Intro to Supply Chain Management

Enterprise Requirements Planning (ERP)

-ERP is an extension MRPII and includes DRP which determines the need to replenish finished product inventory at branch warehouses, when there are multiple warehouses in the network. -It is typically implemented through a software platform of integrated functional modules facilitating the sharing of real-time information and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively.

Operations Management

-Forecasting & Demand Planning - match demand to available capacity -Planning Systems - linking supply to demand via MRP and ERP systems -Process Management - using LEAN Manufacturing to improve the flow of materials to reduce inventory levels, and using Six Sigma to improve quality compliance across all suppliers (internal and external)

Supply Management

-Purchasing - responsibility for procuring materials, supplies, and services -Supplier Management - improve performance through •Supplier evaluation (determining supplier capabilities) •Supplier certification (third party or internal certification to assure product quality and service requirements) Strategic Partnerships - successful and trusting relationships with top-performing suppliers Ethics and Sustainability - recognizing suppliers' impact on reputation and carbon footprint

Integration

-Supply Chain Process Integration •When supply chain participants work for common goals. •Requires intra-firm functional integration. •Based on efforts to change attitudes & adversarial relationships -Supply Chain Risk Assessment and Mitigation -Supply Chain Performance Measurement •Crucial for firms to know if procedures are working

Closed Loop MRP

-Synchronizes the purchasing or materials procurement plans with the master production schedule. -The system feeds back information about completed manufacture and materials on hand into the MRP system, so that these plans can be adjusted according to capacity and other requirements. -The system is called a closed loop MRP because of its feedback feature.

Logistics Management

-Transportation Management - tradeoff decisions between cost & timing of delivery / customer service via truck, rail, air, pipeline & water. -Customer Relationship Management - strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements. -Network Design - creating distribution networks based on tradeoff decisions between cost & sophistication of distribution system.

Fundamentals of Forecasting

1.Your forecast is most likely wrong -The question you should be asking is "How wrong is the forecast?" -Forecasting is difficult mainly because people know it is likely to be wrong and nobody likes to be publicly and visibly wrong. You must be willing to recognize and adapt to changing conditions — don't fall in love with your forecast and ignore evidence that it may be wrong. Just be open to the first signs of change and be prepared to react quickly and decisively. 2.Simple forecast methodologies trump complex ones -There is danger in complexity. Complicated forecast methods often hide key assumptions built into the model. -On the other hand, simple forecast methods are easy to understand, analyze and work out why it went wrong. 3.A correct forecast does not prove your forecast method is correct -It could have been chance. -If you only question your methods when there is a large variance in the data, you'll miss all those times your forecast was just lucky. 4.If you don't use the data regularly, trust it less when forecasting -When information is not regularly used, errors often remain undetected. -Regular use of data helps identify mistakes and smooths out inconsistencies over time. 5.All trends will eventually end (that's why they're called trends) -Many factors will affect the pattern you're trying to forecast. -It doesn't matter how accurately you predict the trend, in the future the variables will change and the forecast will be wrong. 6.It's hard to eliminate bias, so most forecasts are biased -When you have to make a range of assumptions (which factors to include, how strongly to weight them etc.), it's likely that you will be adding some bias to the forecast. 7.Technology is not the solution to better forecasting Robust forecasting comes from sound logic in your methodology. Create an appropriate strategy and then use technology to make it more successful. Technology is not the answer; it's the tool to help you make the forecast better.

Forecast Bias

A consistent deviation from the mean in one direction, either high or low. -In other words, bias exists when the demand is consistently over- or under-forecast. A good forecast is not biased. ∑ Forecast Error = ∑ Actual Demand - ∑ Forecast Demand In the formula above, if the sum of the forecast error is not zero, there is bias in the forecast. -A negative result shows that actual demand was consistently less than the forecast -A positive result shows that actual demand was greater than forecast demand A forecast process with bias will eventually create significant problems in the supply chain if left unchecked. Good supply chain planners are aware of these biases. A best practice is to measure for forecast bias routinely and then make corrections accordingly

Multilevel Bill of Materials

A display of all the components directly or indirectly used in a parent, together with the quantity required of each component (i.e., the planning factor). If a component is a subassembly, blend, intermediate, etc., all its components and all their components also will be exhibited, down to purchased parts and raw materials

Distribution Requirements Planning (DRP)

A time-phased finished good inventory replenishment plan in a distribution network. The function of determining the need to replenish inventory at branch warehouses. -DRP is a logical extension of the MRP system and ties physical distribution to the manufacturing planning and control system

