SCM Exam 2 Notes

Business Process Challenges and the SCOR Model

-Some processes are artistic in nature. That is, they require flexibility in carrying out the various steps. Furthermore, customers actually value variability in the outcomes. -Some processes may be so broken or so mismatched to the organization's strategy that only a total redesign of the process will do. -Some processes cross organizational boundaries, which introduces additional challenges.

Price Forecasts

-When commodity prices are expected to increase, a good strategy is forward buying, in which companies buy larger quantities than usual, store them in inventory for future use, and save on the price they pay. -A futures contract is a legal agreement to buy or sell a commodity at a future date at a price that is fixed at the time of the agreement. -If prices are falling, a better strategy is to buy more frequently in smaller quantities than usual, with the expectation that prices will go down over time. -In order to decide on a purchasing strategy, firms must first have the price forecasts.

In a swim process​ map, a change of lanes indicates

A change in the party responsible for processing.

Causal Forecasting Model

A class of quantitative forecasting models in which the forecast is modeled as a function of something other than time. EX: Dollars spent, amount of food eaten, mortgage application due to interest rates

Process Map

A detailed map that identifies the specific activities that make up the informational, physical, and/or monetary flow of a process (Give managers their first complete picture of how a process works) *Measures of process performance are time, quality, cost, and flexibility Ex: Baking cookies, redesigning a warehouse Symbols: Curved edge rectangle=Start if finish point, Rectangle=Step/activity in process, Diamond=Decision point (yes or no), arrow=Movement to new activity

Adjusted Exponential Smoothing Model

An expanded version of the exponential smoothing model that includes a trend adjustment factor. Formula: Adjusted forecast for next period = Unadjusted for next period + Trend factor for next period

Linking Manufacturing Process Across the Supply Chain

EX: Producing a sweater. Yarn uses a continuous flow process, fabric weaving is continuous flow, and cutting and sewing is a batch process

Flexible Manufacturing System (FMS)

Highly automated batch processes that can reduce the cost of making groups of similar products (efficient) -Production line dedicated to small sets of standard products are cheaper and more flexible

Detailed Planning and Control

Planning that covers time periods ranging from weeks down to just a few hours out. -Have few options/limited ability for adjusting capacity levels (make use of available capacity) -Detailed planning (day to day, hour to hour) -Lowest risk -Short time horizon

Strategic Planning

Planning that takes place at the highest levels of the firm, addressing needs that might not arise for years into the future -High risk, "Bricks and mortar" and major process choice decisions, planning done at very high level (quarterly or yearly) -Longest time horizon -Least amount of specific information -Greatest flexibility

Supply Forecasts

Provide information on the number of current producers and suppliers, projected aggregate supply levels, and technological and political trends that might affect supply

Service Customization

*As the degree of customization decreases, the service package becomes more standardized. -Can hire workers with more narrow skills and employ special purpose technology -Controlling the degree of customization also allows better measurement and closer control over the service process (fast-food restaurant) -Can focus more on cost and productivity with less customization *As the degree of customization increases, the service package becomes less predictable and more variable. -Efficiency and productivity become more difficult to measure/control -Organizations that offer customized services compete less on cost and more on ability to provide customers with exactly what they need.

Layout Decision Models

-A product-based layout arranges resources sequentially, according to the steps required to make a product or provide a service. Makes sense when the sequence of activities does not change from one period to the next Ex: Security check-in at an airport (the product is the passenger). -A functional layout physically groups resources by function. Is better suited to environments where the process steps can change dramatically from one job or customer to the next. Ex: A full-service auto repair facility (inspections done in one area, alignments in another, and major repairs in a third area) -A cellular layout is similar to a product-based layout. The difference is that the cellular layout is used in a group technology cell, where the production resources have been dedicated to a subset of products with similar requirements, known as a product family.

Measures of Capacity

-Companies measure capacity in terms of inputs, outputs, or some combination of the two (standard products are in terms of outputs while customized ones are in terms of inputs) EX: Car wash measure in terms of # of cars washed per hour, Airline measures seats time miles flown Theoretical Capacity: The maximum output capability, allowing no adjustments for preventive maintenance, unplanned downtime, or the like (running at or near the theoretical capacity for a short time is a better option than increasing resource levels permanently) -Planning on everything happening perfectly Rated Capacity: The long-term, expected output capability of a resource or system -Plan on disruptions/break-downs

Computer-based Forecasting Packages

-Companies use computer-based forecasting packages to develop, evaluate, and change forecasting models as needed. -With enough demand history (i.e., time series data), a computer-based forecasting package quickly evaluates alternative forecasting methods for each item and selects the model that best fits the past data. -Packages can use MFE, MAD, MAPE, or tracking signal criteria to flag a poor forecasting model and automatically search for a better one. -Develop multiple forecasts for a single item. Can be compared to one another or even combined to come up with a single forecast.

