364 Final

Variable Measurement Process control charts - x-bar & r-charts

- Size of samples: preferable to keep small (around 5 units) -Number of samples: each sample plotted on chart; use about 25 samples to set up chart -frequency of samples: trade-off between cost of sampling and benefits of adjusting the system. -Control limits: use z=3

Forecast Errors

- difference between the forecast value and what actually occurred -all forecasts contain some level of error -sources of error (bias - when a consistent mistake is made; random - errors that are not explained by the model being used) -measures of error: Mean absolute deviation (MAD); Mean absolute percent error (MAPE); tracking signal

Collaborative Planning, Forecasting, and Replenishment (CPFR)

-A web-based process used to coordinate the efforts of a supply chain > Demand forecasting; production and purchasing; inventory replenishment. -Integrates all members of a supply chain - manufacturers, distributors, and retailers. -Depends upon the exchange of internal information to provide a more reliable view of demand.

Exponential Smoothing

-A weighted average method that includes all past data in the forecasting calculation -more recent results weighted more heavily -the most used of all forecasting techniques -an integral part of computerized forecasting --accepted for 6 reasons: Exponential models are surprisingly accurate; formulating an exponential model is relatively easy; the user can understand how the model works; little computation is required to use the model; computer storage requirements are small; tests for accuracy are easy to compute.

Green Sourcing

-Being environmentally responsible has become a business imperative. -Many firms are looking to their supply chains to deliver "green" results. -Financial results can often be improved through going green. -A comprehensive green sourcing effort should assess how a company uses items that are purchased internally. -Provides impetus to reduce waste.

Time Series Decomposition

-Chronologically ordered data are referred to as a time series. -a time series may contain one or many elements --Trend, seasonal, cyclical, autocorrelation, and random --Identifying these elements and separating the time series data into these components is known as decomposition.

Single Period Inventory Model

-Consider the problem of deciding how many newspapers to put in a hotel lobby -Too few papers and some customers will not be able to purchase a paper, and profits associated with these potential sales are lost. -Too many papers and the price paid for papers that were not sold during the day will be wasted, lowering profit. -we should increase the size of the inventory so long as the probability of selling the last unit added is equal to or greater than the ratio Applications: overbooking of airline flights; ordering of clothing and other fashion items; one-time order for events - e.g., t-shirts for a concert

Warehouse Activities

-Cross-docking: large shipments are broken down into small shipments for local delivery in an area (Minimizes inventory in the warehouse) -Hub-and-spoke systems: the sole purpose of the warehouse (the hub) is sorting goods to consolidation areas, where each area is designed for shipment to a specific location.

An Operational Classification of Services

-Customer contact: the physical presence of the customer in the system. Extent of the contact (percentage of time the customer must be in the system relative to service time. Services with a higher degree of customer contact are more difficult to control. -Creation of the service: the work process involved in providing the service itself

Fixed-Order Quantity Models - Assumptions

-Demand for the product is constant and uniform throughout the period. -Price per unit of product is constant. -Inventory holding cost is based on average inventory. -Ordering or setup costs are constant. (overhead) -All demands for the product will be satisfied. WITH SAFETY STOCK: demand s variable but follows a known distribution. After the reorder is placed, demand during the lead time may be higher than expected, consuming some or all of the safety stock. R = d bar*L + z*ss

Acceptance Sampling - designing a sampling plan***

-Determine (1) how many units, n, to sample from a lot, and (2) the maximum number of defective items, c, that can be found in the sample before the lot is rejected -Acceptable Quality Level (AQL): maximum acceptable percentage of defectives defined by producer. In Six sigma is .00034% - 3.4 defective parts out of every 1 million parts might slip through the system. -Lot tolerance percent defective (LTPD): percentage of defectives that defines consumer's rejection point -Producer's risk - alpha: probability of rejecting a good lot; .05 -Consumer's risk - beta: probability of accepting a bad lot; 0.10

Multiple Linear Regression as a Model for Service Location

-Develop a model for locating a motel that maximizes long-term profitability -What categories of variables and individual items in the categories are important? Competitive variables: Room rate; competitor's rate, etc.. Demand generator variables (Nearness to military base, hospitals;Nearness to college;Nearness to malls, etc.)

