Chapter 12: Demand Planning: Forecasting and Demand Management, OSCM 3001 Exam #2 Ch. 10, SCM-Chapter 15, Supply Chain Chapter 12: Demand Planning: Forecasting and Demand Management, SCM Chapter 15, SCM Chapter 12- Demand Planning: Forecasting and Ma...

Disadvantages of Process Layouts

-in process inventory costs can be high -challenging routing and scheduling -equipment utilization rates are low -material handling slow and inefficient -complexities often reduce span of supervision -special attention for each product or customer -accounting and purchasing are more involved

On-site inspection

-quicker decisions are rendered -avoid introduction of extraneous factors -quality at the source

Centralized inspection

-specialized tests that may best be completed in a lab -more specialized testing equipment -more favorable testing environment

Sampling Distribution

-theoretical distribution that describes the random variability of sample stats -normal distribution is commonly used for this purpose

The longer the lead time..

... the greater the forecast error

Consolidation

...see math

Managerial Considerations: Control Charts

1. At what point in the process to use control charts 2. What size samples to take 3. What type of control chart to use -Variables or Attributes

Issues: Inspection

1. How much to inspect and how often 2. At what points in the process to inspect 3. Whether to inspect in a centralized or on site location 4. Whether to inspect attributes or variables

Managers try to manage demand by using variants of three basic tactics:

1. Influence the timing or quantity of demand through pricing changes, promotions, or sales incentives ex: automobile dealerships offering promotional packages 2. Manage the timing of order fulfillment Examples: disney places signs saying how long wait is 3. Substitute by encouraging customers to shift their orders from one product to another, or from one provider to another example: Dell is famous for selling what it has

Mean Absolute Deviation (MAD) also called mean absolute error

The average size of forecast errors, irrespective of their directions

Demand Planning

The combined process of forecasting and managing customer demand to create a planned pattern of demand that meets the firm's operational and financial goals Basically Demand forecasting and demand management

Autocorrelation

The correlation of current demand values with past demand values

exponential smoothing model

calculated by Ft+1 = Ft + alpha (dt-Ft). where Ft+1 is period we want to forecast, Ft is forecast for prior period, and dt is actual demand for prior period, alpha is smoothing constant (number b/w 0-1)

error

calculated by Ft-dt

demand forecasting

can be judgement based/qualitative based (opinions of management, marketing execs., consulting team, etc.) or can be statistical/model-based

seasonal model

can be recognized if a certain time period has a continual spike year after year or dip

Process layout

can handle varied processing reqs -work travels to dedicated process centers

strategic, marketing planning

collaborative planning including: new product roll-outs, forecasting and capacity planning together through partnering closely w/ different entities in the supply chain

focused forecasting

combination of common sense inputs from frontline personnel and a computer simulation process.

delphi method

forecasts developed by asking a panel of experts to individually and repeatedly respond to a series of questions.

Primary goal in designing forecasting process:

generate forecasts that are usable, timely and accurate

root mean squared error (RMSE)

gives an approximation of the forecast error standard deviation.

Group technology

grouping into part families of items with similar design or mfg characteristics

Repetitive/ Assembly line

high volume, low variety, cost, flexibility (auto assembly line)

postponement

idea of trying to keep products/services generic as possible and can be customized quickly to meet demand as far downstream as you can. product designed so that it can be configured to its final form quickly and inexpensively once actual customer demand is known. HP was pioneer

throughput

in constraint management, dollars generated by sales

operating expenses

in constraint management, this is the money the system spends turning inventory into throughput

Batch

low volume, moderate variety and cost (canned vegetable factory)

automation

machinery that has sensing and control devices that enables it to operate

Cellular layout

machines are grouped into a cell that can process items that have similar processing reqs

Cycle time

max time allowed at each workstation to complete its set of tasks on a unit

postponement

method used by HP through sending guts of printer to countries but waiting until they could see demand to assemble only the amount of printers demanded from bases then country specific manuals, cables, connector, etc.

ROA

metric that is improved when CPFR (collaboration is done properly)

MAD

metric used to assess overall accuracy of forecast and thus determine proper method

MFE

metric used to assess overall bias of forecast

inventory

money invested in things the system intends to sell

forecast

organizations in a supply chain need to do this to: 1. meet demand 2. plan capacity to match demand 3. plan inventory needs 4. schedule people 5. plan out money/expenses 6. involve lead times

Line Balancing

process of assigning tasks to workstations in such a way that the workstations have apporx. equal time reqs

collaborative planning, forecasting, and replenishment (CPFR)

process requires buyers and sellers to collaboratively develop their demand plans and then to collaboratively adjust and execute those plans, with goal of meeting customer demand with minimal inventories, lead times, and transaction costs. supply chain partners must first come to understanding of their relationships and roles they will play to achieve this.

autocorrelation

the correlation of current demand values with past demand values.

forecast error

the difference between a forecast and the actual demand.

trend

the general sloping tendency of demand, either upward or downward, in a linear or non linear fashion.

balance between supply and demand side

the key to inventory

forecast accuracy

the measurement of how closely the forecast aligns with the observations over time.