Factors that affect Capacity

-Controllable factors (adjust capacity according to market demand) -Product variations (average rated capacity creates a range) -Conformance quality (if poor, it reduces capacity) -A firm must also consider the capacities of key suppliers and distributors (dependent upon capacity up and down the supply chain)

Linking S&OP Throughout the Supply Chain

-Coordinating plans across the supply chain can help firms do a better job of improving overall supply chain performance, particularly in the area of cost -Linking plans can help eliminate uncertainty, thereby improving synchronization between supply chain partners -Info can flow up and down stream

Selecting a Forecasting Method

-For little to no quantitative data or relationship between past and future event is impossible to model quantitatively, use QUALITATIVE techniques (based on intuition or informed opinion and used when data is scarce, not available, or irrelevant) -For measurable quantitative/historical data available and evidence of a relationship between the variable of interest and some other variable, use QUANTITATIVE techniques (time series or causal models)

Seasonal Adjustments

-Many products have seasonal demand patterns EX: Gas, cruises/vacation, sports, turkey in November 4 Steps: 1.) For each of the demand values in the time series, calculate the corresponding forecast, using the unadjusted forecast model. 2.) For each demand value, calculate Demand/Forecast. If the ratio is less than 1, then the forecast model overforecasted; if it is greater than 1, then the model underforecasted. 3.) If the time series covers multiple years, take the average Demand/Forecast for corresponding months or quarters to derive the seasonal index. Otherwise, use Demand/Forecast calculated in step 2 as the seasonal index. 4.) Multiply the unadjusted forecast by the seasonal index to get the seasonally adjusted forecast value.

How standardized Processes should be?

-Mass processes are perhaps the easiest to understand. Here, the goal of the process is to provide exactly the same output each time. The key to mass customization is controlled variation (customer can chose from a predetermined set of options) -Artistic processes where both variability in the process and outputs are valued (R&D labs require employees to be creative and create new products) -Nascent/Broken processes have a fundamental mismatch between what the customer wants (standardized output) and what the process is currently capable of providing (can reduce variability or switch to markets that value output variability)

Demand Forecasts

-Need to distinguish between overall market demand and firm-level demand since they have different meanings for businesses

Time Series Forecasting Models

-Quantitative (statistical and historical data, objective, follow certain rules) Time Series: Observations arranged in chronological order. Can show Trends (Long-term movement up or down) and Seasonality (A repeated pattern of spikes or drops associated with certain times of the year) Time Series Forecasting Model: Quantitative forecasting models that use time series to develop forecasts. With a time series model, the chronology of the observations, as well as their values, is important in developing forecasts. Last Period Model: Uses demand for the current period as a forecast for the next period (Forecast for the next period = Demand for current period)

Services Considerations

-Service outputs cannot be built ahead of time and stored in inventory. Service capacity must be closely matched to demand in every period. The effect is to limit most services to following some form of a chase production plan. Making Sales Match Capacity: -Yield Management: An approach that services commonly use with highly perishable "products" in which prices are regularly adjusted to maximize total profit (ex: Airline/concert tickets are different prices for the same seat depending on when you buy them). When demand levels are lower than expected, yield management systems boost demand by lowering the price, but only if the expected result is an increase in total profit. If demand is higher than expected, prices are raised, but only if the expected result is higher total profit Formula: Total Profit = Avg. profit per service unit sold x Number of service units sold Making Capacity Match Sales: -Tiered Workforce: A strategy used to vary workforce levels, in which additional full-time or part-time employees are hired during peak demand periods, while a smaller permanent staff is maintained year-round (ex: Hiring seasonal workers during busy demand period and maintain small amounts of permanent staff year round) -Offloading: A strategy for reducing and smoothing out workforce requirements that involves having customers perform part of the work themselves (Ex: IKEA making customers deliver and assemble their own furniture to reduce work/labor from the service and smooth out workforce requirements)

Five types of Manufacturing Processes

1.) Continuous Flow 2.) Production Line/Assembly Line 3.) Batch Manufacturing 4.) Job Shop 5.) Fixed Position Layout

Implementing S&OP in an Organization

1.) Develop Foundation: Build the managerial support and infrastructure needed to make S&OP a success (Educating all participants about the benefits of S&OP, identifying the appropriate product or service families to plan around, and establishing the information systems needed to provide accurate planning values) 2.) Integrating and Streamlining the Process: Managers become accustomed to updating the plan on a regular basis, and they use the planning results to guide key demand and resource decisions. The sales and operations plan becomes a focal point for cross-functional coordination. Look for ways to improve the S&OP process further 3.) Gain a Competitive Advantage: Has well-integrated demand planning process (use of forecasting models), continuous improvement is planned and monitored as an integral part of the S&OP process, capital equipment planning can be triggered at any time (strategic planning), what-if analyses are a way of life, and the S&OP database is networked to provide ready access to S&OP data.

Rules to keep a process flow chart focused

1.) Identify the entity that will serve as the focal point (may be a customer, order, raw material, or the like) -Should focus on the activities and flows associated with the movement of that entity through the process. 2.) Identify clear boundaries and starting and ending points (manufacturer must decide on the starting and ending points. Will the starting point be when the customer places the order or when the manufacturer receives it? Will the flowchart end when the order is shipped out of the plant or when the order is actually delivered to the customer? Manufacturer might decide to focus only on the physical and information flows, and not the monetary flows) 3.) Keep it simple (most people developing process maps for the first time develop overly complex maps, subdividing major activities into several smaller ones that don't provide any additional insight or logical branches to deal with every conceivable occurrence, even ones that very rarely occur. Ask whether the additional detail is important to understanding the process) EX: Customer visiting a restaurant->Customer is greeted by a host, who then seats the customer. A server takes the customer's order, delivers the drinks/food, and delivers the check. Finally, a cashier takes the customer's money.

