Supply Chain Management for Manufacturing Flashcards

Question 1

What is a supply chain in the context of manufacturing?

Accepted Answer

A supply chain is the network of organizations, activities, information, and resources that moves a product from raw materials to the final customer. In manufacturing, it typically includes component suppliers, factories, warehouses, transport providers, and retailers. Each link depends on the others, so a delay at one point can affect the whole network.

Question 2

What is the difference between supply chain management and logistics?

Accepted Answer

Supply chain management is the broader discipline of planning and coordinating all flows across the network. Logistics is a narrower function within it that focuses on moving and storing goods efficiently between locations. Logistics handles the physical movement, while supply chain management connects those activities to strategy and to upstream and downstream partners.

Question 3

What are the three main flows that a supply chain must manage?

Accepted Answer

The three main flows are material, information, and financial. Material flow moves raw materials, components, and finished goods forward, while returns move backward. Information flow carries orders, forecasts, and shipment status, while financial flow covers payments and credit terms between partners. Managing all three together prevents delays and mismatches.

Question 4

What is the bullwhip effect, and why does it matter in manufacturing?

Accepted Answer

The bullwhip effect is the amplification of demand variability as orders move upstream through a supply chain, away from the final customer. A small change in consumer demand can cause larger swings in orders to distributors, then manufacturers, then suppliers. Each stage reacts to distorted orders, which causes excess inventory.

Question 5

What is a tier-one supplier, and how does it differ from a tier-two supplier?

Accepted Answer

A tier-one supplier sells components or services directly to the manufacturer, while a tier-two supplier sells to tier-one suppliers rather than to the manufacturer itself. Tiers describe distance from the final product's maker, so visibility into deeper tiers is often limited. Manufacturers therefore need supplier mapping to identify risks hidden beyond their direct contracts.

Question 6

What is a bill of materials, and why is it central to manufacturing planning?

Accepted Answer

A bill of materials is a structured list of every component, subassembly, raw material, and quantity needed to produce one unit of a finished product. Planners use it to calculate material requirements, place purchase orders, and estimate costs. Accurate BOM records prevent shortages and costing errors.

Question 7

How do push and pull supply chain strategies differ in their triggers?

Accepted Answer

Push strategies produce and move goods based on forecasts, building inventory ahead of confirmed customer orders. Push systems risk excess stock if forecasts are wrong. Pull strategies start production or replenishment only when actual demand signals arrive. Pull systems reduce inventory and respond quickly, but they need reliable, short lead times.

Question 8

What is lead time, and why does it shape inventory decisions?

Accepted Answer

Lead time is the total elapsed time between placing an order or starting a process and receiving the finished goods or materials. Longer or more variable lead times force planners to hold more safety stock and forecast further ahead. Reducing lead time generally lowers inventory and improves responsiveness to changing demand.

Question 9

What is demand planning, and how does it differ from demand forecasting?

Accepted Answer

Demand forecasting is the statistical or judgment-based estimate of future customer demand for a product over a given period. Demand planning is the broader process that uses those forecasts to agree on a single demand plan across the business. Forecasting produces a number, while planning turns it into commitments.

Question 10

What is the difference between qualitative and quantitative forecasting methods?

Accepted Answer

Quantitative methods use historical data and mathematical models, such as moving averages, exponential smoothing, or regression, to project future demand. Qualitative methods rely on expert judgment, market research, salesforce opinion, or customer surveys, which suits new products with little history. Most manufacturers combine both approaches, testing statistical output against informed judgment.

Question 11

How is forecast error commonly measured, and what does MAPE stand for?

Accepted Answer

Forecast error is commonly measured by comparing actual demand with the forecast for each period. MAPE, or mean absolute percentage error, averages the absolute errors as percentages of actual values. Bias shows whether forecasts consistently run high or low. Planners use these metrics to judge which model performs best.

Question 12

What is a forecast horizon, and why do longer horizons lose accuracy?

Accepted Answer

A forecast horizon is the length of time into the future that a forecast covers, such as weeks, months, or quarters. Accuracy usually declines as the horizon lengthens because more factors can change, such as shifting customer tastes. Manufacturers therefore use short-horizon forecasts to schedule production and longer-horizon forecasts for capacity and capital planning.

Question 13

What is CPFR, and why do trading partners share forecast information?

Accepted Answer

CPFR, which stands for collaborative planning, forecasting, and replenishment, is a joint process in which a manufacturer and its trading partners share plans, forecasts, and order data. Sharing this information reduces the distortion that builds up when each partner forecasts independently from the orders it receives.

Question 14

Why must forecasts account for seasonality and promotional events?