Fixed Position layout

the product or project remains stationary, and workers, materials, equipment are moved as needed

production batch

the quantity produced at a workcenter before changing over to produce something else

transfer batch

the quantity produced at a workcenter before transferring the products to the next step in the process

tracking signal

the ratio of a running total of forecast error to MAD that indicated when the pattern of forecast error is changing significantly.

forecast bias

the tendency of a forecasting technique to continually over predict or under predict demand. Also called mean forecast error.

utilization

the time a resource is used and contributing to throughput divided by the time the resource was available

job processing lead time

time it takes to process a job

order-to-delivery lead time

time that passes from when downstream customer made order to when order is fulfilled (comes in)

Full Partnership

-Collaborative relationship -Trust and respect -Focus on total cost -Interdependency -Long term

Acceptance of Mutual Goals

-Collaborative relationship, lacks commitment of full relationship -Focus on total cost

Request for Proposal (RFQ)

-Describes what customer wants, supplier responds based on this -Also called Request for Quotation

Sourcing Strategies

-Developed using information from spend analysis/market analysis -Categorized based on supply risk AND total amount spent by firm

Adversarial Relationship

-High distrust -Limited communication -Price focus -Maintain independence -Short term

Strategic Purchases

-High supply risk, high spend level -Unique & core to firm's performance -

Bottleneck Purchase

-High supply risk, low spend level -Not core to firm's performance -Lack of availability can cause delays

What can increase Supply Risk?

-Lean manufacturing -Just in time deliveries -Global sourcing

Leverage Purchases

-Low supply risk, high spend level -Standard goods/services -Many possible suppliers

Noncritical Purchases

-Low supply risk, low spend level -Little impact on performance

Bottleneck Purchase Tactics

-Multiple suppliers (@ least 2) -Develop new suppliers -Find substitute materials

Sources of Supply Risk

-Natural disasters -Strikes -Theft -Deliberate tampering

Strategic Purchases Tactics

-One or two suppliers -Build full partnerships -Use negotiation

Variation

-Random (common cause) variation: natural variation in the output of a process, created by countless minor factors -Assignable (special cause) variation: a variation whose cause can be identified

Arm's Length Relationship

-Simple purchasing transactions -Lack of distrust -Price focus -Minimize dependency -Sufficient for bottleneck & noncritical

What are the 4 Sourcing Strategies

-Strategic -Bottleneck -Leverage -Noncritical

Access Technology & Innovation

-Suppliers are potential sources of innovation/new technology -Few firms have necessary expertise to develop innovations of their own

Online Reversal Auctions

-Suppliers bid in real time for buyer's business -Auction aims to drive prices lower -Price focused, specifications are clear, high spend level -Very quick decisions

Types of Supply Risk

-Supply delays & disruption -Theft of intellectual property -Price increases -Product safety issues

Goals of Supply Chain Management

-Timely Availability of Resources -Reduce Total Costs -Enhance Quality -Access Technology and Innovation -Foster Sustainability

Leverage Purchase Tactics

-Use competition to select suppliers -Consolidate purchases w/ one or two suppliers to get discounts -Competitive bidding/online reverse auctions

Noncritical Purchase Tactics

-Use tech. to lower transaction costs -No need to involve supply mgmt dept -Arm's-length relationship

Control Chart

-a time ordered plot of representative sample stats obtained from an ongoing person, used to distinguish between random and nonrandom variability -upper and lower control limits define the range of acceptable variation

Taguchi Loss Function

-any deviation from the target value represents poor quality -the farther away from target a deviation is, the greater the cost

Line Balancing rules

-assign tasks in order of most following tasks -assign tasks in order of greatest positional weight

Advantages of Process Layouts

-can handle a variety of processing reqs -not particularly vulnerable to equipment failures -equipment used is less costly -possible to use individual incentive plans

Disadvantages of Product Layout

-creates dull, repetitive jobs -poorly skilled workers may not maintain equipment or quality of output -fairly inflexible to changes in volume -highly susceptible to shutdowns -needs preventive maintenance -individual incentive plans are impractical

Advantages of Product Layout

-high rate of output -low unit cost -labor specialization -low material handling cost -high utilization of labor and equipment -established routing and scheduling -routing accounting and purchasing

demand management

a proactive approach in which managers attempt to influence the pattern of demand.

Supply Risk

Probability of an unplanned event that negatively affects a firm Delays, theft of intellect, Price increases, Product safety issues

Mean Absolute Deviation (MAD)

= sum of absolute value of (dt-Ft)/n always positive b/c absolute value used!! smallest value determines best model in terms of fitness

postponable product

a product designed so that it can be configured to its final form quickly and inexpensively once actual customer demand is known.

naive model

a simple forecasting approach that assumes that recent history is a good predictor of the near future.

information sharing

buyers and suppliers need to share timely data about demand, supply and delivery

executive judgement

forecasting techniques that use inputs from high-level experienced managers.

demand planning

the combined process of forecasting and managing customer demands to create a planned pattern of demand that meets the firm's operational and financial goals.

21) Demand is forecast for the next five months as 200, 300, 500, 300, 200. The production planner decides to adopt a chase strategy, so over the next five months they should produce

A) 200, 300, 500, 300, 200.

39) Which of the following is an approach a company can use to create a buffer for forecast error using safety inventory?

A) Overtime

44) Which of these software vendors offer advanced planning systems?