Six Sigma Methodology

A business improvement methodology that focuses an organization on understanding and managing customer requirements, aligning key business processes to achieve those requirements, utilizing rigorous data analysis to understand and ultimately minimize variation in those processes, and driving rapid and sustainable improvement to business processes -Statistically, generates 3.4 defects per 1 million opportunities (DPMO) -Must be driven by needs of customer, base on facts instead of opinions, and have an organizational mechanism carrying out efforts quickly

Expected Value

A calculation that summarizes the expected costs, revenues, or profits of a capacity alternative, based on several different demand levels, each of which has a different probability. Steps: 1.) Identify several different demand-level scenarios. These scenarios are not meant to identify all possible outcomes. Rather, the intent is to approximate the range of possible outcomes. 2.) Assign a probability to each demand-level scenario. 3.) Calculate the expected value of each alternative. This is done by multiplying the expected financial result (cost, revenue, or profit) at each demand level by the probability of each demand level and then summing across all levels. The equation is: EVj = ∑PiCi

Weighted Moving Average Model

A form of the moving average model that allows the actual weights applied to past observations to differ. -Can be two period, three period, etc. -Demands must sum up to 1 -Highest weight goes to most recent period *Take demand for stated number and divide by how many demands you add (average)

Hybrid Manufacturing Process

A general term referring to a manufacturing process that seeks to combine the characteristics, and hence advantages, of more than one of the classic processes. Ex: Flexible manufacturing systems, machining centers, and group technology. Machining Center: A type of manufacturing process that completes several manufacturing steps without removing an item from the process (found in batch processes but complete several steps without removing an item from the process) Group Technology: A type of manufacturing process that seeks to achieve the efficiencies of a line process in a batch environment by dedicating equipment and personnel to the manufacture of products with similar manufacturing characteristics -Follow a Cellular Layout=Resources are physically arranged according to the dominant flow of activities for the product family -If they find similar requirements, they are grouped into a Product Family=Set of products with very similar manufacturing requirements

Multiple Regression

A generalized form of linear regression that allows for more than one independent variable -More easily calculated in Excel

Efficiency

A measure of process performance; the ratio of actual outputs to standard outputs (usually a percentage) Formula: Efficiency= 100% x (actual outputs/standard outputs) Standard Output: An estimate of what should be produced, given a certain level of resources (efficiency score less than 100% means process is not producing up to its potential)

Productivity

A measure of process performance; the ratio of outputs to inputs (can be based on single or multiple factors) -Need something to compare it against Formula: Productivity = Outputs / Inputs Ex: (Number of customer calls handled/Support staff hours), (Number of items produced/machine hours), (Sales dollars generated/labor, material, machine costs)

Service Package

A package that includes all the value-added physical and intangible activities that a service organization provides to the customer. -Primary sources of value are physical activities (storage, display, or transportation of goods/people) -Consist of intangible activities for other services. Most include a mix of physical and intangible -The greater the emphasis on physical activities, the more management's attention will be directed to capital expenditures (buildings, planes, and trucks), material costs, and other tangible assets. -The greater the emphasis on intangible activities, the more critical are the training and retention of skilled employees and the development and maintenance of the firm's knowledge assets. *Knowledge Assets=The intellectual capital of the firm (IT, people, copyrights/patents)

Rolling Plan Horizon

A planning approach in which an organization updates its sales and operations plan regularly, such as on a monthly or quarterly basis. -Allows firms to fine-tune sales and operations plans as new info becomes available

Business Process Reengineering (BPR)

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 (businesses start with a "blank sheet" instead of trying to understand outdated/dysfunctional processes)

Root Cause Analysis

A process by which organizations brainstorm about possible causes of problems and narrows the list to focus on the most common causes -Fills the gap between the realization that a problem exists and the proposal and implementation of solutions to the problem. Separated into 3 Phases: Open-Brainstorming (Use a cause-and-effect/fishbone diagram to categorize possible causes for a certain result) Use 5 M's: Manpower, Methods, Materials, Machines, Measurement Narrow-Pare down the list of possible causes to a shorter list (Use 5 Why's: "Why is this a cause of the original problem?" Repeat the questions until there are no new answers. Last answer is root of the problem) Closed-The team validates the suspected root cause(s) through the analysis of available data (Use scatter plot: graphic representation of the relationship between two variables, typically the potential root cause and the effect of interest)

Swim Lane Process Maps

A process map that graphically arranges the process steps so that the user can see who is responsible for each step. Benefits: -Allow the user to see where the process is handed off from one party to another, or where multiple parties are involved in carrying out a process step. -Forces organizations to address the question, "Who is ultimately responsible for the success of the process?" -Can see which employee was responsible when task was handed off to them

Support Processes

A process that performs necessary, albeit not value-added activities. EX: Tuition billing (No student wants to pay it and universities do not want to spend overhead to collect it, but they also can't run without collecting money)

Development Processes

A process that seeks to improve the performance of primary and support processes. EX: Developing new products, perform research, training new workers

Sales and Operations Planning (S&OP)/Aggregate Planning

A process to develop tactical plans by integrating customer-focused marketing plans for new and existing products with the operational management of the supply chain. Brings together all plans for the business into one integrated plan -Performed at least once per month and reviewed by management at and aggregate level -S&OP indicates how the organization will use its tactical capacity resources to meet expected customer demand (Ex: Size of workforce, inventory, number of shifts, and availability of subcontractors) -S&OP strikes a balance between various needs and constraints of the supply chain partners (Ex: Must consider customer demand and capabilities of all suppliers, production facilities, and logistics service providers that work together to provide the product or service. The result is a plan that is not only feasible but also balances costs, delivery, quality, and flexibility) -S&OP serves as a coordinating mechanism for the various supply chain partners. At end of the process, there should be shared agreement about what each affected partner (marketing operations, finance, key suppliers, and logistics providers) needs to do to make the plan reality. Good S&OP makes it very clear what everyone should/should not do. Shared agreement allows different parties to make more detailed decisions with the confidence that their efforts will be consistent with those of other partners. -S&OP expresses the business's plans in terms that everyone can understand. S&OP makes a deliberate effort to express the resulting plans in a format that is easy for all partners to understand and incorporate into their detailed planning efforts.