Weighted Moving Average - Selecting Weights

-Experience and/or trial-and-error are the simplest approaches. -The recent past is often the best indicator of the future, so weights are generally higher for more recent data. ---If the data are seasonal or cyclical, weights should reflect this appropriately.

AOCS: Low-Contact Systems - check processing center

-Facility location: operations may be placed near supply, transport, or labor -Facility layout: the facility should focus on production efficiency -Product design: the customer is not in the service environment, so the product can be defined by fewer attributes. -Process design: customer is not involved in the majority of processing steps -scheduling: the customer is concerned mainly with completion dates -worker skills: direct workforce need only have technical skills -quality control: quality standards are generally measurable and thus fixed -capacity planning: storable output permits capacity at some average demand level.

AOCS: High-Contact System - branch office

-Facility location: operations must be near the customer -Facility layout: the facility should accommodate the customer's physical and psychological needs and expectations -Product design: environment as well as the physical product define the nature of the service -process design: stages of production process have a direct, immediate effect on the customer -scheduling: the customer is in the production schedule and must be accommodated (Payday) -worker skills: direct workforce constitutes a major part of the service product and so must be able to interact well with the public -quality control: quality standards are often in the eye of the beholder and, thus, are variable. -capacity planning:to avoid lost sales, capacity must be set to match peak demand.

Multi-Period Models

-Fixed-order quantity models: Also called the economic order quantity, EOQ, and Q- model (Event triggered) -Fixed-time period models: Also called the periodic system, periodic review system, fixed- order interval system, and P-model (Time triggered)

Simple Moving Average

-Forecast is the average of a fixed number of past periods. -Useful when demand is not growing or declining rapidly and no seasonality is present. -Removes some of the random fluctuation from the data. -Selecting the period length is important. Longer periods provide more smoothing. Shorter periods react to trends more quickly.

Principles

-Forecasting is a fundamental step in any planning process. All functional areas rely on the forecast to make decisions at multiple levels, including strategic, tactical, and operational. -Forecast effort should be proportional to the magnitude of decisions being made. -Web-based systems (CPFR) are growing in importance and effectiveness. -All forecasts have errors - understanding and minimizing this error is the key to effective forecasting processes

Qualitative Forecasting Techniques

-Generally used to take advantage of expert knowledge -Useful when judgment is required, when products are new, or if the firm has little experience in a new market. -Examples: market research; panel consensus, historical analogy - look at something; Delphi method

AQL - HP story - DNC

-HP was procuring from a Japanese vendor -HP had an AQL of 2% or 0.02, which was set in stone -The Japanese vendor argued heavily against this AQL, but HP stood their ground -When the product was delivered, two boxes arrived. -One box contained 100% good items. The other box contained two defective items with a note saying, "...we have enclosed 2 defective cables in this package, though we do not understand why you want them."

Inventory Costs

-Holding (or carrying) costs: costs for storage, handling, insurance and so on. -Setup (or production change) costs: for arranging specific equipment setups, and so on -Ordering costs - placing an order -Shortage costs: cost of running out (stockout)

Forecast Error Measurements

-Ideally, MAD will be zero (no forecasting error). -Larger values of MAD indicate a less accurate model. -MAPE scales the forecast error to the magnitude of demand. -MAPE = MAD/Average Demand -Tracking signal indicates whether forecast errors are accumulating over time (either positive or negative errors). -TS = Running Sum of forecast errors (RSFE)/average mean absolute deviation (MAD)

Trends

-Identification of trend lines is a common starting point when developing a forecast. -Common trend types include linear, S-curve, asymptotic, and exponential. -focus on linear

Innovative Products

-Innovation can enable a company to achieve higher profit margins. -Newness of the innovative products makes demand for them unpredictable. -The short life cycles and the great variety typical of these products further increase unpredictability. -Typically these products have a life cycle of just a few months. Imitators quickly erode the competitive advantage that innovative products enjoy. Companies are forced to introduce a steady stream of newer innovations. .

