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The operations department of ABC Ltd has recently launched a new product. The product is manufactured within a large factory and then sent to retailers for sale. The department has a system in place which details the components required for the product and the quantities required to fulfil customer demand. The system works online and links to other areas of the business including HR and finance.
So far, several large orders have been placed for the product from different retailers. The Chief Operations Officer (COO) has decided to programme the completion of the orders based on when the orders were placed. The benefit of this strategy is that it will give each customer a similar lead time. Thus far no buffer stock has been created as products are only created when orders are received.
Three teams are required to make the product and the product flows from team one to team two to team three, each team adding a component to the product. Unfortunately, team two are short staffed and are completing their work at a slower rate than the other two teams. This is a huge consideration for the COO as it will impact upon the capacity of the organisation.
The retailers have all signed contracts with ABC Ltd and the COO is extremely happy that they are long term contracts. Contract 1 is with retailer X and the price is set for three years. Contract 2 is with retailer Y and is a five year contract where the price will be reviewed annually in line with CPI. Contract 3 has a variable pricing mechanism based on the volume of products ordered.
What pricing mechanism is being used with supplier Y?
Indexation is the correct pricing mechanism because the price is adjusted based on CPI (Consumer Price Index), which is a form of indexed pricing. This ensures that prices fluctuate in response to inflation or other economic indicators. (See LO 3.3)
Ping Lin Ltd is a toy manufacturer based in Chin
a. The company has a complex supply chain involving raw material suppliers, retailers, international distributors, and logistics firms. Zeng, a Logistics Coordinator, has noticed irregularities in the ordering of materials in the lower part of the supply chain. Combined with irregular consumer buying patterns, this poses a risk to the organisation.
What is this phenomenon known as?
The Bullwhip Effect describes how small changes in demand at the consumer level create larger variances in supply chain orders upstream. It leads to inefficiencies, overstocking, or shortages.
Note: This is also known as the Forrester Effect (not 'Forrest Effect'---that was a trick!). A famous real-world example occurred during COVID-19, when panic-buying caused toilet paper shortages.
For more insights, read: The Bullwhip Effect & Toilet Paper Shortages (See LO 1.1, p.12)
For more insights, read: The Bullwhip Effect & Toilet Paper Shortages (See LO 1.1, p.12)
The operations department of ABC Ltd has recently launched a new product. The product is manufactured within a large factory and then sent to retailers for sale. The department has a system in place which details the components required for the product and the quantities required to fulfil customer demand. The system works online and links to other areas of the business including HR and finance.
So far, several large orders have been placed for the product from different retailers. The Chief Operations Officer (COO) has decided to programme the completion of the orders based on when the orders were placed. The benefit of this strategy is that it will give each customer a similar lead time. Thus far no buffer stock has been created as products are only created when orders are received.
Three teams are required to make the product and the product flows from team one to team two to team three, each team adding a component to the product. Unfortunately, team two are short staffed and are completing their work at a slower rate than the other two teams. This is a huge consideration for the COO as it will impact upon the capacity of the organisation.
The retailers have all signed contracts with ABC Ltd and the COO is extremely happy that they are long term contracts. Contract 1 is with retailer X and the price is set for three years. Contract 2 is with retailer Y and is a five year contract where the price will be reviewed annually in line with CPI. Contract 3 has a variable pricing mechanism based on the volume of products ordered.
What is the nature of the COO's consideration?
This is an issue related to the Theory of Constraints, as Team 2 is the bottleneck affecting overall production efficiency. The Theory of Constraints focuses on identifying and managing the most critical limitation in a system. (See LO 3.3)
A car manufacturing organisation organises formal, regular meetings with its tier one suppliers for the purpose of collaborating on improvements and changes to the final product. What is this arrangement known as?
This is a supplier association---the key clue in the question is 'formal, regular meetings.'
A supplier improvement project would be a one-off initiative rather than ongoing formal meetings.
A supplier forum is more informal than what is described in the question.
A supplier focus group meets to discuss specific topics rather than engaging in regular collaboration on improvements.
(See p.191)
Which of the following statements about Demand Chain Management (DCM) are TRUE? Select ALL that apply.
Correct statements about DCM:
(C) Cash flow and profitability are key drivers.
(D) It is a strengths-based approach, focusing on leveraging competitive advantages.
(E) There is a long-term focus rather than just short-term efficiency.
(F) Uses forecasts and planning to understand customer demand.
Incorrect statements:
(A) False -- A company CAN be both efficient and effective.
(B) False -- Supply Chain Management (SCM) focuses on cost minimisation, while Demand Chain Management (DCM) focuses on customer value.
(See LO 2.3, p.125)