Single-factor Productivity

A productivity score that measures output levels relative to a single input (one-to-one relationship). -Has only one input!

Multifactor Productivity

A productivity score that measures output levels relative to more than one input (outputs depend on multiple factors). More than one input! Equation? output/labor+material+energy+capital+miscellaneous

Chase Production Plan

A sales and operations plan in which production is changed in each time period to match the sales forecast. -Production "chases" demand -Best when holding inventory is expensive/impossible or cost of changing production levels is low -Inventory never builds up (keeps levels low), but more hiring/layoffs occur Advantages: -Stable inventory -Varied production to meet sales requirements Disadvantages: -Cost of hiring, training, overtime, extra shifts -Costs of layoffs and impact on employee morale -Possible unavailability of needed work skills -Maximum capacity needed

Level Production Plan

A sales and operations plan in which production is held constant and inventory is used to absorb differences between production and the sales forecast -Best when changing production level is difficult or costly and cost of holding inventory is low -Inventory builds up *Actual workers and regular production is constant Advantages: -Smooth, level production avoids labor cost of demand matching Disadvantages: -Buildup of inventory -Requires accurate forecast Ending Inventory = Ending inventory for previous period + Regular production + Overtime - Sales in time period (forecasted sales)

Mixed Production Plan

A sales and operations plan that varies both production and inventory levels in an effort to develop the most effective plan (level and chase)

Collaborative Planning, Forecasting, and Replenishment (CPFR)

A set of business processes, backed up by information technology, in which supply chain partners agree to mutual business objectives and measures, develop joint sales and operational plans, and collaborate to generate and update sales forecasts and replenishment plans -Emphasizes collaboration/communication

Process

A set of logically related tasks performed to achieve a defined business outcome (outcomes can be physical, informational, or monetary) -Physical: Manufacture and delivery of goods to customer -Informational: Registering for college courses -Monetary: Payment to a supply chain partner for services rendered *Managing functions is not the same as managing what a business does!

Check Sheet

A sheet used to record how frequently a certain event occurs (a list of possible causes)

Pareto Chart

A special form of bar chart that shows frequency counts from highest to lowest (bar chart ranking causes from least to most frequent)

Exponential Smoothing Model

A special form of the moving average model in which the forecast for the next period is calculated as the weighted average of the current period's actual value and forecast. -Works by "rolling up" the current period's actual and forecasted values into the next period's forecast. Because all forecasts are based on past actual values, all actual values back to the first period ultimately end up in the most recent forecast. *Need an alpha value -The greater the randomness in the time series data is, the lower the α value should be. The less randomness in time series data, the higher the α value should be.

Linear Regression

A statistical technique that expresses a forecast variable as a linear function of some independent variable. Can develop time series (independent variable is time) and causal forecasting methods. -Works by using past data to estimate the intercept and slope of y=mx+b (y=forecast for dependent variable y, x=independent variable x, used to forecast y, a=estimated intercept term for the line, b=estimated slope coefficient for the line)

Line Balancing

A technique used in developing product-based layouts that works by assigning tasks to a series of linked workstations in a manner that minimizes the number of workstations and minimizes the total amount of idle time at all stations for a given output level. -When amount of work in each workstation is identical, it is perfectly balanced 6 Steps: 1.) Identify all the process steps required, including the time for each task, the immediate predecessor for each task, and the total time for all tasks. 2.) Draw a precedence diagram based on the information gathered in step 1. This diagram is used when assigning individual tasks to workstations. 3.) Determine the takt time for the line. Takt time is computed as the available production time divided by the required output rate 4.) Compute the theoretical minimum number of workstations needed (time required for x task/total time for all I tasks) 5.) Working on one workstation at a time, use a decision rule to assign tasks to the workstation. Start with the first workstation and add tasks until you reach the point at which no more tasks can be assigned without exceeding the takt time. If you reach this point and all the tasks have not been assigned yet, close the workstation to any more tasks and open up a new workstation. Repeat the process until all tasks have been assigned. *Be sure not to assign a task to a workstation unless all direct predecessors (if any) have been assigned. Common decision rules for determining which task to assign next are to (1) assign the largest eligible task that will still fit within the workstation without exceeding the takt time, (2) assign the eligible task with the most tasks directly dependent on it, or (3) assign based on some combination of the two. 6.) Evaluate the performance of the proposed line by calculating some basic performance measures (Cycle time = max amount of time spent in any workstation)

Waiting Line Theory

A theory that helps managers evaluate the relationship between capacity decisions and important performance issues such as waiting times and line lengths. EX: Drive thru- Window is a single channel/single phase system where the worker takes the money and gives food Arrivals: Customers arrive at random intervals Service Times: Waiting line models assume that service times will either be constant (a rare occurrence) or vary Other Assumptions: The order in which customers are served, the size of the customer population, and whether customers can balk or renege. -Priority Rules=Rules that determine which customer, job, or product is processed next in a waiting line (consider urgency Formula: Avg. utilization of system = arrival rate/service rate

