Chapter 5 Inventory and supply chain

中国经济管理大学学员教辅小保罗·R·墨菲《MBA当代物流学》习题辅导中国自学网/study.asp?vip=2525674ContentsIntroductionChapter 1: Logistics and the Supply Chain (1)Chapter 2: The Supply Chain Management Concept (23)Chapter 3: Logistics and Information Technology (43)Chapter 4: Demand Management, Order Management and Customer Service (62)Chapter 5: Protective Packaging and Materials Handling (81)Chapter 6: Transportation (98)Chapter 7: Transportation Management (115)Chapter 8: Distribution Center, Warehouse, and Plant Location (135)Chapter 9: Inventory Management (157)Chapter 10: Warehousing Management (182)Chapter 11: Procurement (201)Chapter 12: International Logistics (221)Chapter 13: Logistics Systems Controls (240)Chapter 14: Organizing and Analyzing Logistics Systems (260)PART IIANSWERS TO END-OF-CHAPTER QUESTIONSCHAPTER 1: LOGISTICS AND THE SUPPLY CHAIN1. Did it surprise you that logistics can be such an important component in a country’s economic system? Why or why not?它构成了一个国家至少10%的GDP、对于经济增长有很重要的作用The answer to this question likely depends on a student’s prior exposure to logistics.A “typical” student in an undergraduate basic logistics course likely has had limitedexposure to and knowledge about logistics and thus would likely be unaware as tologistics’ impact on a country’s economic system. As such, she/he might be pl easantly surprised to learn that logistics often accounts for at least 10% of a country’s GDPand also is important for economic growth and development.2.Distinguish between possession, form, time, and place utility.Possession utility refers to the value or usefulness that comes from a customer beingable to take possession of a product and can be influenced by the relevant payment terms.Form utility refers to a product’s being in a form that (1) can be used by the customer and (2) is of value to the customer. Time utility refers to having products availablewhen they are needed by customers while place utility refers to having productsavailable where they are needed by customers.3.How does logistics contribute to time and place utility?时间效用：不同产品有不同的时间敏感度，香蕉和铅笔；地点效用：把产品从价至少的地方运到价值大的地方。

毕业论文物流英语作文模板Title: Graduation Thesis on Logistics in English。

Abstract:This graduation thesis aims to explore the role of logistics in modern business operations and its impact on the global economy. The paper will delve into the various aspects of logistics, including supply chain management, transportation, warehousing, and inventory management. It will also analyze the challenges and opportunities facing the logistics industry and propose strategies for improving efficiency and sustainability. The research will draw on both theoretical frameworks and practical case studies to provide a comprehensive understanding of the subject. The findings of this thesis will contribute to the existing body of knowledge on logistics and provide valuableinsights for businesses and policymakers.Chapter 1: Introduction。

供应链专业英语词汇总结以下是一些供应链专业英语词汇的总结：1. 供应链管理 Supply Chain Management (SCM)2. 采购 Purchasing3. 供应商 Supplier4. 生产制造 Manufacturing5. 物流 Logistics6. 配送 Distribution7. 库存管理 Inventory Management (IM)8. 需求预测 Demand Forecasting9. 供应链协同 Supply Chain Collaboration (SCC)10. 供应商管理库存 Vendor Managed Inventory (VMI)11. 采购执行 Purchase Execution12. 物流执行 Logistics Execution13. 逆向物流 Reverse Logistics14. 准时制生产 Just-In-Time (JIT) Manufacturing15. 快速响应 Quick Response (QR)16. 有效客户响应 Efficient Consumer Response (ECR)17. 连续库存补充 Continuous Replenishment Program (CRP)18. 电子数据交换 Electronic Data Interchange (EDI)19. 全球定位系统 Global Positioning System (GPS)20. 射频识别技术 Radio Frequency Identification (RFID)21. 自动化仓库 Automated Warehouse22. 高级计划与排程 Advanced Planning and Scheduling (APS)23. 企业资源规划 Enterprise Resource Planning (ERP)24. 客户关系管理 Customer Relationship Management (CRM)25. 电子采购 e-Procurement26. 供应链风险管理 Supply Chain Risk Management (SCRM)27. 精益供应链管理 Lean Supply Chain Management (LSCM)28. 环境可持续供应链管理 Environmentally Sustainable Supply Chain Management (ESSCM)29. 社会可持续供应链管理 Socially Sustainable Supply Chain Management (SSSCM)30. 可持续供应链管理 Sustainable Supply Chain Management (SSCM)31. 供应商评价 Supplier Evaluation32. 采购谈判 Purchasing Negotiation33. 供应链绩效评估 Supply Chain Performance Evaluation (SCPE)34. 总成本分析 Total Cost Analysis (TCA)35. 总持有成本 Total Cost of Ownership (TCO)36. 经济订货量模型 Economic Order Quantity Model (EOQ)37. 安全库存 Safety Stock38. 采购周期 Purchasing Cycle39. 供应链网络 Supply Chain Network40. 多供应商 Multi-supplier41. 多配送中心 Multi-distribution Center42. 库存周转率 Inventory Turnover Rate43. 在途库存 In-transit Inventory44. 在途货物 In-transit Cargo45. 在途车辆 In-transit Vehicle46. 在途订单 In-transit Order47. 在途发票 In-transit Invoice。

供应链的名词解释供应链 (Supply Chain) 是指生产、销售和分配产品或服务所涉及的所有过程，包括从原材料采购、生产、运输、仓储、销售和售后服务等。

供应链管理 (Supply Chain Management) 是指管理供应链中各环节的运作和协调。

一些关于供应链的重要名词如下：采购 (Procurement) 指的是从供应商处购买原材料和辅料的过程。

生产 (Production) 指的是将原材料和辅料加工成产品的过程。

仓储 (Warehousing) 指的是对原材料、半成品和成品的存储和管理。

运输 (Transportation) 指的是将原材料、半成品和成品运送到不同地点的过程。

销售 (Sales) 指的是将产品或服务销售给客户的过程。

售后服务 (After-sales Service) 指的是为客户提供的售后服务，如维修、更换等。

供应商管理 (Supplier Management) 指的是与供应商进行沟通、协调和管理的过程。

客户关系管理 (Customer Relationship Management) 指的是与客户进行沟通、协调和管理的过程。

库存管理 (Inventory Management) 指的是对原材料、半成品和成品库存的管理，包括库存水平的计划和控制。

运输管理 (Transportation Management) 指的是对原材料、半成品和成品运输的管理，包括运输路线、运输成本和运输时间的计划和控制。

供应链风险管理 (Supply Chain Risk Management) 指的是识别、评估和应对供应链中各环节的风险，以确保供应链的稳定和可靠性。

物流管理 (Logistics Management) 指的是对原材料、半成品和成品的运输、仓储和配送的管理。

生产计划与控制 (Production Planning and Control) 指的是对生产活动的计划和控制,包括生产进度计划，生产计划调整,生产线调度。

供应链开发流程英语Supply Chain Development Process.The supply chain development process is a crucial aspect of any business operation, as it involves the orchestration of various activities across different organizations to ensure the efficient flow of goods and services from suppliers to customers. This process involves several stages, from initial planning and strategy development to implementation, monitoring, and continuous improvement.1. Strategy Development.The first step in the supply chain development process is strategy development. This involves identifying the objectives and goals of the supply chain, taking into account the overall business strategy and the specific needs of the organization. This stage also involves analyzing the current supply chain structure, identifyingany bottlenecks or inefficiencies, and devising strategies to address these issues.2. Supplier Selection and Management.Supplier selection and management is a crucial part of the supply chain development process. It involves evaluating potential suppliers based on various criteria such as quality, cost, delivery reliability, and service. Establishing long-term relationships with reliable suppliers is essential for ensuring the smooth operation of the supply chain.3. Logistics Planning.Logistics planning involves managing the movement of goods and materials from suppliers to manufacturing facilities and ultimately to customers. This stage involves planning and executing transportation, warehousing, and distribution activities to ensure timely delivery and cost-efficiency.4. Inventory Management.Inventory management is another critical aspect of the supply chain development process. It involves managing the stock of goods and materials to ensure availability when needed, while also minimizing inventory carrying costs. Effective inventory management requires accurate demand forecasting, inventory planning, and the use of advanced inventory control techniques.5. Customs and Compliance.When dealing with international suppliers or customers, customs and compliance become crucial considerations. This stage involves understanding and complying with allrelevant import and export regulations, tariffs, and quotas. Failure to comply with these regulations can result in delays, fines, and other costs that can significantlyimpact the efficiency of the supply chain.6. Risk Management.Risk management is a critical component of the supply chain development process. It involves identifyingpotential risks and vulnerabilities in the supply chain, assessing their impact, and devising strategies to mitigate these risks. This can include managing supplier risk, transportation risk, demand risk, and other types of risks that can disrupt the flow of goods and services.7. Technology Integration.In today's digital era, technology integration is essential for effective supply chain management. This involves the use of advanced technologies such as supply chain management software, analytics tools, and other digital solutions to improve visibility, efficiency, and collaboration across the supply chain. Technology integration can help organizations make better decisions, respond quickly to changes, and optimize their operations.8. Monitoring and Evaluation.Monitoring and evaluation are ongoing activities in thesupply chain development process. They involve tracking key performance indicators (KPIs) and metrics to assess the performance of the supply chain and identify any areas that need improvement. Regular monitoring and evaluation enable organizations to adapt to changes in the market, customer demand, and supplier performance, and make necessary adjustments to ensure the optimal operation of the supply chain.9. Continuous Improvement.The supply chain development process is an ongoing journey of continuous improvement. Organizations should strive to identify areas for improvement, implement changes, and measure the results to ensure that the supply chain remains competitive and efficient. This can involveadopting new technologies, implementing lean or agile methodologies, or developing stronger relationships with suppliers and customers.In conclusion, the supply chain development process isa complex and multifaceted task that requires a holisticapproach. It involves strategy development, supplier selection and management, logistics planning, inventory management, customs and compliance, risk management, technology integration, monitoring and evaluation, and continuous improvement. By following this process, organizations can ensure the efficient and effective operation of their supply chain, improve customer satisfaction, and drive competitive advantage.。

临床实验室管理英语翻译Clinical Laboratory Management: English TranslationIntroductionClinical laboratory management plays a crucial role in ensuring the smooth functioning of healthcare facilities. Effective management practices in this field are essential for accurate diagnoses, patient care, and overall healthcare system efficiency. This article aims to provide an English translation of the key concepts and terminology related to clinical laboratory management.1. Quality Control and AssuranceThe management of a clinical laboratory revolves around maintaining high-quality standards. Quality control involves various processes and measures to ensure accurate and reliable test results. This includes regular calibration and maintenance of laboratory equipment, proper training of staff members, and adherence to established protocols and procedures.2. Accreditation and CertificationAccreditation and certification are vital aspects of clinical laboratory management. Accreditation refers to the recognition of a laboratory's competence to perform specific tests and procedures. Certification, on the other hand, validates the proficiency of laboratory professionals who execute these tests. Both accreditation and certification contribute to ensuring the reliability and credibility of laboratory results.3. Inventory and Supply Chain ManagementThe effective management of laboratory resources, including inventory and supply chain, is crucial for uninterrupted laboratory operations. Maintaining an accurate inventory record, tracking the usage of supplies, and ensuring timely procurement are key responsibilities of laboratory management. A well-managed supply chain ensures the availability of necessary reagents, consumables, and equipment, thereby preventing delays in test results.4. Staffing and TrainingClinical laboratory management involves overseeing the staffing and training processes. Hiring qualified laboratory personnel, assigning appropriate roles and responsibilities, and providing adequate training and continuing education are essential to ensure proficiency and competence among the laboratory staff. Regular performance evaluations and career development opportunities further contribute to staff motivation and retention.5. Laboratory Information Systems (LIS)The implementation and management of laboratory information systems are essential for efficient laboratory operations. These systems include electronic medical record integration, result reporting, billing, and data analysis functionalities. By utilizing LIS, laboratories can streamline their workflow, reduce human errors, enhance communication with healthcare providers, and improve overall laboratory efficiency.6. Safety and Biosecurity MeasuresClinical laboratory management places significant emphasis on safety and biosecurity measures. Compliance with safety protocols, including the appropriate handling, storage, and disposal of hazardous materials, is essential to safeguard laboratory personnel, patients, and the environment. Additionally, consistent adherence to biosecurity guidelines helps prevent the spread of infectious diseases within the laboratory setting.7. Continuous Quality ImprovementContinuous quality improvement is a fundamental principle in clinical laboratory management. Regular audits, performance assessments, and feedback mechanisms help identify areas for improvement. By analyzing these findings, laboratory management can implement necessary changes to enhance processes, reduce errors, and optimize overall laboratory performance.ConclusionIn conclusion, effective management of clinical laboratories is imperative for the delivery of accurate and timely diagnostic services. This article has provided an English translation of the key aspects of clinical laboratory management, including quality control, accreditation, inventory management, staffing, laboratory information systems, safety measures, and continuous quality improvement. By implementing these management practices, laboratories can ensure optimal patient care and contribute to the overall efficiency of healthcare systems.。

