MGMT 4110
Jeans: From Factory to Floor
"How far does a typical pair of jeans travel before it ends up in your closet -- and at what cost? Reuters tracks the garment supply chain, from factories in Bangladesh to retailers near you."
Impact of GIS
- Manipulate, analyze, and present geo-information - Visual representation of a firm's location choices - Identify locations and demographic customer info - Identifying locations that relate to target market
High forecast error
- Some products sold more than 50% of forecast - Some products less than forecast
If you were trying to make a decision to consolidate the demand forecast by aggregating the demand data from two locations. What would you want the correlation coefficient of the demand data between the locations to be?
-0.9 You want it to be negatively correlated
S&OP Process
1. Data Gathering 2. Demand Planning 3. Supply of Planning
Advantages of the P System
1. It is convenient because replenishments are made at fixed intervals. 2. Orders for multiple items from the same supplier can be combined into a single purchase order. 3. The inventory position needs to be known only when a review is made (not continuously).
Market mediation
Ensuring the variety of products reaching the marketplace matches what the customer desires
In a continuous review system when demand and lead time are constant and certain, the reorder point is
Equal to the demand over the lead time
The shortest distance between two locations is
Euclidean distance
Customers are expecting
Ever-higher levels of performance Continuous reduction in costs Greater customization of products
Sales promotions
Everyday Low Prices
Sales promotions Countermeasure
Everyday low price
Demand forecast accuracy:
Everyone in the chain placing order that include increases in safety stock causing erroneous forecasts
Sales promotions:
Exaggerated demand because customers want to stock up at lower prices
The following are characteristics of truck transportation.
Expensive for large shipments Low fixed costs
Outsourcing
External arm's-length transactions ❖Short-term arrangement that fulfills a particular business need but doesn't lead to long-term strategic advantages.
Logistical Drivers
Facilities, Inventory, Transportation
Key decisions made by SC managers involve.
Facility location Inventory Risk Pooling
As the value of 'N' in moving averages increases you need less data
False
Commodity products require a responsive supply chain
False
Dabbawalas have shown that even with the right system, an organization needs extraordinary talent. True or False?
False
Decreasing the number of warehouses will result in higher service levels
False
Demand pooling is effective when the demand is highly positively correlated
False
EOQ can be used when ordering costs and holding costs are highly variable
False
Effective consumer response requires demand management but not supply management
False
In order to perform a corporate inversion a company must have manufacturing operations in the foreign country of incorporation.
False
In vendor managed replenishment systems the customer manages the inventory system and decides on the inventory policies
False
Innovative products require a physically efficient supply chain
False
It is very likely you can have a efficient (low cost) supply chain when you have high demand uncertainty (such as a gourmet restaurant).
False
Moving averages can be used effectively to forecast regardless of whether there is strong trend or not
False
Offering a very large variety of similar products makes the job of demand forecasting easier
False
One of the disadvantages of location pooling is lower service levels
False
Qualitative methods are the best way to make location decisions
False
Risk pooling suggests that demand variability increases as a result of aggregating demand
False
The Dubbawalla system gives each group a monopoly over their territory. True/False
False
The higher the value of smoothing coefficient alpha in exponential smoothing the greater the emphasis on older demand data
False
The longer the cycle time the smaller the cycle inventory
False
What has research shown to lead to lower error rates?
Familiarity and bonds
Challenges of the mass market:
Fill order even more quickly Demand for highly customized products and services Solution: mass customization via postponement
Finished goods
Final product ready for sale or shipment
The Goal:
Find a minimal-annual-cost configuration of the distribution network that satisfies product demands at specified customer service levels.
Find an acceptable facility location that minimizes the ld score
Find the Lowest Number Possible
Make to Stock (MTS) challenges
Finished goods inventory Forecasting Product variety Product mix stability
Independent Demand
Finished goods, end products purchased by customers Raw material commodity stocks, common to many products Demand rate and pattern determined outside of the firm Demand is independent of demand for other products or items
Provides Other Flexibilities
Flexibility in geographic locations, services and resources
3PL Advantages
Focus on Core Strengths Provides Technological Flexibility Provides Other Flexibilities
Change in Marketing
Focus on consumers, not products Understand cost to satisfy consumers, not sticker price Learn how consumers want to buy (convenience), over determining place of purchase Concentrate on communications with consumers, not just promotions.
Forecasting Fashion Video:
Forecast at least 6 months to 1 year ahead. Know about... Trends Colors and Patterns Items Color Analysis and Schemes Culture
continuous replenishment new skills employed by vendors
Forecasting and inventory control
Characteristics of Forecasts:
Forecasts are always wrong. The longer the forecast the worse it gets Aggregate forecasts are less wrong than disaggregated forecasts
Five assumptions
1.Demand rate is constant and known with certainty. 2.The Lead Time is constant and known with certainty. 3.No constraints are placed on the size of each lot. 4.The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup. 5.Decisions for one item can be made independently of decisions for other items.
FMEA Procedure
1.For each process step (start with high level steps), determine the ways in which the input can go wrong (failure mode) 2.For each failure mode, determine effects ❖Select a severity level for each effect 3.Identify potential causes of each failure mode ❖Select an occurrence level for each cause 4.List current controls for each cause (what prevents it from happening?) ❖Select a detection level for each cause 5.Calculate the Risk Priority Number (RPN) 6.Develop recommended actions, assign responsible persons, and take actions ❖Give priority to high RPNs ❖MUST look at severities rated a 10 7.Assign the predicted severity, occurrence, and detection levels and compare RPNs
Class A Items
10-20% of items which account for approximately 60-80% of annual $ usage Very tight control & tracking
Forecasts that
Are reasoned Are realistic Are reviewed Represent demand
The price response curve indicates that
As price increases demand decreases
Global Shipping (video):
As the container shipping industry continues to boom, companies are adopting new technologies to move cargo faster and shifting to crewless ships. But it's not all been smooth sailing and the future will see fewer players stay above water.
Why is Corporate Inversion Done?
As the percentage of sales coming from foreign operations grows relative to domestic operations, the company will find itself paying more U.S. taxes because of where it incorporated.
Order batching:
Avoiding cost of processing orders or getting truckload orders vs small less than truckload deliveries.
What was a priority to achieving their growth targets
Avon began by creating a centralized planning function—a critical priority.There was no way Avon would achieve its growth targets without a centralized planning group that could see demand and inventory levels across the region and react quickly
Why did Avon change its approach to bottle labeling?
Avon had considered the idea of labeling bottles itself instead of relying on suppliers, so that it could delay final decisions about what language to put on a product until sales trends became clear
Avon neglected its supply chain for years. What were they focused on instead?
Avon planned to double sales revenue in the Europe region from $500 million in 1996 to $1 billion in 2001.