Moving Average Model

A time series forecasting model that derives a forecast by taking an average of recent demand values (less susceptible to random swings in demand) -Generates "smoothed" forecasts (smoothing model) Formula: Forecast for time period = Actual demand for period/Number of most recent demand observations

Fixed Position Layout

A type of manufacturing process in which the position of the product is fixed. Materials, equipment, and workers are transported to and from the product. -Position of the product is fixed -Used in industries where products are bulky, heavy, and moving it is problematic -Bring everything needed for project to one place EX: Ship building, home building, construction

Continuous Flow Process

A type of manufacturing process that closely resembles a production line process. The main difference is the form of the product, which usually cannot be broken into discrete units. -Cannot differentiate products -Product-based layout (arranged sequentially and uses standardized projects) EX: Yarn/fabric, food products, oil/gas, paper -Less flexible than a product line -Encourages standardization -Highly capital intensive

Job Shop

A type of manufacturing process used to make a wide variety of highly customized products in quantities as small as one. Characterized by general-purpose equipment and workers with broad skills -Meet customers unique requirements -Use customization and need flexible planning, equipment, and workers -Better for low volume and are not efficient -Follow a Functional Layout=Resources are physically grouped by function (welding, painting, sculpting) Ex: Machine shop, Hospital (specialized areas based on injury), Bank (tellers, mortgage, personal finance)

Production Line

A type of manufacturing process used to produce a narrow range of standard items with identical or highly similar designs. (Can differentiate each individual product) -Follow Product-based Layouts=Resources are arranged sequentially according to the steps required to make a product. -Steps are done continuously (conveyor belt) *I Love Lucy video* Cycle Time: a) The total elapsed time needed to complete a business process (throughput time). b) For a line process, the actual time between completions of successive units on a production line. -Have set amount of time to finish each task making it efficient and consistent -Production lines are suited for high volumes of a single or standardized product Advantages: -Low variable cost per unit -Lower, but more specialized labor skills -Easier production planning and control -High equipment utilization (70-90%) Disadvantages: -Lower flexibility -More specialized equipment -Higher capital investment Ex: Bottling soda, light bulb, chocolate

Batch Manufacturing

A type of manufacturing process where items are moved through the different manufacturing steps in groups or batches -Covers wide range of environments and is most common type of manufacturing process -Has balance between flexibility and efficiency EX: Making 50 lawnmowers but waiting until all 50 are done before moving the whole batch to the next step, making batch of cookies (can only fit certain amount in oven at once)

Decision Tree

A visual tool that decision makers use to evaluate capacity decisions. The main advantage of a decision tree is that it enables users to see the interrelationships between decisions and possible outcomes. (Help visualize complex series) Rules: 1.) Draw a tree from left to right, starting with a decision point or an outcome point, and develop branches from there. 2.) Represent each decision point with a square, with the different branches coming out of the square representing alternative choices. 3.) Represent outcome points (which are beyond the control of the decision maker) with circles. Each possible outcome is represented by a branch off the circle. Assign each branch a probability, indicating the possibility of that outcome, and ensure that the total probability for all branches coming out of an outcome equals 100%. 4.) For expected value problems, calculate the financial result for each of the smaller branches and move backward by calculating weighted averages for the branches, based on their probabilities.

Upstream

Activities or firms positioned earlier in the supply chain (Supplier to manufacturer) -Can be completed offline -Law of Variability: The greater the random variability either demanded of the process or inherent in the process itself or in the items processed, the less productive the process is. *When customization occurs earlier, there is more flexibility, longer lead times, and products are costly (ETO and MTO)

Downstream

Activities or firms positioned later in the supply chain (Manufacturer to customer) *When customization occurs later, flexibility is limited, lead times are shorter, and products are less costly (MTS and ATO)

Primary Processes

Addresses the main value-added activities of an organization (delivering a service and manufacturing a product) *These processes are considered "value-added" because some customers are willing to pay for the resulting outputs.

3D Printing

An additive manufacturing process that creates a physical object from digital design -Limited, but allows manufacturing to occur when and where the item is needed. Can be an advantage when time is crucial or when shipping an item from a plant to its final destination is difficult

Top-Down Planning

An approach to S&OP in which a single, aggregated sales forecast drives the planning process. The mix of products/services must be the same from one time period to the next or they must have very similar resource requirements -Managers can make accurate tactical plans based on the overall forecast and divide the resources across individual products/services later on (detailed planning and control stage) 3 Steps: 1.) Develop the aggregate sales forecast and planning values. Top-down planning starts with the aggregate sales forecast. The planning values are used in the next two steps to help management translate the sales forecast into resource requirements and determine the feasibility and costs of alternative S&OP strategies. 2.) Translate the sales forecast into resource requirements. The goal of this second step is to move the analysis from "sales" numbers to the "operations and supply chain" numbers needed for tactical planning. Some typical resources include labor hours, equipment hours, and material dollars, to name a few. 3.) Generate alternative production plans. Management determines the feasibility and costs for various production plans. Three particular approaches: level production, chase production, and mixed production.