综合案例总结汇报英文Title: Summary Report on a Comprehensive Case Study Introduction:This report presents a comprehensive summary of a case study conducted on [Company/Organization]. The objective of this study was to assess and analyze various aspects of the company's operations, performance, and strategies. The study involved extensive research, data collection, and analysis to gain insights into the company's strengths, weaknesses, opportunities, and threats.Section 1: Company ProfileIn this section, we provide an overview of the company including its history, mission, and vision. Additionally, we highlight its core products or services, target market, and key competitors. Through this analysis, we aim to understand the company's positioning and branding in the market.Section 2: Financial AnalysisThe financial analysis section focuses on the company's financial performance over a specific period. Various financial ratios and indicators, such as profitability, liquidity, efficiency, and solvency, are calculated and interpreted to assess the company's financial health. Furthermore, the study compares the company's financial performance with industry benchmarks to determine any areas of concern or potential improvement.Section 3: SWOT AnalysisA SWOT (Strengths, Weaknesses, Opportunities, and Threats)analysis is conducted to identify internal and external factors that affect the company's performance. By assessing its strengths and weaknesses, the company can determine areas for improvement. Opportunities and threats help evaluate external factors that may create new avenues or pose risks to the company.Section 4: Marketing and Sales StrategiesThis section focuses on the company's marketing and sales strategies. Through market research and analysis, the study identifies the company's target audience, brand positioning, pricing strategies, and promotional activities. Furthermore, the effectiveness of these strategies is evaluated, and recommendations for improvement are presented.Section 5: Operations and Supply Chain ManagementThe operations and supply chain management section provides a comprehensive analysis of the company's production processes, supply chain network, and inventory management. This analysis aims to identify bottlenecks, reduce costs, improve efficiency, and enhance customer satisfaction.Section 6: Human Resources and Organizational CultureThe study evaluates the company's human resources policies, practices, and organizational culture. Factors such as employee satisfaction, recruitment and training practices, and performance management are analyzed. Recommendations for fostering a positive work environment and improving employee engagement are provided.Section 7: Risk Analysis and Mitigation StrategiesIn this section, the report analyzes potential risks and threats that may impact the company's operations and reputation. Measures to mitigate these risks, such as implementing crisis management protocols and risk assessment frameworks, are suggested. Conclusion:In conclusion, this comprehensive case study provides a detailed analysis of different aspects of the company's operations, performance, and strategies. The study identifies key strengths, weaknesses, opportunities, and threats to help the company make informed decisions and improvements. The report also provides recommendations for enhancing the company's competitiveness, financial performance, and overall success in the market.。

