Supply Chain Essentials
What is the difference between direct and indirect distribution channels?
Direct distribution is a direct-to-consumer approach where the manufacturer controls all aspects of distribution. Direct distribution gives companies more control over the whole process. Indirect distribution involves third parties, like warehouses, wholesalers, and retailers. Indirect distribution may allow companies to focus on their core business while outsourcing distribution to an expert. A manufacturer is responsible for different costs, depending on which channel it uses.
How are value chains and supply chains different?
The value chain is a process in which a company adds value to its raw materials to produce products eventually sold to consumers. The supply chain represents all the steps required to get the product to the customer. The value chain gives companies a competitive advantage in the industry, while the supply chain leads to overall customer satisfaction.
How do I calculate inventory turnover?
Inventory turnover is a ratio that shows how many times inventory has sold during a specific period of time. The ratio helps the company understand if inventory is too high or low and what that says about sales relative to inventory purchased. Dividing the cost of goods sold (COGS) by the average inventory during a particular period will give you the inventory turnover ratio.
What are the benefits of Just in Time (JIT) production?
Just-in-time (JIT) is a production strategy in which a company only produces an item after a buyer has made an order, therefore keeping inventories low. Lower inventories make a company look more efficient and also boost the return on total assets (ROTA), a key measure of how well a company uses funds to boost profits. JIT allows companies to spend less on parts and labor, as well as limit the risk of items losing value from sitting around too long.
What is an endorsement in blank in a bill of lading?
A bill of lading is a legal contract between a shipper and a carrier of goods that details the type, quantity, and destination of the goods being transported. The shipper is the seller or exporter of the goods, while the carrier is the company that transports the goods from one destination to another for a fee. A blank endorsement on a bill of lading indicates the seller has not specified a recipient or buyer for the goods. If a seller or exporter does not have a buyer for their goods at the time of shipment, they can indicate "to order" or "to order of" in the consignee section of the bill of lading. The carrier now becomes responsible for the delivery of the goods and for any ancillary costs related to the shipment.
Delivered Duty Paid
Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all responsibility for transporting the goods until they reach an agreed-upon destination. The seller must arrange for all transportation and associated costs including export clearance and customs documentation required to reach the destination port. The risks to the seller are broad and include VAT charges, bribery, and storage costs if unexpected delays occur. A DDP benefits a buyer as the seller assumes most of the liability and costs for shipping.
Free carrier is a trade term requiring the seller of goods to deliver those goods to a named airport, shipping terminal, warehouse, or other carrier location specified by the buyer. The seller includes transportation costs in its price and assumes the risk of loss until the carrier receives the goods. Once the seller delivers the goods to the carrier, the buyer assumes all responsibility for the goods. The International Chamber of Commerce updated Incoterms in 2010 to include the free carrier provision. As part of the liability transfer, the seller is only responsible for delivery to the specified destination but isn't obligated to unload the goods.
A bottleneck is a point of congestion in a production system (such as an assembly line or a computer network) that occurs when workloads arrive too quickly for the production process to handle. A bottleneck can have a significant impact on the flow of manufacturing and can sharply increase the time and expense of production. A bottleneck affects the level of production capacity that a firm can achieve each month.
Consignment is an arrangement in which goods are left with a third party to sell. The party that sells the goods on consignment receives a portion of the profits, either as a flat rate fee or commission. Selling via a consignment arrangement can be a low-commission, low-time-investment way of selling items or services. Consignment is a good workaround if you don't possess a physical store or online marketplace in which to sell your goods.
Distribution management manages the supply chain for a firm, from vendors and suppliers to manufacturer to point of sale, including packaging, inventory, warehousing, and logistics. Adopting a distribution management strategy is important for a company's financial success and corporate longevity. Distribution management helps keep things organized and keeps customers satisfied.
A backorder is an order for a good or service that cannot be filled immediately because of a lack of available supply. Backorders give insight into a company's inventory management. A manageable backorder with a short turnaround is a net positive, but a large backorder with longer wait times can be problematic. Companies with manageable backorders tend to have high demand, while those that can't keep up may lose customers.
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Export Council of Australia. "DDP - Delivered Duty Paid - Incoterms® 2020 Rule." https://export.org.au/ddp-delivered-duty-paid-incoterms-2020-rule/