Inventory &

-Inventory can be visualized as stacks of money sitting on forklifts, on shelves, and in trucks and planes while in transit. -For many businesses, inventory is the largest asset on the balance sheet at any given time. -Inventory can be difficult to convert back into cash. -It is a good idea to try to get your inventory down as far as possible (average cost of inventory in the U.S. is 30-35% of its value)

Sourcing Performance Measures

-Inventory turnover: how often inventory is replaced during the year (=COGS/Avg. Inventory value) ----Cost of goods sold: the annual cost for a company to produce the goods or services provided to customers -----Average aggregate inventory value: the total value of all items held in inventory (Product materials on hand and WIP) -Weeks of supply: how many weeks' worth of inventory is in the system at a particular point in time = (Average inventory value/COGS)*52

Choosing Variable that Matter

-Look at the correlation of profitability (operating margin over the last few years) with all the potential parameters. -Pick the variables that are highly correlated (in a positive or negative fashion). -Run a regression line with the chosen parameters as the independent variables and profitability as the dependent variable.

Multiple Regression Techniques

-Often, more than one independent variable may be a valid predictor of future demand -In this case, the forecast analyst may utilize multiple regression. Analogous to linear regression analysis, but with multiple independent variables. Multiple regression supported by statistical software packages.

Acceptance Sampling

-Performed on goods that already exist to determine what percentage of the products conform to specifications (determine quality level & ensure quality is within predetermined level) -executed through a sampling plan -results include accept, reject, or retest

Inventory Models with Price breaks

-Price varies with the order size. To find the lowest-cost, calculate the order quantity for each price and see if the quantity is feasible. 1. Sort prices from lowest to highest and calculate the order quantity for each price until a feasible order quantity is found. 2. If the first feasible order quantity is the lowest price, this is best; otherwise, calculate the total cost for the first feasible quantity and calculate total cost at each price lower than the first feasible order quantity.

Facility Location Issues Factors

-Proximity to customers: makes rapid delivery easier -business climate: can include presence of similar-sized businesses, businesses in the same industry, and other foreign companies -total costs: object is to minimize overall cost infrastructure: adequate road, rail, air, and sea transportation along with energy and telecommunications -quality of labor: educational and skill levels must match needs -suppliers: proximity of important suppliers supports lean production -other facilities: location of other facilities can influence a location decision (internal) -free trade zones: - a closed facility into which foreign goods can be brought without being subject to the normal customers requirements; NAFTA -political risk: risks in both the country of location and the host country influence the decision -government barriers - barriers in many countries are being removed -trading blocs: - firms locate within a block to take advantage of new markets or lower total cost; European Union -environmental regulation: these affect a certain industry in a given location and must be included in the decision -host community: host community's interest is part of the evaluation process -competitive advantage: the location should provide the company with a competitive advantage

Process Capability Index (Cpk)

-Ratio of the range of values allowed divided by the range of values produced -Shows how well the parts being produced fit into the range specified by the design specifications -Cpk larger than one (Cpk > 1) indicates process is capable -When the two numbers are not close, indicates mean has shifted

Linear Regression Analysis

-Regression is used to identify the functional relationship between two or more correlated variables, usually from observed data. --One variable (the dependent variable) is predicted for given values of the other variable (the independent variable). --Linear regression is a special case that assumes the relationship between the variables can be explained with a straight line. y = a + b*t t - index f or f or the time period

Choosing Alpha and Delta

-Relatively small values for alpha/beta are common (0.1 to 0.3) -alpha depends upon how much random variation is present -delta depends upon how steady the trend is -measurements of forecast error can be used to select values for a/b to minimize overall forecast error

Establishing Safety Stock Levels

-Safety Stock: refers to the amount of inventory carried in addition to expected demand (can be determined based on many different criteria) -common approach is to simply keep a certain number of weeks to supply -better approach is to use probability => assume demand is normally distributed; assume we know mean and standard deviation; to determine probability, we plot a normal distribution for expected demand and note where the amount we have lies on the curve.

Structuring the Service Encounter: Service-System Design Matrix

-Service encounters can be configured in a number of different ways. Mail contact > Internet and on-site technology > phone contact > face-to-face tight specs > face-to-face loose specs Production efficiency decreases with more customer contact. Low contact allows the system to work more efficiently.

