chapter 1 answers to study questions

ANSWERS TO STUDY QUESTIONS 1. Globalization and technology developments have led to what some individuals have described as a flat world. What is the significance of the flat world concept? What is the impact of the flat world on supply chains? Answer: In his best selling book, The World Is Flat, Thomas Friedman, a staff writer for The New York Times, discusses 10 major forces that have helped to flatten the world from an economic perspective. One of the 10 forces is what he describes as supply chaining, a method of collaborating among businesses to manage the flow of goods, information, and cash to deliver value for the consumer. This type of collaboration has stretched vertically and horizontally on a global basis to become a cornerstone of competitive strategy for successful organizations in today's global marketplace. (Page 1) 2. The consolidation that has developed at the retail end of many supply chains has been described as the Wal-Mart effect. Why? What is the significance of retail consolidation for supply chains? Answer: In the 1990s, Wal-Mart became the leading retailer with a multi-faceted strategy based on discount pricing for brand name products, location in smaller communities, and more customer service. A key element in Wal-Marts ability to discount brand name products was an understanding of the criticality of efficiency in its logistics and supply chain system from purchasing through delivery to its stores and a continual focus on improving its supply chain processes. (Page 6) 3. Consumers are considered to have much more influence in the marketplace today. What factors have led to this empowered consumer situation? How has this factor changed supply chains in the last 10 to 15 years? Will this influence continue? Answer: The impact of the consumer is much more direct for supply chains because the consumer has placed increased demands at the retail level for an expanded variety of products and services. Responses to consumer demand has led to many different variations of the same basic product, stores being open 24/7, etc., are all extras provided with very low margins on products. The supply chains have to be performing very efficiently to enable the retailer and other organizations in the supply chain to make a profit. Todays consumers are more enlightened, educated, and empowered than ever before by the information that they have at their disposal from the Internet and other sources. Their access to supply sources has expanded dramatically beyond their immediate locale by virtue of catalogs, the Internet, and other media. They have the opportunity to compare prices, quality, and service. Consequently, they demand competitive prices, high quality, tailored/customized products, convenience, flexibility, and responsiveness. They tend to have a low tolerance level for poor quality in products and/or services. Consumers also have increased buying power due to higher income levels. They demand the best quality at the best price and with the best service. These demands place increased challenges and pressure on the various supply chains for consumer products. (Page 11)

4. The influence and impact of federal, state, and local governments seem to be growing in importance for supply chains. Why? What are the most important dimensions of governmental control for supply chains? Answer: Influence of various levels of government (federal, state, and local) that establish and administer policies, regulations, taxes, etc., which impact individual businesses and their supply chains has become significant. The deregulation of several important sectors of our economy including transportation, communications, and financial institutions--all of which are cornerstones of the infrastructure for most organizations--has had real impact. New carriers entered the marketplace while other service providers have declared themselves to be logistics services companies, offering an array of related services that can include order fulfillment, inventory management, warehousing, etc. The deregulation of financial institutions has fostered changes in how businesses can operate. For example, the opportunity to invest cash at the end of the day in the global overnight money market in periods of 610 hours made many companies more cognizant of the value of asset liquidity and asset reduction, especially inventory. The communications industry was also made more competitive, and businesses and the general consumer population are all being impacted by the many changes in this industry from cell phones to e-mail, text messaging, and the Internet. (Pages 11-13)

5. Why should CEOs, COOs, CFOs, and CMOs be concerned about supply chain management in their organizations? Answer: Supply chain management attracts significant attention among CEOs, CFOs, COOs, CIOs, and other senior executives, and the business case for supply chain management demonstrated by two well-known studies in the text provide ample reasons. The potential savings of $30 billion demonstrated in the grocery study showed the power of optimizing the supply chain as opposed to just one individual company or one segment of the supply chain. A study of best-in-class companies showed they spent 7.0 cents of every sales/revenue dollar for supply chain-related costs, while the median company spent 13.1 cents of every sales dollar on supply chain-related costs. For a hypothetical company with $100 million in sales in 1997, being best in class would mean an additional $5.3 million of gross profit to an organization, which frequently would be the equivalent profit from an additional $80100 million of sales. (Pages 17-19) 6. Supply chain managers should be concerned about three flows in their organizations. What are these three flows, and why are they important? How are they related to each other?

Answer: The three flows--products and services, information and financials--are very important to the success of supply chain management. Integration across the boundaries of several organizations in essence means that the supply chain needs to function similarly to one organization in satisfying the ultimate customer. Services and products have traditionally been an important focus as customers expect their orders to be delivered in a timely, reliable, and damage-free manner; and transportation is critical to this outcome. The information flow has become an extremely important factor for success in supply chain management, noting the two way flow. The third flow is financials or, more specifically, cash, and a major impact of supply chain compression and faster order cycle times has been faster cash flow. (Page 19) 7. During the 1980s and 1990s, managing the transportation function in supply chains was recognized as being important but not critical. Has this perspective changed, and if so, how and why? Answer: Transportation can be viewed as the glue that unites the supply chain model. The critical outcomes of the supply chain are to deliver the right product, at the right time, in the right quantity and quality, at the right cost, and to the right destination. Economic changes among transportation providers, such as shortages of drivers, higher fuel costs, and changes in driver hours of service regulations, have led to what some individuals have called a transportation crisis or the perfect storm, a much greater challenge for users. (Page 24)