week 4 discussion 2 phi 103Explore a legendary hoax from the Mus.docx

week 4 discussion 2 phi 103
Explore a legendary hoax from the Museum of Hoaxes. Describe
the elements and details of the hoax. Applying what you know
about how to evaluate arguments, pretend you were presented
with this hoax and outline the steps you would take to evaluate
it. How does this hoax encourage critically evaluating sources
of information? Explain three methods by which you can
prevent yourself from being fooled by hoaxes or other sources
of misinformation.
You must post to this discussion on at least four separate days
of the week and your posts must total at least 500 words as you
address the questions noted above. Your first post must be
completed by Day 3 (Thursday) and the remainder of your posts
must be completed by Day 7 (Monday). You must answer all
aspects of the prompt at some point during the week. Also, be
sure to reply to your classmates and instructor. Try to attempt
to take the conversation further by examining their claims or
arguments in more depth or responding to the posts that they
make to you. Keep the discussion on target and try to analyze
things in as much detail as you can.
The following terms are valuable and should be committed to
memory.
· Deductive
· Hoax
· Inductive
· Logical fallacy
· Sound
· Strong
· Valid
Operations and Supply Chain Management
Lecture 06

Outline – Supply Chain Mgt.
Supply Chain Management (SCM)
What is SCM
Outsourcing concepts
Supply Chain Strategies
Issues and Opportunities in a Supply Chain
Measuring the performance of a Supply Chain
A Supply Chain
This supply chain includes all the interactions among suppliers,
manufacturers, distributors, and customers.
S2
S3
S2
S1
Manufacturer
Distributor(s)
Customers
Retailer(s)
Tier 3
Suppliers

Tier 2
Suppliers
Tier 1
Suppliers
Supply Chain Management
Definitions of Supply Chain Management
Supply Chain Management is the integration of the activities
that procure materials and services, transform them into
intermediate good and final products, and deliver them to
customers.
Supply Chain Management deals with the management of
materials, information, and financial flows in a network
consisting of suppliers, manufacturers, distributors, and
customers. -- Prof. Hau Lee, Stanford Supply Chain Forum
4
Outsourcing Concepts
They can be confusing…
Outsourcing: Procuring from external sources services or
products that are normally part of an organization.

Offshoring: Moving a business process to a foreign country but
retaining control of it.
Backsourcing: The return of business activity to the client firm.
A client firm is an organization that outsources from outsource
provider.
Nearshoring: Choosing an outsource provider in the home
country or in a nearby country.
5
Examples
Electronic Data Systems (EDS) provides information technology
for Delphi Automotive and Nextel. This is Outsourcing.
If a firm owns two production facilities, one in the home
country and the other in a foreign country, and later decides to
shift production from the first to the second, this is not
Outsourcing, but Offshoring.
6
Examples
Dell believed it could save cost by moving some of its technical
support for corporate customers to Bangalore, India. But faced
with complaints from customers, it shifted some of help desk
service phone calls back to Tennessee and Texas. This is
Backsourcing.

If a US-based company outsources from Canada or Mexico, this
practice is called Nearshoring.
7
Why Outsourcing?Strategic ReasonsTactical ReasonsImprove
business focusReduce or control operating costsGain access to
world class capabilitiesMake capital funds availableAccelerate
re-engineering benefitsCreate cash infusionShare
risksCompensate for lack of internal resourcesFree resources for
other purposesImprove management of difficult or out-of-
control functions
8
Supply Chain Strategies
The number of suppliers, their locations, and their sizes are
important considerations in deciding the type of SC strategy to
use.
Six typical Supply Chain strategies:
Many Suppliers
Few Suppliers
Vertical Integration
Joint Venture
Keiretsu Network
Virtual Companies

9
1. Many Suppliers
A common strategy when products are commodities.
Suppliers respond to demands and specifications of a “request
for quotation”. Order goes to the low bidder.
Suppliers are responsible for maintaining the necessary
technology, expertise, cost, and quality competences.
Long-term “partnering” relationships are not the goal.
10
2. Few Suppliers
Rather than focusing solely on low cost, a buyer can benefit
from forming a long-term relationship with a few dedicated
suppliers.
Suppliers in this relationship are expected to participate in the
Just-In-Time system and provide design innovations and
technological expertise.
Example: The strategy has resulted in suppliers that develop
new products, winning customers for Marks & Spencer, a
British retailer.
11

