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CHAPTER ONE
Discussion Questions
1 Consider the purchase of a can of soda at a convenience store. Describe the various
stages in the supply chain and the different flows involved.

When a customer purchases a can of soda at a convenience store, his purchase represents
the end of a supply chain’s delivery of an item and the beginning of information
regarding his purchase flowing in the opposite direction.
The supply chain stages include customers, retailers, wholesalers/distributors,
manufacturers, and component/raw material suppliers. A customer’s purchase moves
product towards the customer and dollars and information towards the retailer.

The retailer places an order from the wholesaler/distributor to replenish stock, thereby
moving information back up the supply chain while moving product down the supply
chain. As the order is filled, the retailer will move dollars back up the supply chain.

The wholesaler/distributor transmits information and dollars to the manufacturer who

produces product and ships it down the supply chain to the wholesaler.
Finally (or initially, depending on your perspective) the manufacturer moves orders
(information) and dollars towards suppliers in exchange for material flow into their
production processes.

2 Why should a firm like Dell take into account total supply chain profitability when
making decisions?

Dell realizes that their ultimate success lies with the success of their supply chain and its
ability to generate supply chain surplus. If Dell was to view supply chain operations as a
zero sum game, they would lose their competitive edge as their suppliers’ businesses
struggled. Dell’s profit gained at the expense of their supply chain partners would be
short lived. Just as a physical chain is only as strong as its weakest link, the supply chain
can be successful only if all members cooperate and focus on a global optimum rather
than many local optima.

3 What are some strategic planning and operational decisions that must be made by
an apparel retailer like The Gap?

As The Gap plans supply chain strategy it must first consider the marketing function’s
pricing plans in order to structure a supply chain consistent with these plans. Strategic
considerations such as the capacity of each supplier and assembly operations, sourcing
decisions and how logistics are to be handled are all part of the design. The supply chain
must also settle on communication channels and frequencies.
Supply chain planning takes the strategic decisions as a given and seeks to exploit
efficiencies in the chain to maximize supply chain surplus. The entire chain should
collaborate in forecasting and planning production to achieve a global optimum. The

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 buy this full document at http://test-bank.us

forecasts should take into account planned promotions and known seasonal fluctuations
in demand.

The operational decision takes the plans as a given and makes day-to-day decisions to
process customer orders, allocate resources to certain customers, trigger orders from
supply chain members, and deliver product.

4 Consider the supply chain involved when a customer purchases a book at a

bookstore. Identify cycles in this supply chain and the location of the push/pull
boundary.

All supply chain processes can be broken down into four process cycles that connect the
five stages of the supply chain; the customer order cycle, the replenishment cycle, the
manufacturing cycle, and the procurement cycle.
The customer order cycle connects the customer with the retailer; this connection is made
as the book, perhaps Supply Chain Management by Chopra and Meindl, is selected and
paid for by the customer.

The replenishment cycle connects the retailer and the distributor and is triggered by the
retailer’s need to fill the empty shelf space with another copy of this tome.
The manufacturing cycle connects the distributor and the manufacturer. As demand for
the book is realized and distributors empty their warehouses, they signal the manufacturer
to print another million copies to fill their empty warehouses.

Finally, the procurement cycle connects the manufacturer and the supplier. The
manufacturer requires raw material inputs of paper, ink, etc., to begin the assembly
process for another batch of Supply Chain Management.
The push/pull boundary exists where demand switches from reactive (pull) to speculative
(push) production. For most bookstore supply chains the push/pull boundary is between
the customer order cycle and the replenishment cycle. The customer order pulls the book
from the book store shelf but the initial production of the book was triggered by a build
order that moved materials along the supply chain to the retail outlet.

5 Consider the supply chain involved when a customer orders a book from Amazon.
Identify the push/pull boundary and two processes each in the push and pull phases.

In Amazon’s original operations design the push/pull boundary existed betwixt the
retailer (Amazon) and their distributor. Amazon ordered product from the distributor and
the customer order arrived. Today, Amazon has six warehouses where it stocks an
inventory of items it is confident that will sell. In this scenario, the push/pull boundary
exists between the customer and the retailer.
Processes in the pull phase are the order fulfillment, shipping, customer returns, and
customer billing. Processes in the push phase are production, stock replenishments,
shipping, and payment.

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 buy this full document at http://test-bank.us

6 In what way do supply chain flows affect the success or failure of a firm like
Amazon? List two supply chain decisions that have a significant impact on supply
chain profitability.

The success or failure of a company like Amazon is decided by the effective function of
its supply chain. The flow of products from publishers to distributors to customers must
be rapid and reliable in order to satisfy customers. The flow of information back through
the supply chain allows all members to coordinate efforts. The flow of money allows all
supply chain members to maintain operations. Supply chain profitability is influenced by
sourcing, promotion, and fulfillment decisions.

buy this full document at http://test-bank.us

 CHAPTER ONE
Discussion Questions
1 Consider the purchase of a can of soda at a convenience store. Describe the various
stages in the supply chain and the different flows involved.

When a customer purchases a can of soda at a convenience store, his purchase represents
the end of a supply chain’s delivery of an item and the beginning of information
regarding his purchase flowing in the opposite direction.
The supply chain stages include customers, retailers, wholesalers/distributors,
manufacturers, and component/raw material suppliers. A customer’s purchase moves
product towards the customer and dollars and information towards the retailer.

The retailer places an order from the wholesaler/distributor to replenish stock, thereby
moving information back up the supply chain while moving product down the supply
chain. As the order is filled, the retailer will move dollars back up the supply chain.

The wholesaler/distributor transmits information and dollars to the manufacturer who

produces product and ships it down the supply chain to the wholesaler.
Finally (or initially, depending on your perspective) the manufacturer moves orders
(information) and dollars towards suppliers in exchange for material flow into their
production processes.

2 Why should a firm like Dell take into account total supply chain profitability when
making decisions?

Dell realizes that their ultimate success lies with the success of their supply chain and its
ability to generate supply chain surplus. If Dell was to view supply chain operations as a
zero sum game, they would lose their competitive edge as their suppliers’ businesses
struggled. Dell’s profit gained at the expense of their supply chain partners would be
short lived. Just as a physical chain is only as strong as its weakest link, the supply chain
can be successful only if all members cooperate and focus on a global optimum rather
than many local optima.

3 What are some strategic planning and operational decisions that must be made by
an apparel retailer like The Gap?

As The Gap plans supply chain strategy it must first consider the marketing function’s
pricing plans in order to structure a supply chain consistent with these plans. Strategic
considerations such as the capacity of each supplier and assembly operations, sourcing
decisions and how logistics are to be handled are all part of the design. The supply chain
must also settle on communication channels and frequencies.
Supply chain planning takes the strategic decisions as a given and seeks to exploit
efficiencies in the chain to maximize supply chain surplus. The entire chain should
collaborate in forecasting and planning production to achieve a global optimum. The

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1-1

 forecasts should take into account planned promotions and known seasonal fluctuations
in demand.

The operational decision takes the plans as a given and makes day-to-day decisions to
process customer orders, allocate resources to certain customers, trigger orders from
supply chain members, and deliver product.

4 Consider the supply chain involved when a customer purchases a book at a

bookstore. Identify cycles in this supply chain and the location of the push/pull
boundary.

All supply chain processes can be broken down into four process cycles that connect the
five stages of the supply chain; the customer order cycle, the replenishment cycle, the
manufacturing cycle, and the procurement cycle.
The customer order cycle connects the customer with the retailer; this connection is made
as the book, perhaps Supply Chain Management by Chopra and Meindl, is selected and
paid for by the customer.

The replenishment cycle connects the retailer and the distributor and is triggered by the
retailer’s need to fill the empty shelf space with another copy of this tome.
The manufacturing cycle connects the distributor and the manufacturer. As demand for
the book is realized and distributors empty their warehouses, they signal the manufacturer
to print another million copies to fill their empty warehouses.

Finally, the procurement cycle connects the manufacturer and the supplier. The
manufacturer requires raw material inputs of paper, ink, etc., to begin the assembly
process for another batch of Supply Chain Management.
The push/pull boundary exists where demand switches from reactive (pull) to speculative
(push) production. For most bookstore supply chains the push/pull boundary is between
the customer order cycle and the replenishment cycle. The customer order pulls the book
from the book store shelf but the initial production of the book was triggered by a build
order that moved materials along the supply chain to the retail outlet.

5 Consider the supply chain involved when a customer orders a book from Amazon.
Identify the push/pull boundary and two processes each in the push and pull phases.

In Amazon’s original operations design the push/pull boundary existed betwixt the
retailer (Amazon) and their distributor. Amazon ordered product from the distributor and
the customer order arrived. Today, Amazon has six warehouses where it stocks an
inventory of items it is confident that will sell. In this scenario, the push/pull boundary
exists between the customer and the retailer.
Processes in the pull phase are the order fulfillment, shipping, customer returns, and
customer billing. Processes in the push phase are production, stock replenishments,
shipping, and payment.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1-2

 6 In what way do supply chain flows affect the success or failure of a firm like
Amazon? List two supply chain decisions that have a significant impact on supply
chain profitability.

The success or failure of a company like Amazon is decided by the effective function of
its supply chain. The flow of products from publishers to distributors to customers must
be rapid and reliable in order to satisfy customers. The flow of information back through
the supply chain allows all members to coordinate efforts. The flow of money allows all
supply chain members to maintain operations. Supply chain profitability is influenced by
sourcing, promotion, and fulfillment decisions.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1-3

Full file at https://testbankuniv.eu/Supply-Chain-Management-5th-Edition-Chopra-Solutions-Manual

CHAPTER THREE
Discussion Questions

1. How could a grocery store use inventory to increase the responsiveness of the
company’s supply chain?

The logistical driver of inventory encompasses all raw materials, work in process, and
finished goods within a supply chain. A grocery store can be more responsive in the eyes
of its customers if it offers a broader variety of SKUs and/or maintains a greater quantity
of each SKU. A greater quantity of each SKU is problematic for highly perishable items
like produce, meat, fish, etc. For these items, a grocery store supply chain should be set
up to permit frequent orders so that freshness is ensured and a stockout situation won’t
exist for a significant length of time. A grocery store supply chain should use historical
demand patterns for seasonal items to relieve stress on all members and provide
customers with product during peak demand periods.

