Supply Chain Management Module Exam revision session

Alexa Kirkaldy

13th May 2014.

Objectives• Describe the basic principles of the mark

scheme for the 2014 exam

• Apply the mark scheme to two questions from the 2012 paper

• Answer any questions you may have

• Not aiming to review or revise any specific lecture content

The exam

• You cannot take any lecture materials or textbooks into the exam!

• All 4 exam questions will be compulsory and are equally weighted

• The questions are all based around scenarios• 70% of the credit • Questions cover a broad range, and every lecture

contained something relevant

SCM Module LecturesSection Lecture

Introduction 1 SCM concepts

2 Business strategy and SCM

3 SCM and Procurement strategies

4 Value and logistics costs

Leveraging the Supply Chain

5 Globalisation

6 Outsourcing

7 Supplier selection

8 Lead time reduction

9 JIT, lean and agile

Working together 10 Integration

11 Relationships

12 Negotiation

13 Measurement & metrics

14 Technology

The future 15 Improving & developing

Mark scheme principles

• Identify relevant model/framework; apply the framework in a logical manner; discuss the outputs

• What and why; don’t just list but explain how used / why important / what benefits etc.

• Depth and breadth of discussion relevant to supply chain management and the question. Use relevant examples from case studies / own experience / coursework.

• Demonstrate: Knowledge, Understanding, Application,

Thought process

2012 questions

(applying 2014 mark scheme principles to 2012 questions)

You have just joined a medium sized engineering firm who produce closed circuit TV systems. The Operations Director believes that a set of measures is essential in driving the business from being less inwardly focused to competing successfully using supply chain management principles.

A. List and define a set of appropriate supply chain measures the firm could use. (10 marks)

B. Explain how supply chain goals supported by such measures can link to the firm’s balanced scorecard. (8 marks)

C. Give reasons why the Operations Director should consider using the Supply Chain Operations Reference model (SCOR). (7 Marks)

(Total 25 Marks)

Question 1

You have just joined a medium sized engineering firm who produce closed circuit TV systems. The Operations Director believes that a set of measures is essential in driving the business from being less inwardly focused to competing successfully using supply chain management principles.

A. List and define a set of appropriate supply chain measures the firm could use. (10 marks)

B. Explain how supply chain goals supported by such measures can link to the firm’s balanced scorecard. (8 marks)

C. Give reasons why the Operations Director should consider using the Supply Chain Operations Reference model (SCOR). (7 Marks)

(Total 25 Marks)

Question 1 (key words)

List and define a set of appropriate supply chain measures the firm could use. (10 marks)

Link “supply chain principles” and measures to demonstrate “appropriate” and “less inwardly focused”

• End-to-end : SC inventory days; cash-to-cash; total supply chain cost; SC response time

• Customer focused: OTIF; order fulfilment cycle time; customer response time

Part A

2 marks for making the appropriate linkage, 4 for good list of measures and 4 for explaining how calculated (defining)

•Traditionally most measures are functional

•Key end-to-end Supply Chain metrics must replace the traditional metrics

Metrics in the traditional supply chain reflect its fragmented nature

$$$

Cash to Cash Inventory Days of Supply Supply Chain Response Time Total Order Fulfilment Lead

Time

$

With only financial metrics being cross-functional

Explain how supply chain goals supported by such measures can link to the firm’s balanced scorecard. (8 marks)

Two frameworks:

1. SC performance objectives : quality, speed, flexibility, dependability and cost

2. Kaplan & Norton: balanced scorecard : financial, customer, internal, innovation & learning perspectives

Part B

2 marks for defining SC goals, 2 marks for describing a balanced scorecard and 4 marks for demonstrating how they fit together

Linking SCM to the Balanced Scorecard

Harrison and Van Hoek, Logistics Management and Strategy, 2011

Kaplan & Norton’s Balanced Scorecard

How do our customers see us? Customer perspective

How do we look to our shareholders?

Internal business perspective

Linking long term strategy to short term actions

Financial perspective

Can we continue to improve & create value?

What must we excel at?