*Corresponding author.Tel.:#39-80-5962-763;fax:#39-80-5962-788.E-mail address:pontrandolfo @poliba.it (P.Pontrandolfo).Int.J.Production Economics 78(2002)153}161Inventory management in supply chains:a reinforcement learning approachIlaria Giannoccaro,Pierpaolo Pontrandolfo *Dipa rtimento di Ingegneria Mecca nica e Gestiona le ,Politecnico di Ba ri,Via le Ja pigia 182,70123Ba ri,Ita lyReceived 8August 2000;received in revised form 5September 2000AbstractA major issue in supply chain inventory management is the coordination of inventory policies adopted by di !erent supply chain actors,such as suppliers,manufacturers,distributors,so as to smooth material #ow and minimize costs while responsively meeting customer demand.This paper presents an approach to manage inventory decisions at all stages of the supply chain in an integrated manner.It allows an inventory order policy to be determined,which is aimed at optimizing the performance of the whole supply chain.The approach consists of three techniques:(i)Markov decision processes (MDP)and (ii)an arti "cial intelligent algorithm to solve MDPs,which is based on (iii)simulation modeling.In particular,the inventory problem is modeled as an MDP and a reinforcement learning (RL)algorithm is used to determine a near optimal inventory policy under an average reward criterion.RL is a simulation-based stochastic technique that proves very e $cient particularly when the MDP size is large. 2002Elsevier Science B.V.All rights reserved.Keywords:Supply chain;Inventory management;Markov decision processes;Reinforcement learning1.IntroductionA supply chain (SC)is a network of organiza-tions that are involved in the di !erent processes and activities that produce value in the form of products and services in the hands of the ultimate consumer [1].Such activities are mainly the pro-curement of materials,the transformation of these materials into intermediate and "nished product,and the distribution of "nished products to the end customer.Supply chain management (SCM)is con-cerned with the integrated management of the #ows of goods and information throughout the supply chain,so as to insure that the right goods be de-livered in the right place and quantity at the right time.The SCM literature covers di !erent areas,such as forecasting,procurement,production,distribu-tion,inventory,transportation,and customer ser-vice,under several perspectives,i.e.strategic,tactical,and operational.supply chain inventory management (SCIM),which is the main concern of this paper,is an integrated approach to the plann-ing and control of inventory throughout the entire network of co-operating organizations,from the source of supply to the end user.SCIM is focused on the ultimate customer demand and aims at0925-5273/02/$-see front matter 2002Elsevier Science B.V.All rights reserved.PII:S 0925-5273(00)00156-0improving customer service,increasing product variety,and lowering costs[2].An e!ective management and control of the ma-terial#ow across the boundaries between com-panies and their customers is vital to the success of companies,but is a di$cult task due to the demand ampli"cation e!ect,known as&Forrester e!ect'[3]. The latter depends on factors such as the supply chain structure,the time lags involved in accom-plishing actions(e.g.from the order release to ful-"llment),and the poor decision making concerning information and material#ows.Recent empirical studies[4]demonstrate that inventory manage-ment policies can have a destabilizing e!ect due to the increase in the volatility of demand as it passes up through the chain.For example,Towill[5] claims that the demand ampli"cation experienced across each business interface is about2:1.Lee et al.[6]describe the Bullwhip e!ect occur-ring in supply chains as the considerable increase of the order variability relative to the variability of buyers'demand.They identify the main mecha-nisms that destabilize supply chains,i.e.order batching,price#uctuation,capacity shortfalls that lead to over-ordering and cancellation,and the updating of demand forecast.A tight coordination among inventory policies of the di!erent actors in the supply chain can reduce the ripple e!ect on demand.To this end an appro-priate information infrastructure is necessary that allows all the actors within a SC make decisions synchronized and coherent among each other.Such an infrastructure is referred to as networked inven-tory management information systems(NIMISs) [2].However,the exploitation of the NIMISs requires the adoption of suitable inventory man-agement policies.For instance,Kelle and Milne[7] provide quantitative tools to study the e!ect of an (s,S)policy on the supply chain and show that small frequent orders and the cooperation among the SC partners can reduce demand variability. Towill[5]investigates the impact of di!erent strat-egies,such as JIT,vendor integration,and time-based management,on the reduction of demand ampli"cation.Wikner[8]stresses that the Forres-ter e!ect is lowered through the"ne tuning of existing ordering policies,the reduction of delays, the removal of the distribution stage in the SC,the change of local decision rules,and a better use of the information#ow through the supply chain. Johnes and Riley[9]and Hoekstra and Romme [10]address the optimal positioning of stocks in the chain and suggest the use of strategic stocks to de-couple push from pull operations.Stalk and Hout[11]and Blackburn[12]focus on time com-pression and the integration of operations with both customers and suppliers.Studies on supply chain inventory management generally identify three stages,namely supply,pro-duction,and distribution[13],yet the focus is usu-ally put on the coordination between only two of them[14,13].Coherently,Thomas and Gri$n[15] classify the models for coordinated supply chain management into buyer}vendor coordination, production}distribution coordination,and inven-tory}distribution coordination.To our knowledge,there are only a few ap-proaches that simultaneously analyze inventory decisions at more than two stages under an opera-tional perspective.In this paper,we propose an approach to coordinate inventory management in a supply chain made up of three stages,i.e.supply, production,and distribution.A model based on Markov decision processes(MDPs)and reinforce-ment learning(RL)is proposed to simultaneously design the inventory reorder policies of all the SC stages.After a brief description of MDPs and RL algorithm(Sections2and3),in Section4we de"ne the considered supply chain and the attendant MDP model.Results obtained by the inventory policy determined through the proposed approach are discussed in Section5.2.Markov decision processesA Markov decision process is a sequential deci-sion-making stochastic process characterized by "ve elements[16]:decision epochs,states,actions, transition probabilities,and rewards.An agent(de-cision maker)controls the path of the stochastic process.In fact,at certain points in time in the path, this agent intervenes and takes decisions which a!ect the course of the future path.These points are called decision epochs and the decisions are called actions.At each decision epoch,the system154I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161occupies a decision-making state.This state may be described by a vector.As a result of taking an action in a state,the decision-maker receives a re-ward(which may be positive or negative)and the system goes to the next state with a certain prob-ability which is called the transition probability.A decision rule is a function for selecting an action in each state,while a policy is a collection of such decision rules over the state-space.Implementing a policy generates a sequence of rewards.The MDP problem is to choose a policy to maximize a func-tion of this reward sequence(optimality criterion). Possible choices for these functions include the expected total discounted reward or the long-run average reward.In this article we use the average reward cri-terion.The a v erage reward or gain of a stationary policy ,starting at state i and continuing with policy ,is de"ned as follows:g L(i)"lim, 1NLG ,Rr(X R,>R) ,where r(X R,>R)represents the reward received when using action>R in state X R,>R being the action prescribed by policy in state X.MDPs have been widely applied to inventory control problems[17].For example,they can be used for determining optimal reorder points and quantities.In such a case decision epochs occur periodically,according to an inventory review pol-icy,and the system state is a function of inventory position at the review time.In a given state,actions correspond to the amount of stock to be ordered (with`not ordering a being a possible action).The transition probabilities substantially depend on the ordered quantity,the supply rate,and the demand process until the next decision epoch.A decision rule speci"es the quantity to be ordered at the review time,while a policy consists in a mapping of the replenishment orders onto the possible inven-tory positions.Inventory managers(the decision makers)seek the optimal policy,namely a policy that maximizes a pro"t index(e.g.revenues minus ordering costs and inventory holding costs)over the decision-making horizon.Semi-Markov decision processes(SMDPs)ex-tend MDPs.In fact,di!erently from MDPs where decisions are allowed only at predetermined dis-crete points in time,in SMDPs the decision maker can choose an action any time the system state changes.Moreover,SMDPs model the system evolution in continuous time,and the time spent by the system in a particular state follows a probabil-ity distribution.In SMDPs,the action choice not only determines the joint probability distribution of a subsequent state,but also the time between decision epochs.In general,the system state may change several times between decision epochs,but only the state at the decision epochs is relevant to the decision maker.What happened between two subsequent decision epochs provides no relevant information to the decision maker.Therefore,two processes can be distinguished:(1)the semi-Marko v decision process represents the evolution of the sys-tem state at the decision epochs,and(2)the natural process describes the evolution of states continually throughout time.The two distinct processes coincide at decision epochs.The reward function associated with SMDPs is more complex.When the decision maker chooses action a in state s,"rst he receives a lump sum reward,further he accrues a reward at a rate c(j,s,a)as long as the natural process occupies state j.For i3S,when action a3A G is chosen(for any state i,A G denotes the set of possible actions that can be taken in i),and if the next state is j,let r(i,j,a)represent the reward obtained and t(i,j,a) represent the time spent,during the state transition. Also let i I represent the state visited in the k th epoch and I represent the action taken in that epoch.Then the average reward(gain)of an SMDP starting at state i and continuing with policy can be given asg L(i)"lim, +E[ ,I (r(i I,i I> , I"i "i ))]/N,lim, +E[ ,I (t(i I,i I> , I"i "i ))]/N,.Modeling inventory control problem through SMDPs rather than MDPs presents several ad-vantages.It allows inventory policies to be con-sidered in which review time intervals are not required to be constant as well as makes it possible to have the system accrue rewards(or incur costs) between decision epochs depending on the natural process(inventory holding and pipeline costs are examples of such costs).I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}1611553.Reinforcement learningTraditional approaches to solve MDPs and SMDPs,such as value iteration,policy iteration, modi"ed policy iteration,and linear programming, become very di$cult to be applied as system space and action space grow,due to the huge computa-tional e!ort required.Reinforcement learning[18,19]is an arti"cial intelligent technique that has been successfully utilized for solving complex MDPs that model real-istic systems.This technique is a way of teaching agents the optimal control policy[20],which is based on simulation and value iteration,the latter being a traditional method to solve MDPs and SMDPs.The RL model is based on the interaction of two elements,i.e.the learning agent and the en v ironment, and two mechanisms,namely the exploitation and the exploration.The learning agent selects the actions by trial and error(exploration)and based on its knowledge of the environment(exploitation).The environment responds to these actions by an immediate reward, which is called the reinforcement signal,and evolves in a di!erent state.A good action either results in a high immediate rewards directly or leads the system to states where high rewards are obtainable. Using this information(i.e.the reward received),the agent updates its knowledge of the environment and selects the next action.The agent knowledge consists of an R-value for each state-action pair: each R-value is a measure of the goodness of an action in a state.The updating algorithm(which is based on value iteration)ensures that a good envir-onmental response,obtained as a consequence of taking an action in a state,results in increasing the attendant action-value while a poor response re-sults in lowering it.Thus,as the good actions are rewarded and the bad actions are punished over time,some action-values tend to grow and others tend to diminish.When a system visits a state,the learning agent chooses the action with the highest action value. Sometimes the learning agent chooses a random action.This is called exploration,which ensures that all actions are taken in all states.The learning phase ends when a trend appears in all R-values such that it is clear which is the best action in eachstate.The vector that maps every state into theassociated optimal action,represents the learnedoptimal policy.3.1.SMART algorithmSemi-Markov average reward technique(SMART)can be implemented with a simulator ofthe system[20].The environmental responsefor each action is captured from simulating thesystem with di!erent actions in all states.Information about the response is obtainedfrom the immediate rewards received and thetime spent in each transition from one decision-making state to another.The updating of theknowledge base,which has to happen whenthe system moves from one decision-makingstate to a new decision-making state,basicallymeans changing the action value of the actiontaken in the old state(this process is calledlearning).To implement this change apart fromthe response one also needs to use a variablecalled learning rate which is gradually decayed to0as the learning progresses.The probability ofexploration is also similarly decayed to0.Thedecaying scheme may be as follows:a K"M/m where a K is the value of the variable(learning rate or exploration probability)at the m th iteration andM is some predetermined constant.Typically Mis about0.1for exploration probability and0.01for learning rates.Fig.1depicts the steps of theadopted algorithm.4.Supply chain inventory problems andreinforcement learningIn this section it is shown how reinforcementlearning can