The Bullwhip Effect

Because customer demand is not perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely 100% accurate, therefore, companies often carry an inventory buffer called safety stock. Moving from the end-consumer(s) backward across the supply chain to raw material supplier(s), each supply chain participant is farther removed from the end demand and may have less information about what is happening with demand, creating a greater need to maintain higher levels of safety stock. In the absence of any other information or visibility, individual supply chain participants are second-guessing what is happening with ordering patterns, and potentially over-reacting, creating the bullwhip effect. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders decrease or stop, and inventory accumulates. There is no single remedy, but there are some actions that supply chain participants can take collectively: Collaboration: Sharing information through the use of electronic data interchange (EDI), point of sale (POS) data, and web-based systems can facilitate collaboration. Synchronizing the supply chain: Supply chain participants coordinate planning and inventory management to minimize the need for reactionary corrections. Reducing inventory: Through the use of just in time (JIT), vendor managed inventory (VMI), and quick response (QR), all of which will be discussed later in this course.

2 Basic Supply Chain Capability Models

Efficient - Supply Chain and processes are designed to minimize cost Predictable supply and low cost Low cost production and highly utilized capacity High inventory turns Ideal for Functional Products: —Staples that people buy everywhere —Don't change much over time —Stable predictable demand Responsive - Supply Chain designed to respond quickly to market demand ·Fast response ·Minimal stock outs ·Need flexible capacity (volume) ·Inventory of parts ·Minimize lead time ·Need to have a variety of products available for customers when they want to buy ·Ideal for Innovative Products: —Rapidly changing —Very short life-cycle products —Great variety —Very unpredictable demand

Plan

Establishes the parameters within which the supply chain will operate. Planning includes the determination of marketing and distribution channels, promotions, quantities, timing, inventory and replenishment policies, and production policies.

Jury of Executive Opinion

People who know the most about the product and the marketplace would likely form a jury (i.e., management panel) to discuss and determine the forecast. Generally, the panel conducts a series of forecasting meetings to discuss the forecast until the panel reaches a consensus agreement. Advantages: Decisions are enriched by the experience of competent experts. Companies don't have to spend time and resources collecting data by survey. Disadvantages: Experts may introduce some bias. Experts may become biased by their colleagues or a strongly opinionated leader.

Push or Make to Stock

Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. Advantages: If the manufacturer creates a good forecast and supply plan, the product is immediately available to ship to the customer on demand from the existing finished product inventory in the warehouse. Manufacturers also have the opportunity to plan resources better or with more flexibility, and can maximize the utilization of resources at the lowest cost. Disadvantages: High inventories (and capital tied up in inventory), long lead-times, dependency on forecasting, forecasting error creates non-value adding time, inefficiencies, obsolescence, shortages, and additional cost.

Variations in Quantitative Forecasting

Trend Variations: Movement of a variable over time. Might be more easily observed by plotting actual demand on a graph over time to see whether there is an increase or decrease. (e.g., laptops, cell phones, fashion products, toys) Random Variations: Instability in the data caused by random occurrences. These random changes are generally very short-term, and can be caused by unexpected or unpredictable events such as weather emergencies, natural disasters, etc. (e.g., hurricane = wood for roof repair, tree clean up, water damage) Seasonal Variations: Repeating pattern of demand from year to year, or over some other time interval, with some periods of considerably higher demand than others (e.g., holiday shopping, restaurant customers, swim suits sales by region, building construction slowing in winter by region) Cyclical Variations: Wavelike pattern that can extend over multiple years, and therefore, cannot be easily predicted. (e.g., business cycle, China growth, GDP, bull or bear markets)

Return

also known as Reverse Logistics, this is the part of supply chain management that deals with planning and controlling the process of moving goods specifically from the point of consumption back to the point of origin for repair, reclamation, re manufacture, recycling, or disposal. As this process quite literally goes against the normal outbound flow of products to the market, supply chain managers have to create a responsive and flexible network for receiving defective and excess products back from their customers, and also supporting customers who have questions and problems

Simple Linear Regression (Cause and Effect)

attempts to model the relationship between a single independent variable and a dependent variable (demand) by fitting a linear equation to the observed data. The equation describes the relationship between the independent variable and dependent variable as a straight line.