Innovation and learning perspective

Give reasons why the Operations Director should consider using the Supply Chain Operations Reference model (SCOR). (7 Marks)

• Describe and draw the SCOR model – highlight process based• Explain the benefits of using it:

• standard model, widely used• industry and size independent• bench mark performance metrics readily available• applicable at multiple levels of detail

Part C

3 marks for good description of the SCOR model and 4 marks for explanation of rationale of benefits for using it

SCOR (Supply chain operations reference)

Harrison and Van Hoek, Logistics Management and Strategy, 2011

Question 2 T-Bikes, a Taiwanese bicycle manufacturer, ships finished bikes into the UK via the port of Felixstowe and uses three distribution centres in the north, midlands and south of the country to distribute on a weekly basis to multiple independent retail bike shops around the UK. T-Bikes fabricates a range of frames for all of its markets in Taiwan and purchases all of the other components (e.g. gear and brake systems, wheels, tyres, saddles etc.). The company is considering changing its business model so that customers design, order and pay for their bike on-line at the retail shop by selecting a frame type, colour and size and compatible components. It plans to have the completed bicycle assembled and delivered to the retail shop for the customer to collect within 3 days.

A - From a supply chain perspective how would you class the proposed supply chain model and how is this different from the current model? What are the advantages, disadvantages and risks of the new model? (15 marks)B - What factors should T-Bikes consider in the design of the new supply chain?(8 marks)C - Would the new model be more or less sustainable than the old? What could be done to improve sustainability? (2 marks)(Total 25 Marks)

Question 2 (key words)T-Bikes, a Taiwanese bicycle manufacturer, ships finished bikes into the UK via the port of Felixstowe and uses three distribution centres in the north, midlands and south of the country to distribute on a weekly basis to multiple independent retail bike shops around the UK. T-Bikes fabricates a range of frames for all of its markets in Taiwan and purchases all of the other components (e.g. gear and brake systems, wheels, tyres, saddles etc.). The company is considering changing its business model so that customers design, order and pay for their bike on-line at the retail shop by selecting a frame type, colour and size and compatible components. It plans to have the completed bicycle assembled and delivered to the retail shop for the customer to collect within 3 days.

A - From a supply chain perspective how would you class the proposed supply chain model and how is this different from the current model? What are the advantages, disadvantages and risks of the new model? (15 marks)B - What factors should T-Bikes consider in the design of the new supply chain?(8 marks)C - Would the new model be more or less sustainable than the old? What could be done to improve sustainability? (2 marks)(Total 25 Marks)

Question 2 – Part AFrom a supply chain perspective how would you class the proposed supply chain model and how is this different from the current model? What are the advantages, disadvantages and risks of the new model? (15 marks)

• Describe the current operation and support with diagram• make to stock based on sales forecasts; decoupling point in the Taiwanese

factory• discuss the likely implications of this model:

• long lead-times; high inventory levels (why?)• reduced customer service; cost? (why?)

• Describe the proposed operation and support with diagram• assemble to order based of customer’s order/ logistics postponement• discuss the likely implications of this model

• SC infrastructure (changes to factory, DC’s and transport)• SC performance metrics (lead time, inventory, cost, service, quality,

flexibility)• Contrast and compare to illustrate differences, advantages, disadvantages and risks

Advantages, Disadvantages and RisksAdvantages 

T bikes can eliminate finished bike stock in the UK. ‐ Importation of finished bikes replaced with frames : less volume, less cost Components can be delivered by the supplier direct to the UK.  JIT could be introduced with the component suppliers to reduce component inventory.  Forecasting of finished bikes is eliminated and replaced with forecasting of frames and components only Payment is directly the bike is ordered rather than on probable payment terms with the retailer.  Lower inventory and faster customer payment would reduce the cash to cash cycle time. 

Disadvantages 

Customer cannot touch and feel or try out the bike before ordering.  Customer will always have to wait whereas before there was the possibility the bike  would be in stock 

at the retailer.  Reliant on new local build operation and that quality can be achieved and maintained Investment in local assembly operation. 

Risks 

Alienation of retailers  Commission to retailers ?  Higher cost of more frequent distribution  

Question 2

From a supply chain perspective how would you class the proposed supply chain model and how is this different from the current model? What are the advantages, disadvantages and risks of the new model? (15 marks)

• 3 marks for correct description and classification of current SC• 3 marks for correct description and classification of proposed supply chain• 9 marks for discussion (what and why) of advantages, disadvantages and risks (3 marks for each)

Question 2 – Part BWhat factors should T-Bikes consider in the design of the new supply chain?(8 marks)

This is a much more open question that is designed to test your breadth of knowledge and it’s logical application. Factors could include:

• the possible need to change sourcing of components from Asia to Europe• the reality of being able to assemble and deliver within 3 days – does the

customer ant this?• the significant change in the operations in the UK, from storage and

distribution to assembly – are different facilities required, and if so how many?