be used to address supply chaininventory problems.First we describe the con-sidered model of a supply chain,which includesthe main stages identi"ed in the literature(supply,production,and distribution),as well asthe logic of the attendant material and order#ows.Then we code the described model into anSMDP that can be solved through the SMARTalgorithm.156I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161Fig.1.The SMART algorithm.Table1Cost and time variablesCost variablesUnit price P1000 Ordering cost Co G(i"1,2,3)80,80,80 Unit inventory cost(per t.u.)h G(i"1,2,3)10,5,3 Unit pipeline cost(per t.u.)Cp G(i"1,2,3)10,5,3 Unit penalty cost for late delivery(per t.u.)Cb50Time variablesStock review time interval(constant)It10 Transportation time(uniform distribution)T G1}3 DemandMean interval time(exponential distribution)d1When"nal demand cannot be immediately satis-"ed,the system incurs a penalty cost Cb times the waiting time until demand is ful"lled.Although estimating the penalty cost is often di$cult, it proves crucial when responsiveness to market demand is a key performance,which is especially true in time-based competition.4.2.The SMDP modelThe discussed SC inventory management pro-cess,resulting from a given inventory policy,is a stochastic process.This section explains the way in which the inventory process has been mapped into an SMDP and solved through the proposed approach.The SMDP de"nition involves the choice of the reward function to be maximized.This choice is linked to the hypotheses on the cost structure of the inventory model.With this regard,two basic options are available,namely averaging vs.dis-counting the cost.When the time value of money is considered,cost must be discounted rather than averaged.In the considered case,the average reward criterion has been chosen as this is more frequently used in common inventory models(both single stage and multi-echelon).Also,such a cri-terion simpli"es the hypotheses because there is no need to assume a discount factor.Furthermore, averaging is more appropriate when the perfor-mance is analyzed over a time horizon that is theor-etically in"nite.Finally,the reward function has to be associated with the whole supply chain perfor-mance,given that an integrated inventory manage-ment policy has to be determined.Therefore,the a v erage reward or gain over the long run has been utilized,which is de"ned as follows: "(Total Reward)/(Total Time),whereTotal reward"price Tot sell}Tot Cost,Tot sell"products sold at Total Time,Tot Cost"total costs incurred at Total Time.To complete the mapping of the inventory man-agement problem into the SMDP,the decision epochs,the system state variable,and the possible actions in every system state have to be identi"ed.A decision epoch occurs at each stock review time interval,when the actors at all the three stages make decision on inventory.Decision agents are three,as many as the actors in the supply chain. As a decision agent must make decision solely based on the system state,the state variable must provide him with any information that is relevant to an integrated inventory management.In particu-lar,she needs to know the inventory position of the whole supply chain,being inadequate that of her own stage only.Also,an integrated inventory man-agement requires that the three decision makers share a unique reward function,given that the performance index must refer to the supply chain as a whole.Thus,the system state variable is given by the following vector:(IP ,IP ,IP ),which describes the global SC inventory position as the inventory position IP G at every stage i.The inventory position IP G at a given stage de-pends on schedule receipts(SR G),on-hand inven-tory(OH G),and backorders(BO G)as follows:IP G"OH G#SR G!BO G.From the above equation it follows that IP G is not bounded,which would imply an in"nite size of the associated MDP.Therefore,every IP G has been coded so as to let it assume a limited number of values(Table2).At every decision epoch,all decision agents must select the replenishment order quantity for their158I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161Table2Actual and coded inventory positionsActual IP G(!8[!8;!6[[!6;!4[[!4;!2[[!2;0[[0;2[[2;4[[4;6[[6;8[*8 Coded IP G12345678910own stage,i.e.each must take an action that ranges from ordering nothing up to a maximum equal to the stock point capacity plus the current backorder plus the estimated consumption during the trans-portation lead time minus the stock on hand.We have assumed a value of30for such a maximum, which simulation has shown to be as much high to be never reached.The needed capacity can be de-termined by measuring the maximum stock level that is reached at each stage,by simulating the system under the learnt inventory policy.The action space size and the state space size,respectively equal to29,791and1000,yield 29,791,000action values.Their estimated values de"ne the near optimal inventory policy.Even though decision epochs occur at predeter-mined points in time,the considered decision process is an SMDP.In fact,the system state may change as well as cost(rewards)are incurred (accrued)between two subsequent decision epochs. The SMDP has been solved by the SMART algorithm.The learning phase has been simulated by a commercial simulating package ARENA[21]. The learning process,which has required a length of1,500,000time units,has taken about2h on a PC Pentium II450.5.ResultsA near-optimal supply chain inventory policy, which will be referred to as SMART policy,has been determined through the proposed approach. This policy,which can be thought of as an(s,S) policy where both s and S vary with the system state,is relatively simple to be implemented,as it requires the knowledge of just the optimal action to be taken in each of the system states.The e!ectiveness of the SMART policy has been evaluated against a periodic order policy that ad-opts an integrated perspective,as it is based on the minimization of the total SC costs.Such a policy is de"ned by two vectors that specify the stock review time intervals(T ,T ,T )and the target levels(S , S ,S )at each stage.At the stock review timeinterval T G,an order is placed to raise the inventory position up to the target level S G.In particular,the vector(T ,T ,T )has been determined by solving the non-linear programming problem that minimizes the average SC cost,sub-ject to the following relaxed constraints[22]:¹G*¹G\ *0for i"1,2,3.The echelon inventory concept is utilized for com-puting holding costs,so that the average SC cost is given byC "GCo G¹G#12d H G¹Gthe echelon unit holding cost H G at the i th stage being the incremental holding cost of the i th stage with respect to the upstream stage(i!1)th (H G"h G!h G> ).The vector(6,8,8)has been obtained as solution for(T ,T ,T ).The target stock S G has been de"ned equal to the demand during the reorder interval time¹G(¹G d) plus the stock necessary to cover the demand dur-ing the transportation lead time(LT G):S G"(¹G#LT G)d.The safety stock(SS)has been added at the last stage to cope with customer demand uncertainty. Therefore,the order quantity OQ G at every stage is given byOQ "(S #SS)!IP ;O Q "S !IP ;O Q "S !IP .I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161159Table3SMART policy vs.the benchmark policyGain SMART Benchmark (gain) k"1CV"100%)856826 3.63% k"5CV"45%)881852 3.40% k"10(CV"32%)884855 3.39%The performance achieved by the two policies have been measured through simulation runs with a time length of100,000time units.In particular, three demand patterns have been considered,all characterized by Erlang distributions with same demand rates but di!erent variance.The three pat-terns are indeed characterized by three diverse values of the k parameter of the Erlang distribution. As known,the relationships between the k para-meter,the mean ,the variance ,and the coe$c-ient of variation CV of demand are as follows: "k , "k ,CV"1/k .The results are depicted in Table3.The benchmark policy has been adapted to the demand variance by adjusting the safety stock SS. On the contrary,the inventory policy learned for the k"1case has been used for the other demand patterns(k"5and10).This has allowed the ro-bustness of the proposed approach to be veri"ed. It can be observed that the performance in-creases with k for both the SMART and the bench-mark policies,which was expected,given that when k increases demand uncertainty diminishes.Less obvious is that the SMART policy performs better than the benchmark does even for k"5and10, namely when demand is di!erent from that experi-enced during the learning(k"1).In fact,while the learned policy can surely deal with the same demand pattern used during the learning phase,it could show a performance decline for new patterns. Based on the results,we can then conclude that,not only is the SMART policy more e$cient,but is also robust as long as demand undergoes slight changes. The higher e$ciency of the SMART policy is mainly due to the fact that the decision rule,on which basis actions(i.e.replenishment orders) are taken,is more sophisticated.In fact,there is neither a unique reorder point nor a unique reorder quantity.Rather,replenishment orders are placed as complex functions of inventory position:di!er-ently from the benchmark policy,reorder points as well as ordered quantities vary with the global inventory position.Furthermore,the SMART policy considers the stochastic nature of the environment,namely demand and lead time variability,whereas the benchmark policy is determined based on a deter-ministic demand equal to the average and copes with uncertainty through a safety stock.6.ConclusionsIn this paper the SCM problem has been ad-dressed with particular emphasis on inventory management.Supply chain management is widely recognized as a vital source of competitive advant-age,yet SCM techniques,especially in the inven-tory area,are very di$cult to be put into practice, given the high need of information communication and processing involved.To this end many e!orts have been lately devoted to the design of appropri-ate networked inventory management information systems(NIMISs).Despite the e!orts focused on the implementa-tion of NIMISs,relatively less attention has been given to de"ne an appropriate logic for managing inventory,so missing the opportunity of exploiting the potential of such information systems.In par-ticular,integrated approaches to manage inventory decisions at all stages of the supply chain need to be developed.In this paper an approach has been proposed, which addresses this problem.It is based on three techniques,namely Markov decision processes,re-inforcement learning,and simulation.MDPs make it possible to model sequential decision-making problems under uncertainty.RL and simulation allow MDPs to be solved in a wider range of cases than conventional methods(e.g.dynamic and linear programming)do.The approach has been tested on a supply chain model consisting of the supply,manufacturing, and distribution stages.The integrated inventory policy determined through the proposed ap-proach(SMART policy)outperforms a centralized160I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161periodic order policy,which has been used as a benchmark.Also,the SMART policy proves quite robust with respect to slight changes in de-mand.It is expected that the superiority of the SMART policy would be greater for more complex cases. In fact,centralized but simpler policies(such as the POQ based utilized as a benchmark)cannot adapt to complex environments as the SMART policy does.This depends on(i)the ability of simulation modeling of capturing detailed features of the system as well as(ii)the capability of MDPs of describing time dependencies between decisions.Further research should address the issue of hav-ing the supply chain actors actually implementing the optimal policy determined through the pro-posed approach.This is quite a di$cult task,given that the supply chain actors are likely to belong to diverse"rms.Therefore,having them actually share a unique reward function needs a way(e.g.appro-priate incentive mechanisms)to fairly split the higher rewards that the optimal policy would guarantee.References[1]M.Christopher,Logistic and Supply Chain Management,Pitman Publishing,London,1992.[2]M.Verwijmeren,P.Van der Vlist,K.van Donselaar,Networked inventory management information systems: Materializing supply chain management,International Journal of Physical Distribution and Logistics Manage-ment26(6)(1996)16}31.[3]J.W.Forrester,Industrial Dynamics,MIT Press,Cam-bridge,MA,1961.[4]M.P.Baganha,M.Cohen,The stabilizing e!ect of inven-tory in supply chains,Operations Research46(3)(1998) S72}S73.[5]D.Towill,Industrial dynamics modeling of supply chains,Logistics Information Management9(1996)43}56. [6]H.L.Lee,V.Padmanabhan,S.Whang,The bullwhip e!ectin the supply chains,Sloan Management Review38(3) (1997)93}102.[7]P.Kelle,ne,The e!ect of(s,S)ordering policy on thesupply chain,International Journal of Production Econ-omics59(1999)113}122.[8]J.Wikner,D.R.Towill,M.Naim,Smoothing supply chaindynamics,International Journal of Production Economics 22(1991)231}248.[9]T.C.Jones,D.W.Riley,Using inventory for competitiveadvantage through supply chain management,Interna-tional Journal of Physical Distribution and Materials Management17(2)(1987)94}104.[10]S.Hoekstra,J.Romme,Integral Logistics Structures:De-veloping Customer-Oriented Goods Flows,McGraw-Hill, London,1992.[11]G.H.Stalk,T.M.Hout,Competing against Time,HowTime-Based Competition Is Reshaping Global Competi-tion,Free Press,New York,1990.[12]J.D.Blackburn,Time-based Competition:The NextBattleground in American Manufacturing,Irwin,Home-wood,IL,1991.[13]S.Erengu c,A.J.Vakharia,Integrated production/distribu-tion planning in supply chains,European Journal of Op-erational Research115(1999)219}236.[14]C.Forza,Achieving superior operating performance fromintegrated pipeline management:An empirical study,In-ternational Journal of Physical Distribution and Logistics Management26(9)(1996)36}63.[15]D.J.Thomas,P.M.Gri$n,Coordinated supply chainmanagement,European Journal of Operational Research 94(1)(1996)1}15.[16]M.Puterman,Markov Decision Processes:DiscreteStochastic Programming,Wiley Interscience,New York, 1994.[17]E.Porteus,Stochastic inventory theory,in:D.P.Heyman,M.J.Sobel(Eds.),Handbooks of Operations Research, North-Holland,Amsterdam,1990.[18]R.L.Sutton,A.G.Barto,Reinforcement Leaning}AnIntroduction,MIT Press,Cambridge,MA,1998.[19]D.Bertsekas,J.Tsitsiklis,Neuro-Dynamic Programming,Athena Scienti"c,Belmont,MA,1996.[20]T.A.Das,A.Gosavi,S.Mahadevan,N.Marchalleck,Solv-ing semi-Markov decision problems using average reward reinforcement learning,Management Science45(4)(1999) 560}574.[21]W.D.Kelton,R.P.Sadowski,D.A.Sadowsky,Simulationwith Arena,McGraw-Hill,New York,1998.[22]J.A.Muckstadt,R.O.Roundy,1993,Analysis of multistageproduction systems,in:S.C.Graves,A.H.G.Rinnooy Kan, P.H.Zipkin(Eds.),Handbooks in Operations Research and Management Science,Vol.4,North-Holland,Amster-dam,1993.I.Giannoccaro,P.Pontrandolfo/Int.J.Production Economics78(2002)153}161161。