Weighted Location Scoring
Balance objective and subjective factors Rational means of comparing diverse criteria
Benefits of Delphi
Benefit is in the process, less so in the product Systematically explores alternative futures Allows all points of view to be aired Works toward consensus Promotes understanding Forces participants to face the future
What was Tiffany's rationale for a vertically integrated operation in the context of sustainability?
Best means for ensuring social and environmental responsibility
Supply of Planning
Bill of resources Rough-cut capacity Demand/supply strategies
Postponement is a hybrid
Blends make to stock and make to order that enables flexibility Allows for product mix Shortens lead time Reduces inventory Allows for larger batches where set up times or process times are long Improves supply chain responsiveness
Strategic Alliances
Both risks and rewards are shared. ❖Typically lead to long-term strategic benefits for both partners.
Safety (Buffer) Stock
Buffer against uncertain demand
Market Responsiveness Inventory
Buffer stock and finished goods inventory
Profit
Business Economies Market Financial Health
How does IKEA drive a transformative agenda?
By going all in
What kind of inventory hub system did Avon implement?
Centralized inventory hub in Poland
What makes a block chain immutable?
Changes in a block requires recomputation of all blocks that are following Requires control of at least 50% of the computers on the network to make the ledgers equivalent
Distributed network optimization: Albert Goodhue: What are the 4 steps that he identifies?
Characterization of actual network Benchmarking Analysis of scenarios Analysis of results
Weighting Score Method
Choose the highest score
Elements of Cycle View
Clearly defines processes involved Defines the owners of each process. Specifies the roles and responsibilities Specifies desired outcome of each process.
What to focus on for both
Consolidate orders to take advantage of economies of scale and quantity discounts
EOQ Model:
Constant Demand, Constant Lead Time, Infinite Horizon, Single product, No limit capacity, Meet all demand.
the Four Cs in supply chain
Consumer, Cost, Convenience, and Communications
Intermodal:
Convenient Can be cheaper Truck/rail is most common Sometimes intermodal is the only option Communication for coordination: KEY
Retailer-Supplier Partnership (RSP)
Cooperative relationship between suppliers and retailers
In evaluating good and services for outsourcing it is important to review them in the context of
Cost and Criticality
What primary trade-offs are made in designing supply chains?
Cost and responsiveness
Variable costs
Costs that change with changes in volume.
Pull Process:
Customer Order Cycle
What is the advantage of having the pace and rhythm set
Determines when tasks need to be done and how long it should take, synchronize and impose discipline, feedback
Market research
Determining external customer interest through data-gathering surveys Example: Delphi Method
Demand
Different customers Different products Different locations Different quantities
Invoicing and receivables
Different customers Different terms Different discounts Different currencies Taxes
Materials from different suppliers
Different minimum order quantities Different lead times Different vendors Different amounts needed
Logistics
Different modes of transport Different delivery requirements and schedules Inbound and outbound capacity planning
Distribution
Different products Different pack out quantities Different delivery requirements Locations of warehouses and capacities Material handling
Manufacturing capabilities
Different products Different packaging types Different demand patterns and customer tastes
Two main categories of purchased goods:
Direct and Indirect materials
The main categories of purchased goods are
Direct and indirect materials
Hash
The output of a hash function
Purpose of inventory management
The planning and controlling of inventories in order to meet the competitive priorities of the organization.
Risk Priority Number
The product of the severity, occurrence, and detection scores. Severity x Occurrence x Detection
If the demand variation (std deviation of demand) in multiple independent locations is the same, then the std. deviation of demand of a single pooled location will be equal to
The product of the square root of the number of locations and the demand variation of a single location
Enablers
Identification standards Messaging standards Data synchronization
its U.S. income is taxed at a high domestic rate.
If it incorporates abroad, it can bypass having to pay higher U.S. taxes on income that is not generated in the United States.
What makes it immutable?
If you want to change one block, all blocks after that must be changed as well. ❖ Changes in a given block makes all subsequent blocks invalid and require re-computing the hashes and proof of work of all the blocks ❖ The distributed nature of the block chain (P2P network) requires control of at least 50% of the network to make all those ledgers equivalent to ledger that was tampered
In analyzing results what does he identify as the top two items
Impact on customer service Ability to handle the increased volume of transactions
Severity
Importance of the effect 1 = Not Severe, 10 = Very Severe
what to focus on for direct materials
Improve coordination and visibility with supplier
Where ships go to die
In Bangladesh, men desperate for work perform one of the world's most dangerous jobs. They demolish huge ships in grueling conditions, braving disease, pollution, and the threat of being crushed or stabbed by steel sliced from the hulls.
An increase in inbound transportation costs
In essence, the firm must balance the costs of opening new warehouses with the advantages of being close to the customer (thereby having better service levels).
Four Alternatives for Sourcing
In-sourcing Outsourcing Strategic Alliances Acquisitions
Simple Moving Average (SMA)
Include N most recent observations Weight equally Ignore older observations older than N
The major challenges with data integrity in ERP systems has to do with
Inconsistency Data integrity Redundancy
As setup costs increase the EOQ will
Increase
Why did the Dubbawallas reject the idea of using motorcycles instead of bicycles?
Increased cost to customers
Hash Pointer
Instead of just containing the address of the previous block it also contains the hash of the data inside the previous block.
In-sourcing
Internal activities ❖Activities that are core strengths
Market Responsiveness Product Design
Modular design to postpone differentiation as late as possible
Order batching Countermeasure
More frequent orders of smaller amounts
Experience & Judgment
Most widely used method of facility location all decisions are subjective and heavily dependent on experience & judgment
Complicating Factors
Moving Average & Exponential Smoothing methods work well with data that is "moving sideways" Works well with data with variable trends and weak (or long) seasons and/or cycles Must be adapted for data series which exhibit a strong trend Must be further adapted for data series which exhibit strong seasonal patterns
Forecasting: Time Series
Moving averages Exponential smoothing
Characteristics of Delphi
Multiple rounds Anonymity Statistical feedback Median and interquartile ranges displayed Feedback of reasoning Multiple rounds Outliers asked to defend or change opinions Most widely used subjective method
Experience & Judgment Pros
Myriad qualitative and quantitative factors considered and evaluated
Shortage is more serious
Need to hold safety stock to achieve service level
Financial Performance
New Business Opportunities Minimizing Risk Enhance current Business
changeover costs are high
No standardized containers Labels preprinted on containers with different languages for each country
New Belgium and Waste
Not only do they commit 1% of their sales to environmental causes but they also redefine waste by treating their own waste-water on-site, in large flats powered exclusively by either methane gas derived from waste-water treatment or by wind power.