3. Vertical Integration
Vertical integration can take the form of forward or backward
integration.
Backward integration: a company buys its suppliers, such as
Ford Motor when it decided to produce its own car radio.
Forward integration: a manufacturer of components make the
finished product.
12
3. Vertical Integration – Cont.
Benefits?
Cost reduction in purchasing components/raw materials
Quality adherence
Timely delivery
Inventory reduction
Requirements?
Enough capital
Large management talent
Required technology
13

4. Joint Venture
Formal collaboration
Enhance skills
Secure supply
Reduce costs
Cooperation without diluting brand or conceding competitive
advantage
14
5. Keiretsu Networks
Keiretsu is somewhere between few suppliers and vertical
integration.
First appeared in Japan following World War II.
In Keiretsu, manufacturers become financial supporters of
suppliers through ownership or loans. Suppliers’ suppliers can
also be made as part of the coalition.
It features long-term “partnering” relationship. Technical
expertise and quality production are expected from the
suppliers.
15

6. Virtual companies
Virtual companies rely on a variety of supplier relationships to
provide services on demand.
The relationship may be short- or long-term and my include true
partners, collaborators, or simply able suppliers and
subcontractors.
This form offers specialized management expertise, low capital
investment, flexibility, and speed.
In apparel business, the designers of clothes seldom
manufacturer. They license manufacturers. They are able to
keep low overhead and respond quickly to market change.
16
Issues in an Integrated SC
Local optimization - Members of a Supply Chain are inclined to
focus on maximizing local profit or minimizing immediate costs
based on their limited knowledge.
Incentives (sales incentives, quantity discounts, quotas, and
promotions) - push merchandise prior to sale
Large lots - low unit cost but do not reflect sales
Bullwhip effect - Fluctuation in orders increases as orders move
through the supply chain.
17

Why called Bullwhip effect?
Demand variation increases as orders move from the
downstream of a Supply Chain to the upstream.
End Customer
(Downstream)
Suppliers
(Upstream)
18
Major Causes of Bull-whip Effect
Demand Forecast update
Explanation:
When a downstream player places an order, the upstream
manager take it as a signal about future demand.
Many of the forecasting methods place substantial weight on
recently observed demand, leading to distortion when there is a
sudden peak or drop in orders.
Remedies:
In-time demand sharing among members via Point of Sales
(POS), EDI, or Vendor Managed Inventory (VMI).
Some companies convinced their suppliers to locate their
production faculties nearby.

19
Examples of Remedies - Demand Forecast
JC Penny and Levi Strauss are linked with an EDI that allows
Levi Strauss to obtain sales data. These data allow Levi Strauss
to better plan the production process as well as better control
inventory and delivery. The savings leads to a reduction in costs
and prices, benefitting both JC Penny and Levi Strauss.
McKesson developed a close relationship with Johnson &
Johnson, one of its major suppliers. Both firms receive data on
inventory, POS, and customer information through a joint
information system. This enables Johnson & Johnson to provide
better services to McKesson, which in turn improves the level
of service that McKesson is able to provide to its customers.
20
Major Causes of Bullwhip Effect
Order Batching
Explanation: Companies may want to accumulate demand before
issuing an order to take advantage of the economies of scale in
order placing or transportation.
Remedies:
Use Electronic purchasing to reduce ordering costs and then
encourage placing frequent orders

One solution to discourage shipment consolidation can be to
outsource the transportation activities. Third-party logistics
providers are able to consolidate small quantities from different
customers.
21
Price Fluctuation
Explanation: Companies may buy supplies well in advance of
demand as a result of special trade deals and consumer
promotions, such as discounts and rebates. Price fluctuation
might lead to increased demand variation in a supply chain.
Remedies:
To reduce the frequency and magnitude of special trade deals
and consumer promotions. Every-Day-Low-Price can be one
solution;
Adopt Continuous Replenishment Program (CRP), that is,
products are replenished only for the sold amount. There are no
specific order points or order sizes. CRP is usually implemented
together with VMI to achieve greater efficiency, such as in Wal-
Mart.
22

Rationing and Shortage Gaming
Explanation:
When product demand exceeds product supply, manufacturers
tend to ration their products to customers by allocating in
proportion to the amount ordered.
Buyers may respond to that strategy by over-ordering and
cancelling excess orders later. Think about what happened to
the automotive industry after the earthquake and tsunami hit
Japan.
Remedies:
One possible way is to allocate products in proportion to past
sales.
Impose high order cancellation fee.
23
Supply Chain Coordination
A classic tension within a supply chain: An increase in one
firm’s profit might come at the expense of a decrease in the
other firm’s profit.
With respect to the allocation of supply chain profit, firms
should care about two things:
The size of a firm’s piece of the “pie”, where the pie refers to
the supply chain’s total profit;
The size of the total “pie”.