Inventory Model

-Single-period model: used when we are making a one-time purchase of an item. -Fixed-order quantity model: used when we want to maintain an item "in-stock" and when we restock, a certain number of units must be ordered -Fixed-time period model: item is ordered at certain intervals of time

Inventory Systems Comparison

-Single-period: One-time purchasing decision (e.g., vendor selling T-shirts at a football game); Seeks to balance the costs of inventory overstock and under stock -Multi-period: Fixed-order quantity models (Event triggered (e.g., running low on stock); Fixed-time period models (Time triggered > monthly sales call by sales representative)

Supply Characterisstics

-Stable: fewer breakdowns; stable and higher yields; fewer quality problems; more supply sources; reliable suppliers; fewer process changes; fewer capacity constraints; easier to change over; dependable lead times -Evolving: vulnerable to breakdowns; variable and lower yields; potential quality problems; limited supply sources; unreliable suppliers; more process changes; potential capacity constrained; difficult to change over; variable lead time

Process Control Procedures

-Statistical Process Control: Testing a sample of output to determine if the process is producing items within a preselected range [(can be determined by us or the data (control limits)]. -Attributes: Quality characteristics that are classified as either conforming or not conforming -Variables: Characteristics that are measured using an actual value

process capability

-The ability of a process to consistently produce a good or deliver a service with a low probability of generating a defect -Specification limits - range of variation that is considered acceptable by the designer or customer. Process limits - range of variation that a process is able to maintain with a high degree of certainty. Process control limits exceed specification limits > is not capable of meeting requirements

Natures of Services

-The customer is the focal point of all decisions and actions. -The organization exists to serve the customer. -Operations is generally responsible for service systems. -Operations is also responsible for managing the work of the service workforce.

Least Squares Method

-The least squares method determines the parameters a and b such that the sum of the squared errors is minimized - "least squares" -Excel includes data analysis tools, which can perform least squares regression on a data set

Statistical Quality Control (SQC)

-The quantitative aspects of quality management -Processes usually exhibit some variation in their output -Assignable variation: caused by factors that can be identified and managed -Common variation: inherent in the process itself

Weighted Moving Average

-The simple moving average formula implies equal weighting for all periods. -A weighted moving average allows unequal weighting of prior time periods. -The sum of the weights must be equal to one. That is to say that w1 + w2 + ... + wn = 1. Often, more recent periods are given higher weights than periods farther in the past. -weighted average must equal 1 or 100%

Linear Programming - Transportation Method

-Transportation method is a special linear programming method. -Seeks to minimize costs of shipping n units to m destinations, or it seeks to maximize profit of shipping n units to m destinations.

Centroid Method

-Used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them. -Assumes inbound and outbound transportation costs are equal -Does not include special shipping costs for less than a full load -This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated earlier.

PCM - c charts

-Used when an item/service may have multiple defects -UCL = c bar + z*sqrt(C bar) -LCL - c bar - z*sqrt(C bar) -sp = sqrt(C bar)

Total Cost of Ownership (TCO)**

-an estimate of the cost of an item that includes all the costs related to the procurement and use of an item, including any related costs in disposing of the item -Can be applied to internal costs and more broadly to costs throughout the supply chain -Acquisition costs: purchase planning costs, quality costs, taxes, purchase price, and financing costs -Ownership costs: energy costs, maintenance and repair, financing, supply chain/supply network costs -Post-ownership costs: disposal, environmental costs, warranty costs, product liability costs, customer dissatisfaction costs

Components of Demand

-average demand for a period of time; trend; seasonal element; cyclical elements; random variation; autocorrelation

Inventory Control and SCMT

-average inventory - spected amount of inventory over time; = Q/2 + SS --average inventory value (Q/2 + SS)*C -Inventory turns - number of times inventory is cycled through over time - a measure of how efficiently inventory is used

Plant Location Methods

-factor-rating system -transportation method of linear programming -centroid method

functional product

-include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations -product life cycle of more than two years -contribution margin of 5-20% -only 10-20 product variations -an average forecast error of only 10% -lead time for make-to-order products of from 6 months to one year

Demand Types

-independent: the demands for various items are unrelated to each other; For example, a workstation may produce many parts that are unrelated but meet some external demand requirement -dependent: the need for any one item is a direct result of the need for some other item; Usually a higher-level item of which it is part (e.g., a car requires 4 wheels and 4 tires).

factor-rating system

-is the most widely used 1. List of factors is developed. 2. Range of possible points is assigned to each factor. 3. Each site is rated against each factor. 4. The sums of assigned points for each site are computed. 5. The site with the most points is selected.