Accepted Answer

Forecasts must account for seasonality and promotions because demand often follows patterns that a simple average hides. Seasonality is a repeating pattern, while promotions create temporary spikes from price cuts or advertising. Planners separate these effects from the underlying baseline, so that a one-time spike is not mistaken for a permanent trend.

Question 15

What is a causal forecasting model, and what kind of data does it need?

Accepted Answer

A causal forecasting model predicts demand by linking it to measurable drivers, such as price or advertising. It requires historical data on both the demand being forecast and each driver, so analysts can estimate how strongly each factor influences sales. Causal models are useful for scenario analysis, such as testing a price change.

Question 16

What is point-of-sale data, and how can manufacturers use it in forecasting?

Accepted Answer

Point-of-sale data records actual consumer purchases at retail checkout, showing what sold, where, and when. Manufacturers use this data to see true consumer demand rather than the orders that retailers place, which may include stocking up or pipeline adjustments. Comparing sell-in orders with sell-through sales helps planners detect inventory buildup in the channel early.

Question 17

How do cycle stock and safety stock differ in purpose?

Accepted Answer

Cycle stock is the inventory that results from producing or ordering in batches. Safety stock is extra inventory held as a buffer against uncertainty in demand or lead time, so it is not normally consumed. Cycle stock depends on lot sizes, while safety stock depends on variability and the desired service level.

Question 18

What is economic order quantity, and what two costs does it balance?

Accepted Answer

Economic order quantity, or EOQ, is the order size that minimizes the total of ordering costs and holding costs for a single item under stable, known demand. The standard formula is the square root of two times annual demand times ordering cost, divided by annual holding cost per unit.

Question 19

How is a reorder point calculated, and what does it trigger?

Accepted Answer

A reorder point is the inventory level that triggers a new replenishment order before stock runs out. It is calculated as average demand during lead time plus safety stock. For example, if demand averages 40 units per day and lead time is 5 days, the base reorder point is 200 units.

Question 20

How does a target service level determine the amount of safety stock needed?

Accepted Answer

A target service level is the probability that demand will be met from stock during a replenishment cycle, such as 95 percent. Higher service targets require more safety stock because the buffer must cover larger demand swings and longer delays. Each step up in service level costs progressively more inventory.

Question 21

What is ABC analysis, and how does it help prioritize inventory control?

Accepted Answer

ABC analysis ranks inventory items by their annual consumption value, usually grouping a small number of high-value items as A, a middle group as B, and the many low-value items as C. Class A items receive tight control, frequent review, and accurate forecasting, while class C items may use simpler rules.

Question 22

What costs make up the total cost of holding inventory?

Accepted Answer

The total cost of holding inventory includes capital costs, which reflect money tied up in stock, plus storage space, insurance, taxes, handling, and obsolescence or spoilage. Capital cost is usually a major component, and is commonly expressed as an annual percentage of inventory value.

Question 23

How does a periodic review inventory system differ from a continuous review system?

Accepted Answer

A periodic review system checks stock at fixed intervals and orders up to a target level, while a continuous review system checks after every transaction and orders when stock reaches the reorder point. Periodic systems are simpler to administer but usually need more safety stock to cover the review interval.

Question 24

What is inventory turnover, and what might a low value indicate?

Accepted Answer

Inventory turnover is the number of times inventory is sold and replaced over a period, calculated as cost of goods sold divided by average inventory value. A low turnover can indicate excess stock, slow-moving products, weak demand, or obsolete items that tie up cash and storage space.

Question 25

How do make-to-stock and make-to-order production strategies differ?

Accepted Answer

Make-to-stock production builds standard products in advance based on forecasts and holds them in inventory until customers order. Make-to-order production starts only after a customer places an order, so it avoids finished goods inventory but usually has longer lead times. Many manufacturers blend the two, stocking common parts and configuring final products to order.

Question 26

What factors should guide a manufacturer's make-or-buy decision?

Accepted Answer

A make-or-buy decision weighs whether to produce a component in-house or purchase it from an outside supplier. Key factors include total landed cost, available capacity, control over quality and intellectual property, supplier capability, and the strategic importance of the part. Outsourcing can free capital and flexibility, while in-house production protects core know-how.

Question 27

What does total cost of ownership mean when evaluating suppliers?

Accepted Answer

Total cost of ownership is the full cost of acquiring and using a purchased item across its life, not just the quoted unit price. It includes freight, duties, inspection, quality failures, inventory carrying costs, administration, and disposal. Buyers who focus only on price often overlook these hidden costs.

Question 28

What is a master production schedule, and what inputs does it use?

