight of cartoon
characters, sounds of the experience, and feel of the rides. The
psychological benefits are fun and learning.
Who provides great service to customers?
FedEx: Federal Express is very good at delivering undamaged
packages on time, which is what the customers expect. They
also provide a tracking procedure so that customers can
determine where their package is in transit.
Amazon.com: I have ordered many books from amazon.com.
The prices have been fair. The correct items were delivered
accurately and quickly. They also send e-mail notification when
the order has been shipped.
Questions?
Niccole Hyatt, PhD