Outsourcing

-moving some of a firm's internal activities and decision responsibility to outside providers -Our book says that outsourcing allows a company to create a competitive advantage while reducing cost. Is that necessarily true? An entire function may be outsourced, or some elements of an activity may be outsourced, with the rest kept in-house

Service Facility Location

-new service facilities far more common than new factories and warehouses (much less expensive) -multiple sites close to customers -location decision closely tied to the market selection decision -decision more about maximizing profits than minimizing profits

The Bullwhip Effect

-phenomenon of variability magnification as we move from the customer to the producer in the supply chain (A slight change in consumer sales ripples backward as magnified oscillations upstream, like the result of a flick of a bullwhip handle) -continuous replenishment: inventory is replaced frequently, as part of an ongoing process

Service Design

-process and the product must be developed simultaneously (process is the product); service operation lacks the legal protection commonly available to products; the service package constitutes the major output of the development process; many parts of the service package are defined by the training individuals receive; many services orgs. can change their service offerings virtually overnight.

Three Contrasting Service Designs

-production line (McDonald's) - service delivery is treated much like manufacturing -the personal attention approach (Rtiz-Carlton) -the self-service approach (ATM machines, salad bars) - customer takes a greater role in the production of the service

service triangle

-service strategy -support systems -employees -customer in the center

**Forecasting Method Selection Guide

-simple moving average: Amt of HIstorical data - 6-12 months; weekly data are often used; stationary (no trend/seasonality) data pattern; short forecast horizon -weighted moving average & simple exponential smoothing: 5-10 observations needed to start (historical data); stationary data pattern; short forecast horizon -exponential smoothing with trend: 5-10 observations needed to start (historical data); stationary and trend data pattern; short forecast horizon; -linear regression: 10-20 observations (historical data); stationary, trend, and seasonality data pattern; short to medium forecast horizon

Strategic Sourcing (SS)

-the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business --As a result of globalization, sourcing implies a more complex process suitable for products that are strategically important. -specificity: refers to how common the item is and, in a relative sense, how many substitutes might be available (commonly available products can be purchased using a relatively simple process) -Request for proposal (RFP): used for purchasing items that are more complex or expensive and where there may be a number of potential vendors -Vendor-managed inventory: when a customer actually allows the supplier to manage an item/group of times for them.

Exponential Smoothing Model - effect of trends

-the presence of a trend in the data causes the exponential smoothing forecast to always lag behind the actual data; -This can be corrected by adding a trend adjustment; trend smoothing constant is delta

Inventory Definition

-the stock of any item or resource used in an organization; Includes raw materials, finished products, component parts, supplies, and work-in-process; Manufacturing inventory: refers to items that contribute to or become part of a firm's product Inventory system: the set of policies and controls that monitor levels of inventory (determines what levels should be maintained, when stock should be replenished, and how large orders should be.

Purposes of Inventory

-to maintain independence of operations, to meet variation in product demand, to allow flexibility in production scheduling, to provide a safeguard for variation in raw material delivery time, and to take advantage of an economic order size

Process Control Measurement (PCM)- p-Charts

-used when an item/service is either good or bad (yes or no decision) =number of defective/number of observations -UCL/LCL don't move > can't have negative

Causal Relationship Forecasting

-uses independent variables other than time to predict future demand (This independent variable must be a leading indicator) -Many apparently causal relationships are actually just correlated events - care must be taken when selecting causal variables.

Time Series Analysis

-using the past to predict the future -Short term - forecasting less than months > used mainly for tactical decisions -Medium term - forecasting months to years > used to develop a strategy that will be implemented over the next 6-18 months (meeting demand) -Long-term - forecasting greater than 2 years > useful for detecting general trends and identifying major turning points

Creating X-bar & R-charts

1-Calculate the sample statistics (the sample average and range) for each sample. 2-Calculate the average across all samples to find the overall mean (grand mean) and the overall range (R bar). 3-Find the A2, D3 and D4 factors form the control limits chart. 4-Calculate the UCL and LCL for each chart 5-For the X-bar and R-chart, plot the individual means, the overall average, and the control limits

