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Preview Exercises for Chapter One

1. Define Supply Chain Management.

Supply Chain (sometimes called the value chain or demand chain) Management consists of the firms collaborating to leverage strategic positioning an to improve operating efficiency. For Each firm involved, the supply chain relationship reflects strategic choice. A supply chain strategy is a channel arrangement based on acknowledged dependency and relationship management. Supply chain operations require managerial processes that span across functional areas within individual firms and link trading partners and customers across organizational boundaries.

2. Give a definition of Logistics relating to Supply Chain Management.

Logistics, in contrast to supply chain management, is the work required to move and position

inventory throughout a supply chain.

3. What specific role does logistics play in supply chain operations?

Logistics is the primary conduit of product and service flow within a supply chain arrangement. It is the work required to move and to position inventory throughout a supply chain. It is a combination of order management, inventory, transportation, warehousing, material handling and packaging as integrated throughout a facility network. Logistics is essential for effective supply chain connectivity.

4. In terms of enterprise extension, describe the importance of the information-sharing and process

specialization paradigms?

Enterprise extension is based on two basic paradigms: information sharing and process specialization. Information sharing paradigm is based on the premise that in order to achieve higher cooperation, supply chain partners should be willing to share operating information and jointly plan their strategies. This information that is shared should not only be the historical or sales data but should also include strategic information about future activities in order to facilitate joint planning. The underlying philosophy of this paradigm is to have a supply chain, which can meet customers’ demands faster and more efficiently. The process specialization paradigm focuses on planning joint operations between supply chain partners with the goal of eliminating non-productive or non-value-added work. It also aims to design the overall supply chain in such a way that specific firms are responsible and accountable for each element of the value added work. Even though enterprise extension has the capability of removing the inefficiencies of a supply chain, it introduces new challenges regarding measurement, risk sharing, trust, leadership and conflict resolution.

5. Define and illustrate cash-to-cash conversion, dwell-time minimization and cash spin.

does supply chain strategy and structure impact each?


Cash-to-cash conversion is the time required to convert raw material or inventory


purchases into sales revenue. It is directly related to inventory turn. Its benefits are realized by reducing and sharing risk and inventory investment. In traditional business the benefits were enjoyed at the expense of business partners. For example, terms of 2% net 10 meant that a prompt payment discount could be earned if the invoice is paid within ten days from the time of delivery. In a response based system these benefits can be shared by managing the inventory transfer velocity across the supply chain. To facilitate such arrangements supply chain partners often use dead net pricing, which factors discounts and allowances in the selling price. Therefore incentives of timely payment are replaced by performance commitments at a specified net price. Managing supply chain logistics as a continuous synchronized process also serves to reduce dwell time. Dwell time is the ratio of the time that an asset sits idle to the time required to satisfy its designated supply chain mission. As an example dwell time would represent the ratio of the time inventory is in store to the time it is moving or contributing to achieve supply chain objectives. Dwell time can be reduced if the supply chain partners are willing to eliminate duplicate work. Therefore each firm could be designated to perform and be accountable for the value-added work in order to reduce the overall dwell. Cash spin basically refers to free cash spin. This concept aims to reduce the overall assets committed to the supply chain performance. Therefore capital invested on inventory or warehouse can be made available for redeployment by revising the supply chain arrangement. Free capital can be reinvested in other projects that would have otherwise not been considered.