• what to do with the redundant factory space in Taiwan?• what impact would daily rather than weekly delivery have on UK

transportation?• what IT systems will be required to support the new business model

2 marks for a well argued discussion of each factor( up to max of 8 marks)

Question 2- Part CWould the new model be more or less sustainable than the old? What could be done to improve sustainability? (2 marks)

• Assume “sustainable” refers to environmental sustainability• Briefly discuss how the proposed changes would impact sustainability to support ‘more or less sustainable’ position (the answer is not clear cut)• what could be done to improve sustainability:

• local (UK/Europe) sourcing/manufacture of components to reduce freight emissions

• re-design transit packaging to maximise container fill• minor assembly at bike shop (e.g. front wheel)

2 marks for 2 brief logical points

Tips• Read the question – then read it again: what

frameworks/concepts are relevant?• Make sure you answer the specifics of the question

as part of a broader discussion• Relate general business concepts (e.g. customer

service, sustainability, globalisation etc.) to supply chain implications

• Use diagrams to help explain your ideas• Note the relative value of each section of the

question, and balance your answer appropriately• Reference appropriately when you can

Good Luck!

The remainder of these slides are supplied for

information only.

Question 3Cost is a major factor driving companies to source globally. However, global sourcing generates costs. What are Total Cost of Ownership and Total Acquisition Cost and how they can be used to help in this context? (8 marks)Globalisation causes further financial complexities in terms of tax and currency. Describe these complexities and how they can be addressed with beneficial outcomes. (14 marks) In response to increasing globalisation of business the Opacity Index has beendeveloped to address the risk costs associated with conducting business in a specific country. What factors are taken into account in determining an opacity rating for a country? For a European manufacturer using the Opacity Index explain how the rating might vary between suppliers based in China and the USA. (3 marks)(Total 25 Marks)

Question 3 (key words)

Cost is a major factor driving companies to source globally. However, global sourcing generates costs. What are Total Cost of Ownership and Total Acquisition Cost and how they can be used to help in this context? (8 marks)Globalisation causes further financial complexities in terms of tax and currency. Describe these complexities and how they can be addressed with beneficial outcomes. (14 marks) In response to increasing globalisation of business the Opacity Index has beendeveloped to address the risk costs associated with conducting business in a specific country. What factors are taken into account in determining an opacity rating for a country? For a European manufacturer using the Opacity Index explain how the rating might vary between suppliers based in China and the USA. (3 marks)(Total 25 Marks)

Question 3 (key words)

Cost is a major factor driving companies to source globally. However, global sourcing generates costs. What are Total Cost of Ownership and Total Acquisition Cost and how they can be used to help in this context? (8 marks)

•Describe the TCO model (diagram helps)•Describe the TAC model (diagram helps)•Explain how global sourcing can generate (increase) costs – illustrate with simple examples (e.g. funding additional inventory)•Explain how the TCO/TAC models can be used to help:

• getting complete view of total costs associated with purchasing decision

• once visible can be managed/reduced3 marks each for thorough description of TCO/TAC; 2 marks for how it can help

Question 3 (key words)

Cost is a major factor driving companies to source globally. However, global sourcing generates costs. What are Total Cost of Ownership and Total Acquisition Cost and how they can be used to help in this context? (8 marks)

Total Acquisition Cost

Part Purchase Price

Always Measured

Sometimes Measured

Rarely measured to technology family/commodity group level

AA

Internal Acquisition Cost

B

Quality Cost

C

Quality Cost

CC

Materials Mgt Cost

C

Materials Mgt Cost

CC

Transport

C

Transport

CC

C

CA

Inventory Cost

C

Inventory Cost

CC

B

Overheads

B

Labour Cost

B

Material Cost

B

A TCA model: A Hierarchy of costs

Post transactionComponents

Transactioncomponents

Pre-transactionComponents

Pre-transactionComponents

• Investigating sources• Qualifying sources• Training / education

• Price• Order placement• Transportation• Tariffs / duties• Billing / payment• Inspection• Return of parts• Follow-up and correction

• Production line stoppages

• Defective finished goods

• Cost of maintenance• Field failures• Repair in field• Reputation

Lisa Ellram

Total Cost of Ownership (TCO) extends TAC …

“All costs associated with the acquisition, use & maintenance of a good or service”

Question 3 (key words)

Globalisation causes further financial complexities in terms of tax and currency. Describe these complexities and how they can be addressed with beneficial outcomes. (14 marks)