Poor Service
Often could not meet demand Delayed delivery Upset sales rep had to perform heroics to satisfy customers
Package Carrier:
Rapid & Reliable Expensive for larger shipments
3 kinds of RSPs
Rapid Response Continuous replenishment Vendor managed inventory
Stages of Inventory
Raw materials: Work-in-process Finished goods
Market Responsiveness Lead Time Focus
Reduce lead time aggressively
Inventory pooling
Reduce number of inventory locations. Merge variable demands from customers
Location pooling results in
Reduced inventory levels Reduced total demand variability
What are two tangible effects of sustainability efforts that motivate companies to pursue sustainability?
Reduction in costs Increase in revenues
Data Integration Challenges
Redundancy Inconsistency Missing integrity
Coefficient of variation is a measure of
Relative variability
There are many other factors besides purchase price that influence total cost
Reliability Quality Service orientation Financial stability Value added services
Class C Items
Remaining SKU's (40-60%) which account for remaining 5-15% of annual $ usage Loose control limited tracking
Market Responsiveness Purpose
Respond quickly to unpredictable demand to minimize stock-outs, markdown and obsolete inventory
How should managers view themselves according to the case?
Responsible for design and fine-tuning systems
You have a new innovative product that you are launching, and market forecasts suggest it is going to be a big hit, what kind of supply chain should you have ?
Responsive
Rapid Response Inventory Ownership
Retailer
Rapid Response decision maker
Retailer
Information Lead Time:
Retailer to Supplier
The S & OP process has a focus on
Revenue and profitability
Integrators
SIOP (Forecasting/Planning) Cost/profit and value measurement
Demand Planning
Sales and marketing review information received and Sales forecast
Causes of Bullwhip Effect
Sales promotions: Order batching: Shortage gaming: Demand forecast accuracy:
Sourcing processes include
Scoring Assessment Selection Contracts Design Collaboration Procure Planning Analysis
Benefits of ERP Systems
Security, Regulatory and Compliance Increases productivity Streamline processes and efficiency Fosters Growth Saves Money
Physically Efficient Suppliers
Select for cost and quality
The desire for choice
Sensing customer demand is one thing, but profitably responding is another. Especially when you offer a large array of options or highly configurable final products
When using the weighted scoring method to perform location selection decisions what should also be done?
Sensitivity analysis
How was Avon Organized:
Separate factories and warehouse supplying each market Branches operating independently Country-based supply chain model
As the number of warehouses increases, generally
Service levels increase
Nodes & Links
Shipment starts and ends at nodes. Travels on links
A hurricane is forcasted for the Gulf coast. In anticipation people are stocking up on plywood and essential groceries. As a result stores are stocking out of these products This is an example of
Shortage Gaming
Physically Efficient Lead Time Focus
Shorten lead time as long as cost does not increase
Physically efficient supply chain seeks to
Shorten lead times with the same costs
Role of Transportation Video:
Showcases how freight moves through the supply chain, the importance of an efficient transportation system for reliable freight movement, and the impact the transportation system has on the economy
What are the three key elements of the Dubbawalla process?
Simple codes, buffer capacity, rigorous standards
Order batching
Small and Frequent
Within a company
Supply chain includes all functions involved in fulfilling a customer request
The push pull boundary is determined by
Supply chain timeline
Physically Efficient Purpose:
Supply predictable demand efficiently at lowest cost
Sourcing Elements
Supply risk assessment Total cost assessment SKU stratification Outsource assessment
Having flexible capacity allows you to better manage
Supply with uncertain demand
Advantages of the Q System
The review frequency of each SKU may be individualized. Fixed lot sizes if large enough can results in quantity discounts. The system only requires levels of safety stock for the amount of uncertainty in demands during the lead time, which can be lower
The Supply Chain achieves
The right Product The right Price The right Store The right Quantity The right Customer The right Time Leading to Higher Profits
How do rush orders usually impact manufacturing efficiency?
The rush orders destroyed manufacturing efficiency too. Since 40% to 50% of the items sold more than expected, the factories were constantly interrupting their schedules to switch from one product to another. Changeover costs were high—especially because the factories were set up for high-volume production.
Euclidean distance
The straight line distance, or shortest possible path, between two points
Demand/supply strategies
Way to adjust demand and supply
When Avon decided to change, how did they approach assembling an internal team?
We took 45 of our best people in Europe out of their positions and put them into the project full-time for 18 months
Bill of resources
What is needed to produce this products
Continuous Review System
When Demand and Lead Time Are Constant and Certain When demand is variable and lead time is constant
What is a corporate tax inversion?
When a company relocates headquarters overseas for tax advantages
Problems with Delphi
Who is "expert"? Over-reliance on consensus Little evidence that Delphi provides "good" long-term technology forecasts
Avon could have become even better at placing timely orders with certain vendors but instead they did something even better. What did they do?
With some suppliers, Avon has stopped placing orders entirely. Instead it gives them access to production information on a web-based system.
People
Workplace Community Health and Safety
An advantage of the Delphi method is that it
Works toward consensus Force the exploration of alternatives
3PL companies take over a company's
]Logistics function
Block Chain
a linked list of blocks each of which contains data and a hash pointer which points to its previous block, hence creating the chain
Load-Distance Method
a mathematical model used to evaluate locations based on proximity factors
Transportation Network
a set of connected nodes and links allowing the circulation of goods and/or individuals.
Goal of Delphi Method:
achieve a consensus of opinion
Order Penetration Point/Customer Order Decoupling point
any stage in a material flow in the supply chain the customer order accurate information about demand penetrates
Requires a decoupling point:
any stage in a material flow in the supply chain where the customer order penetrates. Often called order penetration point/customer order decoupling point
Failures
are any errors or defects, especially ones that affect the customer, and can be potential or actual.
Ikea and Cotton
as of 1 September 2015, all the cotton used in IKEA products comes from more sustainable sources This means that it's grown with less water, chemical fertilizer and pesticide, and increases profit margins for farmers.
The choice to in-source is often made when
assured supply is needed there is a quality advantage
Center of Gravity Method
attempts to find the lowest-cost location for a facility based on demand and distance
Managing Inventory
balance between inventory and service levels
Flying Warehouse
blimp sized aircraft capable of holding a set amount of high-in- demand items.
Capacity pooling:
build flexible capacity rather than specialized capacity Makes it possible to more easily match supply with uncertain demand
The question here is not only if the planned sales can also be produced in time,
but to answer all questions that arise, if you consider every interdependency of all key figures within the supply chain.
In the push/pull view of the supply chain the processes are
categorized based on whether they are performed in response to customer orders, or in anticipation of customer orders
How can you still differentiate Avon products if they all come in a standard bottle?
company now realizes that cap, color, and labeling can be sources of differentiation too.