2. How could an auto manufacturer use transportation to increase the efficiency of its
supply chain?

Transportation, a logistical driver, entails moving inventory from point to point in the
supply chain. The trade-off in transportation is between the cost of transportation and the
speed at which product is transported. Slower modes of transportation reduce cost, but
could be a reasonable approach if suppliers are co-located with the assembly operations.
If the supply chain is designed in such a way, and assembly operations are located with
proximity to markets, then the supply chain can be run cheaply without holding too much
inventory in transit.

3. How could a bicycle manufacturer increase responsiveness through its facilities?

Facilities, another logistical driver, are the actual physical locations in the supply chain
network where product is stored, assembled, or fabricated. A facility that is designed to
be flexible can respond quickly to market demands by retooling to produce different
models or products, whereas a dedicated facility cannot. Locating a facility close to the
market will increase responsiveness at the cost of decreased economies of scale that
might be achieved with a centralized location. A facility that is under capacity will be less
responsive than a facility that is appropriately sized or has excess capacity.

4. How could an industrial supplies distributor use information to increase its

responsiveness?

Information is a cross-functional driver and consists of data and analysis concerning

facilities, inventory, transportation, costs, prices, and customers throughout the supply
chain. Information serves as a connection among all members of the supply chain and
operates within each member to facilitate internal operations. Accurate information can
improve responsiveness by helping an industrial supplier better match supply and

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3-1

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Full file at https://testbankuniv.eu/Supply-Chain-Management-5th-Edition-Chopra-Solutions-Manual

demand. Information that is gathered farther down the supply chain can be transmitted
instantaneously and accurately to the supplies distributor. Instead of waiting for a human
to call or FAX an order, the distributor can replenish inventory to the necessary levels or
provide what is needed to fill the order as it is realized.

5. Motorola has gone from manufacturing all its cell phones in-house to almost
completely outsourcing the manufacturing. What are the pros and cons of the two
approaches?

Sourcing is the set of business processes required to purchase foods and services. These
decisions are crucial because they affect the level of efficiency and responsiveness that
Motorola can achieve. The Motorola production system for their line of pagers was hailed
as a breakthrough in mass customization, so it was somewhat surprising when Motorola
outsourced cell phones.. Sourcing decisions should be made based on the total supply
chain surplus; if a third party can help the chain achieve greater surplus, then the function
is a prime candidate for outsourcing. Motorola was willing to give up some control and
possibly some of its design talent and assembly expertise because it felt that the supplier
could provide product of an appropriate level of quality with the responsiveness
necessary. Products and services that are outsourced are rarely brought back in-house and
should never be tied too closely to the outsourcing party’s core competency.

6. How can a home delivery company like Peapod use pricing of its delivery services to
improve its profitability?

Pricing is the process by which a firm decides how much to charge customers for its
goods and services. Pricing affects the customer segments that choose to buy the product
as well as the customer’s expectations. Peapod can use everyday low pricing of its
products to ensure stability in the supply chain, but can influence demand by varying the
delivery charges. For example, by establishing a minimum order amount of $50 and
charging $10 to deliver an order under $75, Peapod provides an incentive for a customer
to pile on additional items to save on per unit shipping. An order over $100 incurs a
delivery fee of $7, which is the lowest delivery charge for a residential customer.
Peapod also varies delivery charges by time of day; evening delivery times on weekdays
and morning deliveries on Sunday within narrow windows cost an extra dollar, wider
delivery windows are $1 less. The delivery latitude allows Peapod’s delivery drivers to
schedule more efficiently thereby increasing profitability.

7. What are some industries in which products have proliferated and life cycles have
shortened? How has the supply chains in these industries adapted?

The authors cite the example of running shoes increasing from five styles in the early 70s
to almost 300 by the late 90s. Other products that have seen an explosion in variety
include personal electronics, beverages, snack and prepared foods, entertainment, tires,
and personal services.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3-2

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Full file at https://testbankuniv.eu/Supply-Chain-Management-5th-Edition-Chopra-Solutions-Manual

Supply chains have leveraged information systems, recognized the need to collaborate on
product and process design, and supply chain execution. The supply chain stance has
shifted towards a partnership orientation from a focus on price negotiations.

8. How can the full set of logistical and cross-functional drivers be used to create
strategic fit for a PC manufacturer targeting both time sensitive and price conscious
customers?

The logistical drivers, facilities, inventory, and transportation, and the cross-functional
drivers, information, sourcing, and pricing, must be used in concert to achieve the
appropriate balance of efficiency and responsiveness for the supply chain to be
successful. A PC manufacturer that wants to deliver product both quickly and efficiently
can make cost and time trade-offs among these drivers to achieve their goals. These trade
offs across drivers afford more flexibility but require constant vigilance as the trade-offs
within each driver change. In addition, some drivers may be altered more easily, e.g.,
order quantity and transportation media, than other drivers, e.g., location and sourcing.

The trade-offs within each driver are summarized in the table:

Driver More Responsive More Efficient

Facilities Multiple Plants Single Plant
Flexible Plants Dedicated Plant
Inventory Higher Inventory Lower Inventory
Transportation Higher Speed Lower Speed
Information Accurate Less Accurate
Real Time Transmission Batched Transmission
Sourcing Responsive supplier Efficient supplier
Pricing Differential Pricing Everyday Low Pricing

9. On which supply chain drivers should a firm trying to shrink its cash-to-cash cycle
focus?

The overall cash-to-cash cycle time (or Days Working Capital) is the number of days of
working capital required for a company to operate:

Days Working Capital = (Days Inventory Outstanding + Days Sales Outstanding) – Days
Payable Outstanding

Where,
Days Inventory Outstanding (DIO) = Inventory / (Revenue / 365)
Days Sales Outstanding (DSO) = (Account Receivables / Revenue) / 365
Days Payable Outstanding (DPO) = (Account Payables / Revenue) / 365

The most important thing for a company to remember is that their DSO is their supplier's
DPO – a change in one impacts the other. For example, it's a common practice for large
companies to try to extend payables to improve the cash-to-cash cycle. Some companies will

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Full file at https://testbankuniv.eu/Supply-Chain-Management-5th-Edition-Chopra-Solutions-Manual

move from using Sight Letters of Credit to Open Account with 30 day payment terms or
stretch their Open Account 30 day terms out to 45 or 60 days. Though this will improve the
company's DPO ratio, it will also affect their suppliers who will have to respond to a
ballooning DSO.

Days Inventory Outstanding is the final component of the cash-to-cash cycle and the most
closely tied to the physical supply chain. Any given extended supply chain is going to require
some level of inventory to fulfill customer service levels, keep manufacturing processes
running and buffer variability in the physical world. When strategizing inventory, there are
two critical questions that need to be answered:

 Where should inventory be held or stored in the extended supply chain?

 What is the critical balancing point between necessary inventory and waste that needs
elimination?

10. Would you expect a brick-and-mortar retailer or an online retailer to have a higher
asset turnover? Which supply chain drivers impact asset turnover?

Although the initial response of most students will be an online retailer, we must remind
them that they need to look at the overall supply chain drivers and metrics that affect asset
turnover. They will confuse choice with availability when comparing a brick-and-mortar
retailer to an online retailer. Although true that an online retailer can appear to have more
choices for the shopper, the availability of those choices still comes down to how much
physical inventory do they really have in stock. Remind them of experiences they have had
with ordering online to only receive an out-of-stock message when actually adding the item
to their “shopping cart”. Most studies have shown, that an online retailer, on average has a
slightly higher asset turnover, this advantage shrinks when it comes to availability and
response time.

A supply chain is an integrated entity that is a result of its facilities, inventory, transportation,
information, sourcing, and pricing and how these items function together, all of these drivers
impact asset turnover. The degree to which they impact, relies in the overall strategy of the
company in relationship to its customers, suppliers and financial ownership.

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3-4

Full file at https://testbankuniv.eu/Supply-Chain-Management-5th-Edition-Chopra-Solutions-Manual