Chapter 5Supply Chain Risk ManagementD.L. Olson and D. WuGlobal competition, technological change, and continual search for competitive advantage have motivated risk management in supply chains.1 Supply chains are often complex systems of networks, reaching hundreds or thousands of participants from around the globe in some cases (Wal-Mart or Dell). The term has been used both at the strategic level (coordination and collaboration) and tactical level (man-agement of logistics across functions and between businesses).2 In this sense, risk management can focus on identification of better ways and means of accomplishing organizational objectives rather than simply preservation of assets or risk avoid-ance. Supply chain risk management is interested in coordination and collaboration of processes and activities across functions within a network of organizations. Tang provided a framework of risk management perspectives in supply chains.3 Supply chains enable manufacturing outsourcing to take advantages of global relative advantages, as well as increase product variety. There are many risks inherent in this more open, dynamic system.Supply Chain Risk Management ProcessOne view of a supply chain risk management process includes steps for risk identi-fication, risk assessment, risk avoidance, and risk mitigation.4 These structures for handling risk are compatible with Tang’s list given above, but focus on the broader aspects of the process.Risk IdentificationRisks in supply chains can include operational risks and disruptions. Operational risks involve inherent uncertainties for supply chain elements such as customer demand, supply, and cost. Disruption risks come from disasters (natural in the form of floods, hurricanes, etc.; man-made in the form of terrorist attacks or wars) and from economic crises (currency reevaluations, strikes, shifting market prices).D.L. Olson, D. Wu (eds.) New Frontiers in Enterprise Risk Management, 57© Springer-Verlag Berlin Heidelberg 200858 D.L. Olson, D. Wu Most quantitative analyses and methods are focused on operational risks. Disruptions are more dramatic, less predictable, and thus are much more difficult to model. Risk management planning and response for disruption are usually qualitative.Risk AssessmentTheoretically, risk has been viewed as applying to those cases where odds are known, and uncertainty to those cases where odds are not known. Risk is a prefera-ble basis for decision making, but life often presents decision makers with cases of uncertainty. The issue is further complicated in that perfectly rational decision mak-ers may have radically different approaches to risk. Qualitative risk management depends a great deal on managerial attitude towards risk. Different rational individ-uals are likely to have different response to risk avoidance, which usually is inversely related to return, thus leading to a tradeoff decision. Research into cogni-tive psychology has found that managers are often insensitive to probability esti-mates of possible outcomes, and tend to ignore possible events that they consider to be unlikely.5 Furthermore, managers tend to pay little attention to uncertainty involved with positive outcomes.6 They tend to focus on critical performance tar-gets, which makes their response to risk contingent upon context.7 Some approaches to theoretical decision making prefer objective treatment of risk through quantita-tive scientific measures following normative ideas of how humans should make decisions. Business involves an untheoretical construct, however, with high levels of uncertainty (data not available) and consideration of multiple (often conflicting) factors, making qualitative approaches based upon perceived managerial risk more appropriate.B ecause accurate measures of factors such as probability are often lacking, robust strategies (more likely to enable effective response under a wide range of circumstances) are often attractive to risk managers. Strategies are efficient if they enable a firm to deal with operational risks efficiently regardless of major disrup-tions. Strategies are resilient if they enable a firm to keep operating despite major disruptions. Supply chain risk can arise from many sources, including the following:8● Political events● Product availability●Distance from source● Industry capacity● Demand fluctuation●Changes in technology●Changes in labor markets● Financial instability● Management turnover5 Supply Chain Risk Management 59 Risk AvoidanceThe oldest form of risk avoidance is probably insurance, purchasing some level of financial security from an underwriter. This focuses on the financial aspects of risk, and is reactive, providing some recovery after a negative experience. Insurance is not the only form of risk management used in supply chains. Delta Airlines insur-ance premiums for terrorism increased from $2 million in 2001 to $152 million in 2002.9 Insurance focuses on financial risks. Other major risks include loss of cus-tomers due to supply change disruption.Supply chain risks can be buffered by a variety of methods. Purchasing is usu-ally assigned the responsibility of controlling costs and assuring continuity of sup-ply. Buffers in the form of inventories exist to provide some risk reduction, at a cost of higher inventory holding cost. Giunipero and Al Eltantawy compared traditional practices with newer risk management approaches.10 The traditional practice, rely-ing upon extra inventory, multiple suppliers, expediting, and frequent supplier changes suffered from high transaction costs, long purchase fulfillment cycle times, and expensive rush orders. Risk management approaches, drawing upon practices such as supply chain alliances, e-procurement, just-in-time delivery, increased coordination and other techniques, provides more visibility in supply chain opera-tions. There may be higher prices incurred for goods, and increased security issues, but methods have been developed to provide sound electronic business security. Risk MitigationTang provided four basic risk mitigation approaches for supply chains.11 These focus on the sources of risk: management of uncertainty with respect to supply, to demand, to product management, and information management. Furthermore, there are both strategic and tactical aspects involved. Strategically, network design can enable better control of supply risks. Strategies such as product pricing and rollovers can control demand to a degree. Greater product variety can strategically protect against product risks. And systems providing greater information visibility across supply chain mem-bers can enable better coping with risks. Tactical decisions include supplier selection and order allocation (including contractual arrangements); demand control over time, markets, and products; product promotion; and information sharing, vendor managed inventory systems, and collaborative planning, forecasting, and replenishment. Supply ManagementA variety of supplier relationships are possible, varying the degree of linkage between vendor and core organizations. Different types of contracts and information exchange are possible, and different schemes for pricing and coordinating schedules.60 D.L. Olson, D. Wu Supplier Selection ProcessSupplier (vendor) evaluation is a very important operational decision. There are decisions selecting which suppliers to employ, as well as decisions with respect to quantities to order from each supplier. With the increase in outsourcing and the opportunities provided by electronic business to tap world-wide markets, these decisions are becoming ever more complex. The presence of multiple criteria in these decisions has long been recognized.12 A probabilistic model for this decision has been published to include the following criteria:131. Quality personnel2. Quality procedure3. Concern for quality4. Company history5. Price relative to quality6. Actual price7. Financial ability8. Technical performance9. Delivery history10. Technical assistance11. Production capability12. Manufacturing equipmentSome of these criteria overlap, and other criteria may exist for specific supply chain decision makers. But clearly there are many important aspects to selecting suppliers. Supplier Order AllocationOperational risks in supply chain order allocation include uncertainties in demands, sup-ply yields, lead times, and costs. Thus not only do specific suppliers need to be selected, the quantities purchased from them needs to be determined on a recurring basis.Supply chains provide many valuable benefits to their members, but also create problems of coordination that manifest themselves in the “bullwhip” effect.14 Information system coordination can reduce some of the negative manifestations of the bullwhip effect, but there still remains the issue of profit sharing. Decisions that are optimal for one supply chain member often have negative impacts of the total profitability of the entire supply chain.15Demand ManagementDemand management approaches include using statistics in models for identification of an optimal portfolio of demand distributions16 and economic models to select strate-gies using price as a response mechanism to change demand.17 Other strategies include5 Supply Chain Risk Management 61 shifting demand over time, across markets, or across products. Demand management of course is one of the aims of advertising and other promotional activities. However, it has long been noted as one of the most difficult things to predict over time.Product ManagementAn effective strategy to manage product risk is variety, which can be used to increase market share to serve distinct segments of a market. The basic idea is to diversify products to meet the specific needs of each market segment. However, while this would be expected to increase revenues and market share, it will lead to increase manufacturing costs and inventory costs. Various ways to deal with the potential inefficiencies in product variety include Dell’s make-to-order strategy. Supply Chain DisruptionTang classified supply chain vulnerabilities as those due to uncertain economic cycles, customer demand, and disasters. Land Rover reduced their workforce by over one thousand when a key supplier went insolvent. Dole was affected by Hurricane Mitch hitting their banana plantations in Central America in 1998. September 11, 2001 suspended air traffic, leading Ford Motor Company to close five plants for several days.18 Many things can disrupt supply chains. Supply chain disruptions have been found to negatively impact stock returns for firms suffering them.19Supply Chain RisksRecent research into supply chain risk covers many topics.New Technology RiskGolda and Phillipi20 considered technical and business risk components of the sup-ply chain. Technical risks relate to science and engineering, and deal with the uncertainties of research output. Business risks relate to markets, human responses to products and/or related services. At Intel, three risk mitigation strategies were considered to deal with the risks associated with new technologies:1. Partnerships, with associated decisions involving who to partner with, and atwhat stage of product development62 D.L. Olson, D. Wu 2. Pursue extendable solutions, evolutionary products that will continue to offervalue as new technical breakthroughs are gained3. Evaluate multiple options to enable commercializationPartner Selection RiskPartner (to include vendor) evaluation is a very important operational decision. Important decisions include which vendors to employ and quantities to order from each vendor. With the increase in outsourcing and the opportunities provided by electronic business to tap world-wide markets, these decisions are becoming ever more complex. The presence of multiple criteria in these decisions has long been recognized.21Outsourcing RisksOther risks are related to partner selection, focusing specifically on the additional risks associated with international trade. Risks in outsourcing can include:22●Cost – unforeseen vendor selection, transition, or management●Lead time – delay in production start-up, manufacturing process, or transportation ●Quality – minor or major finishing defects, component fitting, or structuraldefectsOutsourcing has become endemic in the United States, especially information technology to India and production to China.23 Risk factors include:●Ability to retain control●Potential for degradation of critical capability●Risk of dependency●Pooling risk (proprietarial information, clients competing among themselves)●Risk of hidden costsEcological RisksIn our ever-more complex world, it no longer is sufficient for each organization to make decisions in light of their own vested self-interest. There is growing con-cern with the impact of human decisions on the state of the earth. This is espe-cially true in mass production environments such as power generation,24 but also is important in all aspects of business. Cruz (2008) presented a dynamic frame-work for modeling and analysis of supply chain networks in light of corporate5 Supply Chain Risk Management 63 social responsibility.25 That study presented a framework multiple objective pro-gramming model with the criteria of maximizing profit, minimizing waste, and minimizing risk.Multiple Criteria Selection ModelA number of methodologies are applied in practice, to include simple screening and scoring methods,26 supplier positioning matrices to lay out risks by vendor, with associated ratings,27 and a combination of sorts combining risk categorization with ratings of opportunity, probability, and severity.28 Traditional multiple criteria meth-ods have also been applied, to include analytic hierarchy process.29 The simple multiattribute rating theory (SMART)30 model bases selection on the rank order of the product of criteria weights and alternative scores over these criteria, and will be used here. Note that we are demonstrating, and are not claiming that the orders and ratings used are universal. We are rather presenting a method that real decision makers could use with their own ratings (and even with other criteria that they might think important in a given application).OptionsThere are various levels of outsourcing that can be adopted. These range from sim-ply outsourcing particular tasks (much like the idea of service oriented architec-ture), co-managing services with partners, hiring partners to manage services, and full outsourcing (in a contractual relationship). We will use these four outsourcing relationships plus the fifth option of doing everything in-house as our options. CriteriaWe will utilize the criteria given below:●Cost (including hidden)● Lead time● Quality●Ability to retain control●Potential loss of critical capability●Risk of dependency●Risk of loss of proprietarial information●Risk of client contentionThe SMART method begins by rank ordering criteria. Here assume the follow-ing rank order of importance:64 D.L. Olson, D. Wu1. Ability to retain control2. Risk proprietarial information loss3. Quality of product and service4. Potential loss of critical capability5. Risk of dependency6. Cost7. Lead time8. Risk of client contentionThe next step is to develop relative weights of importance for criteria. We will do this by assigning the most important criterion 100 points, and give proportional ratings for each of the others as given in Table 5.1:Weights are obtained by dividing each criterion’s assigned point value by the total of points (here 435). This yields weights shown in Table 5.2:Scoring of Alternatives over CriteriaThe next step of the SMART method is to score alternatives. This is an expression by the decision maker (or associated experts) of how well each alternative performs on each criterion. Scores range from 1.0 (ideal performance) to 0 (absolute worst performance imaginable). This approach makes the scores independent of scale, and independent of weight. Demonstration is given in Table 5.3:Table 5.1Assignment of points to criteriaRank Criterion Points1 Ability to retain control 1002 Risk proprietarial information loss 903 Quality of product and service 854 Potential loss of critical capability 605 Risk of dependency 406 Cost 30time 257 Lead8 Risk of client contention 5Table 5.2Weight developmentRank Criterion Points Weights1 Ability to retain control 1000.2302 Risk proprietarial information loss 90 0.2073 Quality of product and service 850.1954 Potential loss of critical capability 60 0.1385 Risk of dependency 40 0.0926 Cost 30 0.069time 25 0.0577 Lead8 Risk of client contention 50.0115 Supply Chain Risk Management65Once weights and scores are obtained, value functions for each alternative are sim-ply the sum products of weights times scores for each alternative. The closer to 1.0 (the maximum value function), the better. Table 5.4 shows value scores for the five alternatives:The outcome here is that in-house operations best satisfy the preference function of the decision maker. Obviously, different weights and scores will yield different outcomes. B ut the method enables decision makers to apply a sound but simple analysis to aid their decision making.ConclusionsSupply chains have become important elements in the conduct of global business. There are too many efficiency factors available from global linkages to avoid. We all gain from allowing broader participation by those with relative advantages. Alliances can serve as safety nets by providing alternative sources, routes, or prod-ucts for its members. Risk exposure within supply chains can be reduced by reduc-ing lead times. A common means of accomplishing lead time reduction is by collocation of suppliers at producer facilities.This chapter has discussed some of the many risks associated with supply chains. A rational process of dealing with these risks includes assessment of what can go wrong, quantitative measurement to the degree possible of risk likelihood and severity, qualitative planning to cover a broader set of important criteria, and contingency planning. A wide variety of available supply chain risk-reduction strat-egies were reviewed, with cases of real application.Table 5.3ScoresCriteria Out-tasking Co-managed Managed Contract In-house Ability to retain control 0.9 0.6 0.3 0.0 1.0Risk proprietarial 0.8 0.5 0.2 0.0 1.0information lossQuality of product 0.3 0.4 0.6 0.9 0.7and servicePotential loss of 0.3 0.2 0.2 0.0 1.0critical capabilityRisk of dependency 0.8 0.4 0.3 0.0 1.0Cost 0.3 0.5 0.7 1.00.2Lead time 0.8 0.3 0.5 0.7 0.4Risk of client 0.0 0.2 0.3 1.0 0.3contentionTable 5.4Value functionsAlternative Out-tasking Co-managed Managed Contract In-house 0.613 0.438 0.363 0.297 0.844 2 3 4 5 166 D.L. Olson, D. WuWhile no supply chain network can expect to anticipate all future disruptions, they can set in place a process to reduce exposure and impact. Preplanned response is expected to provide better organizational response in keeping with organizational objectives.End Notes1. Ritchie, B., and Brindly, C. (2007). Supply chain risk management and performance: A guid-ing framework for future development, International Journal of Operations and Production Management 27:3, 303–322.2. Mentzer, J.T, Dewitt, W., Keebler, J.S., Min, S., Nix, N.W., Smith, C.D., and Zacharia, Z.G.(2001).Supply Chain Management. Thousand Oaks, CA: Sage.3. Tang, C.S. (2006). Perspectives in supply chain risk management, International Journal ofProduction Economics 103, 451–488.4. Chapman, P., Cristopher, M., Juttner, U., Peck, H., and Wilding, R. (2002). Identification andmanaging supply chain vulnerability, Logistics and Transportation Focus 4:4, 59–64.5. Kunreuther, H. (1976). Limited knowledge and insurance protection, Public Policy 24,227–261.6. MacCrimmon, K.R., and Wehrung, D.A. (1986). Taking Risks: The Management ofUncertainty. New York: Free Press.7. March, J., and Shapira, Z. (1987). Managerial perspectives on risk and risk taking,Management Science 33, 1404–1418.8. Giunipero, L.C., and Aly Eltantawy, R. (2004). Securing the upstream supply chain: A riskmanagement approach, International Journal of Physical Distribution and Logistics Management 34:9, 698–713.9. Rice, B., and Caniato, F. (2003). Supply chain response to terrorism: Creating resilient andsecure supply chains, Supply Chain Response to Terrorism Project Interim Report. Cambridge, MA: MIT Center for Transportation and Logistics.10. Giunipero and Aly Eltantawy. (2004). op cit.11. Tang (2006), op cit.12. Dickson, G.W. (1966). An analysis of vendor selection systems and decisions, Journal ofPurchasing 2, 5–17.13. Moskowitz, H., Tang, J., and Lam, P. (2000). Distribution of aggregate utility using stochasticelements of additive multiattribute utility models, Decision Sciences 31, 327–360.14. Sterman, J.D. (1989). Modeling managerial behavior: Misperceptions of feedback in adynamic decision making experiment, Management Science 35, 321–339.15. Bresnahan, T.F., and Reiss, P.C. (1985). Dealer and manufacturer margins, Rand Journal ofEconomics 16, 253–268.16. Carr, S., and Lovejoy, W. (2000). The inverse newsvendor problem: Choosing an optimaldemand portfolio for capacitated resources, Management Science 47, 912–927.17. Van Mieghem, J., and Dada, M. (2001). Price versus production postponement: Capacity andcompetition,Management Science 45, 1631–1649.18. Tang (2006), op cit.19. Hendricks, K., and Singhal, V. (2005). An empirical analysis of the effect of supply chain dis-ruptions on long-run stock price performance and equity risk of the firm, Production and Operations Management 25–53.20. Golda, J., Philippi, C. (2007). Managing new technology risk in the supply chain. IntelTechnology Journal 11:2, 95–104.21. Dickson, G.W. (1966). op cit.; Weber, C.A., Current, J.R., and Benton, W.C. (1991). Vendorselection criteria and methods, European Journal of Operational Research, 50, 2–18; Moskowitz,H., et al. (2000). op cit.5 Supply Chain Risk Management 6722. Wellborn, C. (2007). op cit.23. Sanders, N.R., Locke, A., Moore, C.B., and Autry, C.W. (2007). A multidimensional frame-work for understanding outsourcing arrangements. Journal of Supply Chain Management: A Global Review of Purchasing and Supply 43:4, 3–15.24. Sheu, J.-B. (2008). Green supply chain management, reverse logistics and nuclear power gen-eration.Transportation Research: Part E 44:1, 19–46.25. Cruz, J.M. (2008). Dynamics of supply chain networks with corporate social responsibilitythrough integrated environmental decision-making. E uropean Journal of Operational Research 184, 1005–1031.26. Golda and Philippi. (2007). op cit.27. Chou, S.-Y., Shen, C.-Y., and Chang, Y.-H. (2007). Vendor selection in a modified re-buy situ-ation using a strategy-aligned fuzzy approach. International Journal of Production Research 45:14, 3113–3133.28. Wellborn, C. (2007). Using FMEA to assess outsourcing risk. Quality Progress 40:8, 17–21.29. Levary, R.R. (2007). Ranking foreign suppliers based on supply risk. Supply ChainManagement: An International Journal 12:6, 392–394; Balan, S., Brat, P., Kumar, P. (2008).A strategic decision model for the justification of supply chain as a means to improve nationaldevelopment index. International Journal of Technology Management 40:1/3, 69–86.30. Edwards, W., and Barron, F.H. (1994). SMARTS and SMARTER: Improved simple methodsfor multiattribute utility measurement, Organizational Behavior and Human Decision Processes 60, 306–325; Olson, D.L. (1996). Decision Aids in Selection Problems. New York: Springer.。