Buy-back Contracts
What a supply chain needs is a tool that first maximizes the size
of the “pie” and then allows them to decide how to divide it
between them.
Such a tool can be Buy-Back contracts.
Buy-back contracts introduce new costs into the supply chain
since the original buyer will need to ship the leftover inventory
back to the original supplier.
Buy-back contracts may also generate new revenue as the
supplier may be able to resell the leftover to another buyer,
possible at another location.
More Supply Chain Contracts
Three common-type of quantity discount supplier pricing:
Linear Quantity Discount
This quantity discount scheme assumes that a supplier offers a
price that decreases in the quantity ordered by a retailer.
Let t be some constant discount rate and be the base price.
Unit price for order quantity Q:
, and
Total cost = , that is, discounted unit price times the
corresponding order quantity

Linear Quantity Discount
Interpretation
As we can see from the left figure, the unit cost/price decreases
as the order quantity increases. So a buyer can always benefit
from the discount schedule.
When the total purchasing cost is concerned, as we can see from
the right figure, the total purchasing cost keeps increasing until
Q = v/(2t) and decreases since then. What it means is that for
order quantities that exceed v/(2t), the more you order, the less
you pay in total.
A linear discount scheme usually has the limitation on how
much a buyer can order at maximum.
All-unit Quantity Discount
All-unit Quantity Discount
The unit price offered by a supplier declines on a step function
basis. Define as a set of alternative unit prices such that

And let be a set of quantities, called break points, such that
Set
Then the all-unit quantity discount can be expressed as
All-Unit Quantity Discount
Unit cost
Interpretation
As we can see from the left figure, the unit cost/price applies to
all the units purchased and decreases as the order quantity
increases.
The all-unit schedule appears irrational in some respects. For
example, as we can see from the right figure, the total cost of
ordering units is higher than the total cost of ordering slightly
more than units. This is an incentive for buyers to order more.

Incremental Quantity Discount
Under incremental quantity discounts, discounts are only
applied to additional units beyond the breakpoints. The unit
cost/price for the quantity interval decreases as increases.
The average unit cost/price can be calculated as follows:
,
for
for
The unit discounted price is just the total purchase cost divided
by the order quantity.
Example
Suppose a trash bag company charges based on an incremental
scheme. Specifically, it charges 30 cents per bag for the first
500 bags, 29 cents for all units beyond.
Then for orders of no more than 500 bags, the average cost is 30
cents.
For orders of less than 1001 bags but more than 500, then the
average cost , where Q is the exact order quantity.

Interpretation
As we can see from the left figure, discounts are only applied to
the additional units beyond those break points. The average unit
cost/price decreases as the order quantity increases due to the
discounts.
Different from the all-unit schedule, no irrationality is observed
in the right figure. The total purchasing cost increases as the
order quantity increases.
Example: Quantity Discount
Suppose a store has been given an all-unit quantity discount
schedule for a product. The normal cost for the product is $5.
For orders between 1001 and 2000 units, the unit cost drops to
$4.8; for orders of 2001 or more units, the unit cost is only
$4.75. The store expect the sales for that product in the next
month to be 2500. How much does it pay?
Now how much does the store pay if it is offered an incremental
quantity discount scheme with the same quantity break points as

stated above. The price is $5 for orders no greater than 1000.
For the next additional 1000 units, the unit price becomes $4.8.
For any additional units above 2000, the price drops to $4.75.
What is the purchasing cost?
Example: Quantity Discount
For the all-unit quantity discount scheme,
Total cost = $4.75 * 2500 = $11875
For the incremental quantity discount scheme,
Total cost = $5 * 1000 + $4.8 * 1000 + $4.75 * 500 = $12175
Comments:
Note that the average cost/price per unit with an all-unit
schedule will be less than the average cost per unit with the
corresponding incremental schedule.
In the previous example, the average cost per unit with the all-
unit schedule is $11875/2500, which equals $4.75/unit.
The average cost per unit with the corresponding incremental
schedule is $12175/2500 , which equals $4.87/unit/
Notice the irrationality of the all-unit schedule? In the example,
1,000 units would cost $5,000, whereas 1,001 units would only

cost $4,804.8. This is an incentive for a buyer to purchase more.
How to evaluate Supply Chain performance
The evaluation of Supply Chain with focuses on procurement
and inventory tends to answer two questions:
How well the supply chain is performing; and
How well assets are utilized.
Benchmarking is used to answer the 1st question.
To answer the 2nd question, three measures can be of help.
Percent of assets invested in inventory
Inventory Turnover
Weeks-of-Supply
39
Benchmarking
Benchmarking is the process of comparing one’s own business
processes to the industry bests or the best practices in other
industries. Typical FirmsBenchmark FirmsLead time (in
weeks)158Time spent placing and order42 mins15 minsPercent
of late delivery33%2%Percent of rejected
material1.5%0.0001%Number of shortages per year4004