Name: Gokwo P. Chirtau
Student Number: 16030241050

CHAPTER 3 DISSCUSSION QUESTION

1. How could a grocery retailer use inventory to increase the responsiveness of the
company’s supply chain?
This can be done by locating large amounts of inventory close to the customer.This can be done
by increasing the cycle inventory or reducing the cycle time.Keeping in mind that some items h
ave a shelf life time or expiry date which should not exceeded
2. How could an Auto manufacturer use transportation to increase the efficiency of its
supply chain?
This can be done through reducing transportation costs by choosing cheap modes of
transportation, designing an efficient transportation network. Transportation can be done in-
house or outsourced
3. How could a bicycle manufacturer increase responsiveness through its facilities?
Building more facilities will improve responsiveness, to keep efficiency as high as possible have
warehouses near the high demand markets and ship the bicycles parts’ to them from the main f
actories and then reassemble parts in the retailers place.
4. How could an industrial supplies distributor use information to increase its
responsiveness?
Firstly, it is important to have a good forecasting technique in order to estimate future sales or
market conditions. Then the management has to decide for another technology to collect data
for itself and exchange data with manufacturers or warehouses who supply goods. This
technology may include EDI (electronic data interchange), internet, ERP (enterprise resource
planning), SCM (supply chain management) software or even RFID (radio frequency
identification) in order to communicate market data in a proper and fast way so not run into
shortage
5. Motorola has gone from manufacturing all its cell phones in house to almost completely
outsourcing the manufacturing. What are the pros and cons of the two approaches?
The pros of out sourcing is using low cost labor in foreign countries, which can greatly reduce
operating cost. The cons is increased lead-time, it usually will take several weeks to move
products form the manufacturing site to the market place. Goods that have an unpredictable
demand are at an even greater disadvantage by outsourcing, if there is a surge in sells inventory
cannot be quickly replaced due to transportation time between the markets and manufacturing
locations. When companies choose to outsource they also give up some control over the
manufacturing process and possibly some of its design talent and assembly expertise because it
felt that the supplier could provide product of an appropriate level of quality with the
responsiveness necessary.
 6. How can a home-delivery company like Peapod use pricing of its delivery services to
improve its profitability?
Peapod can use everyday low pricing of its products to ensure stability in the supply chain, but
can influence demand by varying the delivery charges. For example, by establishing a minimum
order amount of $50 and charging $10 to deliver an order under $75, Peapod provides an
incentive for a customer to pile on additional items to save on per unit shipping. An order over
$100 incurs a delivery fee of $7, which is the lowest delivery charge for a residential customer.
Peapod also varies delivery charges by time of day; evening delivery times on weekdays and
morning deliveries on Sunday within narrow windows cost an extra dollar, wider delivery
windows are $1 less. The delivery latitude allows Peapod’s delivery drivers to schedule more
efficiently thereby increasing profitability.
7. What are some industries in which products have proliferated and life cycles have
shortened? How have the supply chains in these industries adapted?
In the textbook, shoes are used as an example, from five styles of shoes in the 70s to over 300
by the 90s. An example of similar products would be electronics (phones) and beverages (soft
drinks, coffees, etc.). Supply chains have leveraged information systems, recognized the need
to collaborate on product and process design, and supply chain execution. The supply chain
stance has shifted towards a partnership orientation from a focus on price negotiations.
8. How can the full set of logistical and cross-functional drivers be used to create strategic
fit for a cell phone manufacturer targeting both time-sensitive and price-conscious
customers?
A full set of logistical and cross-functional drivers can be used to create strategic fit for a cell
phone manufacturer targeting both time sensitive and price conscious customers by using a
strategy that involves facilities, inventory, transportation, information, sourcing, and pricing.
The facility should have a good distribution network. Inventory should stay close to the
customer. Transportation should cater to the targeted customers. Information should be
updated regularly. To increase efficiency, the cell phone manufacturer could outsource a few
manufacturing processes. Time sensitive customers should be charged more for the extra value
being provided
9. On which supply chain drivers should a firm trying to shrink its cash-to-cash cycle focus?
A firm trying to shrink its cash-to-cash cycle should focus on inventory and its cash-to-cash
cycle time. The cycle time includes inventories, accounts payable and receivables. The cash-
to-cash cycle measures the average amount of time from when cash enters the process as
cost to when it returns as collected revenue.
10. Would you expect a brick-and-mortar retailer or an online retailer to have a higher asset
turnover? Which supply chain driver’s impact asset turnover?
The supply chain drivers that affect asset turnover are accounts receivable, inventory, and
facilities. I would expect an online retailer to have a higher asset turnover over a brick-and-
mortar retailer because they can adapt more easily to change and can be more lenient with
their prices.
 CASE STUDY: SEVEN-ELEVEN JAPAN CO.
1. A convenience store chain attempts to be responsive and provide customers what they
need, when they need it, where they need it. What are some different ways that a
convenience store supply chain can be responsive? What are some risks in each case?
A convenience store can be more responsive by operating in many locations, rapid
replenishment, appropriate technology deployment, and an equally responsive supplier,
vertical integration for many of their SKUs. The risks associated with this system are the costs
coupled with demand uncertainty. If demand patterns change dramatically, or the customer
base changes, then the convenience store is left with an operation that is not needed.
2. Seven-Eleven’s supply chain strategy in Japan can be described as attempting to micro-
match supply and demand using rapid replenishment. What are some risks associated
with this choice?
Micro-matching supply and demand using rapid replenishment assumes that each store will
repeat the same demand pattern on a daily basis. The tour bus phenomenon, where a group of
unanticipated customers comes to the store and buys all of a type of product will cause
difficulty for regular customers. During such an event, the store will likely stock out and
customers may visit the next Seven-Eleven site down the block to make their purchases. Some
of this demand may permanently shift, causing a local ripple; the replenishment may be
excessive at one site and insufficient at an adjacent site for the next cycle. Another possible
issue would result from delays in transportation; although deliveries are scheduled for off-peak
hours, a disruption in traffic flow will result in low service levels for the next wave of demand.
3. What has Seven-Eleven done in its choice of facility location, inventory management,
transportation, and information infrastructure to develop capabilities that support its supply
chain strategy in Japan?

All choices made by Seven-Eleven are structured to lower its transportation and receiving costs.
For example, its area dominance strategy of opening at least 50-60 stores in an area helps with
marketing but also lowers the cost of replenishment. All manufacturing facilities are centralized
to get the maximum benefit of capacity aggregation and lower the inbound transportation cost
from the manufacturer to the distribution center. Seven-Eleven also requires all suppliers to
deliver to the distribution center where products are sorted by temperature. This reduces the
outbound transportation cost because of aggregation of deliveries across multiple suppliers. It
also lowers the receiving cost. The information infrastructure is set up to allow store managers
to place orders based on analysis of consumption data. The information infrastructure also
facilitates the sorting of an order at the distribution center and receiving of the order at the
store. The key point to emphasize here is that most decisions by Seven-Eleven are structured to
aggregate transportation and receiving to make both cheaper.
4. Seven-Eleven does not allow direct store delivery in Japan but has all products flow through its
distribution center. What benefit does Seven-Eleven derive from this policy? When is direct
store delivery more appropriate?

Direct store delivery would lower the utilization of the outbound trucks from the Seven-Eleven
distribution center. It would also increase the receiving costs at the stores because of the
increased deliveries. Thus, Seven-Eleven forces all suppliers to come in through the distribution
center. Direct store delivery is most appropriate when stores are large and nearly full truckload
quantities are coming from a supplier to a store. This was the case, for example, in large U.S.
Home Depot stores. For smaller stores it is beneficial to have an intermediate aggregation point
to lower the cost of freight.
5. What do you think about the 7dream concept for Seven Eleven Japan? From a supply chain
perspective, is it likely to be more successful in Japan or the United States? Why?

7dream makes sense given that Japanese customers are happy to receive their shipments at
the local convenience store. From a logistics perspective, online deliveries can gain from Seven-
Eleven’s existing distribution network in Japan. Deliveries from the online supplier can be
brought to the distribution center where they are sorted along with other deliveries destined
for a store. This should increase the utilization of outbound transportation allowing Seven-
Eleven to offer a lower cost alternative to having a package carrier deliver the product at home.
The primary negatives are that 7dream will use up storage space and require the store to be
able to retrieve specific packages for customers. Another thing to consider is that the concept
may be more successful in Japan because of the existing distribution network of Seven-Eleven
and the frequency of visits by customers. Online delivery is able to link with the existing
network. The high visit frequency ensures that packages are not occupying valuable store shelf
space for a long time also; the frequent visits ensure that the marginal cost to the customer of
picking up at a Japanese Seven-Eleven is small.
6. Seven-Eleven is attempting to duplicate the supply chain structure that has succeeded in Japan
and the United States with the introduction of CDCs. What are the pros and cons of this
approach? Keep in mind that wholesalers and DSD by manufacturers also replenish stores.

The difficulty of duplicating the Japan supply chain structure in the US is the fewer number of
Seven-Eleven stores this is compounded by the fact that Seven-Eleven stores are getting both
direct store deliveries as well as wholesaler deliveries to its stores. Setting up its own
distribution centers does not allow Seven-Eleven to get the same level of transportation
aggregation as it gets in Japan. Its own distribution system would help more if all wholesaler
deliveries and direct store deliveries were stopped and routed through the distribution center.
Even then, having its own distribution system would add much less value than in Japan given
the lower density of stores and larger distance between stores.
7. The United States has food service distributors that also replenish convenience stores. What are
the pros and cons to having a distributor replenish convenience stores versus a company like
Seven-Eleven managing its own distribution function?

Given the lower density of stores, a distributor is able to aggregate deliveries across many
competing stores. This allows a distributor to reach levels of aggregation that cannot be
achieved by a single chain such as Seven-Eleven. The big disadvantage to having all deliveries
done through a distributor is that Seven-Eleven is unable to exploit having a large number of
stores. In fact, it may be argued that going through the distributor has Seven-Eleven subsidize
deliveries to competing smaller chains that may also be using the same distributor.
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Chapter 1,2&3 essay questions

Supply chain management (York University)

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Chapter 1

1. Explain the 3 decision phases (categories) that must be made in a successful

supply chain.

Answer: The 3 decision phases that occur within a supply chain are supply chain
strategy (or design), supply chain planning and supply chain operation. Decisions
relate to the flow of information, product and funds. The difference between
categories depends upon the frequency of each decision and the time frame over
which it has an impact. During the supply chain strategy phase, a company
determines what the chain’s configurations will be, how resources will be
allocated, and what processes each stage will perform. This will establish the
structure of the supply chain for several years. Supply chain planning deals with
decisions with a time frame from 3 months up to a year. The planning phase
must work within the constraints established in the strategy phase. Planning
decisions include which markets to supply from which locations, subcontracting
of manufacturing, inventory policies and timing and size of marketing promotions.
The supply chain operation phase operates on a weekly or daily time horizon and
deals with decisions concerning individual customer orders.
Difficulty: Hard

2. Describe the cycle view of the processes within a supply chain.

Answer: The cycle view divides the supply chain into a series of 4 cycles
between the 5 different stages of a supply chain. The cycles are the customer
order cycle, replenishment cycle, manufacturing cycle and procurement cycle.
The customer order cycle occurs at the customer/retailer interface and includes
all processes directly involved in receiving and filling the customer. The
replenishment cycle occurs at the retailer/distributor interface and includes all
processes involved in replenishing retailer inventory. The manufacturing cycle
typically occurs at the distributor/manufacturer (or retailer/manufacturer) interface
and includes all processes involved in replenishing distributor (or retailer)
inventory. The procurement cycle occurs at the manufacturer/supplier interface
and includes all processes necessary to ensure that the materials are available
for manufacturing according to schedule.
Difficulty: Moderate

3. Explain the push/pull view of the processes within a supply chain.

Answer: The push/pull view of the supply chain divides supply chain processes
into two categories based on whether they are executed in response to a
customer order or in anticipation of customer orders. Pull processes are initiated
in response to a customer order. Push processes are initiated and performed in
anticipation of customer orders. The push/pull boundary separates push
processes from pull processes. This view is very useful when considering
strategic decisions relating to supply chain design, because it forces a
more global consideration of supply chain processes as they relate to the
customer.
Difficulty: Moderate

4. Explain the three macro processes within a supply chain.

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Answer: All processes within a supply chain can be classified into three macro
processes which are Customer Relationship Management (CRM), Internal
Supply Chain Management (ISCM), and Supplier Relationship Management
(SRM). Customer Relationship Management (CRM) includes all processes that
focus on the interface between the firm and its customers such as marketing,
sales, call center management and order management. Internal Supply Chain
Management (ISCM) includes all processes that are internal to the firm such as
preparation of demand and supply plans, preparation of inventory management
policies, order fulfillment and planning of capacity. Supplier Relationship
Management (SRM) includes all processes that focus on the interface between a
firm and its suppliers such as evaluation and selection of suppliers, negotiation of
supply terms and communication regarding new products and orders.
Difficulty: Moderate

5. Explain why supply chain flows are important.

Answer: Supply chain flows are important, because there is a close connection
between the design and management of supply chain flows (product, information,
and cash) and the success of a supply chain. The success of many companies
can be directly traced to the design and management of an appropriate supply
chain. The failure of many businesses can be linked directly to their inability to
effectively design and manage supply chain flows.
Difficulty: Moderate

Chapter 2
6. Discuss the two keys to the success or failure of a company.