Green Sourcing Process

1. Assess the Opportunity (evaluate and prioritize costs) 2. Engage sourcing agents (cross-functional ownership of the process) 3. Assess the Supply Base (engage vendors in the process) 4. Develop the sourcing strategy (develop quantitative criteria). 5. Implement sourcing strategy (select vendors and products based on criteria) 6. Institutionalize the sourcing strategy (measure and audits to monitor performance)

Boeing Adds South Carolina to Its Dreamliner Assembly Location DNC

1. Boeing assembled all commercial planes in Seattle until the Dreamliner 787 came along. 2. First Dreamliner came out of SC plant on April 27, 2012. 3. By the end of 2013, 3.5 planes per month are expected. 4. Boeing chose SC over the vigorous objection of its union. The union finally relented, and signed a contract, when the firm agreed to add an advanced version to the Dreamliner line-up in Seattle.

Creating p-chart

1. Calculate the sample proportions p for each sample. 2. Calculate the average of the sample proportions. 3. Calculate the standard deviation of the sample proportion. 4. Calculate the control limits 5. Plot the individual sample proportions, the average of the proportions, and the control limits.

Decomposition

1. Decompose the time series into its components. a) Find seasonal component. b) Deseasonalize the demand. c) Find trend component. 2. Forecast future values of each component. a) Project trend component into the future. b) Multiply trend component by seasonal component. 3. Develop a least squares regression line for the deseasonalized data. 4. Project the regression line through the period of the forecast. 5. Create the final forecast by adjusting the regression line by the seasonal factor.

Service Package**

1. Supporting facility: The physical resources that must be in place before a service can be offered 2. Facilitating goods: The material purchased by the buyer or the items provided to the customer 3. Information: Data provided by the customer 4. Explicit services: Benefits that are observable by the senses 5. Implicit services: Psychological benefits the customer may sense only vaguely (how the customer feels)

Types of Forecasting

4 types: Qualitative (e.g., Delphi, panel, analogy); Time series analysis (relies on the future behaving, at least to some extent, similarly to the past ); Causal relationships; Simulation

Service Org. Qualities

Cannot inventory services (must meet demand as it arises); service capacity is a dominant issues (what capacity should I aim for?); Marketing can adjust demand; cannot separate the operations mgmt function form marketing in services; waiting lines can also help with capacity

**Logistics Decisions

Cheapest to most expensive (Ship, Train, Truck, Plane) -Truck: great flexibility; ship: high capacity and low cost but slow; plane: fast but expensive; train: low cost but slow and variable; pipeline: highly specialized and limited to liquids/gases/solids in slurry form > cheapest multimodal solutions are the norm

Fixed-Time Period

Counting takes place only at the end of the review period; has a larger average inventory; favors less expensive items; is sufficient for less-important items; requires less time to maintain; is less expensive to implement -order quantity: q-variable (varies each time order is placed) -when to place order: t- when the review period arrives -recordkeeping: counted only at review periods -size of inventory: larger than fixed-order quantity model -time to maintain: efficient, since multiple items can be ordered at the same time -type of items: typically used with lower-cost items -time periods are equal but ending inventory varies; reorder quantity varies, depending upon ending inventory level. Beginning inventory is always the same.

CPFR Steps

Creation of a front-end partnership agreement > joint business planning > development of demand forecasts > sharing forecasts > inventory replenishment

Factors Affecting Service Locations

Demographic: employment, income, and population physical: accessibility, traffic, etc.

Acceptance Sampling

Disadvantages: Risks of accepting "bad" lots and rejecting "good" lots; Added planning and documentation; Sample provides less information than 100 percent inspection Advantages: Economy; Less handling damage; Fewer inspectors; Upgrading of the inspection job; Applicability to destructive testing; Entire lot rejection (motivation for improvement)

Strategic Uses of the Matrix

Enabling systematic integration of operations and marketing strategy > clarifying exactly which combination of service delivery the firm is providing > permitting comparison of how other firms deliver specific services > indicating life cycle changes as the firm grows

Reasons to outsource

Financial: improve return on assets by reducing inventory and selling unnecessary assets; generate cash by selling low-return entities; gain access to new markets, particularly in developing countries; reduce costs through lower cost structure; turn fixed costs into variable costs Improvement: improve quality and productivity; shorten cycle time; obtain expertise, skills, and technologies that are otherwise unavailable; improve credibility and image by associating with superior providers Organizational: improve effectiveness by focusing on what the firm does best; increase flexibility to meet changing demand for products/services; increase product and service value by improving response to customer needs