Direct Materials
components used to make finished goods
continuous replenishment inventory level decision maker
contractually agreed to levels
Final product assembly is done based on
customer demand for specific product configurations
pull boundary
customized products
In automating common processes within the ERP system the focus is on
decision making processes value added processes
As price increases ...
demand decreases Demand reaches zero at some satiating price
What effect does pooling have
diminishing effect
Effective Consumer Response: The new reality
dramatic advances in information technology, shifts in consumer demand, increasing movements of goods across international borders
Continuous replenishment inventory ownership
either party
VMI inventory ownership
either party
Higher values of α
emphasize recent demand levels
The goal of the procurement process is
enabling orders to be placed and delivered on schedule at the lowest overall cost
Total Costs
fixed costs + variable costs
Rapid response new skills employed by vendors
forecasting skills
push boundary
generic products
Indirect Materials
goods used to support the operations of a firm
4PL companies
help with the entire supply chain
Critical items
high criticality, low value/cost
Rough-cut capacity
high level production capacity requirements
Intermodal Video:
how goods are moved around the world efficiently, affordably and in an environmentally responsible way Involves at least two different modes of transportation Can reduce costs and optimize shipments Working together to deliver goods on time with improved efficiency
Cross Functional Drivers
information, sourcing, pricing
Pipeline Inventory
inventory that is created when an order for an item is issued but not yet received
Coefficient of Variation
is a measure of relative variability.
Correlation coefficient (ρ)
is always a pure value and not measured in any units.
A pull production system
is one that explicitly limits the amount of work in process that can be in the system.
Postponement can lead to ..
larger batches when process times are long Higher product variety Shorter lead times
If number is less than reorder point
make an order
The 1-5 scale rating scale
makes it easier for the teams to decide on scores
Functions of a supply chain
market mediation and physical function
The 1-10 rating scale
may allow for better precision in estimates and a wide variation in scores
Experience & Judgment Cons
may be heavily swayed by personal bias and preference
Failure Modes
means the ways, or modes, in which something might fail.
Correlation
measures the strength of the relationship between variance
Covariance
measures the total variation of two random variables from their expected values (the mean). It is expressed in the units of whatever is being measured
Pooling is beneficial when demands are
negatively correlated
Supply Chain
network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product (or service),
Relationship is nonlinear
nonlinear when the service level is close to 1 need disproportionately high safety stock to achieve very high service level 1
The S&OP process deals with
not just whether planned sales can be produced in time, but also answers the questions that arise when you consider the interdependencies that exist between the key
Hash function
one-way. This means that from the output, it is virtually impossible, or mathematically and computationally improbable, to determine what the input is In blockchains, hashes are used as identifiers for blocks, transactions, and addresses
Cycle view
processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
Push/pull view
processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
Third Party Logistics (3PL)
providers take over a company's logistics functions ❖Strategic partnership ❖Long term commitment ❖Multi-function arrangement ❖Process integration
Enterprise Resource Planning System:
provides an enterprise database where all business transactions are entered, processed, monitored, and reported
Block
record of new transactions Once each block is completed it's added to the chain, creating a chain
Fixed costs
remain roughly the same regardless of volume levels.
Effective postponement:
requires matching decoupling points with product design and the marketing strategy
VMI new skills employed by retailers
retail management
Failures are prioritized according to how
serious their consequences are how frequently they occur and how easily they can be detected.
Sensitivity analysis
should also be considered when doing a weighted score method
Companies that receive a significant portion of their income from foreign sources employ corporate inversion because...
since that income is taxed both abroad and in the country of incorporation.
Variance
standard deviation squared
Effects analysis
studying the consequences of those failures
What determines push-pull boundary
supply chain timeline
Avon had a fundamental mismatch between what two things?
the company's selling cycle and its supply chain.
The longer the cycle time,
the greater is cycle inventory
The higher the coefficient of variation of demand,
the greater the benefit from pooling
Postponement:
the process of delaying customization to the very end of the supply chain closest to the customer Delay the point of differentiation of inventory to the last moment, after the order is received
An important characteristic of a class of rates for truck, rail, UPS and other trucking companies
the rates are quite linear with the distance but not with volume
Time Series:
the repeated observations of demand for a service or product in their order of occurrence
Sourcing
the set of business processes required to purchase goods and services
Confirmation bias:
the tendency to interpret new evidence as confirmation of one's existing beliefs or theories.
The longer the lead time between steps
the worse the bullwhip effect
When perfectly positively correlated
there is no benefit from pooling
Price optimization
to determine how customers will respond to different prices for its products and services through different channels.
Evaluation is based on
total cost of using a supplier
Smaller Values of α
treat past demand more uniformly
Judgement Methods:
use contextual knowledge gained through experience
VMI inventory decision maker
vendor
Fixed cost aren't linear;
warehouse costs aren't linear over the entire range
Shortage gaming:
when demand exceeds supply rationing occurs. Customers exaggerate orders to counteract rationing
Sourcing Definition
where are you going to obtain something from
Purchasing Definition
where you buy something from is much more strategic. More transactional
S&OP Benefits
• Aligns entire organization around a common plan • Links business plan to departmental operations • Identifies discrepancies between planning numbers • More predictable revenue management • Improves sales forecasts and inventory management
Purpose of S&OP
• Consensus operating plan that allocates materials, people, time, money to meet marketplace demand in the most profitable manner • Focus is to maximize revenue and profitability 12 to 24 month horizon
Linear Regression
A dependent variable is related to one or more independent variables by a linear equation
Hashing
A hash function, takes any input, and produces an output of a specific size. The process of applying a hash function to some data,
Tracking Signals:
A measure that indicates whether a method of forecasting is accurately predicting actual changes in demand.
Additive seasonal method:
A method in which seasonal forecasts are generated by adding a constant to the estimate of average demand per season
Multiplicative seasonal method:
A method whereby seasonal factors are multiplied by an estimate of average demand to arrive at a seasonal forecast.
What kind of supply chain did Avon need and why?
A short selling cycle demands a flexible, responsive supply chain.
Risk pooling
A statistical concept that suggests that demand variability is reduced if one can aggregate demand, Combine risky or uncertain locations/products/events to reduce uncertainty and risk.
inventory
A stock of materials used to satisfy customer demand or to support the production of services or goods
Forecast accuracy Countermeasure
Access to point of sale data
Why did Avon choose to buy bottles from suppliers in Poland and Germany when they could get a lower per unit price from suppliers in Mexico?
Although the company may pay a slightly higher price on a per-unit basis, managing fewer relationships with more flexible, responsive suppliers resulted in a lower total cost.
Under the system each dubbawalla is _________________
An entrepreneur
How do you manage the complexity?