Answer: A company’s success or failure is thus closely linked to the following

keys:
1. The competitive strategy and all functional strategies must fit together to form
a coordinated overall strategy. Each functional strategy must support other
functional strategies and help a firm reach its competitive strategy goal.
2. The different functions in a company must appropriately structure their
processes and resources to be able to execute these strategies successfully.
Difficulty: Hard

7. List and explain the three basic steps to achieving strategic fit.

Answer: There are three basic steps to achieving strategic fit:

1. Understanding the customer and supply chain uncertainty. First a company
must understand the customer needs for each targeted segment and the
uncertainty the supply chain faces in satisfying these needs. These needs help
the company define the desired cost and service requirements. The supply chain
uncertainty helps the company identify the extent of disruption and delay the
supply chain must be prepared for.
2. Understanding the supply chain capabilities. There are many types of supply
chains, each of which is designed to perform different tasks well. A company
must understand what its supply chain is designed to do well.
3. Achieving strategic fit. If a mismatch exists between what the supply chain
does particularly well and the desired customer needs, the company will either

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need to restructure the supply chain to support the competitive strategy or alter
its strategy.
Difficulty: Moderate

8. List the attributes along which customer demand from different segments can
vary.

Answer: In general, customer demand from different segments may vary along
several attributes as follows:
 The quantity of the product needed in each lot
 The response time that customers are willing to tolerate
 The variety of products needed
 The service level required
 The price of the product
 The desired rate of innovation in the product
Difficulty: Moderate

9. List the abilities included in supply chain responsiveness.

Answer: Supply chain responsiveness includes a supply chain’s ability to do the

following:
 Respond to wide ranges of quantities demanded
 Meet short lead times
 Handle a large variety of products
 Build highly innovative products
 Meet a very high service level
 Handle supply uncertainty
Difficulty: Moderate

10. Discuss the impact of the product life cycle on strategic fit between implied
demand uncertainty and supply chain responsiveness.

Answer: As products go through their life cycle, the demand characteristics and
the needs of the customer segments being served change. Supply
characteristics also change as the product and production technologies mature.
High-tech products are particularly prone to these life cycle swings over a very
compressed time span. A product goes through life cycle phases from the
introductory phase, when only the leading edge of customers is interested in it
and supply is uncertain, all the way to the point at which the product becomes a
commodity, the market is saturated, and supply is predictable. Thus, if a
company is to maintain strategic fit, its supply chain strategy must evolve as its
products enter different phases. As products mature, the corresponding supply
chain strategy should, in general, move from being responsive to being efficient.
The key point here is that demand and supply characteristics change over a
product’s life cycle. Because demand and supply characteristics change, the
supply chain strategy must also change over the product life cycle if a company
is to continue achieving strategic fit.
Difficulty: Moderate

11. Explain scope of strategic fit.

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Answer: Scope of strategic fit refers to the functions and stages that devise an
integrated strategy with a shared objective. It is a key issue relating to strategic fit
in terms of supply chain stages, across which the strategic fit applies. At one
extreme, every operation within each functional area devises its own
independent strategy with the objective of optimizing its individual performance.
In this case, the scope of strategic fit is restricted to an operation in a functional
area within a stage of the supply chain. At the opposite extreme, all functional
areas within all stages of the supply chain devise strategy jointly with a common
objective of maximizing supply chain profit. In this case, the scope of strategic fit
extends to the entire supply chain. Expanding the scope of strategic fit improves
supply chain performance. The scope of strategic fit can be represented on a
two-dimensional grid. Horizontally, the scope of strategic fit is considered across
different supply chain stages, starting from suppliers and moving all the way
along the chain to the customer. Vertically, the scope is applied to the fit
achieved across different functional strategies, competitive, product
development, supply chain, and marketing.

Chapter 3
12. List and define the four major drivers of supply chain performance.

Answer: Facilities are the places in the supply chain network where product is
stored, assembled, or fabricated. The two major types of facilities are production
sites and storage sites.
Inventory is all raw materials, work in process, and finished goods within a supply
chain. Inventory is an important supply chain driver because changing inventory
policies can dramatically alter the supply chain’s efficiency and responsiveness.
Transportation entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes.
Information consists of data and analysis concerning facilities, inventory,
transportation, and customers throughout the supply chain. Information is
potentially the biggest driver of performance in the supply chain as it directly
affects each of the other drivers.
Difficulty: Moderate

13. Explain the supply chain decision-making framework and the role of the four
major drivers.

Answer: The goal of a supply chain strategy is to strike the balance between
responsiveness and efficiency, resulting in a strategic fit with the competitive
strategy. To reach this goal, a company uses the four supply chain drivers
discussed earlier. For each of the individual drivers, supply chain managers must
make a trade-off between efficiency and responsiveness. The combined impact
of these four drivers then determines the responsiveness and efficiency of the
entire supply chain.
Most companies begin with a competitive strategy and then decide what their supply chain strategy
ought to be. The supply chain strategy determines how the supply chain should perform with respect to
efficiency and responsiveness. The supply chain must then use the supply chain drivers to reach the
performance level the supply chain strategy dictates.
Difficulty: Moderate

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14. Explain the basic trade-off between responsiveness and efficiency for each of the
major drivers of supply chain performance.

Answer: The fundamental trade-off when making facilities decisions is between

the cost of the number, location, and type of facilities (efficiency) and the level of
responsiveness that these facilities provide the company’s customers.
The fundamental trade-off when making inventory decisions is between
responsiveness and efficiency. Increasing inventory will generally make the
supply chain more responsive to the customer. This choice, however, comes at a
cost as the added inventory decreases efficiency. Therefore, a supply chain
manager can use inventory as one of the drivers for reaching the level of
responsiveness and efficiency the competitive strategy targets.
The fundamental trade-off for transportation is between the cost of transporting a
given product (efficiency) and the speed with which that product is transported
(responsiveness). The transportation choice influences other drivers such as
inventory and facilities. When supply chain managers think about making
transportation decisions, they frame the decision in terms of this trade-off.
Good information systems can help a firm improve both its responsiveness and
efficiency. The information driver is used to improve the performance of other
drivers and the use of information is based on the strategic position the other
drivers support. Accurate information can help a firm improve efficiency by
decreasing inventory and transportation costs. Accurate information can improve
responsiveness by helping a supply chain better match supply and demand.
Difficulty: Moderate

15. Explain the role of each of the major drivers of supply chain performance.

Answer: Facilities are the where of the supply chain if we think of inventory as
what is being passed along the supply chain and transportation as how it is
passed along. They are the locations to or from which the inventory is
transported. Within a facility, inventory is either processed or transformed into
another state (manufacturing) or it is stored before being shipped to the next
stage (warehousing).
Inventory exists in the supply chain because of a mismatch between supply and
demand. An important role that inventory plays in the supply chain is to increase
the amount of demand that can be satisfied by having product ready and
available when the customer wants it. Another significant role inventory plays is
to reduce cost by exploiting any economies of scale that may exist during both
production and distribution. Inventory is spread throughout the supply chain from
raw materials to work in process to finished goods that suppliers, manufacturers,
distributors, and retailers hold.
Inventory is a major source of cost in a supply chain and it has a huge impact on
responsiveness. The location and quantity of inventory can move the supply
chain from one end of the responsiveness spectrum to the other.
Inventory also has a significant impact on the material flow time in a supply
chain. Material flow time is the time that elapses between the point at which
Another important area where inventory has a significant impact is throughput.
Inventory and flow time are synonymous in a supply chain. Managers should use
actions that lower the amount of inventory needed without increasing cost or
reducing responsiveness, because reduced flow time can be a significant
advantage in a supply chain.