A) SAP

MAPE Mean absolute percentage error

The MAD represented as a percentage comparability across product

Supplier relationships

Transaction oriented vs. Collaborative

Fluctuations causing operational inefficiencies all across the supply chain:

1. requiring extra resources to expand and contract capacity to meet varying demand 2. Backlogging (delivering later than originally promised) certain orders to smooth out demand fluctuations 3. Customer dissatisfaction with the system's inability to meet all demands 4. Buffering the system with the use of safety stocks, safety lead time, or safety capacity

Rules for indicating how situational characteristics tend to affect forecast accuracy:

1: Short term forecasts are usually more accurate than long-term forecasts 2: Forecasts of aggregated demand are usually more accurate than forecasts of demand at detailed levels 3: Forecasts developed using multiple information sources are usually more accurate than forecasts developed from a single source -difficult for a single source of information to comprehend all of the forces -unlikely all sources would be "wrong" in the same direction

Process Variability

2 Basic Questions: 1. Are the variations random? -process control 2. Given a stable process, is the inherent variability of the process within a range that conforms to performance criteria -process capability

1. demand forecasting 2. demand management

2 components of demand planning

1. high supply and low demand (offer promotion) 2. high demand low supply (raise prices, don't put in selling prominent location)

2 imbalances b/w supply and demand and possible solution to balance

1. Mean Absolute Deviation (MAD) 2. Mean Forecasting Error (MFE)

2 measures to assess forecasting performance/technique

1. smaller lead times 2. consistent lead times

2 things most desirable about order to delivery lead times

1. order-to-delivery lead time 2. job processing lead time

2 types of lead time

1. judgment 2. statistical model

2 ways to base forecasting

1. pricing 2. placement 3. promotion

3 aspects of marketing w/in demand management

1. environmental factors 2. historical demand 3. expert judgments

3 elements of demand forecasting

1. pricing 2. promotion 3. order scheduling

3 elements of demand management

1. marketing 2. evaluating demand and supply side 3. balancing supply and demand side

3 procedures within demand management

1. shorter and consistent lead times 2. collaboration 3. postponement

3 strategies to improve demand planning through demand management

1. simple/weighted moving averages 2. exponential smoothing 3. time series: regression/trend analysis

3 types of forecasting methods/models

1. marketing planning (strategy and planning) 2. demand and resource planning (demand and supply management) 3. execution 4. analysis

4 collaborative activities of the collaborative planning, forecasting, and replenishment (CPFR) process

1. simple/weighted moving averages 2. exponential smoothing 3. regression/trend 4. seasonal

4 types of demand forecasting models/methods

1. reducing order-to-delivery lead time 2. information sharing 3. postponement 4. collaboration among supply chain partners

4 ways to improve demand planning

Transportation Mode Selectors

5=BAD 1=GOOD

Forecasting Performance

= primary measure is forecast error positive forecast = overly pessimistic negative forecast = overly optimistic

Mean Forecasting error

= sum of (dt-Ft)/n no absolute value!! determines whether forecasts were too high or too low

Statistic Model Based Forecasting

= transforms numerical data into forecasts using one of three methods 1. Time series analyses, which extrapolate forecasts from past demand data 2. Casual Studies, which look for causal relationships between leading variables and forecasted variables 3. Simulation Models, which try to represent past phenomena in mathematical relationships and then evaluate data to project future outcomes 4. Artificial Intelligence, in which a "smart" computer program "learns" from a combination of causal and simulation analyses using a wide array of data

Negotiation

A bargaining process involving a buyer and seller seeking to reach a mutual agreement -High degree of uncertainty in regards to requirement -Need for early supplier involvement in product development -Customized requirement needed

Focused Forecasting

A combination of common sense inputs from frontline personnel and a computer simulation process

Stable Pattern

A consistent horizontal stream of demand examples: mature customer products like shampoo and milk

Weighted Average Model

A forecasting model that assigns a different weight to each period's demand according to importance typically more weight is given to more recent demand weight given to the demand value should all end up equalling 1

Moving Average Models

A forecasting model that computes a forecast as the average of demands over a number of past periods

Marketing Research

A forecasting technique that bases forecasts on the purchasing patterns and attitudes of current or potential customers

Historial Analogy

A forecasting technique that uses data and experience from similar products to forecast the demand for new products

Regression Analysis

A mathematical approach for fitting an equation to a set of data most commonly used method for estimating relationships between leading indicators and demand

Collaborative Planning, forecasting, and replenishment (CPFR)

A method by which supply chain partners periodically share forecasts, demand plans, and resource plans in order to reduce uncertainty and risk in meeting customer demand -supply chain partners must first come to an understanding regarding their relationship and the roles they will play -market planning: The partners collaboratively discuss such issues as the introduction of new products, store openings/closings , changing inventories prices and product demands -Demand and Resource planning: customer demand and shipping requirements are forecasted -Execution: ordres are placed, delivered,received and paid for. -Analysis: Execution is monitored and key performance metrics are collected with the goal of identifying opportunities for future improvement

Mean Squared Error MSE

A more sensitive measure of forecast errors that approximates the error variance.

Exponential Smoothing

A moving average approach that applies exponentially decreasing weights to each demand that occurred farther back in time By using the exponential smoothing equation again and again and again from one period to the next, each new forecast is implicitly built upon many past actual demands, and each will receive less and less weight as one goes back in time. Really just a sophisticated form of the weighted average model Still only reactive models, do not anticipate the effects of a trend The forecast can reduce the lag effect by increasing the value of the smoothing coefficient, but this also increases the risk of adding unwanted variability to forecasts as they overreact to random variations in demand.