Bottom-Up Planning

An approach to S&OP that is used when the product/service mix is unstable and resource requirements vary greatly across the offerings. Managers must estimate the requirements of each set of products/services separately and add them up to get an overall picture of the resource requirements -Used when the products or services have different resource requirements and the mix is unstable from one period to the next. -Resource requirements must be evaluated individually for each product or service and then added up across all products or services to get a picture of overall requirements. Load Profile: Display of future capacity requirements based on released and/or planned orders over a given span of time

The Theory of Constraints

An approach to visualizing and managing capacity which recognizes that nearly all products and services are created through a series of linked processes, and in every case, there is at least one process step that limits throughput for the entire chain. Process steps can be contained within a single organization or stretched across multiple organizations (supply chain) and each step has its own capacity level. Constraint: a) In optimization modeling, it's a quantifiable condition that places limitations on the set of possible solutions. The solution is only acceptable if it does not break any constraints. b) The process step(s) that limit throughput for an entire process chain EX: Pipeline with smallest pipe is the constraint and limits the amount of throughput for the entire chain (increasing capacity at any other pipe will not help) 5 Step Approach to Managing Constraints: 1.) Identify the constraint. Constraint can be anywhere in the chain (upstream or downstream). When the constraint occurs outside the company, it's referred to as an external constraint. If the constraint is within a company's set of activities, it's an internal constraint. Suppose customers are buying products at the rate of only 30 per hour. In this case, demand, not process 3, is the constraint. 2.) Exploit the constraint. An hour of throughput lost at the constraint is an hour of throughput lost for the entire chain. It is imperative organizations carefully manage the constraint to ensure an uninterrupted flow of customers or products through the constraint. 3.) Subordinate everything to the constraint. If conflicts arise between exploiting the constraint and efforts to "improve" performance elsewhere (letting an upstream process decrease inventory in a way that "starves" constraint for work), management must remember it is the constraint that determines throughput and act accordingly. 4.) Elevate the constraint. If the organization needs to increase throughput, find ways to increase the capacity of the constraint. 5.) Find the new constraint and repeat the steps. As the effective capacity of the constraint is increased, it may cease to be a constraint. In that case, the emphasis should shift to finding and exploiting the new constraint.

Assigning Department Locations in Functional Layouts

Approach 1: Decision makers develop closeness ratings for each possible pairing of departments. These closeness ratings, which can be qualitative ("undesirable," "desirable," "critical," etc.) or quantitative (1, 2, 3, etc.), are then used to guide the layout decision. Approach 2: Locate departments to minimize the total distance traveled, given a certain number of interdepartmental trips per time period. Not only will this cut down on unproductive travel time, but also companies can gain natural synergies by locating highly interactive departments next to one another 3 Steps: 1.) Identify the potential department locations and distances between the various locations. 2.) For each department, identify the expected number of trips between the department and all other departments (interdepartmental trips). 3.) Attempt to assign department locations in such a way as to minimize the total distance traveled. Several heuristics can be used when making these assignments: a.) If a particular department can be assigned only to a certain location, do this first. For example, a firm may decide that the client waiting room must be located next to the building entrance. Making such assignments up front reduces the number of potential arrangements to consider. b.) Rank order department pairings by number of interdepartmental trips and attempt to locate departments with the most interdepartmental trips next to one another. c.) Centrally locate departments that have significant interactions with multiple departments. (This will help increase the likelihood that other departments can be located adjacent to it.) d.) See if the solution can be improved by swapping pairs of departments.

Naive Forecasting

Assumes that demand in the next time period will be the same as demand in the most recent period -Sometimes cost effective and efficient Ex: If May sales were 48, June sales will be 48 Formula: Forecast for next period = Demand for the current period

Six Sigma People

Champions: Senior level executives who "own" Six Sigma projects and carry them out Master Black Belts: Full time experts responsible for strategy, training, mentoring, deployment, and results. Lead groups of Black Belts Black Belts: Fully trained, work full-time (160 hours of training), and perform technical analysis Green Belts: Some basic training, work part-time, and assist in Six Sigma projects Team Members: Not trained in Six Sigma, assist based on knowledge or interest in process

Mapping

Developing graphic representations of the organizational relationships and/or activities that make up a business process. Purpose is... 1.) Creates a common understanding of the content of the process: its activities, its results, and who performs the various steps. 2.) Defines the boundaries of the process. 3.) Provides a baseline against which to measure the impact of improvement efforts.

A business process such as forming a team within a company focused on improving the time it takes to issue a bill and collect payment from customers​ (lowering Days Sales Outstanding​ - DSO) is a​ _____________ process.

Developmental Process

Costs (Fixed and Variable)

Fixed Costs: The expenses an organization incurs regardless of the level of business activity (lease payment, mortgage payment on building, monthly maintenance charges). Must pay these costs regardless of how many products/money they make Variable Costs: Expenses that are directly tied to the level of business activity (material costs, direct labor, utility costs) TC = FC + VC(X) -> "X" is the amount of business activity (number of units produced, number of customers served) Indifference Point: Output level at which two capacity alternatives generate equal costs