Chapter 5Network Design in the Supply ChainTrue/False1. Supply chain network design decisions include the location of manufacturing,storage, or transportation-related facilities and the allocation of capacity and roles to each facility.Answer: TrueDifficulty: Moderate2. Decisions concerning the role of each facility are significant because theydetermine the amount of flexibility the supply chain has in changing the way itmeets demand.Answer: TrueDifficulty: Moderate3. Decisions concerning the role of each facility are significant because theydetermine the amount of rigidity the supply chain has in changing the way itmeets demand.Answer: FalseDifficulty: Moderate4. Facility location decisions have a long-term impact on a supply chain’sperformance because it is cost effective to shut down a facility or move it to adifferent location.Answer: FalseDifficulty: Easy5. Capacity allocation decisions have a significant impact on supply chainperformance because they tend to stay in place for several years.Answer: TrueDifficulty: Moderate6. The allocation of supply sources and markets to facilities has a significant impacton performance because it affects total production, inventory, and transportation costs incurred by the supply chain to satisfy customer demand.Answer: TrueDifficulty: Easy7. The allocation of supply sources and markets to facilities does not need to bereconsidered on a regular basis so that the allocation can be changed as market conditions or plant capacities change.Answer: TrueDifficulty: Moderate8. Network design decisions have a significant impact on performance becausethey determine the supply chain configuration and set constraints within whichinventory, transportation, and information can be used to either decrease supply chain cost or increase responsiveness.Answer: TrueDifficulty: Moderate9. Network design decisions have a significant impact on performance becausethey determine the supply chain conflagration and set constraints within whichinventory, transportation, and information can be used to either increase supplychain cost or reduce responsiveness.Answer: FalseDifficulty: Easy10. Firms focusing on cost leadership tend to find the lowest cost location for theirmanufacturing facilities, but only if that means locating very far from the markets they serve.Answer: FalseDifficulty: Easy11. Firms focusing on responsiveness tend to locate facilities closer to the marketand may select a high-cost location if this choice allows the firm to quickly reactto changing market needs.Answer: TrueDifficulty: Moderate12. If production technology displays significant economies of scale, many locallocations are the most effective.Answer: FalseDifficulty: Moderate13. If facilities have lower fixed costs, many local facilities are preferred because thishelps lower transportation costs.Answer: TrueDifficulty: Moderate14. If the production technology is very inflexible and product requirements vary fromone country to another, a firm has to set up local facilities to serve the market in each country.Answer: TrueDifficulty: Hard15. If the technology is flexible, it becomes more difficult to consolidatemanufacturing in a few large facilities.Answer: FalseDifficulty: Hard16. Tariffs have a minor influence on location decisions within a supply chain.Answer: FalseDifficulty: Easy17. High tariffs lead to more production locations within a supply chain network, witheach location having a lower allocated capacity.Answer: TrueDifficulty: Hard18. When designing supply chain networks, companies must build appropriateflexibility to help counter fluctuations in exchange rates and demand acrossdifferent countries.Answer: TrueDifficulty: Moderate19. Inventory and facility costs increase as the number of facilities in a supply chainincrease.Answer: TrueDifficulty: Moderate20. Transportation costs increase as the number of facilities is increased.Answer: FalseDifficulty: Moderate21. A firm may increase the number of facilities beyond the point that minimizes totallogistics cost to improve the response time to its customers.Answer: TrueDifficulty: Easy22. When faced with a network design decision, the goal of a manager is to design anetwork that minimizes the firm’s costs while satisfying customer needs in terms of demand and responsiveness.Answer: FalseDifficulty: Hard23. The supply chain network is designed to maximize total profits, taking intoaccount the expected margin and demand in each market, various logistics and facility costs, and the taxes and tariffs at each location.Answer: TrueDifficulty: EasyMultiple Choice1. Supply chain network design decisions includea. only the location of manufacturing, storage, or transportation-relatedfacilities.b. only the allocation of capacity and roles to each facility.c. both the location of manufacturing, storage, or transportation-relatedfacilities and the allocation of capacity and roles to each facility.d. neither the location of manufacturing, storage, or transportation-relatedfacilities nor the allocation of capacity and roles to each facility.e. none of the aboveAnswer: cDifficulty: Easy2. Supply chain network design decisions classified as facility role are concernedwitha. what processes are performed at each facility.b. where facilities should be located.c. how much capacity should be allocated to each facility.d. what markets each facility should serve and which supply sources shouldfeed each facility.e. none of the aboveAnswer: aDifficulty: Moderate3. Supply chain network design decisions classified as facility location areconcerned witha. what processes are performed at each facility.b. where facilities should be located.c. how much capacity should be allocated to each facility.d. what markets each facility should serve and which supply sources shouldfeed each facility.e. none of the aboveAnswer: bDifficulty: Easy4. Supply chain network design decisions classified as capacity allocation areconcerned witha. what processes are performed at each facility.b. where facilities should be located.c. how much capacity should be allocated to each facility.d. what markets each facility should serve and which supply sources shouldfeed each facility.e. none of the aboveAnswer: cDifficulty: Easy5. Supply chain network design decisions classified as market and supply allocationare concerned witha. what processes are performed at each facility.b. where facilities should be located.c. how much capacity should be allocated to each facility.d. what markets each facility should serve and which supply sources shouldfeed each facility.e. none of the aboveAnswer: dDifficulty: Easy6. Decisions concerning the role of each facility are significant becausea. they determine the amount of flexibility the supply chain has indemanding change.b. they determine the amount of flexibility the supply chain has in changingthe way it meets demand.c. they determine the amount of capacity the supply chain has in changingthe way it meets demand.d. they determine the amount of inventory the supply chain has indemanding change.e. None of the above are true.Answer: bDifficulty: Moderate7. Facility location decisions have a long-term impact on a supply chain’sperformance becausea. it is very expensive to shut down a facility or move it to a different location.b. it is not expensive to shut down a facility or move it to a different location.c. it is advisable to shut down a facility or move it to a different location.d. it is cost effective to shut down a facility or move it to a different location.e. none of the aboveAnswer: aDifficulty: Moderate8. Capacity allocation decisions have a significant impact on supply chainperformance becausea. capacity decisions tend to be permanent.b. capacity decisions tend to be changed frequently.c. capacity decisions do not tend to stay in place for several years.d. capacity decisions tend to stay in place for several years.e. none of the aboveAnswer: dDifficulty: Moderate9. Allocating too much capacity to a location results ina. permanent damage.b. poor utilization, and as a result, higher costs.c. high utilization, and as a result, higher costs.d. poor utilization, and as a result, lower costs.e. high utilization, and as a result, lower costs.Answer: bDifficulty: Moderate10. Allocating too little capacity results ina. temporary damage.b. good responsiveness if demand is not satisfied or low cost if demand isfilled from a distant facility.c. good responsiveness if demand is not satisfied or high cost if demand isfilled from a distant facility.d. poor responsiveness if demand is not satisfied or low cost if demand isfilled from a distant facility.e. poor responsiveness if demand is not satisfied or high cost if demand isfilled from a distant facility.Answer: eDifficulty: Moderate11. The allocation of supply sources and markets to facilities has a significant impacton performance becausea. it cannot affect total production, inventory, and transportation costsincurred by the supply chain to satisfy customer demand.b. it cannot affect customer demand.c. it affects total production, inventory, and transportation costs incurred bythe supply chain to satisfy customer demand.d. it cannot satisfy customer demand.e. none of the aboveAnswer: cDifficulty: Moderate12. The allocation of supply sources and markets to facilities should be reconsideredon a regular basis so thata. the allocation can be held constant as market conditions or plantcapacities expand.b. the allocation can be changed as market conditions or plant capacitiesstagnate.c. the allocation can be held constant as market conditions or plantcapacities change.d. the allocation can be changed as market conditions or plant capacitieschange.e. none of the aboveAnswer: dDifficulty: Moderate13. Network design decisions have a significant impact on performance becausetheya. determine the supply chain configuration.b. determine the supply chain conflagration.c. set constraints within which inventory, transportation, and information canbe used to either decrease supply chain cost or increase responsiveness.d. set constraints within which inventory, transportation, and information canbe used to either increase supply chain cost or decrease responsiveness.e. a and c onlyAnswer: eDifficulty: Hard14. Customer order entry isa. the point in time when the customer has access to choices and makes adecision regarding a purchase.b. the customer informing the retailer of what they want to purchase and theretailer allocating product to the customer.c. the process where product is prepared and sent to the customer.d. the process where the customer receives the product and takesownership.e. none of the aboveAnswer: bDifficulty: Moderate15. Which of the following is not a factor influencing network design decisions insupply chains?a. Strategic factorsb. Tactical factorsc. Macroeconomic factorsd. Political factorse. Infrastructure factorsAnswer: bDifficulty: Moderate16. Firms focusing on cost leadership tend toa. locate facilities close to the market they serve.b. locate facilities very far from the market they serve.c. find the lowest cost location for their manufacturing facilities.d. select a high-cost location to be able to react quickly.e. none of the aboveAnswer: cDifficulty: Moderate17. Firms focusing on responsiveness tend toa. locate facilities close to the market they serve.b. locate facilities very far from the market they serve.c. find the lowest cost location for their manufacturing facilities.d. select a high-cost location to be able to react slowly.e. none of the aboveAnswer: aDifficulty: Moderate18. Which of the following is not one of Kasra Ferdows’ classifications of possiblestrategic roles for various facilities in a global supply chain network?a. Offpost facilityb. Source facilityc. Server facilityd. Contributor facilitye. Outpost facilityAnswer: aDifficulty: Moderate19. A facility that serves the role of being a low-cost supply source for marketslocated outside the country where the facility is located isa. an offshore facility.b. a source facility.c. a server facility.d. a contributor facility.e. an outpost facility.Answer: aDifficulty: Moderate20. A facility that also has low cost as its primary objective, but its strategic role isbroader than that of an offshore facility isa. an offshore facility.b. a source facility.c. a server facility.d. a contributor facility.e. an outpost facility.Answer: bDifficulty: Moderate21. A facility built because of tax incentives, local content requirement, tariff barriers,or high logistics cost to supply the region from elsewhere with the objective tosupply the market where it is located isa. an offshore facility.b. a source facility.c. a server facility.d. a contributor facility.e. an outpost facility.Answer: cDifficulty: Moderate22. A facility located primarily to obtain access to knowledge or skills that may existwithin a certain region isa. an offshore facility.b. a source facility.c. a server facility.d. a