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Transportation moves product between different stages in a supply chain. Like

the other supply chain drivers, transportation has a large impact on both
responsiveness and efficiency. Faster transportation, whether in the form of
different modes of transportation or different amounts being transported, allows a
supply chain to be more responsive but reduces its efficiency. The type of
transportation a company uses also affects the inventory and facility locations in
the supply chain.
Information could be overlooked as a major supply chain driver because it does
not have a physical presence. Information, however, deeply affects every part of
the supply chain. Its impact is easy to underestimate as information affects a
supply chain in many different ways. Information serves as the connection
between the supply chain’s various stages, allowing them to coordinate and bring
about many of the benefits of maximizing total supply chain profitability.
Information is also crucial to the daily operations of each stage in a supply chain.
For instance, a production scheduling system uses information on demand to
create a schedule that allows a factory to produce the right products in an
efficient manner. A warehouse management system uses information to create
visibility of the warehouse’s inventory. The company can then use this
information to determine whether new orders can be filled.
Difficulty: Hard

16. Explain the role of each of the major drivers of supply chain performance in the
competitive strategy.

Answer: Facilities and their corresponding capacities to perform their functions

are a key driver of supply chain performance in terms of responsiveness and
efficiency. For example, companies can gain economies of scale when a product
is manufactured or stored in only one location; this centralization increases
efficiency. The cost reduction, however, comes at the expense of
responsiveness, as many of a company’s customers may be located far from the
production facility. The opposite is also true. Locating facilities close to customers
increases the number of facilities needed and consequently reduces efficiency. If
the customer demands and is willing to pay for the responsiveness that having
numerous facilities adds, however, then this facilities decision helps meet the
company’s competitive strategy goals.
Inventory plays a significant role in a supply chain’s ability to support a firm’s
competitive strategy. If a firm’s competitive strategy requires a very high level of
responsiveness, a company can use inventory to achieve this responsiveness by
locating large amounts of inventory close to the customer. Conversely, a
company can also use inventory to make itself more efficient by reducing
inventory through centralized stocking. The latter strategy would support a
competitive strategy of being a low-cost producer. The trade-off implicit in the
inventory driver is between the responsiveness that results from more inventory
and the efficiency that results from less inventory.
The role of transportation in a company’s competitive strategy figures
prominently when the company is considering the target customer’s needs. If a
firm’s competitive strategy targets a customer that demands a very high level of
responsiveness, and that customer is willing to pay for this responsiveness, then
a firm can use transportation as one driver for making the supply chain more
responsive. The opposite is true as well. If a company’s competitive strategy
targets customers whose main decision criterion is price, then the company can

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use transportation to lower the cost of the product at the expense of

responsiveness. As a company may use both inventory and transportation to
increase responsiveness or efficiency, the optimal decision for the company often
means finding the right balance between the two.
Information is a driver whose importance has grown as companies have used it
to become both more efficient and more responsive. The tremendous growth of
the importance of information technology is a testimony to the impact information
can have on improving a company. Like all the other drivers, however, even with
information, companies reach a point when they must make the trade-off
between efficiency and responsiveness.
Difficulty: Hard

Chapter 4
17. Explain the measures of customer service that are influenced by the structure of
the distribution network.

Answer: Response time is the time between when a customer places an order
and receives delivery.
Product variety is the number of different products/configurations that a
customer desires from the distribution network.
Availability is the probability of having a product in stock when a customer order
arrives.
Customer experience includes the ease with which the customer can place and
receive their order. It also includes purely experiential aspects, such as the
possibility of getting a cup of coffee and the value that the sales staff provides.
Order visibility is the ability of the customer to track their order from placement
to delivery.
Returnability is the ease with which a customer can return unsatisfactory
merchandise and the ability of the network to handle such returns.
Difficulty: Moderate

18. Explain how the design of the distribution network affects the cost of the four
supply chain drivers.

Answer: As the number of facilities in a supply chain increases, the inventory and
resulting inventory costs also increase. To decrease inventory costs, firms try to
consolidate and limit the number of facilities in their supply chain network.
Outbound transportation costs per unit tend to be higher than inbound costs
because inbound lot sizes are typically larger. Increasing the number of
warehouse locations decreases the average outbound distance to a customer
and makes outbound transportation distance a smaller fraction of total distance
traveled by the product. Thus, as long as inbound transportation economies of
scale are maintained, increasing the number of facilities decreases total
transportation cost. Facility costs decrease as the number of facilities is reduced,
because a consolidation of facilities allows a firm to exploit economies of scale.
As the number of facilities increases, total logistics costs first decrease and then
increase. Each firm should have at least the number of facilities that minimize
total logistics costs.
As a firm wants to further reduce the response time to its customers, it may have
to increase the number of facilities beyond the point that minimizes logistics
costs. A firm should add facilities beyond the cost-minimizing point only if

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managers are confident that the increase in revenues because of better

responsiveness is greater than the increase in costs because of the additional
facilities. In general, no distribution network will outperform others along all
dimensions. Thus, it is important to ensure that the strengths of the distribution
network fit with the strategic position of the firm.
Difficulty: Hard

19. Explain the six distinct distribution network designs that may be used to move
products from factory to customer.

Answer: In manufacturer storage with direct shipping, product is shipped

directly from the manufacturer to the end customer, bypassing the retailer (who
takes the order and initiates the delivery request). This option is also referred to
as drop-shipping with product delivered directly from the manufacturer to the
customer location.
Manufacturer storage with direct shipping and in-transit merge is similar to
pure drop-shipping, except that pieces of the order coming from different
locations are combined so that the customer gets a single delivery.
Distributor storage with package carrier delivery is being used when
inventory is not held by manufacturers at the factories, but is held by
distributors/retailers in intermediate warehouses, and package carriers are used
to transport products from the intermediate location to the final customer.
Distributor storage with last mile delivery is being used when the
distributor/retailer delivers the product to the customer’s home instead of using a
package carrier.
Manufacturer/distributor storage with customer pickup is being used when
inventory is stored at the manufacturer or distributor warehouse but customers
place their orders online or on the phone and then come to designated pickup
points to collect their orders.
Retail storage with customer pickup is being used when inventory is stored
locally at retail stores and customers walk into the retail store or place an order
online or on the phone and pick it up at the retail store.
Difficulty: Moderate

20. Explain how distributors add value to a supply chain and improve its
performance.

Answer: Distributors add value to a supply chain between a supply stage and a
customer stage if there are many small players at the customer stage, each
requiring a small amount of the product at a time. The value added increases if
distributors carry products from many manufacturers. Improvement in supply
chain performance occurs for the following reasons:
 Reduction in inbound transportation cost because of TL shipments from
manufacturers to distributor.
 Reduction in outbound transportation cost because the distributor combines
products from many manufacturers into a single outbound shipment.
 Reduction in inventory costs because distributor aggregates safety inventory
rather than disaggregating at each retailer.

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 A more stable order stream from distributor to manufacturer (compared to

erratic orders from each retailer) allows manufacturers to lower cost by
planning production more effectively.
 By carrying inventory closer to the point of sale, distributors are able to
provide a better response time than manufacturers can.
 Distributors are able to offer one-stop shopping with products from several
manufacturers.
Difficulty: Hard

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Discussion ch05 - sea

Supply chain management (York University)

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Chopra/Meindl 3/e

CHAPTER 5
Discussion Questions

1. How do the location and size of warehouses affect the performance of a firm such
as Amazon.com? What factors should Amazon.com take into account when
making this decision?
The location and size of Amazon’s warehouses have a direct bearing on how
responsive and efficient they can be. At one time Amazon ran their on-line
bookstore out of one warehouse in Seattle; this warehouse was small by today’s
standards and was unable to keep up with peak demand. Amazon has since added
other geographically distributed warehouses that hold the items with steadier
demand. The dispersion of warehouses allows Amazon to ship from closer to the
customers and the stocking of items with more even demand allows for a higher
service level at a reasonable cost.
Amazon should consider what regions are underserved by the current network of
warehouses and where it is most economical to locate the next warehouse,
effectively balancing their efficiency and responsiveness with their strategy.

2. How do import duties and exchange rates affect the location decision in a supply
chain?
Tariffs refer to any duties that must be paid when products are moved across
international, state, or city boundaries. If a tariff is excessive, it provides a strong
disincentive to do business across borders with entities in that area. The classic
workaround to a high tariff is adding a location inside the area. Some regions
have developed trade agreements that limit or eliminate the tariff on goods.
Exchange rates specify how much one currency is worth in terms of another. As
one currency gains against another, it may be beneficial to add shift production to
the area using the devalued currency. This makes the goods more affordable for
the population. Companies with flexible production capabilities can shift some
production from area to area depending on the buying power of local markets.

3. What are different roles played by production facilities within a global network?
The different strategic roles for facilities in a global network are as follows:
 Offshore facility: low-cost facility for export production. This is strictly a
low-cost producer for an export market
 Source facility: low-cost facility for global production. This facility is also
viewed as a low-cost provider, but provides output for the entire global
network.
 Server facility: regional production facility This facility supplies the
market in the country where it is located
 Contributor facility: regional production facility with development skills.
This facility serves the market where it is located but is also responsible
for customization that increases salability in that country.

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Chopra/Meindl 3/e

 Outpost facility: regional production facility built to gain local skills. This
facility plays the role of a server facility but more importantly, it obtains
access to knowledge or skills that exist in that region.
 Lead facility: facility that leads in development and process technologies.
This facility creates new processes, technologies and products for the
entire network.

4. Amazon.com has built new warehouses as it has grown. How does this change
affect various cost and response times in the Amazon.com supply chain?
Logistics and facility costs incurred within a supply chain change as the number
of facilities, their location, and capacity allocation is changed. As Amazon has
added warehouses, their logistics, inventory and facility costs have changed. An
increased number of warehouses increases that fixed cost but can be exploited to
reduce transportation costs. These potentially fall if the warehouses are spread
throughout a distribution area, which increases responsiveness at a similar cost or
maintains responsiveness at a reduced cost. Inventory costs also change with an
increased number of warehouses; Amazon is holding more total inventory and can
take advantage of pooling to reduce quantities of some items.

5. McMaster-Carr sells maintenance, repair, and operations equipment from five

warehouses in the United States. WW Grainger sells products from more than 350
retail locations, supported by several warehouses. In both cases, customers place
orders using the Web or on the phone. Discuss the pros and cons of the two
strategies.
WW Grainger has the more responsive network; a customer with a critical repair
need can drive to a local retail location to pick up the necessary part. McMaster
Carr’s network is less responsive; critical supplies would be scheduled for
overnight delivery in all likelihood. WW Grainger has the greater facility cost
since it has more locations, although the retail facilities provide a presence that
doubles as a marketing tool not enjoyed by McMaster Carr. McMaster Carr’s
facility expense is much lower and their network model shifts the transportation
cost more fully to the customer. A WW Grainger customer travels the last mile to
pick up an order, but Grainger must ship from their warehouse to the retail
locations.