Qualitative Forecasting

based on opinion and intuition. Forecast depends on skill and experience of forecaster(s) and available information The five qualitative models used are: 1.Personal Insight 2.Jury of Executive Opinion 3.Delphi Method 4.Sales Force Estimation 5.Customer Survey

Total Quality Management

is a management approach to long-term success through customer satisfaction based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. Everyone in the organization has to take ownership for quality.

Exponential Smoothing (Time Series)

is a more sophisticated version of the weighted moving average. Requires 3 basic elements: last period's forecast, last period's actual demand, and a smoothing factor, which is a number greater than 0 and less than 1 (used as a weighting percentage). Advantage: Exponential smoothing will create a forecast more responsive to trends than previous methods. Disadvantage: Exponential smoothing will still lag behind trends, especially upward trends since the smoothing factor would need to be greater than 1.0 to approach an accurate forecast. The smoothing constant is not a given. It has to be determined based on the best judgment of a company's experts.

Dependent Demand

is demand for an item that is directly related to other items or finished products, such as a component or material used in making a finished product.

Independent Demand

is demand for an item that is unrelated to the demand for other items, such as a finished product, a spare part, or a service part.

Linear Trend Forecasting (Time Series)

is imposing a best fit line across the demand data of an entire time series. Used as the basis for forecasting future values by extending the line past the existing data and out into the future while maintaining the slope of the line. Advantage: can provide an accurate forecast into the future even if there is random variation. Disadvantage: seasonal and cyclical variations are softened, making this method more useful for annual forecasts than for monthly forecasts.

Forecast Error

is the difference between the actual demand and the forecast demand. The error can be quantified as an absolute value or as a percentage

Supply Chain Planning

is the element of supply chain management responsible for determining how best to satisfy the requirements created by the Demand Plan. -Its objective is to balance supply and demand in a way that realizes the financial and service objectives of the company. -Operations managers are continuously involved in planning operations and resources to balance capacity and output. -Supply Chain Planning is a combination of all the planning processes that are used across the supply chain, primarily: -Aggregate Production Planning (APP) -Master Production Scheduling (MPS) -Materials Requirement Planning (MRP) -Distribution Requirements Planning (DRP) -Capacity Planning

Mean Squared Error (MSE)

magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods. -Squaring errors effectively makes them absolute since multiplying two negative numbers results in a positive number. MSE = ∑ (A-F) ² / n Where: A = Actual demand F = Forecast demand n = Number of time periods

Mean Absolute Percent Error (MAPE)

measures the size of the error in percentage terms. It is calculated as the average of the unsigned percentage error. -Many companies use the MAPE as it is easier for most people to understand forecast error and forecast accuracy in percentage terms rather than in actual units. -MAPE is a useful variant of the MAD calculation because it shows the ratio, or percentage, of the absolute errors to the actual demand for a given number of periods. MAPE = ∑ ((|A - F|)/ A)) / n (expressed as a percentage) Where: A = Actual demand F = Forecast demand n = Number of time periods

Running Sum of Forecast Errors (RSFE)

provides a measure of forecast bias. RSFE indicates the tendency of a forecast to be consistently higher or lower than actual demand. -A positive RSFE indicates that the forecasts were generally too low, underestimating the demand. -In this situation, stock-outs are likely to occur as companies are unable to meet customers' actual demand. -A negative RSFE indicates that the forecasts were generally too high, overestimating demand. -In this situation, excess inventory and higher carrying costs are likely to occur. RSFE = ∑ et Where: et = forecast error for period t

Weighted Moving Average Forecasting (Time Series)

similar to a simple moving average except that not all historical time periods are valued equally. Advantage: More accurate than a simple moving average if actual demand is increasing or decreasing. Disadvantage: Though better than a simple moving average, this technique will still lag behind actual demand to some degree. The challenging part of using a weighted moving average is deciding on the weight for each time period.

Supply Chain

the connected chain of all of the business entities, both internal and external to the company, that perform or support the logistics function

Sales Force Estimation

Basically the same as the Jury of Executive Opinion except that it is performed specifically with a group of sales people. Advantages: No additional cost to collect data because internal sales people are used. More reliable forecast as it is based on the opinions of salespersons in direct contact with the customer. Disadvantages: Salespersons may introduce some bias. Salespersons may not be aware of the economic environment.

Manufacturing Resource Planning (MRP II)

helps to improve internal communication and operations. -Manufacturers extended their processes to include their own finance, marketing, sales, research and development, etc. functions to bring all their expertise into the process.