contributor facility.e. an outpost facility.Answer: eDifficulty: Moderate23. A facility that serves the market where it is located but also assumesresponsibility for product customization, process improvements, productmodifications, or product development isa. an offshore facility.b. a source facility.c. a server facility.d. a contributor facility.e. an outpost facility.Answer: dDifficulty: Moderate24. A facility that creates new products, processes, and technologies for the entirenetwork isa. an offshore facility.b. a source facility.c. a server facility.d. a lead facility.e. an outpost facility.Answer: dDifficulty: Moderate25. If production technology displays significant economies of scale,a. many high-capacity locations are the most effective.b. few high-capacity locations are the most effective.c. few high-capacity locations are the least effective.d. few low-capacity locations are the most effective.e. few low-capacity locations are the least effective.Answer: bDifficulty: Moderate26. If facilities have lower fixed costs,a. a few high-capacity facilities are preferred because this helps lowertransportation costs.b. a few local facilities are preferred because this helps lower transportationcosts.c. many high-capacity facilities are preferred because this helps lowertransportation costs.d. many local facilities are preferred because this helps lower transportationcosts.e. one central facility is preferred because this helps lower transportationcosts.Answer: dDifficulty: Moderate27. If the production technology is very inflexible and product requirements vary fromone country to another, a firm has to set upa. local facilities to serve the market in each country.b. a few high-capacity facilities to serve the market in each country.c. many local facilities because this helps lower transportation costs.d. a few high-capacity facilities because this helps lower transportation costs.e. many high-capacity facilities because this helps lower transportation costs.Answer: aDifficulty: Hard28. If the technology is flexible,a. it becomes more difficult to consolidate manufacturing in a few largefacilities.b. it becomes more difficult to distribute manufacturing in many localfacilities.c. it becomes easier to consolidate manufacturing in a few large facilities.d. it becomes easier to consolidate manufacturing in many local facilities.e. the firm should have one central facility.Answer: cDifficulty: Hard29. Which of the following is a macroeconomic factor influencing network designdecisions?a. Taxesb. Tariffsc. Exchange ratesd. all of the abovee. none of the aboveAnswer: dDifficulty: Easy30. Duties that must be paid when products and/or equipment are moved acrossinternational, state, or city boundaries are referred to asa. taxes.b. tax incentives.c. tariffs.d. incentives.e. none of the aboveAnswer: cDifficulty: Moderate31. If a country has very high tariffs,a. companies either do not serve the local market or set up manufacturingplants within the country to save on duties.b. companies do not serve the local market.c. companies set up manufacturing plants within the country to save onduties.d. companies will not serve the local market or set up manufacturing plantswithin the country to save on duties.e. companies will serve the local market by setting up regionalmanufacturing plants.Answer: aDifficulty: Moderate32. Developing countries often create free trade zones wherea. duties and tariffs are imposed as long as production is used primarily forexport.b. duties and tariffs are imposed as long as production is used primarily forimport.c. duties and tariffs are relaxed as long as production is used primarily forexport.d. duties and tariffs are relaxed as long as production is used primarily forimport.e. duties and tariffs are increased as long as production is used primarily forexport.Answer: cDifficulty: Easy33. Building some over-capacity in the supply chain network and making the capacityflexible allows a firm to alter production flows within the supply chain toa. produce less in facilities that have a lower cost based on currentexchange rates.b. produce more in facilities that have a lower cost based on currentexchange rates.c. produce more in facilities that have a higher cost based on currentexchange rates.d. produce less in facilities that have the same cost based on currentexchange rates.e. None of the above are accurate.Answer: bDifficulty: Moderate34. Positive externalities are instances wherea. the collocation of multiple firms benefits all of them.b. the dispersion of multiple firms benefits all of them.c. the cooperation of multiple firms benefits all of them.d. the coordination of multiple firms benefits all of them.e. the disagreement of multiple firms benefits all of them.Answer: aDifficulty: Moderate35. Inventory and facility costsa. decrease as the number of facilities in a supply chain increases.b. increase as the number of facilities in a supply chain increases.c. increase as the number of facilities in a supply chain decreases.d. are stable as the number of facilities in a supply chain increases.e. None of the above are accurate.Answer: bDifficulty: Moderate36. Transportation costsa. decrease as the number of facilities is decreased.b. decrease as the number of facilities is increased.c. increase as the number of facilities is decreased.d. remain stable as the number of facilities is increased.e. All of the above are accurate.Answer: bDifficulty: Easy37. Total logistics costs are a sum of thea. inventory and facility costs.b. transportation and facility costs.c. inventory and transportation costs.d. inventory, transportation, and facility costs.e. inventory, transportation, and faculty costs.Answer: dDifficulty: Easy38. The facilities in a supply chain network musta. at least maximize total logistics cost.b. at least equal the number that maximizes total logistics cost.c. at least equal the number that minimizes total logistics cost.d. at least minimize total logistics cost.e. none of the aboveAnswer: cDifficulty: Easy39. When faced with a network design decision, the goal of a manager is to design anetwork thata. maximizes the firm’s profits.b. minimizes the firm’s costs.c. satisfies customer needs in terms of demand and responsiveness.d. maximizes the firm’s profits while satisfying customer needs in terms ofdemand and responsiveness.e. none of the aboveAnswer: dDifficulty: Moderate40. Which of the following is not a phase in the design of a global supply chainnetwork?a. Define a supply chain strategy.b. Define the regional facility configuration.c. Select desirable sites.d. Location choices.e. Implement supply chain strategy.Answer: eDifficulty: Moderate41. Which of the following is the first phase in the design of a global supply chainnetwork?a. Define a supply chain strategy.b. Define the regional facility configuration.c. Select desirable sites.d. Location choices.e. Implement supply chain strategy.Answer: aDifficulty: Moderate42. The objective of the first phase of network design is toa. maximize total profits, taking into account the expected margin anddemand in each market.b. select a precise location and capacity allocation for each facility.c. select a set of desirable sites within each region where facilities are to belocated.d. identify regions where facilities will be located, their potential roles, andtheir approximate capacity.e. specify what capabilities the supply chain network must have to support afirm’s competitive strategy.Answer: eDifficulty: HardThe objective of the first phase of network design is to define a firm’s supply chain strategy. The supply chain strategy specifies what capabilities the supply chain network must have to support a firm’s competitive strategy (see Chapter 2).The objective of the second phase of network design is to identify regions where facilities will be located, their potential roles, and their approximate capacity.The objective of Phase III is to select a set of desirable sites within each region where facilities are to be located. The set of desirable sites should be larger than the desired number of facilities to be set up so that a precise selection may be made in Phase IV. The objective of this phase is to select a precise location and capacity allocation for each facility. Attention is restricted to the desirable sites selected in Phase III.43. The objective of the second phase of network design is toa. maximize total profits, taking into account the expected margin and demandin each market.b. select a precise location and capacity allocation for each facility.c. select a set of desirable sites within each region where facilities are to belocated.d. identify regions where facilities will be located, their potential roles, and theirapproximate capacity.e. specify what capabilities the supply chain network must have to support afirm’s competitive strategy.Answer: dDifficulty: Hard44. The objective of the third phase of network design is toa. maximize total profits, taking into account the expected margin and demandin each market.b. select a precise location and capacity allocation for each facility.c. select a set of desirable sites within each region where facilities are to belocated.d. identify regions where facilities will be located, their potential roles, and theirapproximate capacity.e. specify what capabilities the supply chain network must have to support afirm’s competitive strategy.Answer: cDifficulty: Hard45. The objective of the third phase of network design is toa. maximize total profits, taking into account the expected margin and demandin each market.b. select a precise location and capacity allocation for each facility.c. select a set of desirable sites within each region where facilities are to belocated.d. identify regions where facilities will be located, their potential roles, and theirapproximate capacity.e. specify what capabilities the supply chain network must have to support afirm’s competitive strategy.Answer: bDifficulty: HardFacilities last a long time and have an enduring impact on a firm’s performance. Therefore, it is very important that long-term consequences be thought through when making facility decisions.Network design decisions regarding facility location and facility role have a significant impact on the culture of each facility and the firm. The culture at a facility will beinfluenced by other facilities in its vicinity. Network designers can use this fact to influence the role of the new facility and the focus of people working there.The location of a facility has a significant impact on the extent and form of communication that develops in the supply chain network. Locating a facility far from headquarters will likely give it more of a culture of autonomy.The quality of life at selected facility locations has a significant impact on performance because it influences the work force available and their morale.Managers making facility location decisions should carefully consider tariffs and tax incentives. When considering international locations, it is astounding how often tax incentives drive the choice of location, often overcoming all of the other cost factors combined.46. It is very important that long-term consequences be thought through whenmaking facility decisions, becausea. network designers can use this fact to influence the role of the new facilityand the focus of people working there.b. facilities last a long time and have an enduring impact on a firm’sperformance.c. it is astounding how often tax incentives drive the choice of location.d. the location of a facility has a significant impact on the extent and form ofcommunication that develops in the supply chain network.e. the quality of life at selected facility locations has a significant impact onperformance.Answer: bDifficulty: Hard47. The implications of culture should not be glossed over becausea. tariffs and tax incentives should be carefully considered.b. facilities last a long time and have an enduring impact on a firm’sperformance.c. it is astounding how often tax incentives drive the choice of location.d. the location of a facility has a significant impact on the extent and form ofcommunication that develops in the supply chain network.e. the quality of life at selected facility locations has a significant impact onperformance.Answer: aDifficulty: Hard48. The quality of life at selected facility locations has a significant impact onperformance becausea. network designers can use this fact to influence the role of the new facilityand the focus of people working there.b. facilities last a long time and have an enduring impact on a firm’sperformance.c. it is astounding how often tax incentives drive the choice of location.d. the location of a facility has a significant impact on the extent and form ofcommunication that develops in the supply chain network.e. it influences the work force available and their morale.Answer: eDifficulty: Hard。