Shift or Step Change

A one-time change in demand, usually due to some external influence on demand, such as major product promotional campaign, or sudden economic shock.

Smoothing Coefficient

A parameter indicating the weight given to the most recent demand between 0 and 1

Demand Management

A proactive approach in which managers attempt to influence the pattern of demand involves use of pricing and promotional activities

Spend Analysis

A process that identifies what purchases are being made in an organization (at what price, from what suppliers, how much, etc)

Postponable Products

A product designed so that it can be configured to its final form quickly and inexpensively once actual customer demand is known

Enhance Quality

A product's quality is tied to the quality of its inputs

Competitive Bidding

A selection process in which suppliers submit bids to win buyer's business -Price is most important factor -Specifications are clear -High spend level

Naive Model

A simple forecast approach that assumes that recent history is a good predictor of the near future assumes tomorrow's demand will be the same as todays ignores the trend, seasonal, competents of historical series and creates highly erratic forecasts

Adaptive Forecasting

A technique that automatically adjusts forecast model parameters in accordance with changes in the tracking signal

Simple Linear Regression: Time Series

A technique that finds optimal values for the parameters a and b, that is parameters that will most closely equate the independent variable t, and the dependent variable d over a set of values

Grassroots Forecasting

A technique that seeks inputs from people who are in close contact with customers and products

Run Tests

A test for patterns in a sequence -even if a process appears to be in control, the data may still not reflect a random process -analysts often supplement control charts with a run test

33) How many months does the regular time output exceed plant capacity in the optimal solution to Scenario 8.2?

A) 0

24) Use the information from Scenario 8.1 to determine the number of decision variables in this scenario. Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

A) 10

25) Use the information from Scenario 8.1 to determine the number of constraints in this scenario. Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

A) 12

28) Which of these statements about Scenario 8.1 is evident without even developing an aggregate plan? Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

A) Some overtime will be needed.

42) The earliest IT supply chain products were

A) aggregate planning modules.

1) The process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon is

A) aggregate planning.

18) The strategy where workforce (capacity) is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand is the

A) flexibility strategy.

15) Aggregate planning should consider information from

A) only the enterprise as its breadth of scope. B) downstream partners to produce forecasts. C) upstream partners to determine constraints. D) all of the above (ANSWER)

6) The operational parameter concerned with the number of units completed per unit time (such as per week or per month) is

A) production rate.

10) The planning horizon is

A) the time period over which the aggregate plan is to produce a solution.

Phases of Quality Assurance

Acceptance sampling -> Process control -> Continuous improvement

Outsourcing

Acquiring inputs from operational processes done by suppliers

Insourcing

Acquiring inputs from operational processes done within firm

Foster Sustainability

Address how decisions made within the firm and throughout the supply chain affect people, the planet, and profits

seasonal Index

An adjustment factor applied to forecasts to account for seasonal changes or cycles in demand = Each period's actual demand / estimate of the average demand across all periods in a complete seasonal cycle

Supplier Certification

Assessment of supplier's ability to meet buyer's needs

Control Charts for Attributes

Attributes generate data that are counted -p Chart -c Chart

Mean Percent Error (MPS)

Average Error represented as a percentage of demand

What are five factors that should be considered when managing reverse flows, Briefly exampling each

Avoidance-Producing high quality products and developing processes to minimize or eliminate returns. Gatekeeping-Checking and screening merchandise at the entry point into the reverse flows process to eliminate unnecessary returns or minimize handling. Reducing Cycle Times-Analyzing processes to enable and facilitate compression of time for returns to enhance value recapture. Information Systems-Effective information systems to improve product visibility, reduce uncertainty and maximize economies of scale. Returns centers-Developing locations and facilities for returns centers to facilitate network flow

29) What is the optimal total cost of the aggregate plan developed to address Scenario 8.1? Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

B) $18,950

13) ________ is used to determine customer service levels.

B) Backlog/stockout quantity

40) What is the name of the plan that breaks apart the aggregate plan into distinct product families?

B) Rough cut capacity plan

17) The strategy where the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate varies is the

B) chase strategy.

46) The quality of the forecast can be improved by using information from

B) downstream partners.

35) When formulating aggregate plans,

B) forecast errors must be taken into account.

50) As capacity utilization increases,

B) it becomes more important to perform aggregate planning.

38) Capacity used to satisfy demand that is higher than forecasted is

B) safety capacity.

36) Forecasting errors are dealt with using

B) safety capacity. C) safety inventory. D) B and C only (ANSWER)

34) Without actually solving the aggregate planning problem, it is safe to conclude that in the optimal solution to Scenario 8.2,

B) the number of units made using subcontracting will exceed the number of units made using overtime.

11) The length of the planning horizon is usually between

B) three and eighteen months.

7) The operational parameter concerned with the number of workers/units of capacity needed for production is

B) workforce.