6. Consider a firm such as Dell, with very few production facilities worldwide. List
the pros and cons of this approach and why it may or may not be suitable for the
computer industry.
The advantage for Dell’s network design is lower facility costs; they can locate in
just enough countries to avoid tariffs and mitigate some of their exchange rate and
demand risk. The disadvantage for Dell is the lack of responsiveness this adds to
their system. A customer has no expectation of zero flow time, so they know as
they enter the transaction that they must wait for their PC. Shipping from one of
the production facilities adds to the delay, which is highly visible on Dell’s or the
package carrier’s web site. The shipping costs might also be a concern for some

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Chopra/Meindl 3/e

customers, but the value to shipping cost ratio is so high that these costs seem like
small potatoes in comparison to the total invoice.

7. Consider a firm such as Ford, with more than 150 facilities worldwide. List the
pros and cons of having many facilities and why it may or may not be suitable for
the automobile industry.
As of this writing, Ford has reached the conclusion that this number is a bit high!
Automakers often use a multiplant strategy to create server facilities. These server
facilities provide product for the market where they are located, thereby taking
advantage of tax incentives, local content requirements, tariff barriers, and high
logistics costs. This can be a good strategy if market demand exists for your
product; when demand drops, the producer is left with expensive excess capacity.
If the facilities are flexible, production of popular models can continue to prepare
product for export. If facilities are inflexible or all sales are flat, then the producer
must bear the cost or shed assets.

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CHAPTER TEN
Discussion Questions

1. Consider a supermarket deciding on the size of its replenishment order from

Proctor & Gamble. What costs should it take into account when making this
decision?

The main cost categories for the supermarket’s inventory policy are material
costs, ordering costs, and holding costs. Material cost is the money paid to Proctor
and Gamble for the goods themselves. Ordering costs, also called procurement
costs, are incurred by requesting the goods from the supplier and are fixed in the
sense that they do not vary with the size of the order. Examples of such fixed
costs are the labor required to place the order, handle the resultant paperwork and
the transportation fee to ship the order. The holding cost is the cost to carry one
unit in inventory for a specified period of time, usually one year. This cost is
variable and includes the cost of capital and all of the costs associated with
physically storing inventory – shrinkage, spoilage or obsolescence, insurance, the
cost of capital, the cost of the warehouse space, etc.

2. Discuss how various costs for the supermarket change as it decreases the lot size
ordered from Proctor & Gamble.

As the lot size ordered from the supplier decreases, the holding cost (variable with
respect to lot size) decreases. As the lot size decreases, the ordering cost remains
the same, but the annual ordering cost will rise since the total number of orders
each year must increase. As the lot size decreases, the cost of the materials will
drop on a per-order basis but will stay the same on an annual basis since total
annual demand hasn’t changed.
The exception to this occurs if the supplier has a price break for an order size
above a certain threshold; in this case the cost of the goods might increase if the
reduced order size is not sufficient to trigger a substantial per unit discount.

3. As demand at the supermarket chain grows, how would you expect the cycle
inventory measured in days of inventory to change? Explain.

As the demand at the supermarket chain grows, we would expect the cycle
inventory as measured in days of inventory to also increase, although the increase
in cycle inventory is only 40% of the increase in demand. This is because the
relationship between the optimal lot size Q* and the annual demand D is
2DS
Q* = . Since D is under the radical, its doubling to 2D does not translate to
hC
a jump from a Q* to a 2Q* order; it translates to a jump from a Q* to a 1.4Q*
order.
Chopra/Meindl 4/e

4. The manager at the supermarket wants to decrease the lot size without increasing
the costs he incurs. What actions can he take to achieve his objective?

One action would be to simply decrease the lot size and let the robust nature of
the EOQ model work its magic. The total cost curve on either side of the optimal
order quantity, the Q*, is relatively flat, so movements in either direction have
little impact on total annual procurement and carrying costs.
If greater cuts in lot size are desired, the manager can aggregate multiple products
in a single order. Recall that the EOQ model is based on a one-product-at-a-time
assumption; if multiple products are aggregated, then the fixed procurement cost
is spread over all of the items and dramatic lot size reductions are possible. If the
same products are being ordered by another supermarket in the same chain (or at
least by stores that are willing to cooperate) the combined orders can be delivered
by a single truck making multiple stops, thereby reducing transportation expense.
Other techniques that should be deployed when aggregating across product lines
include advanced shipping notices and RFID tags that will make inventory
tracking and warehouse management simpler.

5. When are quantity discounts justified in a supply chain?

Quantity discounts are justified in a supply chain as long as they are the fruits of a
coordinated supply chain and maximize total supply chain profits. For commodity
products for which price is set by the market, manufacturers with large fixed costs
per lot can use lot size-based quantity discounts to maximize total supply chain
profits.

6. What is the difference between lot size-based and volume-based quantity

discounts?

Lot size discounts are based on the quantity purchased per lot, not the rate of
purchase. Lot size-based discounts tend to raise cycle inventory in the supply
chain by encouraging retailers to increase the size of each lot. Lot size-based
discounts make sense only when the manufacturer incurs a very high fixed cost
per order. For commodity products for which price is set by the market,
manufacturers with large fixed costs per lot can use lot size-based quantity
discounts to maximize total supply chain profits.

Volume discounts are based on the rate of purchase or volume purchased per
specified time period. Volume-based discounts are compatible with small lots that
reduce the cycle inventory. If the manufacturer does not incur a very high fixed
cost per order, it is better for the supply chain to have volume-based discounts.
For products for which a firm has market power, volume-based discounts can be
used to achieve coordination in the supply chain and maximize supply chain
profits.
Chopra/Meindl 4/e

7. Why do manufacturers such as Kraft and Sara Lee offer trade promotions? What
impact do trade promotions have on the supply chain? How should trade
promotions be structured to maximize their impact while minimizing the
additional cost they impose on the supply chain?

Manufacturers use trade promotions to offer a discounted price and a time period
over which the discount is effective. The goal of manufacturers such as Kraft and
Sara Lee is to influence retailers to act in a way that helps the manufacturer
achieve its objectives. These objectives may include increased sales, a shifting of
inventory from manufacturer to retailer, and defense against the competition.
Trade promotions may cause a retailer to pass through some or all of the
promotion to customers to spur sales, which increases sales for the entire supply
chain. What happens more frequently in practice is that retailers may choose to
pass through very little of the promotion to customers, purchase in greater
quantities, and hold this cheaper inventory in greater quantities. This action
increases both cycle inventory and flow times within the supply chain.
Trade promotions should be structured such that a retailer’s optimal response
benefits the entire supply chain, i.e., retailers limit their forward buying and pass
along more of the discount to end customers. If the manufacturer has accumulated
excessive inventory, then a trade promotion may provide sufficient incentive to
the buyer to forward buy, thus drawing inventories down to an appropriate level.
The manufacturer may be able to smooth demand by shifting it to a period of
anticipated low demand with a trade promotion.
Research has shown that trade promotions by the manufacturer are effective for
products with high deal elasticity that ensures high pass-through (passing the
discount on to the consumer) and high holding costs that ensure low forward
buying, paper goods being the poster child for this combination. Trade
promotions are also more effective with strong brands relative to weak brands and
may make sense as a competitive response.

8. Why is it appropriate to include only the incremental cost when estimating the
holding and order cost for a firm?

The cycle inventory models discussed in the chapter are robust; thus incremental
(variable) costs per lot size are more important than costs that are fixed with
respect to lot size. The labor component of procurement or setup costs may be
salaried; therefore changes in lot size do not impact this component.
Chopra/Meindl 4/e

CHAPTER FOURTEEN
Discussion Questions

1. What are some ways that a firm such as Wal-Mart benefits from good sourcing
decisions?

The bottom line is that good sourcing decisions improve profits for the firm and
total supply chain surplus. The authors’ list of benefits derived from effective
sourcing decisions includes:
• Better economies of scale can be achieved if orders within a firm are
aggregated.
• More efficient procurement transactions can significantly reduce the
overall cost of purchasing.
• Design collaboration can result in products that are easier to manufacture
and distribute, resulting in lower overall costs.
• Good procurement processes can facilitate coordination with the supplier
and improve forecasting and planning (lowering inventories and
improving the match of supply and demand).
• Appropriate supplier contracts can allow for the sharing of risk, resulting
in higher profits for both the supplier and the buyer.
• Firms can achieve a lower purchase price by increasing competition
through the use of auctions.

2. What factors lead Wal-Mart to own its trucks although many retailers outsource
all their transportation?

Wal-Mart is able to run its own fleet of trucks because it can ship TL throughout
its supply chain. Wal-Mart’s shipment sizes are large and the company achieves
aggregation across the many retail stores it owns. If Wal-Mart elected to go with a
carrier, they might be able to match Wal-Mart’s costs, but Wal-Mart would cede
control to the carrier.

3. How can a supplier with a lower price end up costing the buyer more than a
supplier with a higher price?

Lower price can be achieved by sacrificing product quality, product reliability,

and process control, which ultimately will cost the outsourcer more than the total
variable cost saved. The cost of coordination is often underestimated; the
outsourcer offloads relatively low-skilled labor but increases the burden on mid
and upper management in controlling the production. A firm may also lose
customer/supplier contact that causes them to miss opportunities that may have
been recognized with a more direct relationship.
Chopra/Meindl 4/e

4. Explain why, for the same inventory level, a revenue-sharing contract results in
lower sales effort from the retailer than if the retailer has paid for the product and
is responsible for all remaining inventory.

The retailer puts forth a lower sales effort because they are paid less on a per unit
basis to sell items under a revenue sharing contract than under a buyback or a
classic retail contract. The manufacturer and retailer agree to share a fraction of
the retailer’s revenue after agreeing on a low wholesale price. The low wholesale
price triggers a larger order from the retailer, and this can increase supply chain
surplus if all product is sold. What happens in practice is that the retailer has a
smaller upside under the revenue sharing arrangement and loses the incentive to
push merchandise.

5. For a manufacturer that sells to many retailers, why does a quantity flexibility
contract result in less information distortion than a buy-back contract?