Role of forecasting

Forecasting is a vital function and affects every significant management decision. -Finance and accounting use forecasts as the basis for budgeting and cost control. Marketing relies on forecasts to make key decisions such as new product planning and personnel compensation. Production uses forecasts to select suppliers; determine capacity requirements; and drive decisions about purchasing, staffing, and inventory Different roles require different forecasting approaches -Decisions about overall directions require strategic forecasts. -Tactical forecasts are used to guide day-to-day decisions.

Demand Characteristics

Functional: low demand uncertainty; more predictable demand; long product life; low inventory cost; low profit margin; low product variety; higher volume; low stock-out cost; low obsolescence Innovative: high demand uncertainty; difficult to forecast; short selling season; high inventory cost; high profit margin; high product variety; low volume; high stock-out cost; high obsolescence

Fixed-Order Quantity

Inventory remaining must continually be monitored; has a smaller average inventory; favors more expensive items; is more appropriate for important items; requires more time to maintain - but is usually more automated; is more expensive to implement -Order quantity: q-constant (same amount ordered each time) -when to order: r-when inventory position drops to the reorder level -recordkeeping: each time a withdrawal or addition is made -size of inventory: less than fixed-time period model -time to maintain: higher due to perpetual recordkeeping -type of items: higher-priced, critical, or important items

Logistics

Logistics: the art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities and the proper time International logistics: managing these functions when the movement is on a global scale Third-party logistics company: an outside company used to manage all or part of another company's logistics functions - 3PL

Uncertainty Framework by Hau Lee**

Low (stable) & low (functional products) = efficient supply chain - basic apparel, commodity food, oil, and gas; utilize strategies aimed at creating the highest cost efficiency. Low (stable) & high (innovative products) => responsive supply chain - fashion apparel, computers, popular music; utilize strategies aimed at being responsive and flexible Low (functional products) & High (evolving process) => risk-hedging supply chain - hydroelectric power; utilize strategies aimed at pooling and sharing resources in a supply chain to share risk High (innovative products) & High (evolving process) => agile supply chain - telecom, high-end computers, semiconductors; utilize strategies aimed at being responsive and flexible to customer needs

Hotel Overbooking

Mean is 5; theta is 3; room is $80 (Cu - this is the cost if overbookings are less than cancelations); penalty for overbooking is $200 (cost if overbookings are more than cancelations - Co) Cu/(Co + Cu) = .2857

Decoupling Point

Point at which some form of inventory is stored that allows SC entities to operate independently -The choice of the decoupling point in a SC is strategic. -Forecasting helps determine the level of inventory needed at the decoupling points. -The decision will be impacted by the error produced in the forecast and the type of product (easily inventoried vs. perishable).

Economic Order Quantity (EOQ)

The optimal order quantity occurs where total costs are at their minimum. =SQRT((2+DS/H)) -ordering costs (D/Q)*S) -annual cost of items: D*C -holding cost (H*Q/2) TC = annual cost + ordering costs + holding costs

Characteristics Low Degree of Customer/Service Contact

Worker requirements: clerical skills focus of operations: paper handling tech innovations: office automation

High Degree of Customer/Service Contact

Worker requirements: diagnostic skills Focus of operations: client mix tech innovations: client/worker teams

standard deviation

a measure of much individual observations deviate from the mean (spread); sigma

Inventory Management

inventory accuracy - refers to how well the inventory records agree with physical count cycle counting - a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year (how accurate is actually counting the inventory; will technology help?)

seasonal variation

may be either additive or multiplicative (shown here with a changing trend) simple proportions: The seasonal factor (or index) is the ratio of the amount sold during each season divided by the average for all seasons.

X-bar non-normal behavior

one point out above or below; two points near upper/lower control; rune of five above/below central line; trend in either direction; erratic behavior; sudden change in level

Forecasting - DNC

sales for holiday candy 1) halloween 2) valentines 3) easter

Choosing an appropriate forecasting model depends upon

time horizon to be forecast; data availability; accuracy required; size of forecasting budget; availability of qualified personnel