30) What is the optimal total cost of the aggregate plan developed to address Scenario 8.2? Scenario 8.2 - Willow A company faces the aggregate planning problem shown in the table below. Cost of regular production is $8 per unit, the cost of producing the same unit on overtime is $15, the cost of subcontracting is $12 per unit, and the cost of carrying a unit in inventory from one month to the next is $6. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 400 units in any five month window. The plant capacity is 20 units per day produced using two shifts and the plant runs seven days a week. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

C) $31,400

26) Use the information from Scenario 8.1 to determine the objective function for this scenario. Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

C) Min Cost = $5(Sigma)Regular + $7.5(Sigma)Overtime + $9(Sigma)Subcontracting + $2(Sigma)Ending Inventory

41) What information does a master production schedule provide that an aggregate plan does not?

C) Specific product family production information

3) Aggregate planning solves problems involving

C) aggregate decisions rather than stock keeping unit (SKU) level decisions.

16) The fundamental trade-offs available to an aggregate planner are between

C) capacity, inventory, and backlog costs.

48) The aggregate plan needs to

C) have some flexibility built into it because forecasts are always wrong.

19) The strategy where a stable machine capacity and workforce are maintained with a constant output rate, with inventory levels fluctuating over time, is the

C) level strategy.

37) Inventory held to satisfy demand that is higher than forecasted is

C) safety inventory.

2) The goal of aggregate planning is to

C) satisfy demand in a way that maximizes profit.

9) Aggregate planning is concerned with determining

C) the production level, inventory level, and capacity for each period.

5) Much of aggregate planning has traditionally been focused

C) within an enterprise.

Automation

CAD, NC machines, Robots, Mfg cell, FMS, CIM

Contract Carriers

Carriers that have a specific contracts with a limited number of shippers selects contracted customers

Make or Buy decision

Choosing between insourcing or outsourcing

Private Carriers

Companies that own and operate transportation equipment to transport their own products. Firm owns its OWN equipment

Total Cost of Ownership (TCO)

Considers ALL of the costs incurred before, during, after purchase

27) Which of these is a constraint that is appropriate for Scenario 8.1? Scenario 8.1 - Gang Aft Agley Gang Aft Agley, a manufacturing company, faces the aggregate planning problem shown in the table below. Cost of regular production is $5 per unit, the cost of producing the same unit on overtime is $7.50, the cost of subcontracting is $9 per unit, and the cost of carrying a unit in inventory from one month to the next is $2. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 300 units in any five month window. The plant capacity is 600 units per month produced using two shifts, regardless of the number of days in a month. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

D) (Sigma)Subcontracting ≤ 300

31) How many units are produced using overtime in the optimal aggregate plan developed to address Scenario 8.2? Scenario 8.2 - Willow A company faces the aggregate planning problem shown in the table below. Cost of regular production is $8 per unit, the cost of producing the same unit on overtime is $15, the cost of subcontracting is $12 per unit, and the cost of carrying a unit in inventory from one month to the next is $6. The labor contract at the plant prohibits both overtime and subcontracting output to exceed 400 units in any five month window. The plant capacity is 20 units per day produced using two shifts and the plant runs seven days a week. By policy, management wants to avoid stockouts. Note: Excel Table Omitted

D) 280

32) How many units are produced using overtime in the optimal aggregate plan developed to address Scenario 8.2?

D) 280

20) Demand is forecast for the next five months as 200, 300, 500, 300, 200. The production planner decides to adopt a level strategy, so over the next five months they should produce

D) 300, 300, 300, 300, 300.

49) How frequently should the aggregate plan be rerun?

D) As inputs to the aggregate plan change

12) An aggregate planner requires information on constraints. Which of the following is one of the typical constraints for an aggregate planner?

D) Limits on overtime

45) The quality of the aggregate plan can be improved by using information from

D) all parts of the supply chain.

47) The aggregate plan should be communicated to

D) all supply chain partners who will be affected by it.

43) Advanced planning systems for aggregate planning rely heavily on ________ to deliver their full potential.

D) data accuracy

8) The operational parameter concerned with the planned inventory carried over the various periods in the planning horizon is

D) inventory on hand.

23) A highly effective tool for a company to use when it tries to maximize profits while being subjected to a series of constraints is

D) linear programming.

14) A poor aggregate plan can result in

D) lost sales and lost profits.

22) Most strategies that an aggregate planner actually uses are in combination and are referred to as the

D) mixed strategy.

4) Aggregate planning, to be effective, requires inputs from

D) throughout the supply chain.

Demand Forecasting

Decision process in which managers predict demand patterns

What is a closed loop supply chain

Designed and managed to explicitly consider both forward and reverse flows activities in a supply chain.

Step 4

Document and apply the proposed technique to the data required for the appropriate business process

EDI

Electronic Data Interchange--Cloud: Structured secure mode of transmitting data

As a result of the economic recession that occurred in the 2008-2010 timeframe, growth in supply chain technology has stagnated.

F

Corporate executives are already well aware of the impact supply chain management can have on their businesses.

F

Technology and data are already very well integrated into supply chain management

F

The "facility utilization" strategy places a high priority on making sure that all supply chain facilities create value only for the individual organizations.

F

The first principle of supply chain management is to segment customers based on profit

F

The most compelling "financial strategy" is the pursuit of cost reduction and profit improvement

F

The primary goal of a differentiation strategy is make your firm's products appear to be different than your competitors' products

F

1) The goal of aggregate planning is to satisfy demand in a way that minimizes profit.

FALSE

12) Forecasting errors are dealt with in aggregate plans using either safety backlog or safety capacity.