A buy-back contract allows a retailer to return unsold inventory to the supplier;

the contract will stipulate the maximum amount returnable and the reimbursement
amount the retailer will receive. A buy-back contract provides an incentive for the
retailer to place a larger order and make product more available and can increase
total supply chain surplus. A downside of buy-back contracts is information
distortion, i.e., the supply chain is aware of the retailers’ orders and not the actual
customer demand until the sales period has ended. This problem is exacerbated by
a situation involving multiple retailers each of which holds inventory.
A quantity flexibility contract permits the retailer to change the quantity ordered
after observing demand; the contracts are similar to buy-back contracts except no
returns are required. With a quantity flexibility contract, retailers specify only the
range within which they will purchase, well before actual demand arises. The
supplier can aggregate inventory across all retailers and build a lower level of
surplus inventory. Since retailers order closer to the point of sale when demand is
more visible and less uncertain; the uncertainty is aggregated by a supplier that
enjoys lower information distortion.

6. Most firms offer their sales force monetary incentives based on exceeding a
specified target. What are some pros and cons of this approach? How would you
modify these contracts to rectify some of the problems?

Two incentive oriented contracts discussed in the chapter are the two-part tariff
and the threshold contract. The two-part tariff increases sales agent effort by
allowing the retailer to acquire product at cost and letting the dealer’s margin be
the supply chain margin. Threshold contracts establish greater rewards for the
retailer as total sales reach successively higher brackets. These incentives can
increase supply chain profits but can also be gamed to maximize retailer/agent
bonuses without benefiting the manufacturer. Sales can be postponed from one
sales period to the next by slow-playing customers, post-dating paperwork, and
minimizing efforts. The sales that would have occurred in period 1 are delayed to
Chopra/Meindl 4/e

period 2, during which sales efforts are maximized; for the same level of sales, the
agent has an increased commission, but the manufacturer realizes a lower profit.
This gamesmanship also causes information distortion at the producer.
These problems can be avoided by modifying the contracts with a rolling horizon.
Rather than creating a high bonus period over a fixed period of time, reduced
bonuses can be offered continuously over a shorter time period. The rolling
periods have many “last weeks” built in and lead to a more constant level of effort
from the retail sites.

7. An auto manufacturer sources both office supplies and subsystems such as seats.
What, if any, difference in sourcing strategy would you recommend for the two
types of products?

For an auto manufacturer, seats are considered direct materials (components used
to make finished goods) while office supplies are indirect materials (goods used to
support the operation of a firm). The procurement process for direct materials
should be designed to ensure that components are available in the right place, in
the right quantity, and at the right time. Sources should be carefully selected to
ensure that quality and responsiveness are acceptable and that a long-term
relationship is possible. The primary goal of the procurement process should be to
make production plans and current levels of component inventory at the
manufacturer visible to the supplier and should have alerts built into it if
mismatches between supply and demand are detected.
The procurement process for indirect materials should be on reducing the
transaction cost of each order. These items are not critical and can be purchased in
bulk with an eye towards aggregation and cost savings. Stockout costs are low in
comparison with direct materials so sourcing decisions are not as critical.

8. How can design collaboration with suppliers help a PC manufacturer improve

performance?

Design collaboration with suppliers can help a firm reduce cost, improve quality,
and decrease time to market. These performance metrics are increasingly
influenced by suppliers since between 50 and 70 percent of the spending at a
manufacturer is through procurement.
Costs can be reduced by designing the product for postponement and mass
customization. If the product’s design permits the use of standardized parts or
modules, the manufacturer can save on inventory holding costs and training for
assembly and repair labor. Costs are also reduced by increasing attention to
design for manufacturability.
Quality is increased by applying robust design techniques, certifying suppliers,
and conducting failure modes and effects analysis. Suppliers that are specialists in
a required component can bring to bear the design skills that will improve
finished goods quality.
Chopra/Meindl 4/e

Time to market can be decreased by bringing suppliers into the design team from
the early stages of product design. An engineering drawing reference database can
eliminate the necessity for designing new parts which reduces overall design time.
Chopra/Meindl 4/e

CHAPTER FIFTEEN
Discussion Questions

1. In what ways can a retailer such as Nordstrom take advantage of revenue

management opportunities?

Nordstrom can take advantage of revenue management by using dynamic pricing

through their Nordstrom Rack stores. Dynamic pricing is the tactic of varying
price over time and is suitable for fashion and seasonal items. The Nordstrom
Rack web site indicates that there are currently 49 locations in 18 states and that
the Nordstrom Rack stores are the off-price division of Nordstrom (positioned for
the cost-conscious shopper). Merchandise that does not sell at the Nordstrom
stores is discounted 50-75% and moved to the Rack stores where it is sold in a
less attractive setting with a less generous return policy. Nordstrom Rack is
positioned such that it does not compete with Nordstrom stores, but allows the
parent company to reap the greatest return from all products stocked at
Nordstrom.

2. What revenue management opportunities are available to a manufacturer? How

can it take advantage of these opportunities?

A manufacturer’s most profitable use of revenue management comes through the

tactic of overbooking, which is the overselling of an available asset that faces last-
minute cancellations of customer orders. The manufacturer’s valuable asset is
production capacity, which is finite and loses value after a certain date; in this
case, capacity is worthless at the end of the production period or past the date that
the supply chain can fill customer orders. The tradeoff is the cost of unused
capacity with the cost of customer orders that can’t be filled and therefore must be
subcontracted. The manufacturer can compute the marginal cost of wasted
capacity and the marginal cost of a capacity shortage, form the critical ratio, and
apply this to their knowledge of the customer order distribution, thereby
increasing asset utilization.

3. What revenue management opportunities are available to a trucking firm? How

can it take advantage of these opportunities?

A trucking firm can use revenue management by offering a two-tiered pricing

system; charging smaller customers a higher price than larger customers that
consume the majority of the fleet. The rationale is that the larger customers offer
the trucking firm steady demand and the ease of dealing with only one or very
few customers. These bulk purchases are made at a discount while smaller
customers must make spot purchases at higher prices to fill up remaining
capacity.
Chopra/Meindl 4/e

4. What revenue management opportunities are available to the owner of a

warehouse and how can it take advantage of them?

A warehouse owner can lease capacity in bulk at a discount to a large company

and fill up the remaining warehouse capacity at full price to smaller customers.
The large customer offers more stable demand and more fully utilizes the
warehouse owner’s space, albeit at a discount. The smaller customer may never
materialize, so holding space for them is a risky proposition and merits a premium
price.

5. Explain the use of outlet stores such as Saks Fifth Avenue in the context of
revenue management. How does the presence of outlet stores help Saks? How
does it help its more valuable customer, who is willing to pay full price?

One way that the presence of outlet stores helps Saks is by recouping their
purchase price for items that do not sell in flagship stores. Items can be sold in the
outlet stores at a lower margin or even at a loss. Saks also benefits by freeing up
more sales floor capacity in their main stores, allowing them to stock with the
current season’s high margin merchandise.
The full-price customers of Saks benefit because the inventory level of in-season
items at Saks is higher, therefore they are more likely to find what they want.
Saks knows they can dump any unsold merchandise at the end of the season in
their outlet store; therefore Saks initial order will be higher than if they did not
use revenue management.

6. Demand for hairdresser is much higher over the weekend, when people are not at
work. What revenue management techniques can be used by such a business?

A hairdresser can use pricing and revenue management for seasonal demand;
peaks on the weekend and valleys on weekdays. The hairdresser can provide off-
peak discounting in order to shift demand from weekend to weekdays. The
hairdresser should create a price structure such that the discount given during the
off-peak period is more than offset by the decrease in cost because of a smaller
peak and the increase in revenue during the off-peak period. This tactic increases
profits for the hairdresser, decreases the price paid by a fraction of the customers,
and also brings in potentially new customers during the off-peak discount period
and is, in a word, fabulous.

7. How can a golf course use revenue management to improve financial

performance?

A golf course can use pricing and revenue management for seasonal demand
much in the way the hairdresser in the previous scenario can. By lowering the
price for less popular tee times, a golf course manager can increase revenue by
increasing the total number of players and perhaps capturing new players. A golf
course manager can also engage in overbooking for tee times, overselling the
Chopra/Meindl 4/e

course in the event that a foursome or individual players will cancel at the last
minute. Overbooking will use up more of the golf course’s capacity which might
decrease the level of customer service but will improve the course’s financial
performance.
Chopra/Meindl 4/e

CHAPTER SIXTEEN
Discussion Questions

1. What processes within each macro process are best suited to being enabled by IT?
What processes are least suited?

The macro processes in a supply chain are customer relationship management

(CRM), internal supply chain management (ISCM), and supplier relationship
management (SRM). Taken collectively, these macro processes span the entire
supply chain.
CRM processes focus on the downstream interactions between the enterprise and
its customers. The key processes under CRM are marketing, selling, and order
management, and of these three, the creative sub-processes of the marketing and
selling processes are least suited to IT enablement. The best suited processes for
IT enablement are pricing and profitability calculations, sales force automation,
and order configuration and tracking. Within order management, virtually all
processes reap the benefits of information technology.
ISCM processes focus on internal operations within the enterprise and include
strategic planning, demand planning, supply planning, fulfillment, and field
service. The use of IT to facilitate ISCM sub-processes is presented in glowing
terms in separate chapters in this text. Huge gains in efficiency and
responsiveness have been achieved via the application of IT to all aspects of
ISCM.
SRM processes focus on upstream interaction between the enterprise and its
suppliers and includes the sub-processes of design collaboration, sourcing,
negotiating, buying, and supply collaboration. The authors indicate in chapter 14
that sourcing-related IT has had the most ups and downs of any supply chain
software sector, with the primary problems being loss of flexibility and the
requirement of collaboration. Electronic marketplaces once flourished but have
since withered. This is not to say that IT does not play a role in SRM processes; in
fact, all areas are supported by IT software.

2. What are the key advantages that best-of-breed software companies provide?

The competitive arena in CRM, ISCM, and SRM can be parsed into best-of-breed
winners, ERP players, and best-of-breed startups. Best of breed companies
provide a valuable service to all sectors by defining functionality and providing
market leadership. For the CRM macro process, Siebel was the sole remaining
best of breed provider as the book went to press, but it has since been acquired by
Oracle as predicted by the authors. The ISCM and SRM macro process sectors
have had best of breed providers that have long since yielded market leadership to
ERP vendors.
Chopra/Meindl 4/e

3. What are the key advantages that large software companies, such as the ERP
players, provide?

ERP’s popularity in the 1990s drove the most successful companies to become the
largest enterprise software companies. Their size provides a wealth of resources
and collective experience that can be brought to bear on a client’s issues.
The major advantage that ERP players have relative to best-of-breed providers is
the inherent ability to integrate across the three macro processes of CRM, ISCM,
and SRM, often through the transaction management foundation.