• Explain the nature of currency risk and tax minimisation opportunities• Discuss currency hedging strategies – illustrate with simple example• Explain how supply chain structure can be used to minimise tax liabilities

• basic and moveable sales and production profit• ownership of inventory• ownership of risk

2 marks each for correct description of the complexities; 5 marks each for well argued explanation of strategies to minimise risk or tax

Question 3 (key words)

Question 3 (key words)In response to increasing globalisation of business the Opacity Index has beendeveloped to address the risk costs associated with conducting business in a specific country. What factors are taken into account in determining an opacity rating for a country? For a European manufacturer using the Opacity Index explain how the rating might vary between suppliers based in China and the USA. (3 marks)

Factors: legal systems, regulations, economic policies, corporate-governance standards and corruption (China:|Index= ~50; USA =~20)Contributing factors making China more opaque:• unclear/different legal systems (by province)• heavy government regulation of some areas, but not others• high levels of corruption1 mark for factors; 2 for explaining why China differs

Question 4Integration is recognised as key to driving competitive advantage from the supply chain. Explain the consequences that functional thinking causes rather than internal collaboration. Use the functions of purchasing, production, distribution and marketing to illustrate some of the potential consequences of functional working. (6 marks)If internal integration can be improved the benefits of intercompany collaboration can bring even greater rewards. Describe a manual method that has been successfully used to achieve intercompany collaboration. (7 marks)Manual methods have been largely superseded. Quick Response (QR) and Efficient Consumer Response (ECR) are techniques that rely on electronic collaboration and enabling technologies. Compare and contrast these supply chain techniques. Explain whether one method is better than the other in having an impact on the Forrester effect. (12 marks)

Question 4 (key words)

Integration is recognised as key to driving competitive advantage from the supply chain. Explain the consequences that functional thinking causes rather than internal collaboration. Use the functions of purchasing, production, distribution and marketing to illustrate some of the potential consequences of functional working. (6 marks)If internal integration can be improved the benefits of intercompany collaboration can bring even greater rewards. Describe a manual method that has been successfully used to achieve intercompany collaboration. (7 marks)Manual methods have been largely superseded. Quick Response (QR) and Efficient Consumer Response (ECR) are techniques that rely on electronic collaboration and enabling technologies. Compare and contrast these supply chain techniques. Explain whether one method is better than the other in having an impact on the Forrester effect. (12 marks)

Question 4 (key words)Integration is recognised as key to driving competitive advantage from the supply chain. Explain the consequences that functional thinking causes rather than internal collaboration. Use the functions of purchasing, production, distribution and marketing to illustrate some of the potential consequences of functional working. (6 marks)

• Reference the Stevens framework• Consequences of functional thinking:

• Increased inventory• Reduced responsiveness• Increased cost

•Explain why these occur

Purchasing MaterialsControl

Production Sales Distribution

MaterialsManagement

ManufacturingManagement

Distribution

STAGE 1: BASELINE

STAGE 2 FUNCTIONAL INTEGRATION

STAGE 3:INTERNAL INTEGRATION

MaterialsManagement

ManufacturingManagement

Distribution

STAGE 4:EXTERNAL INTEGRATION

SuppliersInternal Supply

ChainCustomers

2 marks for each consequence, correctly explained and put into context

Question 4 (key words)

If internal integration can be improved the benefits of intercompany collaboration can bring even greater rewards. Describe a manual method that has been successfully used to achieve intercompany collaboration. (7 marks)

Example: JIT II Bose:• A supplier employee works on the customer’s site

placing orders on their firm using the customer’s systems• Taking part in production planning

Benefits – explain the mechanisms by which these happen• improvement in the measures of ‘on time’, ‘damage’ and

‘shortages’• increase in equipment utilization • saving in material cost • inventory reduction

3 marks for describing the example4 marks for explaining how the benefits occur

Question 4 (key words)

Manual methods have been largely superseded. Quick Response (QR) and Efficient Consumer Response (ECR) are techniques that rely on electronic collaboration and enabling technologies. Compare and contrast these supply chain techniques. Explain whether one method is better than the other in having an impact on the Forrester effect. (12 marks)•Explain concept of QR•Explain concept of ECR and improvement categories•Explain the Forrester Effect, its causes and solutions•Use the above to determine whether QR or ECR is more effective

• QR focus on lead time reduction• ECR focus on information sharing and reducing causes of

variability (promotions)• ideally need both

3 marks

3 marks3 marks

3 marks