FALSE

13) Safety inventory is defined as inventory held to satisfy demand that is higher than forecasted.

FALSE

14) Safety capacity is defined as capacity used to satisfy demand that is lower than forecasted.

FALSE

17) As inputs into the aggregate plan change, managers do not need to make changes to the aggregate plan.

FALSE

18) As capacity utilization increases, it becomes less important to perform aggregate planning.

FALSE

19) The goal of aggregate planning is to build a plan that satisfies demand while minimizing downtime.

FALSE

4) Short-term production serves as a broad blueprint for operations and establishes the parameters within which aggregate planning decisions are made.

FALSE

7) A planning horizon is usually between three and five years.

FALSE

Containerization/Unitization

Filling or creating a larger container from smaller ones

Time series Analysis Models

Forecasting models that compute forecasts using historical data arranged in the order of occurrence Forecasts are generated by summing weighted values of past demands, and the weighting schemes range from very simple to very complex -the type of weighting used depends upon the demand pattern

Executive Judgement

Forecasting techniques that use input fro high-level experienced managers

Big Data

Large amounts of data made available through sensors and interconnected systems

Facilities layout

Layout - configuration of departments, work centers, equipment

Delphi Method

Forecasts developed by asking a panel of experts to individually and repeatedly respond to a series of questions -prevents any single individual from dominating the process

linear trend/regression model

Ft= a + bt. where Ft is forecast for time period we are looking for, a is y-intercept, b= slope and t= time period

Market Analysis

Gathers data on market structure including number of suppliers, number of buyers, and nature of competition

What is a reverse flow

Goods and materials moving upstream the supply chain.

Step 1: Designing a Forecasting Process

Identify the users and decision-making processes that the forecast will support -forecasting process needs to be designed with the following users' characteristics in mind: Time Horizon (lead time) Level of Detail Accuracy vs Cost: important to weigh the costs created by forecast errors against the costs of achieving greater accuracy Fit with existing processes In order to be useful, forecasting process must be integrated into existing business model

Outsourcing

Inputs from outside the firm

Insourcing

Inputs from within the form

ISPs

Intergrated Service Providers: Companies that provide a range of logistics services--UPS

Centralized vs. On-Site Inspection

Major deciding factor: effects on cost and level of disruption

Step 5

Monitor the performance of the forecasting process for continuous improvement

Logistics Management

Movement and storage of materials to meet customer needs and organizational objectives Flow: forward and reverse materials and information Load, offload, move, sort and select material

Supply Base Optimization

Number of suppliers to use... Too few- increases shortage and price risks Too many- increases complexity and makes supply management difficult

How much to inspect

Optimal when: sum of the costs of inspection and costs of passing defectives is minimized

Determine Maximum Output

Output capacity = Operating time per day/ Cycle Time CT = OT/D D: Desired output rate

What is sustainability

Practicing value harmony between the industrial system and nature.

What are the common barriers to implementing a reverse flow program

Priority relative to other issues and potential projects or programs. Inattention or lack of buy in from top level management. Financial resources necessary for operations and infrastructure. Personnel resources required to develop and implement reverse flows program. Adequacy of material and information systems to support the returns program. Local, state, and federal regulations. Protities, Financial and Personnel resources, Adequacy of systems, Regulations. PFPAR

Supply Risk

Probability of an unplanned even that negatively affects firm

Nonrandom Patterns

Trend Cycles Bias Mean shift Too much dispersion

Process Capability

Process stability has been determined Now determine if process is capable of producing output within acceptable range

What are the eight categories of products/materials in a reverse flow

Products that have failed, are unwanted/damaged/defective but can be repaired or refurbished. Products that are old, obsolete or near the end of their shelf life but still have some value for salvage or resale. Products that are unsold from retailers, overstock that have resale value. Products being recalled due to safety or quality that can be repaired or salvaged. Products needing pull and replace repair before being put back in service. Products that can be recycled such as pallets containers, computer inkjet cartridges. Scrap metal that can be recovered and used as a raw material for manufacturing

Common Carrier

Provide service to the public with published rates

Pros of Capabilities and Location

Proximity eases communication and transportation Considerations of trade barriers and incentives Global presence may impact access to markets

Statistical Process Control (SPC)

Quality Control concerned with: Quality of Conformance. A tool used to help in this process is SPC: -statistical evaluation of the output of a process -helps us decide if a process is in control or if corrective action is needed

RFID

Radio Frequency Identification--electronic tracking of material Silver sticker on packages

Value Density

Ratio of value to weight, often determines the type of carrier used

What is one of the priorities of sustainability

Reducing carbon footprint

Artificial Intelligence

Refers to learning and decision making capabilities that stems from software algorithms next generation approach that combines time series analysis, casual modeling, simulation and focused forecasting techniques

Seasonality and Cycles

Regular demand patterns of repeating highs and lows restaurants experience this with lunch rush, dinner rush etc. Economic, political and demographic and technological factors influence these patterns

What are the four R's of sustainability

Reuse, re-manufacturing, refurbishing and recycling.

Automated Storage and Retrieval Systems (ASRS)

Robots that get, move and put away material Random storage and high density utilization of a warehouse).