Quantitative Forecasting

uses mathematical models and historical data to make forecasts Time Series - based on the assumption that the future is an extension of the past. Historical data is used to predict future demand ─The most frequently used among all the forecasting models. Cause and Effect - assumes that one or more factors (independent variables) predict future demand (e.g., seasonality in retail markets)

Level Production Strategy

1.Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for make-to-stock firms -Plywood, steel, light bulbs, razors are examples. Maybe the changeover is long, or its inefficient to stop/ start.

Available to Promise (ATP)

A calculation to provide a response to customer order inquiries, based on product availability. -It represents the uncommitted portion of a company's projected available inventory to support customer order promising. Methods of calculating the Available-to-Promise quantities: 1.Discrete Available-to-Promise = (on hand + supply - ordered) per period 2.Cumulative Available-to-Promise

Master Production Schedule (MPS)

A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period.

Sales & Operations Planning (S&OP)

A process that brings all the demand and supply plans for the business (sales, marketing, development, production, sourcing, and finance) together to provide management with the ability to strategically direct the business to achieve a competitive advantage -It is the definitive statement of the company's plans for the near to intermediate term, covering a horizon sufficient to plan for resources, and to support the annual business planning process. -It links the strategic plans for the business with its execution. -It is performed at least once a month and is reviewed by management at an aggregate (product family) level.

Chase Production Strategy

Adjusts capacity to match demand. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant. Works well for make-to-order firms -Airplane companies do this since training takes time. Union employees are sent back to the union hall, waiting to be recalled. They collect unemployment. Another example are workers that harvest crops.

Enable

An additional aspect of the model is referred to as "Enable." Enabling processes facilitate a company's ability to manage the supply chain and are spread throughout every stage. -In other words, we want to enable our capabilities as we plan, source, make, and deliver (and return). This is not a stage that occurs sequentially after all of the others.

Delphi Method

Basically the same as the Jury of Executive Opinion except that the input of each of the participants is collected separately so that people are not influenced by one another. This is done in several rounds until a consensus forecast is achieved. Advantages: Decisions are enriched by the experience of competent experts. Very useful for new products Disadvantages: Experts may introduce some bias. Companies must spend time & resources collecting data by survey. If external experts are used there is a risk of loss of confidential information.

Customer Survey

Customers are directly approached and asked to give their opinions about the particular product. Customer surveys can be done in person (e.g., one-on-one, focus group), over the phone, by mail, email, or online. Advantages: Simple to administer and comprehend. It does not introduce any bias or value judgment particularly in the census method if the questions are constructed carefully. Disadvantages: Poorly formed questions may lead to unreliable information. Customers do not always answer the questionnaire.

Single Level Bill of Materials

Display of components that are directly used in a parent item, together with the quantity required of each component (i.e., the planning factor). Shows only the relationships one level down

Aggregate Production Plan (APP)

Hierarchical planning process that translates annual business, marketing plans, and demand forecasts into a production plan for a product family* in a plant or facility. Primary purpose is to establish production rates that will achieve management's objective of satisfying customer demand by maintaining, raising, or lowering inventories, while attempting to keep the workforce relatively stable.

Goals of Supply Chain Management

Increase Customer Service Decrease Inventory Investment and Operating Expenses. Companies implement Supply Chain Management to achieve cost savings and better coordinate resources.

The Foundations of Supply Chain Management

Operations Management Supply Management Logistics Management Integration

Supply Chain Management

It is the coordination of a network of otherwise independent organizations (i.e., trading partners) all involved in creating a desired product or service, and moving it from suppliers, through manufacturing, and out to customers when and where they want it. Delivers value by managing the processes of all of those independent trading partners so that they collaborate with one another in an efficient, effective, and cost conscious way.

Mixed Production Strategy

Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand. -Construction co., retail stores at holiday season

Make

Make or manufacturing is the series of operations performed to convert materials into a finished product. Finished product is manufactured, tested, packaged, and scheduled for delivery. Quality management is an important aspect of the manufacturing process. This is the most metric-intensive portion of the supply chain, where companies are able to measure quality levels, production output, and worker productivity.