Demand Materials from different suppliers Manufacturing capabilities Inventory management Distribution Logistics Invoicing and receivables
Forecast error is defined as
Demand - Forecast
Selecting a supply chain design depends on
Demand Uncertainty and Economies of Scale
In order to use EOQ which of the following must be true
Demand is constant Lead time is constant
Functional product supply chain Primary Characteristic
Demand is stable well understood
Price Response Curve:
Demonstrate some degree of smooth price response
As holding costs increase and setup costs increase the EOQ will
Depends on the relative increase in holding costs and ordering costs
Market Responsiveness MFG
Deploy excess buffer capacity
Air freight has...
High fixed costs and Low variable costs
Problems with existing system
High forecast errors Changeover costs are high
Negative impacts of current system
High levels of inventory Poor Service
Physically Efficient Inventory
High turns minimize inventory
Strategic Items
High value/cost high criticality
Hybrid Push/Pull Systems
Hybrid of "push" and "pull" strategies to overcome disadvantages of each
Forecasting Method Decisions
Judgment methods Causal methods Time-series analysis Trend projection using regression
What comparison does the CEO of Tiffany draw in the context of educating customers about the provenance of diamonds?
Just as people care about the source of their food they will care about the provenance of their diamonds
Centralized placement
Keeping all the inventory of a product at a single location
Kiva Robot
Kiva's integrated order-fulfillment solution employs hundreds of mobile robots and distributed intelligence to enable faster, more flexible ecommerce distribution centers
One of the major challenges in sustainability reporting is
Lack of common measures
Pipeline:
Large initial fixed costs Good for predictable transportation needs Priced to incentivize use with predictable flows Should use something else for fluctuations
Make to Order (MTO) Challenges
Lead time Raw material inventory availability Set up time Demand variability
What drives companies to adopt sustainable practices?
Legislation Customers
Deciding What to Forecast
Level of aggregation Units of measurement
Which of the following are quantitative methods in location decisions?
Load distance method Break-even analysis
Quantitative Methods
Load distance method Center of gravity method Break even analysis
Which of the following are examples of quantitative methods for location selection (select all that apply)
Load-distance method Center of gravity method Break-even analysis
Forward placement
Locating stock closer to customers at a warehouse or distribution center
Drivers of SC performance
Logistical Drivers & Cross Functional Drivers
❖Provides Technological Flexibility
Logistics technology advances adopted faster by 3PL providers
What is the 'solid financial argument' that IKEA was making with its investments?
Long term energy security
3PL Disadvantages
Loss of control If logistics is one of the core competencies of a firm
The cycle inventory depends on
Lot size ordered
Push-Pull Process
Low Demand Uncertainty Low economies of scale Uncertainty is low Low economies of scale Push-Pull Supply chain
Air Freight:
Low Variable Costs High Fixed Costs Able to use revenue management effectively
Water:
Low cost for heavy loads Very S-L-O-W Used for VERY heavy loads (cars, grain, apparel) Delays are a constant issue Risk: Weather, piracy
General Items
Low critcality, low value/cost
Bulk Purchase Items
Low criticality, high value/cost
Push-Push Process
Low demand uncertainty High economies of scale Standard processes are the norm Demand is stable scale economies are high
Truck:
Low fixed costs Expensive for large shipments Must minimize idle time and distance traveled while empty Load consolidation
Reasons for outsourcing often include
Lower costs Specialized knowledge
Suppliers evaluation and selection should be based on comparing
Lowest overall cost
Moving Average Attributes
MA simply averages over the last N periods MA smooths past fluctuations in a time series Choosing a larger N yields a "smoother" MA
Physically Efficient MFG
Maintain high average utilization rate
Don't use the EOQ
Make-to-order strategy Order size is constrained
If logistics is one of the core competencies of a firm
Makes no sense to outsource these activities to a supplier who may not be as capable as the firm's in-house expertise
The three elements of strategic sourcing are
Management Sourcing Selection
Integrated Business: Info and Process
Many common process transactions are automated with emphasis centered toward the decision making processes and the value added processes of the organization
What is a shipper trying to accomplish when it comes to transportation decisions?
Minimize total cost of moving the goods
An advantage of make-to-order supply chain is
Minimizing supply and demand mismatch
Value is created by the supply chain by
Minimizing supply chain costs Providing a reasonable service level Ensuring customer satisfaction
What is the value created
Minimizing supply chain costs while keeping a reasonable service level ensuring customer satisfaction
Benefits of postponement
Minimizing wrong inventory, obsolete and markdown products The use of low-cost country manufacturing components become more effective More options without increasing costs
The major processes that make up procurement are
Purchasing and Sourcing
Make to Stock (MTS)
Push Process For anticipated demand
Build to stock is an example of
Push system
Selection
Qualification criteria Evaluation RFI/RFP Supplier assessment
Location Decision Methods
Qualitative Methods Quantitative Methods
Modify the EOQ
Quantity discounts Replenishment not instantaneous
RFID and Drones
RFly is a new drone-based wireless technology that can help companies save billions of dollars in misplaced items and faulty inventory in their warehouses
Increasing the number of warehouses yields
An improvement/increase in service level due to the reduction in average travel time to the customers. An increase in inventory costs due to increased safety stocks An increase in overhead and setup costs A reduction in outbound transportation costs
Supplier selection based on
Competitive bids (RFI/RFP) Direct negotiations Auctions
Demand Management Options
Complementary Products Promotional Pricing Reservations Rationing
Government Legislation
Compliance Incentives Staying ahead of intervention
Inventory ABC Analysis
20% of stock keeping units (SKU) account for 80% of total inventory costs Manage most important (costly) inventory items most closely. First analysis to undertake when attacking inventories!
Class B Items
20-40% of items which account for approximately 20-30% of annual $ usage Tight control and moderate tracking
Characteristics of Avon sales cycle
3 week selling cycle 12 weeks for products to cycle through system Production quantities based on forecasts Inventory shipped before selling cycle began
Anticipation Stock
Accumulation in anticipation of peak demand.