Sampling and Sampling Distribution

SPC periodically takes samples of process output and computing sample stats: -sample means -number of occurrences of some outcome

Step :3

Select forecasting techniques that will most effectively transform data into timely accurate forecasts over the appropriate planning horizon

Limitations of Capability Measures

Several risks: -process may not be stable -process output may not be normally distributed -process not centered but Cp is used

Simulation Models

Sophisticated mathematical programs that offer forecasters the ability to evaluate different business scenarios that might yield different demand outcomes helps forecasters to better understand how different variables and drivers of demand relate to one another

...cont'd

Specifications: range of acceptable values established by engineering design or customer requirements Process variability: natural or inherent variability in a process Process capability: process variability relative to specification

Root mean square error (RMSE)

Square root of MSE gives good approximation of standard deviation

SCOR

Supply Chain Operations Reference Model

An effective time-based strategy should consider the tradeoffs between transportation, inventory, and warehousing costs

T

CEOs view SCM initiatives as being primarily focused on cost reduction

T

Decision making is part of the Cycle Time Reduction strategy

T

For businesses, collaboration skills are very important to develop

T

It is anticipated that software as a service (SaaS), GPS and Cloud Computing technologies should assist significantly in achieving enhanced supply chain flexibility and facilitating network-type solutions

T

Key performance indicators (KPIs) that require ownership and commitment to the objectives by all involved parties are needed for the success of relationship-based strategies

T

Outsourcing is a way to reduce asset investment as well as to address strategic and customer- focused objectives.

T

The fourth principle of supply chain management is to differentiate products closer to the customer.

T

The seven principles of supply chain management have stood the test of time very well.

T

10) Most strategies that an aggregate planner actually uses are in combination, and are referred to as hybrid strategies.

TRUE

11) To improve the quality of aggregate plans, forecast errors must be taken into account when formulating aggregate plans.

TRUE

15) Companies should work with downstream partners to produce forecasts and with upstream partners to determine constraints when doing aggregate planning.

TRUE

16) Given that forecasts are always wrong to some degree, the aggregate plan needs to have some flexibility built into it if it is to be useful.

TRUE

2) Aggregate planning is a process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon.

TRUE

20) Linear programming finds the solution that creates the highest profit while satisfying the constraints that a company faces.

TRUE

3) Traditionally, much of aggregate planning is focused within an enterprise and may not always be seen as a part of supply chain management.

TRUE

5) The aggregate planning problem is concerned with determining the production level, inventory level, and capacity level (internal and outsourced) for each period that maximizes the firm's profit over the planning horizon.

TRUE

6) To create an aggregate plan, a company must specify the planning horizon for the plan and the duration of each period within the planning horizon.

TRUE

8) A poor aggregate plan may result in a large amount of excess inventory and capacity, thereby raising costs.

TRUE

9) The aggregate planner must make a trade-off between capacity, inventory, and backlog costs.

TRUE

Supplier Relationship Management (SRM)

Technology enabled data gathering about suppliers to manage strategic relationships

Forecast error

The difference between forecast and the actual demand -simply the unexplained component of demand that seems to be random in nature Difference between forest and actual demand

Trend

The general sloping tendency of demand, either upward or downward in a linear or nonlinear fashion

Forecast Accuracy

The measurement of how closely the forecast aligns with the observations over time

What is reverse logistics

The process of moving or transporting goods from their final destination for the purpose of capturing value for proper disposal.

weighted moving average

a forecasting model that assigns a different weight to each period's demand according to its importance.

Tracking Signal

The ratio of a running total of forecast error to MAD that indicates when the pattern of forecast error is changing significantly

Forecast Bias

The tendency of a forecasting technique to continually over predict or under predict demand. Bias = mean forecast error

Determining Trend Factors

The trend component of a time series normally results from some market force that causes a general rise or decline in values over time.

3PLs

Third Party logistics service providers -- a common term used in the industry to describe ISPs

Step 2: Identify likely sources of the best data inputs

Today's information rich environs

TCO

Total Cost of Ownership: Sum of costs incurred before, during and after a purchase. Before: costs of finding, assessing, and selecting supplier During: costs of buying and receiving items After: Costs and risks of storing and owning items including those incurred after sale to customers

Supplier Scorecard

Track and report supplier performance in key areas

Errors

Type I: concluding a process is not in control when it actually is Type II: concluding a process is in control when it is not

Where to inspect in the Process

Typical inspection points: -raw materials and purchased parts -finished products -before a costly operation -before an irreversible process -before a covering process

Control Charts for Variables

Variables generate data that are measured -mean control charts -range control charts

Casual Models

Where time series models use only past demand values as indicators of future demand, casual models use other independent, observed data to predict demand -these models concentrate on external factors that are thought to cause demand Examples: The amount of household disposable income in an economy might be a good leading indicator of the sales of luxury items like sailboats

time buffer

a buffer of inventory that will keep a resource busy for a specified amount of time

stable pattern

a consistent horizontal stream of demands.

demand forecasting

a decision process on which managers predict demand patterns.

moving average

a forecasting model that computes a forecast as the average of demands over a number of immediate past periods.

marketing research

a forecasting technique that bases forecasts on the purchasing patterns and attitudes of current or potential customers.

historical analogy

a forecasting technique that uses data and experience from similar products to forecast the demand for a new product.