Accepted Answer

A master production schedule states which finished products will be built, in what quantities, and in which time periods. It is built from customer orders, forecasts, available inventory, and planned capacity. The schedule links high-level sales and operations planning to shop-floor execution, and it feeds material requirements planning.

Question 29

How does material requirements planning use the bill of materials and inventory records?

Accepted Answer

Material requirements planning, or MRP, calculates what materials are needed, how much, and when, by exploding the master production schedule through the bill of materials. It subtracts on-hand inventory and open orders from gross requirements to determine net requirements, then offsets those needs by lead time to set planned order release dates.

Question 30

How does capacity planning differ from production scheduling?

Accepted Answer

Capacity planning estimates the long-term productive capacity a plant, line, or work center needs to meet expected demand. Production scheduling is shorter term and assigns specific jobs, sequences, and start times to existing resources. Capacity planning answers whether enough capacity exists, while scheduling answers when and in what order work will run.

Question 31

What are common ways to reduce supplier lead time variability?

Accepted Answer

Common approaches include developing closer supplier relationships, sharing forecasts earlier, and qualifying backup sources to reduce dependence on one vendor. Manufacturers also use vendor-managed inventory, consignment stock, and clear performance metrics so suppliers understand delivery expectations. Improving supplier quality reduces rework and expediting, which otherwise stretch delivery times unpredictably.

Question 32

What does a supplier scorecard measure, and why do manufacturers use one?

Accepted Answer

A supplier scorecard is a periodic report that rates a supplier on measurable criteria such as on-time delivery, quality defect rates, responsiveness, cost trends, and compliance with requirements. Manufacturers use scorecards to make objective sourcing decisions and identify improvement areas. Scorecards work best when criteria are agreed in advance.

Question 33

What is a distribution center, and how does it differ from a traditional warehouse?

Accepted Answer

A distribution center is a facility designed to receive, consolidate, and ship goods quickly rather than to hold them for long periods. Its operations emphasize throughput, cross-docking, order picking, and fast outbound loading. A traditional warehouse focuses more on long-term storage of inventory, so turnover is typically slower.

Question 34

What is cross-docking, and when is it most useful?

Accepted Answer

Cross-docking is a practice in which incoming goods are unloaded, sorted, and transferred directly to outbound trucks with little or no storage. It works best for high-volume, predictable products that are already labeled for specific customers. It reduces handling and storage costs, but it requires tight coordination of inbound and outbound schedules.

Question 35

What is a third-party logistics provider, and what services does it offer?

Accepted Answer

A third-party logistics provider, often called a 3PL, is an outside company that performs logistics functions for a manufacturer, such as transportation, warehousing, order fulfillment, freight forwarding, and customs brokerage. Manufacturers use 3PLs to reduce fixed costs, access specialized networks, and scale capacity up or down with demand.

Question 36

What is a perfect order, and how is perfect order rate calculated?

Accepted Answer

A perfect order is one delivered complete, on time, undamaged, and with correct documentation. The perfect order rate is the percentage of all orders that meet every one of those conditions during a period. It is a demanding metric because a single failure, such as one missing item, makes the entire order imperfect.

Question 37

What is the cash-to-cash cycle, and why do manufacturers track it?

Accepted Answer

The cash-to-cash cycle measures the number of days between paying for raw materials and collecting cash from customers for finished goods. It is calculated by adding days inventory outstanding and days sales outstanding, then subtracting days payables outstanding. A shorter cycle means working capital is released faster, which improves liquidity.

Question 38

What does on-time in-full delivery measure, and why do customers care about it?

Accepted Answer

On-time in-full delivery measures the share of shipments that arrive within the agreed time window and contain the complete quantity ordered. Late or short deliveries can halt customer production lines, even when the product itself is high quality. Manufacturers track OTIF to confirm that service promises are being kept.

Question 39

What is the difference between a leading and a lagging performance indicator?

Accepted Answer

A leading indicator predicts future performance, while a lagging indicator reports results after they occur. Leading examples include supplier order acknowledgment rates and forecast accuracy trends, while lagging examples include quarterly on-time delivery and total cost per unit. Good dashboards combine both types.

Question 40

What are the main steps for managing supply chain risk in manufacturing?

Accepted Answer

Managing supply chain risk typically begins with identifying critical components and single-source suppliers, then mapping exposure several tiers deep. Next, planners assess the likelihood and impact of disruptions such as supplier failure, transport delays, or geopolitical events. Mitigation includes dual sourcing, safety stock for critical parts, and contingency plans that are tested regularly.

Supply Chain Management for Manufacturing Flashcards

1Core Supply Chain Concepts

2Demand Planning and Forecasting

3Inventory Management Fundamentals

4Production and Procurement Decisions

5Logistics and Performance Measurement

Learning Resources