4. What types of industries would be most likely to choose a best of breed approach
to their IT systems? What types would be more likely to choose a single large
integrated solution?

Established firms that have strong CIO leadership and see the supply chain as
encompassing the entirety of the three macro processes would probably be more
inclined to select a large integrated solution. Well-respected CIO leadership
would be essential in promoting and managing such a project. A firm that is
mature in this supply chain is fertile ground for an integrated solution.
Firms that have recently merged or integrated vertically may have a more self-
centered perspective on the supply chain and might skew towards a best-of-breed
approach. These firms might start their IT enablement with a focus on ISCM and
then seek to work either end of the supply chain with an SRM or CRM best-of-
breed implementation. Firms closer to either end of the supply chain; e.g., an
extractor of raw materials that sells to a few fabricators or a turnkey service
operation that spends most of their efforts dealing with customers might choose a
system tailored to their end of the supply chain.

5. Discuss why the high tech industry has been the leader in adopting supply chain
IT systems.

The high tech industry has been the leader in adopting supply chain IT systems
because of the mindset of the decision-makers in this sector. The high tech
workforce tends to be early adopters of new technologies; they understand there is
a risk associated with adoption but are willing to assume the risk and proceed.
High tech corporate cultures lend themselves to such ventures; there is little
resistance to change because survival in this sector depends on it.

6. Are manufacturers better candidates for IT enablement than service

organizations? Why or why not?

From a supply chain perspective, manufacturers overall are better candidates for
IT enablement than service organizations, although both can derive considerable
benefit. The tangible, standard (or modular) nature of the output affords
manufacturing this advantage. Next on the spectrum are back office service
processes which can be completely automated using information technology.
Chopra/Meindl 4/e

These back office processes can be a component of either a manufacturing or

service organization or could be stand-alone organization, e.g., medical
transcription, claims processing, payment centers, etc. This is not to say that a
pure service cannot reap the rewards of IT enablement; Pixar Studios, Peapod,
and Prudential Insurance are three companies just from the P’s that owe a great
deal of their success to information technology.
Chopra/Meindl 4/e

CHAPTER SEVENTEEN
Discussion Questions

1. What is the bullwhip effect and how does it relate to lack of coordination in a
supply chain?

The bullwhip effect refers to the fluctuation in orders along the length of the
supply chain as orders move from retailers to wholesalers to manufacturers to
suppliers. The bullwhip effect relates directly to the lack of coordination (demand
information flows) within the supply chain. Each supply chain member has a
different idea of what demand is, and the demand estimates are grossly distorted
and exaggerated as the supply chain partner is distanced from the customer.

2. What is the impact of lack of coordination on the performance of a supply chain?

The impact of lack of coordination is degradation of responsiveness and poor cost

performance for all supply chain members. As the bullwhip effect rears its ugly
head, supply chain partners find themselves with excessive inventory followed by
stockouts and backorders. The fluctuations in inventory result in increased
holding costs and lost sales, which in turn spike transportation and material
handling costs. Ultimately, the struggle with cost and responsiveness hurts the
relationships among supply chain partners as they seek to explain their lack of
performance.

3. In what way can improper incentives lead to a lack of coordination in a supply

chain? What countermeasures can be used to offset this effect?

Incentive obstacles occur in situations when different participants in the supply

chain are motivated by self interest.
Incentives that focus only on the local impact of an action result in decisions
being made that achieve a local optimum but can avoid a global (supply chain)
optimum. All supply chain partners must agree on global performance measures
and structure rewards such that members are appropriately motivated.
Sales force incentives also are responsible for counterproductive supply chain
behavior. Commissions that are based on a single short time frame can be gamed
by the sales force to maximize commission but these actions inadvertently
increase demand variability and exert pressure on the supply chain. Commissions
should be structured to provide incentives to consistently sell large volumes of
product over a broad time frame to the sell-through point.
Chopra/Meindl 4/e

4. What problems result if each stage of a supply chain views its demand as the
orders placed by the downstream stage? How should firms within a supply chain
communicate to facilitate coordination?

If each stage of a supply chain views its demand as the orders placed by their
downstream counterpart, the bullwhip effect is realized by the supply chain. Each
member develops a forecast that is based on something other than the true
customer demand and hilarity ensues. Supply chain members should share point-
of-sale (POS) data so that all members are aware of the true customer demand for
product. The beauty of data sharing requirements is that only aggregate POS data
must be shared to mitigate the bullwhip effect; there is no need to share detailed
POS data.

5. What factors lead to a batching of orders within a supply chain? How does this
affect coordination? What actions can minimize large batches and improve
coordination?

Order batching is caused by a number of different factors. One mechanism is the

price structure of TL and LTL shipment quantities; there is incentive to wait a
while to make sure that a TL shipment is achieved. A customer’s natural tendency
to wait for a milestone, either real or perceived, can also cause batching.
Customers may wait until Friday, Monday, the last or first day of the month, etc.,
just because that’s when they always have or because that event reminds them to
order. Order batching also occurs because customers are aware of an impending
price reduction and want to take advantage of it. Batching adversely affects
supply chain coordination because the supply chain will be starved for flow, then
overwhelmed with demand.
A supply chain can reconfigure their transportation and distribution system to
allow for shipments to multiple customers on a single truck to achieve TL
quantities. The chain can also assign (or encourage) days for placing orders and
move from lot-size based to volume based quantity discounts (or abandon
discounts and promotions altogether).

6. How do trade promotions and price fluctuations affect coordination in a supply

chain? What pricing and promotion policies can facilitate coordination?

Trade promotions and price fluctuations make supply chain coordination more
difficult. Customers seek to purchase goods for less and engage in forward buying
which creates spikes in demand that may exceed capacity. All parties would
benefit if the supply chain used every day low pricing (EDLP) to mitigate forward
buying and allow procurement, production, and logistics to function at a steadier
pace. If price incentives must be offered, the chain is better served by
implementing a volume-based quantity discount plan instead of a lot size based
quantity discount, i.e., providing incentives to purchase large quantities over a
long period of time, perhaps a year.
Chopra/Meindl 4/e

7. How is the building of strategic partnerships and trust valuable within a supply
chain?

Cooperation and trust within the supply chain help improve performance for the
following reasons:
When stages trust each other, they are more likely to take the other party’s
objectives into consideration when making decisions, thereby facilitating win-win
situations.
Action-oriented managerial levers to achieve coordination become easier to
implement and the supply chain becomes more agile.
An increase in supply chain productivity results, either by elimination of
duplicated effort or by allocating effort to the appropriate stage.
Detailed sales and production information is shared; this allows the supply chain
to coordinate production and distribution decisions.

8. What issues must be considered when designing a supply chain relationship to

improve the chances of developing cooperation and trust?

The issues that supply chain partners must consider when designing their chain
include assessing the value of the relationship, the operational roles and decision
rights for each, the execution of binding contracts, and establishment of conflict
resolution mechanisms.
The value of the relationship is assessed by identifying the mutual benefits that it
provides and the costs and contributions of each party. The mix of effort and
benefit for all parties should be equitable.
The roles and decision rights take into account the interdependence between the
parties; the nirvana of interdependence is reciprocal interdependence, where
parties come together and exchange information and inputs in both directions.
This requires more effort than sequential interdependence but the payoff is
increased supply chain surplus.
Managers can help promote trust by creating contracts that encourage negotiation
as unplanned contingencies arise since complete information and consideration of
all future contingencies is impossible. The primary contacts from each side are an
important starting point in developing a healthy relationship.
Effective contract-resolution mechanisms can significantly strengthen any supply
chain relationship. Such mechanisms allow parties the opportunity to
communicate and work through their differences, in the process building greater
trust.

9. What issues must be considered when managing a supply chain relationship to

improve the chances of developing cooperation and trust?

The following issues merit attention when management endeavors to improve the
chances of success in supply chain partnership:
Chopra/Meindl 4/e

The presence of flexibility, trust, and commitment in both parties helps a supply
chain relationship succeed. In particular, commitment of top management on both
sides is crucial for success.
Good organizational arrangements, especially for information sharing and conflict
resolution, improve chances for success.
Mechanisms that make the actions of each party and resulting outcomes visible
help avoid conflicts and resolve disputes.
The more fairly the stronger partner teats the weaker, vulnerable partner, the
stronger the supply chain relationship tends to be.

10. What are the different CPFR scenarios and how do they benefit supply chain
partners?

Collaborative planning, forecasting, and replenishment (CPFR) is defined as a

business practice that combines the intelligence of multiple partners in the
planning and fulfillment of customer demand. In order to be successful, the two
parties must have synchronized their data and established standards for
exchanging the information.
The four scenarios that sellers and buyers can collaborate along include:
• Retail event collaboration – the identification of specific SKUs that will be
involved in sales promotions and sharing of information regarding the
timing, duration, pricing, advertising, and display tactics to be deployed.
The benefit of retail event collaborations is a reduction in stockouts,
excess inventory and unplanned logistics costs.
• DC replenishment collaboration – the forecasting of DC withdrawals or
demand from the DC to the manufacturer is converted to a stream of
orders that are locked in over a specified time horizon. A successful DC
replenishment collaboration reduces production costs at the manufacturer
and inventory and stockouts at the retailer.
• Store replenishment collaboration – the forecasting of store-level orders
that are committed over a specific time horizon. Such a collaboration
results in greater visibility of sales for the manufacturer, improved
replenishment accuracy and product availability, and reduced inventories.
• Collaborative assortment planning – the forecasting (collaborative
interpretation) of industry trends, macroeconomic factors, and customer
tastes for seasonal goods. This forecast is converted into a planned
purchase order at the style/color/size level that is used to produce sample
products for a fashion event before final merchandising decisions are
made. The manufacturer benefits from this collaboration by having more
lead time to purchase raw materials and plan capacity.