constraint management

a framework for managing the constraints of a system in a way that maximizes the system's accomplishment of its goal

regression analysis

a mathematical approach for fitting an equation to a set of data.

collaborative planning, forecasting and replenishment (CPFR)

a method by which supply chain partners periodically share forecasts, demand plans, and resource plans in order to reduce uncertainty and risk in meeting customer demand. pioneered by Walmart

mean squared error (MSE)

a more sensitive measure of forecast errors that approximates the error variance.

exponential smoothing

a moving average approach that applies exponentially decreasing weights to each demand that occurred farther back in time.

shift (or step) change

a one-time change in demand, usually due to some external influence on demand.

smoothing coefficient

a parameter indicating the weight given to the most recent demand.

adaptive forecasting

a technique that automatically adjusts forecast model parameters in accordance with chants in the tracking signal.

grassroots forecasting

a technique that seeks inputs from people who are in close contact with customers and products.

shipping buffer

a time buffer immediately prior to shipping

constraint buffer

a time buffer placed immediately prior to a constraint

assembly buffer

a time buffer placed immediately prior to an assembly for nonconstrained components

Demand Management activities

adjust product characteristics including price, promotion, and availability the purpose is the influence product demand to achieve sales objectives and to acccomdate the supply chain resources and capacities that the firm has in place

order to delivery lead time

amount of time that happens form when you place order to when it is fulfilled. calculate when you need to place by subtracting this value from when you need order by

seasonal index

an adjustment factor applied to forecasts to account for seasonal changes or cycles in demand.

Inspection

an appraisal activity that compares goods or svc to a standard

constraint

anything that inhibits a system's progress toward its goals

mean percent error (MPE)

average error represented as a percentage of demand.

Judgement- Based Forecasting

built upon the estimates and opinions of people, most often experts who have related sales or operational experience

demand management

conceptual side of demand planning that focuses on improving demand planning

information technology

critical (to inventory planning, logistics) and the enabler to rapid collection, information sharing, dissemination

Process Selection

deciding on the way production of goods or services will be organized

collaborating, sharing, components

demand management can be improved by ________ and _______ information among different components of the supply chain

forecast error

difference between forecast of period and actual demand for period

downstream

direction in supply chain of demand planning process in general

statistical fluctuation among dependent events

disruptions caused by accumulating variability among processing times of processes that depend on each other

Central Limit Theorem

distribution of sample avgs tend to be normal regardless of the shape of the process distribution

technology

enabler of joint planning with CPFR

time series model analysis

forecasting models that compute forecasts using the historical data arranged in order of occurrence.

seasonality and cycles

regular demand patterns of repeating highs and lows.

Calyx Flowers

reordered supply chain by cutting out distributors, regional sellers, and florists from flower selling supply chain. reordered by accepting orders directly from customers and having growers directly ship to customers through FedEx (cut out middlemen)

activation

running a machine or resource when it doesn't contribute to throughput

Adjusting Forecasts for Seasonality

seasonal variations in demand

positive

sign of MFE when demand is larger than our forecasts. forecasts were too small

negative

sign of MFE when demand is smaller than our forecasts. forecasts were too large

Job Shop

small scale, high variety, high cost, low output (mechanic)

simulation models

sophisticated mathematical programs that offer forecasters the ability to evaluate different business scenarios that might yield different demand outcomes.

collaborative planning, forecasting, and replenishment (CPFR)

supply chain partners periodically share forecasts, demand plans, and resource plans in order to reduce uncertainty and risk in meeting customer demand.

demand forecasting

technical side of demand planning that uses methods/models. includes assessing performance

small alpha

tends to produce pretty smooth, not so volatile forecast with exponential smoothing, will do best job if demand does not vary much

mean absolute percentage error (MAPE)

the MAD represented as a percentage of demand.

mean absolute deviation (MAD)

the average size of forecast errors, irrespective of their directions.

weighted moving average

to get forecast for current period take furthest period back and multiply by smallest decimal and next furthest by second smallest and closest by the largest decimal (all decimals should add up to 1) EX: N=1 d=50, N=2 d=65, N=3 d=52. to find forecast for N=4 given weights: .5, .3, .2: 50(.2) + 65(.3) + 52(.5) = 56.5

simple moving average model

to get forecast of next period take the average of the prior periods (N periods)

decouple

to reduce the direct dependency of a process step on its predecessor

judgment-based forecasting (qualitative)

type of forecasting used when there is a new product coming out w/ no previous data/history to forecast it with

p-Chart

use when: observations can be placed into two categories -good or bad -pass or fail -operate or don't operate

c-Chart

use when: number of occurrences per unit of measure can be counted; non-occurrences cannot be counted -scratches, chips, dents, errors -cracks, faults -breaks or tears -bacteria or pollutants -calls, complaints, failures

Product layout

uses standardized processing operations to achieve smooth, rapid, high volume flow

dt

variable denoting actual demand in period t

Et

variable denoting forecast error in period t

Ft

variable denoting forecast of period t

N

variable denoting total number of periods in a moving average model

Continuous

very high volume, low variety and cost (oil refinery)

lead time reduction

what Calyx flowers accomplished through reordering supply chain

customer demand

what demand management focuses on influencing

1. strategic operation planning and design (long term) 2. sales and operation planning (intermediate term) 3. Materials and Resources Requirements planning (short term)

where demand planning is integrated into and duration of each sector