Sustainability:
Activities that provide present benefit without compromising the needs to future generations Take care of yourself, take care of others, take care of the planet To enable all people to satisfy their basic needs and enjoy a better life without compromising the quality of life for future generations
Planet:
Air/Water/Land Minerals Materials Waste
Issues with MA Forecasts
All N past observations treated equally Observations older than N are not included. Requires that N past observations be retained Observations older than N are not included requires that N past observations be retained Lots of data when 1000's of items are being forecast Can't use it effectively far beyond the point where the known demand data ends
How is flexibility used
Allows production shifts to high selling products to avoid lost sales
Managing product pooling
Combining products/packaging into similar designs Forecast aggregate demand vs individual demand Pools demand variability to reduce total demand variability Postponement: differentiate products at the last minute
Functional Supply Chain Examples
Commodities Detergent Sugar Nuts and bolts
Measurement Challenges Common Metric
Companies don't yet use a common measure for their sustainability reporting
Customers
Customer behavior will drive company behavior
Reasons for large inventory
Customer service (more inventory=better service level) Ordering & setup costs (more inventory= fewer orders) Labor and equipment utilization Transportation cost (less than truckload is more expensive per lb)
Information has to flow from
Customer to supplier
Evolution of the Customer
Customers expectations continue to change Ever-higher levels of product and service performance Greater customization of products and services to their individual needs. Expect a constant stream of innovations in the goods and services Continuous reduction in cost or improvement in the benefits they receive.
Innovative product supply chains examples
Customized products High fashion Emergency Supplies Novelty Products
Types of Inventory
Cycle Stock Safety (Buffer) Stock Pipeline (WIP) Stock Anticipation Stock
In the cycle view the processes within the supply chain are broken up into a series of
Cycles
Horizontal
Data cluster about a horizontal line
Trend:
Data consistently increase or decrease
Seasonal:
Data consistently show peaks and valleys within a given year
Cyclical:
Data reveal gradual increases and decreases over extended periods
Why sustainability is IKEA's growth - Peter Agnefjäll, CEO, IKEA Group
Decided to grow within limits of the planets Creating a better everyday life for many people Positive impact on people and the planet Produce the same amount of renewable energy as the total group in consuming Investing in wind and solar Ikea is also becoming a small renewable energy company
Key Decisions on Making Forecasts
Deciding What to Forecast Choosing the Type of Forecasting Technique
what to focus on indirect materials
Decrease transaction cost for each order
Avon kept the manufacturing operation in Germany but then they centralized others into a plant in Poland? Why Poland?
Delivered major cost efficiencies, mainly because of the lower cost of labor.
What is the goal and mission of the Dubbawalla system?
Delivering food on time, every time
Why did the Dubbawallas rejected the idea of backward integration to their own kitchens?
Diverging from the mission of delivering dabbas on time.
If number is greater than reorder point
Do not make an order
Delivery Innovation
Dominos & Ford Motors has created the self driving delivery vehicle Are customers really gonna be receptive to it?
Avon's Goals In Europe:
Double sales revenue in Europe Reduce costs Increase Service Levels
With functional products the supply chain focuses on
Efficiency of the supply chain Reducing costs High turns to minimize inventory
Supply Management
Efficiency vs. Responsiveness Demand driven supply Operational excellence
Sourcing Planning and Analysis
Periodically analyze its procurement spending and supplier performance Spending should be analyzed by part and supplier to ensure appropriate economies of scale Performance analysis should be used to build a portfolio of suppliers with complementary strengths Cheaper but (potentially)lower performing suppliers should be used to supply base demand (All else being equal like quality) More expensive suppliers should be used to buffer against variation in demand/supply
Occurrence
Frequency with which a given cause occurs and creates failure modes 1 = Not Likely, 10 = Very Likely
Graphical Information Systems (GIS)
GIS analysis shows customer proximity to branches and which branch they visit, indicating a difference in perceived and actual distance.
Data Gathering
Gather all Month end data
The Procurement Process
Goal is to enable orders to be placed and delivered on schedule at the lowest possible overall cost
As the amount of inventory increases the customer service level typically
Goes Up
Pipeline (WIP) Stock
Goods in transit and in-between stages of production
What drives sustainable SCM
Government legislation Financial performance Environment Internal business process Customers
Environment
Greenhouse gas emissions Material Toxicity Raw Material Use Biodiversity Water Use and Wastewater Recycling
According to the case what is key to a mission?
Having it connected to goals that workers can be measured against on a daily basis
Why is it not necessarily a good thing when heroics are used to meet a customer need?
Heroics increases the cost and impacts manufacturing
Pull-Push Process
High Demand Uncertainty High Economies of Scale Demand is uncertain Scale economies are high
Pull-Pull Process
High Demand Uncertainty Low Economies Of Scale Customization is high Demand is Uncertain Scale economies are low
Rail:
High fixed costs High variable costs Not scheduled, built Cost effective for heavy shipments Must keep utilization high
What are backward looking metrics? What is an example of a backward looking metric at Avon.
Inventory days, for instance, are a good end-of-month measure, but they don't help in day-to-day operations.
What is not an important consideration for supply chain of a new innovative product?
Inventory holding cost
Reasons for small inventory
Inventory holding cost Cost of capital Storage and handling costs
Cycle Inventory
Inventory needed between orders or productions runs Depends on The lot size Varies directly with the cycle time (elapsed time) between orders.
Cycle Stock
Inventory resulting from batch (rather than unit) ordering or production.
From a risk perspective what is the motivation behind IKEAs investment in wind and solar power?
Isolation from power market volatility
What is Customer Service
It encompasses all points of contact between a supplier and a buyer. It is not sufficient to rely on internal customer service definitions Excellence requires a detailed understanding how customers themselves define service. Need to understand individual needs of each customer or customer group. Develop strategies to meet or exceed customer expectations.
A factor is considered important in location decisions if
It is sensitive to location It has a high impact on the company's ability to meet goals
Why do we care about forecasting?
It is the basis for strategic planning and operational planning
As the delay (Lag) time increases in the supply chain what is likely to happen to the bullwhip effect
It will get amplified
Which of the following is not inventory
Items in a customer's shopping cart
Delphi method is an example of a
Judgement method
Qualitative Methods
Judgment & experience. Weighted scoring method
Responsive supply chains are needed when
Markdowns and obsolescence are to be avoided
What are the functions of a supply chain?
Market mediation Physical function
supply chain aims to
Match Supply and Demand profitably for products and services
Raw Materials
Materials & parts waiting for processing and/or assembly
Dependent Demand
Materials, parts, and sub-assemblies used in end products Items traceable to specific end products Demand is dependent on the number of end items manufactured Dependent demand items are controlled using Materials Resource Planning (MRP) systems
Functional Product Supply chain goals
Maximize efficiency of supply chain Minimize physical costs High scale efficiencies Long range planning for supply Optimize Information flow through supply chain Source
Physically Efficient Product Design
Maximize performance and minimize cost
Innovative Supply Chain Goals
Maximize product availability Speed and flexibility is critical Where and how much inventory To position is critical Ability to react to market Availability of production capacity and ramp capabilities
What is a carrier trying to accomplish?