Measures of Forecast Accuracy

Forecast error for period i (FEi) = Di−Fi Mean forecast error (MFE) = ∑FEi / n -MFE measures the bias of a forecast model, or the propensity of a model to under/overforecast (unbiased has MFE of 0, negative overforecasts, positive underforecasts) Mean absolute deviation (MAD) = ∑ | FEi | / n -Tracks the average size of the errors, regardless of direction (will always be greater than or equal to 0) Mean absolute percentage error(MAPE)=MAD(100%) -MAPE also gives us an indication of the magnitude of the errors Track Signal = ∑FEi / MAD -Used to flag a forecasting model that is getting out of control. As long as the tracking signal value remains between −4 and 4, the forecasting model is performing normally *∑FEi is sum of forecast errors for period 1-n *The most recent sum of forecast errors is often called the running sum of forecast errors to emphasize the fact that it is updated each period

Little's Law

Holds for any system that has reached steady state. The steady state is the point where inventory had time to build up in the system and the average number of arrivals per period of time equals the average number of units leaving the system. *Relationships expressed are always true no matter how complex the system is I = R x T I is the average number of units in system (inventory) R is the average arrival rate (throughput rate) T is average time a unit spend in system (throughput time)

Laws of Forecasting

Law 1: Forecasts are almost always wrong (but still useful). Cannot predict exact levels, but give close estimates Law 2: Forecasts in the short term tend to be more accurate (factors that affect forecast values are not likely to change dramatically in the near term) Law 3: Forecasts for Groups (categories) of Products or Services tend to be more accurate (demand, supply, or price of a specific item is affected by more factors) Law 4: Forecasts are no substitute for Calculated Values (Only use forecasting when a more reliable method is not available)

Capacity Strategies (3 common ones)

Lead Capacity Strategy: Capacity is added in anticipation of demand. Ensures the company has enough capacity to meet demands even with high growth, preempt competitors who are planning to expand their own capacity. Is risky is demand is unpredictable or technology evolves rapidly -Building excess capacity before it is needed Lag Capacity Strategy: Capacity is added only after demand has materialized. Reduces risk of overbuilding, greater productivity due to higher utilization levels, and the ability to put off large investments as long as possible. Companies that follow this provide mature, cost-sensitive products, but during high demand, there are reduced availability of products and companies don't follow one strategy -Wait until demand grows to add capacity (risky) Match Capacity Strategy: Strikes a balance between the lead and lag capacity strategies by avoiding periods of high under- or overutilization (Balance demand and capacity, but capacity can run out) -Virtual Supply Chain: A collection of firms that exist for a short period (seasonal) and are more flexible than traditional supply chains, but also less efficient

Learning Curves

Learning Curve Theory: Productivity levels can improve at a predictable rate as people and even systems "learn" to do tasks more efficiently. Learning curve theory states that for every doubling of cumulative output, there is a set percentage reduction in the amount of inputs required Formula: Resources (usually labor) required for the nth unit = Resources required for the 1st uniit x ln(Learning percentage)/ln2 *Buyers expect their suppliers to experience productivity improvements due to learning over time

Four Levels of Customization

Make-to-Stock (MTS): No customization. Generic products produced in large volumes. "Off the shelf" products like grocery/retail stores. Occurs between assembly/finishing and distribution Assemble-to-Order (ATO)/Finish-to-order: Products that are customized at the very end of the manufacturing process (Shirt with customers name, vehicles, plaques). Occurs between fabrication and assembly/finishing Make-to-Order (MTO): Use standard components but have customer specific final configurations of those components (push customization further back in the process rather than at the very end). Occurs between sourcing materials and fabrication. Ex: Dell computer Engineer-to-Order (ETO): Customized products to meet customer requirements (highly customized based on unique demands). Occurs before the design stage

Qualitative Forecasting Methods

Market Surveys: Structured questionnaires submitted to potential customers to gauge potential demand. Can be effective, but are expensive and time consuming. Panel Consensus Forecasting: Brings the experts together to discuss and develop forecasts (expensive but accurate) Delphi Method: Experts work individually to develop forecasts. The individual forecasts are shared among the group, and then each participant is allowed to modify his or her forecast based on information from the other experts. This process is repeated until consensus is reached. (expensive but accurate) Life Cycle Analogy Method: Attempts to identify time frames and demand levels for the introduction, growth, maturity, and decline life cycle stages of a new product/service (base the forecast for the new product or service on the actual history of a similar product or service) Build-Up Forecasts: Experts familiar with specific market segments estimate the demand within these segments. These individual market segment forecasts are then added up to get an overall forecast

Cash Flow Analysis

Net Cash Flow: New flow of dollars into or out of a business over some time period Net cash flow = Cash inflows - Cash outflows *Negative cash flows mean finance needs to find funds to support the plan or develop a cheaper one

Applying Optimization Modeling to S&OP

Optimization Model: A type of mathematical model used when the user seeks to optimize some objective function subject to some constraints -User must be able to state in mathematical terms both the objective function and the constraints. Objective Function: A quantitative function that an optimization model seeks to optimize (maximize or minimize) Constraints: a) Quantifiable conditions that place limitations on the set of possible solutions (demand that must be met, limits on materials or equipment time, etc.). A solution is acceptable only if it does not break any of the constraints. b) The process step(s) that limit throughput for an entire process chain

Other Considerations

Other considerations that affect a firms choice are: -The strategic importance of an activity to the firm -The desired degree of managerial control (lose control when outsourcing an activity) -The need for flexibility (helps if long-term needs are uncertain) Strategic activities are often called core activities because they are a major source of competitive advantage (the more strategically important the activity is, the more likely they are to develop capacity to perform it. EX: Product design