PART IIANSWERS TO END-OF-CHAPTER QUESTIONSCHAPTER 5: THE SUPPLY CHAIN MANAGEMENT CONCEPT5-1. Discuss the differences between a supply chain and supply chain management.A supply chain can be viewed as a combination of processes, functions, activities, relationships, and pathways along which products, services, information, and financial transactions move in and between enterprises from original producer to ultimate end user or customer. Supply chains are not a new concept in the sense that through the years organizations have been dependent on suppliers and organizations have served customers. Although any organization can be part of a supply chain, supply chain management requires overt management efforts within those organizations in the supply chain. Moreover, supply chain management cannot be successful unless the participating companies adopt an enterprise-to-enterprise perspective and apply the systems approach across all organizations in the supply chain.5-2. Discuss the SCOR and GSCF models of supply chain management.The SCOR model identifies six key processes—plan, source, make, deliver, return, and enable—associated with supply chain management. Each of the six processes indicates the important role of logistics in supply chain management. In the GSCF model, there are eight relevant processes—customer relationship management, customer service management, demand management, order fulfillment, manufacturing flow management, supplier relationship management, product development management, and returns management. Logistics also plays an important role in the supply chain processes in the GSCF model.5-3. Discuss how the logistics function contributes to the supply chain management processes established in the SCOR and GSCF models.With respect to the SCOR model, it can be argued that logistics has some involvement in both sourcing and making. Logistics can also be involved in delivering and returning; the definition of the deliver process specifically mentions the logistics components of order management, transportation management, and distribution management. As for the GSCF model, logistics considerations such as on-time pickup and delivery could arise within the order fulfillment process. The logistics function can contribute to customer relationship management and supplier relationship management processes in terms of outbound or inbound material being part of a product and service agreement with a key customer or supplier.5-4. What are four key enablers of supply chain management implementation?The text discussed the implications of increased customer power, establishing appropriate relationship structures, leveraging technology for enhanced visibility and communication, and the use of supply chain facilitators.5-5. What is the difference between a lean and an agile supply chain? Under what circumstances is each an appropriate supply chain approach to pursue?An agile supply chain focuses on an organization’s capability to respond to changes in demand with respect to volume and variety. Lean supply chains focus on eliminating all waste, including time, and ensuring a level schedule. An agile supply chain may be most appropriate in contexts in which customer demand is volatile and customer requirements for variety are high. In cases where customer demand is relatively stable and variety is low, establishing a lean supply chain may be a more appropriate goal.5-6. Discuss some of the ways that inventory can be reduced in the supply chain.Ways to reduce inventory in the supply chain include, but are not limited to, smaller, more frequent orders; the use of premium transportation; demand–pull, as opposed to supply–push, replenishment; and the elimination or consolidation of slower-moving products. However, prominent supply chain disruptions in the early part of the twenty-first century, such as terrorist attacks and natural disasters, have caused some supply chains to reassess their emphasis on inventory reduction.5-7. What is the difference between relational and transactional exchanges? Which is more relevant for supply chain management? Why?Relational exchanges tend to emphasize a long-term orientation whereas transactional exchanges have a short-term orientation. Unlike transactional exchanges, relational exchanges are characterized by attributes such as trust, commitment, and dependence. Supply chain management suggests that supply chains exist to improve the long-term performance of the individual companies and the supply chain as a whole. Relational exchanges also have a long-term orientation. As a result, relational exchanges are more relevant than transactional exchanges to supply chain management.5-8. Do you agree or disagree that supply chain collaboration can be classified as transactional, tactical information sharing, or strategic in nature? Why?Students could argue that supply chain collaboration is not transactional, tactical information sharing or strategic in nature, but the text argues for this classification scheme.5-9. This chapter suggests that technology has been at the center of changes taking place that affect the supply chain. Do you agree or disagree? Why?Although students can support either side of the argument, the text does argue that technology has been at the center of changes taking place that affect the supply chain. In particular, increases in computing power and the Internet have been behind much of this change.5-10. Discuss the impact of the Internet on supply chain management.The Internet can facilitate supply chain effectiveness and efficiency by providing opportunities to simultaneously improve customer service and reduce logistics costs. The Internet allows one supply chain party to have virtually instantaneous visibility to the same data that the other supply chain participants have. This visibility can ultimately result in lower inventories and improved profitability throughout the supply chain.5-11. How might regulatory and political conditions act as barriers to supply chain management?With respect to regulatory conditions, a number of today’s supply chain arrangements were illegal until the early 1980s. At a minimum, companies should be aware of regulatory considerations before pursuing supply chain arrangements. Political conditions such as war and governmental stability can also act as barriers to supply chain management. A political uncertainty such as war might cause some organizations to shy away from joining or developing supply chains that rely on companies located in warring countries. Governmental policies that either discourage interorganizational coordination or discourage doing business with certain countries would obviously have a negative impact on supply chain efficiency. As an example of government policy, the 2016 decision by the United Kingdom to exit the European Union is likely to have significant effects on European supply chains.5-12. Why is top management commitment necessary for successful supply chain management?Top management has the ability to allocate the necessary resources for supply chain endeavors and the power to structure, or restructure, corporate incentive policies to focus on achieving organizational or interorganizational (as opposed to functional) objectives.5-13. Some companies are hesitant to use frequent shopper cards because the data provided could violate the customer’s privacy. Do you agree or disagree? Why? Although either answer is acceptable, the question of data usage versus customer privacy has generated impassioned discussions by students. On the one hand, the frequent shopper cards can provide a plethora of data about the shopping habits of particular consumers, potentially allowing stores to achieve customized marketing for individual customers. At the same time, frequent shopper cards could violate customer privacy by revealing what was purchased, when it was purchased, where it was purchased, and how it was purchased.5-14. Discuss the best-of-breed and single integrator approaches.In a single integrator approach, a single vendor provides all relevant software applications (e.g., inventory management, transportation management, warehouse management, etc.). One advantage of this approach is that there should be coordination across the various applications. Alternatively, a best of breed approach chooses the best application for a particular function. This approach often requires additional software packages to coordinate the different applications—and these integrations don’t always go smoothly.5-15. Do you think corporate cultures are relevant for supply chain management? Why or why not?Either answer is acceptable. However, the text indicates that incompatible corporate cultures could present potential obstacles to effective and efficient supply chain management. For example, an organization with a participative management style might not mesh very well with an organization that has an autocratic management style. In addition, manifestations of corporate cultures, such as company rituals and company brochures, can provide important clues about the capability of potential supply chain parties to work together.5-16. Why is supply chain integration so difficult in global supply chains?Integration challenges in global supply chains include cultural, economic, technological, political, spatial, and logistical differences. Global supply chains translate into both longer and more unpredictable lead times for shipments, which increase the chances that customer demand might not be fulfilled due to a potential out-of-stock situation.5-17. Discuss the strategic and tactical considerations that can drive a company to use the services of a 3PL.The decision to use 3PL services can be driven by strategic considerations in the sense that an organization believes that one or more aspects of its supply chain(s) needs to be transformed. Alternatively, the decision to use 3PL services could be more tactical in nature. An organization might have an inefficient distribution network, an inability to control internal costs, a costly or inflexible workforce, outdated warehousing facilities, or outdated information systems.5-18. What are some reasons that third-party logistics arrangements aren’t always successful?One common cause of 3PL failure is unreasonable and unrealistic expectations, generally from the user’s perspective. Another cause of failure involves a lack of flexibility. For example, has the arrangement been structured so that unexpected occurrences can be dealt with in a timely and satisfactory manner?5-19. What is the difference between a 3PL and a 4PL/LLP?Third-party logistics refers to a situation in which one company (say, a manufacturer) allows a specialist company to provide it with one or more logistics functions (e.g., warehousing or outbound transportation). A 4PL/LLP is a company whose primary purpose is to ensure that various 3PLs are working toward the relevant supply chain goals and objectives.5-20. Discuss the three primary methods that organizations can use to integrate their supply chains.One method is vertical integration, in which one organization owns multiple participants in the supply chain. A second method involves formal contracts among various participants, such as occurs with franchising. The third method focuses on informal agreements among various organizations to pursue common goals and objectives. This option provides a great deal of flexibility, which can have both positive and negative aspects.PART IIICASE SOLUTIONSCASE 5-1: JOHNSON TOY COMPANYQuestion 1: From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Company’s present policies for handling returned items.The controls are poor from the standpoint of accuracy of financial records because they provide poor information to management.Question 2: Answer Question 1, but from the standpoint of an individual interested in marketing.Marketing people tend to favor less stringent controls in the sense that they provide more flexibility when bargaining with retailers.Question 3: Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls?One student’s answer is reproduced here.I.HIGH-VOLUME CUSTOMERS (defined as purchasing $75,000 ofmerchandise from Johnson’s per year)A.Functionally damaged goods may be returned to Johnson’s plant atJohnson’s expense with a full refund.B.High-volume customers will receive a straight 2% deduction off thewholesale selling price to cover defectives—whether defectives areclassified as cosmetically damaged or slow-moving items, exceptwhen unable to sell due to special circumstances (see Section III).II.LOW-VOLUME CUSTOMERSA.Functionally damaged goods may be returned to Johnson’s plant viaJohnson’s salesperson with a full refund.B.Low-volume customers will not receive an automatic deduction fordefectives. Instead, the damage or defect must be defined:1.Cosmetically damaged goods (classified as functional andsalable): a 25% discount granted upon inspection byJohnson’s salesperson.2.Slow-moving items: NO RETURNS3.Non-moving items (for reasons other than physical damage):see Section III (special circumstances).III.SPECIAL CIRCUMSTANCES When product is not resalable for reasons other than being functionally damaged or just a slow mover in the offseason, such as when the product receives bad press (as in the case ofJungle Jim and Jogger Dolls), Johnson will allow return of all such non-resalable items under the following conditions:A.Retailer must pay for the returned merchandise to reach Johnson’splant.B.Retailer’s account will be credited for the full amount of said purchase.C.Credit is to be used within 30 days of receipt of returned goods atJohnson’s plant; credit will be void after 30 days.No mention was made as to whether the returns policy should apply to the Jungle Jim dolls. The firm might try to enforce it but customers might complain that it should not be applied retroactively.Question 4: Should this policy, if adopted, be printed and distributed to all of the retailers who handle Johnson Toy Company products? Why or why not? If it should not be distributed to them, who should receive copies?Yes, retailers should know exactly what the returns policy will be. One element of a customer service policy is to let customers know in advance what the policy is.Question 5: Assume that it is decided to prepare a statement on returns to be distributed to all retailers and that it should be less than a single double-spaced page. Prepare such a statement.The answer provided for Question 3 would suffice here as well.Question 6: On the basis of the policy in your answer to Question 3, develop instructions for the Johnson Toy Company distribution and accounting departments with respect to their roles and procedures in the handling of returns.One could take the information (as developed in the answers to Questions 3 and 5) and draft a memo to be sent to both the distribution and accounting departments, telling them of the new policies and their roles in carrying out those policies. The accounting department should be told to develop additional procedures that will protect against fraud. In addition, other departments in the firm should receive some information concerning the returns because they may contain information that should interest marketing, quality control, and production scheduling.Question 7:Assume that you are Cheryl Guridi, the firm’s logistics manager. Do you think that the returns policy favored by the logistics manager would differ from what would be best for the firm? Why or why not?Yes, the returns policy favored by the logistics manager will favor a tight return policy so that her department does not have to be responsible for keeping track of returned inventories and for shipping damaged goods. The firm would probably prefer a looser return policy so that it could be used as a bargaining tool to increase sales.Question 8: Until the policy you recommend in your answer to Question 3 takes effect, how would you handle the immediate problem of retailers wanting to return unsold Jungle Jim the Jogger dolls?There are several approaches to this question. Some students have provided very specific policies. Others have said that because the policy was not in effect when the Jungle Jim dolls went out, it should not apply to their situation. This latter group favored a policy of “almost anything” that would keep retailers happy. They argued—with support from the case material—that there were a number of valued long-term relationships with retailers that should not be harmed.。