Maximize return on investments required to move the goods
Pull process characteristics
Maximize service level Low complexity Focus is responsiveness Short lead time Process is order fulfillment
Triple Bottom Line
Measure of sustainability that includes social, environmental, and financial performance measures Helps ensure there is a long term supply of people, natural resources, and profit People, planet, profit
High levels of inventory
Measured in days Unfulfilled demand based on wrong language on labels Often had to air ship bottles from Mexico
The standard error of the estimate
Measures how closely the data on the dependent variable cluster around the regression line
The sample coefficient of determination, r²
Measures the amount of variation in the dependent variable about its mean that is explained by the regression line
The sample correlation coefficient, r^2
Measures the direction and strength of the relationship between the independent variable and the dependent variable.
Location Pooling Idea
Merge many locations into fewer locations Consolidates dispersed demand streams into fewer demand streams Reduces the amount of inventory needed for a given service level Pools demand variability to reduce total demand variability
The optimal network design addresses all of the following areas
Minimal cost Meet desired service levels Satisfy product demand
Push process characteristics
Minimize cost High complexity Focus is resource allocation Long lead time Supply chain planning process
Make to Stock (MTS) Advantages
Minimize production and transport costs
Make to Order (MTO) advantages
Minimize supply and demand mismatch
How is Corporate Inversions Done
One way that a company can re- incorporate abroad is by having a foreign company buy its current operations.
Attributes of Exponential Smoothing
Only 2 values (Dt, Bt-1) required Compared with N values for moving average Smoothing parameter α(0 <α<1) determined empirically Rule of thumb: α < 0.5 (unless something has changed that requires you to use a higher number)
If you worked at Avon, would you include the person who loads the trucks in a product design discussion? Why?
Only the people who load the trucks everyday know these things
What are the advantages of the Dubbawalla self-managed democracy?
Operate efficiently, keep costs low,high service quality
What were the 4 pillars of the Dubbawalla system?
Organization, management, process, culture
Fundamental problem
Oscillating demand tends to get amplified as it goes further back in the supply chain
Loss of control
Outbound logistics 3PLs interact with a firm's customers.
Multi-periods & Stochastic demand
Overage is no longer a big deal Shortage is more serious
Ordering Set Up Costs
Parameter change goes down EOQ goes down Weeks of supply decreases and inventory turnover increases because the lot size decreases.
Holding Costs
Parameter change goes down EOQ goes up Larger lots are justified when holding costs decrease.
Demand in EOQ
Parameter change goes up EOQ goes up Increase in lot size is in proportion to the square root of D.
Work-in-process
Partially finished components & sub-assemblies
Carrier
Party that moves the product
Shipper
Party that requires movement
The triple bottom line refers to what three things
People Profit Planet
Management
Performance metrics Scorecards Supplier management process
What are the types of supply chains?
Physically efficient Responsive
Internal business process
Process efficiency leads to higher profits Reduction in energy use Reduction in material use Reduction in Waste Generation
Delphi method
Process of gaining consensus from a group of experts while maintaining their anonymity. Committee of expert opinion Useful when no historical data are available Can be used to develop long-range forecasts and technological forecasting
Push Process:
Procurement, Manufacturing and Replenishment cycles
For an innovative product the following is critical
Product availability Speed and flexibility
What kind of costs?
Production/ purchasing costs Inventory carrying costs, and facility costs (handling and fixed costs) Transportation costs
Shortage gaming
Proportional and Rational Scheme
Shortage gaming Countermeasure
Proportional rational scheme, based on past sales
Safety Stock Inventory
Protects against uncertainties in demand, lead time, and supply changes
Make to Order (MTO)
Pull Process Based on actual demand
Cross-Docking:
Sorting at intermediate warehouses or on outgoing shipments, based on their final destinations. The items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse or distribution center.
Elements of Strategic Sourcing
Sourcing Selection Management
Two Sides of Procurement
Sourcing Purchasing
Market Responsiveness Suppliers
Speed, flexibility and quality
Continuous/Periodic Review:
Stochastic Demand, lead time >0, Infinite horizon, shortages allowed services.
News Vendor
Stochastic demand, Single period Horizon, Shortages allowed services
Inventory management
Storage space limitations Usage rate variations Lead time considerations Variety of products Expiration dates
What characteristic does the Dubbawalla system share with companies like Toyota, Pixar, Mondragon?
Strong sense of community
A supply chain consists of
Supplier Manufacturer Transporters Warehouses Wholesaler Retailer Customer
Supplier Scoring and Assessment
Supplier performance should be compared on the basis of the supplier's impact on total cost
Material Lead Time:
Supplier to Retailer
❖Cooperative relationship between suppliers and retailers
Suppliers have better knowledge of lead times and production capacities Retailers have better knowledge of demands and channels
In a continuous replenishment strategy
Suppliers ship at agreed upon frequency
Product Proliferation
Technology/customer taste changes and globalization Increase in product variety Higher variation leading to demand uncertainty Difficulty in forecasting Complexity in manufacturing, supply chain, marketing, and distribution Lower customer service levels
Each functional area or process group has a routine sequence of tasks performed daily.
The ERP system collects information from business processes and aids decisions for all functional business areas. An ERP system connects businesses to customers and businesses to business
Factors in Location Decisions
The Factor must be sensitive to location The Factor must have a high impact on the Company's ability to meet its goals
Detection
The ability of the current control scheme to detect (then prevent) a given cause 1 = Easy to Detect, 10 = Not easy to Detect
Flexibility:
The ability to respond to change
In the 1980's, Avon Europe had branches in only 6 countries. What aspect of their setup would limit future growth in the region?
The company realized that replicating its countrybase supply chain model in every new market would be expensive and unwieldy.
Why did Avon decide to focus on its supply chain processes rather than the information systems
The company was determined that its supply chain transformation be process-driven, not systems-driven. The leadership team felt that doing both at once would be unmanageable.
Rectilinear distance
The distance between two points with a series of 90 degree turns, as along city blocks
having a foreign company buy its current operations.
The foreign company then owns the assets, the old corporation is dissolved, and the business while it remains the same in its daily operations is now effectively domiciled in a new country
In a quick response strategy
The inventory decision maker is the retailer
Periodic Review (P)
The inventory position is reviewed at fixed intervals (P) and the order is placed at the end of the review 1.The Lead Time is constant and known with certainty. 2.No constraints are placed on the size of each lot. 3.The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup.
What does Tiffany's do to ensure chain of custody
The laser mark the diamonds above a certain size
EOQ refers to which of the following
The lot size that minimizes the total annual inventory ordering and holding costs
Economic Order Quantity
The lot size, Q, that minimizes total annual inventory holding and ordering costs
In addition to training what did Tiffany's do in Cambodia that differentiated them?
They calculated a fair living wage for local realities
How does the system regulate customer behavior?
They drop customers who are repeat offenders
Each functional area or process group has a routine sequence of tasks performed repeatedly.