40
To start the process, a firm must decide on the process it wishes
to evaluate and select the benchmark firms. Relevant data need
to be collected to conduct the comparison. The result is usually
improved process performance by achieving the targets set
during the process.
40
How well assets are utilized
Percent of assets invested in inventory
Example: Home Depot had $11.4 billion invested in inventory
and total assets of $44.4 billion in 2006.
Then, its Percent of assets invested in inventory = (11.4/44.4)*
100% = 25.7%
41
Inventory Turnover
Inventory turnover (computed on an annual basis)
Inventory turnover = Cost of goods sold / Inventory Investment
Cost of goods sold is the cost to produce the goods or services
sold for a given period.
The inventory investment can be:

The sum of the beginning and the ending inventory values
divided by 2; OR
The sum of the values of different types of inventories being
held in the system.
42
Example: Inventory Turnover
PepsiCo. Inc provides the following in its 2005 annual report
(in $ billion). Determine its inventory turnover.
Inventory Turnover = 14.2/(.74 + .11 + .84) = 8.4
There are 3 types of inventories in this system. The inventory
investment is just the sum of the three inventory values.
For inventory turnover, it’s usually the higher the better. Net
Revenue$32.5Cost of goods sold$14.2Inventory:Raw Material
inventory$.74WIP inventory$.11Finished good inventory$.84
43

Weeks-of-Supply
Weeks-of-supply indicates for how long the average amount of
on-hand inventory may last based on the current demand.
Weeks-of-supply = Inventory Investment / (cost of goods sold /
52 weeks)
Using the PepsiCo’s example, the weeks-of-supply for PepsiCo
in 2005 = (.74 + .11 + .84) / (14.2 / 52) = 6.19 weeks
This measure may have more meaning in the wholesale and
retail portions of the service sector than in manufacturing.
For weeks-of-supply, it is usually the lower the better.
44
MGMT 3306
Instructions:
1. Please answer the assignment questions in this docx file and
save once you’re satisfied. Assignment 3 covers the lectures
slides on Supply Chain Management.
2. There are three assignment problems. Please follow the
instructions given at the end of each question if any.
3. To resubmit your assignment, simply click to open
“Assignment 3” again and click the grey button “Start New
Submission” on the upper right corner of the “Review
Submission History” webpage you’re directed to. You can make
as many submissions as you like before the due time. Only the
last submission will be graded.

Assignment Problems (26 points in total):
1. Please cite an example of forward vertical integration and an
example of backward vertical integration. Avoid the cases cited
in the textbook and lecture slides. (6 points)
2. Company X can purchase a certain component from either
Supplier A or Supplier B. Supplier A offers an incremental
quantity discount and charges $10 per unit for the first 1,000
units in an order, $9 per unit for the next 1,000 units in the
order, and $8 per unit for any unit beyond. Supplier B offers an
all-unit discount and charges $9 per unit for orders of no more
than 2,000 units and $8.5 per unit for any bigger orders.
(a) Suppose Company X decides to buy 2,500 units from
Supplier A. What is the average unit cost of the order? Please
provide at least one step of calculation and the correct answer
for full credit. (4 points)
(b) If Company X wants to place an order of 5,000 units, which
supplier offers a lower total cost. Please provide at least one
step of calculation and the correct answer for full credit. (4
points)
3. Suppose the revenue for a firm is $2,000,000. Its cost of
goods sold is $85,000, and its average inventory value for the
year is $50,000.
a) What is the firm’s inventory turnover? Please include the
formula, at least one step of calculation, and the correct answer
b) What is the weeks-of-supply of the firm? Please include the

formula, at least one step of calculation, and the correct answer
1

week 4 discussion 2 phi 103Explore a legendary hoax from the Mus.docx

Recommended

Recommended

More Related Content

Similar to week 4 discussion 2 phi 103Explore a legendary hoax from the Mus.docx

Similar to week 4 discussion 2 phi 103Explore a legendary hoax from the Mus.docx (20)

More from melbruce90096

More from melbruce90096 (20)

Recently uploaded

Recently uploaded (20)

week 4 discussion 2 phi 103Explore a legendary hoax from the Mus.docx