Mean Absolute Deviation (MAD)

Measures the size of the forecast error in units. It is calculated as the average of the unsigned, i.e., absolute, errors over a specified period of time. -Absolute errors for a series of time periods are added and then divided by the number of time periods. The resulting value is the MAD measure of forecast inaccuracy. -Whether the forecast is over or under the actual demand is irrelevant; only the magnitude of the deviation matters in the MAD calculation. MAD = ∑(|A - F|) / n Where: A = Actual demand F = Forecast demand n = Number of time periods

Capacity Planning

Organizations must balance the production plan with capacity. This directly impacts how effectively the organization deploys its resources in producing goods. The following are the major capacity planning tools: Resource Requirement Planning (RRP) A long-range capacity planning module used to check whether aggregate resources (i.e., labor and manpower) are capable of satisfying the Aggregate Production Plan. Rough-Cut Capacity Planning (RCCP) A medium-range capacity planning module used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available. Capacity Requirement Planning (CRP) A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.

Pull Or Make to Order

Producing stock in response to actual demand Advantages: High levels of customer service through responsiveness and flexibility to meet uncertain customer demand. Pull models have short lead times, reduce dependency on forecasting, use short and flexible production runs, store very low inventories, reduce waste, provide opportunities for customization, and improve cash flow. Disadvantages: Every order is basically a rush order, and any problems will lead to customer dissatisfaction. Pull models are highly dependent on customer relationship. They have a reduced ability to take advantage of economies of scale. Fast, responsive, flexible, robust and integrated systems and processes are a must for this model to work. Resource issues will have a significant and immediate impact on throughput and customer satisfaction.

Forecast Error

Since forecasts are almost always inaccurate, companies need to track the forecast against actual demand and measure the size and type of the forecast error. §The size of the forecast error can be measured in units or percentages. Error measurement plays a critical role in tracking forecast accuracy, monitoring for exceptions, and benchmarking the forecasting process. §Interpretation of these statistics can be tricky, particularly when working with low-volume data or when trying to assess accuracy across multiple items.

Naive Forecasting (Time Series)

Sets the demand for the next time period to be exactly the same as the demand in the last time period. Advantages: Works well for mature products and is very easy to determine. Disadvantages: Works for mature products only. Any variations in demand will create inventory issues.

Supply Chain Planning Hierarchy

Supply chain planning is usually hierarchical and can be divided into three broad categories: -Long-Range - involves planning for actions such as the construction of facilities and major equipment purchase (ref., Aggregate Production Plan - APP) . -Executive level - Ford Motor Company wants to grow their market share by 5% over the next 1 - 3 years -Intermediate-Range - Shows the quantity and timing of end items (ref., Master Production Schedule - MPS) -Mid-level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months. -Short-Range - detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning - MRP) -Planner, 1st line Supervisor - 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.

Personal Insight

The forecast is based on the insight of the most experienced, most knowledgeable, or most senior person available. Sometimes, this approach is the only option, but methods that include more people are generally more reliable. Advantages: It can provide a good forecast. Disadvantages: It relies on one person's judgement and opinions, but also on their prejudices and ignorance.

Source

The process of identifying the suppliers that provide the materials and services needed for the supply chain to deliver the finished products desired by the customers. Supply chain managers must also develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance

Deliver

also known as the Logistics phase, this is the part of supply chain management that oversees the planning and execution of the forward flow of goods and related information between various points in the supply chain to meet customer requirements. Where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to transport products to customers, and set up an invoicing system to receive payments, among other aspects.

Simple Moving Average Forecasting (Time Series)

Uses a calculated average of historical demand during a specified number of the most recent time periods to generate the forecast. Advantage: Provides a very consistent demand over long periods of time and smooths out random variations. Disadvantage: Fails to identify trends or seasonal effects. It will also create shortages when demand is increasing because it lags behind actual demand.

SCOR Model

a framework that focuses on a basic supply chain of plan, source, make, deliver, and return processes, repeated again and again along the supply chain

Materials Requirement Planning (MRP)

a method of determining what materials are needed and when they are needed to support the production plan.

Bill of Materials (BOM)

document that shows an inclusive listing of all component parts and assemblies making up the final product.

Collaborative Planning, Forecasting, and Replenishment (CPFR)

is a business practice that combines the intelligence of multiple trading partners who share their plans, forecasts, and delivery schedules with one another in an effort to ensure a smooth flow of goods and services across a supply chain. CPFR can significantly reduce the Bullwhip Effect and provide a plethora of benefits including: -Better customer service -Lower inventory costs -Improved quality -Reduced cycle time -Better production methods

Just in Time

is a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement.

Business Process Reengineering

is a procedure that involves the fundamental rethinking and radical redesign of business processes to achieve dramatic organizational improvements in such critical measures of performance as cost, quality, service, and speed.