This sequence of tasks or activities that takes a set of inputs and converts them into desired outputs is called a business process.
Why do companies engage in a corporate inversion?
To reduce US taxes paid on overseas earnings
Physical function
Transforming raw materials into finished goods and transportation between points in the supply chain
Vendor managed inventory
❖Supplier decides on the appropriate inventory levels and the appropriate inventory policies to maintain these levels. ❖Supplier suggestions initially approved by retailer
Rapid Response
❖Suppliers receive POS data from retailers ❖Suppliers use this information to synchronize their production but ship based on purchase orders received
continuous replenishment
❖Suppliers receive point-of-sale (POS) data from retailers ❖Suppliers use these data to make shipments at previously agreed-upon intervals to maintain inventory level
Three Types of Strategic Alliances
❖Third Party Logistics (3PL) ❖Retailer-Supplier Partnerships (RSP) ❖Distributor Integration (DI)
A decoupling point is where inventory is held for final product differentiation
True
An ERP System produces and shares real-time information across the enterprise
True
The moving average allows you to see the underlying trend by smoothing out the fluctuations
True
Corporate Inversion
U.S. based companies, move overseas to reduce the tax burden on income.
Achieving service excellence requires
Understanding how the customer defines service
Bullwhip Effect Video
Unexpected distortion of the supply chain Caused by repetitive variation in demand Negative affect on business performance: Inventory disruptions, quality control problems, diminished customer service.
Innovative product supply chains Primary Characteristic
Unpredictable or highly Variable Demand Lost sales are expensive
Anticipation Inventory
Used to absorb uneven rates of demand or supply when demand far exceeds the ability to produce at that time Predictable, seasonal demand patterns lend themselves well to the use of anticipation inventory
Private Ledgers
Users are NOT anonymous Permission is required to have a copy of the ledger and participation in verifying transactions
Public Ledgers
Users are anonymous Each has a copy of the ledger and participates by verifying transactions
Demand Management
Value creation via products, services Pricing and Promotion Strategies Minimizing bullwhip
Issues
Value of α(0 <α<1) determined empirically via trial and error Can't use it effectively far beyond the point where the known demand data ends
There are two basic types of costs a company incurs
Variable Costs & Fixed Costs
Risks of Third Party Sourcing
❖Underestimation of coordination costs ❖Loss of internal capability ❖Growth in vendor power ❖Loss of sensitive data & information ❖Supply disruptions
When to Conduct an FMEA
❖When new systems, products, and processes are being designed or redesigned ❖When carry-over designs are used in new applications ❖When improvement goals are planned for an existing process, product or service. ❖When analyzing failures of an existing process, product or service.
Sales and Operations Planning Process
❖ A integrated business process that drives collaboration, focus and alignment across multiple divisions and departments in a company
SC Challenges
❖ Order Changes and Cancellations ❖ Workers Unavailable ❖ Production Facility Failure ❖ Late Delivery of Materials ❖ Suppliers' Conflicting Obligations ❖ Adversarial Relationships: Win/Lose relationships ❖ Transactional Relationships: No value added ❖ Limited Communications
How is Sales and Operations Planning Process done
❖ Single environment for optimally synchronizing, demand, inventory, and supply plans .......While considering costs, revenue and profit objectives of organization
There are three primary ways to obtain bitcoins:
❖ buying on an exchange, ❖ accepting them for goods and services, and ❖ mining new ones.
Why Have Strategic Alliances?
❖Add value to products ❖Improve market access ❖Strengthen operations ❖Add technological strength
Focus on Core Strengths
❖Allows a company to focus on its core competencies ❖Logistics expertise left to 3PL logistics experts
FMEA Benefits
❖Allows us to identify areas of our process that most impact our customers ❖Helps us identify how our process is most likely to fail ❖Points to process failures that are most difficult to detect ❖Prioritizes what needs to be worked on and why ❖Can be used for products, processes and services
Push Strategies
❖Classical manufacturing supply chain strategy ❖Manufacturing forecasts are long-range ❖Longer response time to react to marketplace changes ❖Inventory obsolescence as demand for certain products disappears ❖Increased variability ❖Inefficient use of production facilities (factories)
Possible Scenarios
❖Constant Demand and Constant Lead Time ❖Variable Demand and Constant Lead Time ❖Variable Demand and Variable Lead time
Distributor Integration (DI)
❖Distributors and retailers formally share information ❖Distributors have wealth of information about customer needs and wants ❖Successful manufacturers use this information when developing new products and product lines. ❖Distributors typically rely on manufacturers to supply the necessary parts and expertise
Supply Chain Decisions
❖Facilities location ❖Transportation ❖Demand forecasting ❖Inventory management ❖Aggregate planning/Risk pooling ❖Sourcing
Acquisitions
❖Gives the acquiring firm full control over the way the particular business function is performed ❖Can be difficult and expensive. (Culture/Competitors)
Artificial Intelligence in SCM
❖Hard to plan for demand ❖Excessive safety stocks and bullwhip effect ❖Supplier unreliability ❖Transport network unpredictability ❖Demand by customers and partners for access to a "real person" (or a very good imitation) ❖Seeing the real bottom line impact of supply chain decisions
Increased variability (Bullwhip effect) leading to:
❖Large inventory safety stocks ❖Larger and more variably sized production batches ❖Unacceptable service levels
Overage is no longer a big deal
❖Leftover inventory can be used in the following periods (unlike that in the single-period case) ❖Cost of overage is holding cost ❖Possible economies of scale for fixed ordering cost
Use the EOQ
❖Make-to-stock strategy with relatively stable demand. ❖Carrying and setup costs are known and relatively stable
Strategic Alliances Characteristics
❖Multifaceted, goal-oriented, long-term partnerships ❖Agree to work in cooperation, not competition ❖Risks and rewards are shared by partners ❖Ideally provide long-term strategic benefits for both partners
When to Insource?
❖Organization has specialized capabilities ❖Has a cost and/or quality advantage ❖Protect proprietary knowledge ❖Assure sources of supply
Early stages of product assembly are done in a "push" manner
❖Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) ❖Uncertainty is reduced so safety stock inventory is lower
Pull Strategies
❖Production and distribution are demand-driven ❖Coordinated with true customer demand ❖None or little inventory held ❖Only in response to specific orders ❖Fast information flow mechanisms ❖POS data ❖Shorter lead times ❖Decreased variability in the supply chain and especially at manufacturers
Why do Companies Outsource?
❖Reduce costs ❖Proximity to users and markets ❖Focus on core value-add activities ❖Take advantage of specialized knowledge
Exponential Smoothing:
❖Stationary time series ❖Include all past observations ❖Weight recent observations much more heavily than very old observations