Tactical Planning

Planning that covers a shorter period, usually 12 to 24 months out, although the planning horizon may be longer in industries with very long lead times (engineer-to-order firms) -More detailed, but constrained by long-term strategic decisions -Workforce, inventory, subcontracting, logistics decisions -Planning numbers are somewhat aggregated (month by month) -Moderate risk

Employees that are scattered across a large corporate campus meet to determine exactly how the BR549 forms are processed. The best tool for displaying the route these forms take is a

Process Map

Manufacturing Process

Rules for selecting and implementing the process: 1.) Means more than choosing the right equipment. Manufacturing processes include people, facilities/physical layouts, and information systems. These pieces must work together for the process to be effective. 2.) Different manufacturing processes have different strengths and weaknesses. Some are best suited to making small numbers of customized products, while others excel at producing large volumes of standard items. Companies must make sure that their manufacturing processes support the overall business strategy. 3.) The manufacture of a particular item might require many different types of manufacturing processes, spread over multiple sites and organizations in the supply chain. Effective operations and supply chain managers understand how important it is for these processes to work well together. *The choice of one manufacturing process over another will always bring trade-offs

Run chart, bar graphs, and histograms

Run chart: Shows movement of a variable over time (dots make up line graph) Bar graph: Shows counts by category (bars that don't touch) Histogram: Shows counts by interval (bars touch)

Supply Chain Operations Reference (SCOR) Model

Seeks to provide standard descriptions of the processes, relationships, and metrics that define supply chain management. Source—Processes that procure goods and services to meet planned or actual demand. Make—Processes that transform product to a finished state to meet planned or actual demand. Deliver—Processes that provide finished goods and services to meet planned or actual demand. These processes include order management as well as logistics and distribution activities. Return—Processes associated with returning or receiving returned products for any reason. Plan—Processes that balance aggregate resources with requirements.

Service Positioning

Service operations compete and position themselves in the marketplace based on the three dimensions: Nature of the service package, Degree of customization, and Degree of customer contact -Use box and move in directions based on the above 3 factors

The Product-Process Matrix

Shows the relationships between different production units and how they are used depending on product volume and the degree of product standardization. -Top right is high volume, standardized products -Lower left is low volume, customized products -Y-axis is manufacturing processes and x-axis is volume/customization *Want to be along the dotted line (in the middle)

Six Sigma Process (Define-Measure-Analyze-Improve-Control)

Step 1: Define the project goals and customer deliverables (make sure project will be carried out efficiently and in a timely manner) Step 2: Measure and determine customer needs and specifications (delivery, cost, quality) Step 3: Analyze the product or process options to meet the customer needs (how available options compare to customer requirements) Step 4: Improve the process (identify ways to eliminate the gap between the current performance level and performance targets in step 1) Step 5: Control the new process (develop process control charts, train workers in any new procedures, and update information systems to monitor ongoing performance)

Capacity

The capability of a worker, machine, workcenter, a plant, or organization to produce and output in a time period. Must consider: -How capacity is measured (will it meet demand?) -Which factors affect capacity -The impact of the supply chain on the organization's effective capacity

Customer Contact

The level of interaction between the provider and customer. -Front Room=Physical or virtual point where the customer interfaces directly with the service organization (sale floor in retail, help desk, Webpage for a company). As the degree of customer contact increases, more of the service is front room -Back Room=The part of a service that is completed without direct customer contact (package warehouse, stock room). Hidden from customer's view and worker hours are less crucial. As the degree of customer contact decreases, more of the service is back room -Service Blueprinting=Allows the user to better visualize the degree of customer contact (lays out from viewpoint of customer then distributes company's service actions 4 Layers... 1.) Customer Actions (placing order, going to store) 2.) Onstage Actions (provide direct interaction with customer aka face-to-face and cross line of interaction and occur above the line of visibility) 3.) Backstage Actions (customer does not "see" their service take place. Occur below line of visibility) 4.) Support Processes (facilitate execution of onstage and backstage actions. Cross the line of internal interaction. Ex: Website telling what is in/out of stock)

Percent value-added time

The percentage of total cycle time that is spent on activities that actually provide value Formula: PVAT = 100% x (value added time)/(total cycle time)

Benchmarking

The process of identifying, understanding, and adapting outstanding practices from within the same organization or from other businesses to help improve performance. -Involves comparing an organization's practices and procedures to those of the "best" in order to identify ways in which the organization or its supply chain can make improvements. Competitive benchmarking: The comparison of an organization's processes with those of competing organizations (Sales quota, number of new customers acquired, calls handled) Ex: McDonalds going to Burger King to see how long they take to serve customers Process benchmarking: The comparison of an organization's processes with those of noncompetitors that have been identified as having superior processes Ex: An auto part distributor giving parts to a manufacturing plant they are not competing against

Break-Even Analysis

Total Revenues = Total Costs (break-even point) BEP = FC / (R−VC) *R is revenue per unit

Planning Values

Values that decision makers use to translate a sales forecast into resource requirements and to determine the feasibility and costs of alternative sales and operations plans.

Continuous Improvement

a) A principle of TQM that assumes there will always be room for improvement, no matter how well and organization is doing. b) The philosophy that small, incremental improvements can add up to significant performance improvements over time. EX: Process mapping, root-cause analysis, cause/effect diagrams, scatter plots

Cycle Time (Throughput Time)

a) The total elapsed time needed to complete a business process. b) For a line process, the actual time between completions of successive units on a production line. -Process is not complete until a dealer receives a correctly filled order -A straight-forward measure, but not perfect