Intro Supply Chain Exam 1 Rutgers Mclaury
Aggregate Production Plan (APP)
Hierarchical planning PROCESS THAT TRANSLATES annual business, marketing plans, and demand forecasts INTO A PRODUCTION PLAN for a product family* in a plant or facility at least 1 year & rolled forward by three months every quarter.
chase production strategy
Adjusts CAPACITY TO MATCH DEMAND. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant. MAKE TO ORDER
Aggregate planning strategies: supply options
change inventory levels change capacity
Current trends in SCM (eeehhhhhh)
-globalization -demand volatility and forecast inaccuracy -supply chain cost optimization -risk management -sustainability and "greening" the supply chain
Steps to develop Aggregate Production Plan
1. determine DEMAND 2. determine CAPACITY for each period 3. identify CONSTRAINTS 4. determine direct LABOR AND MATERIALS COST 5. identify STRATEGIES 6. AGREE on plan
Fundamentals of forecasting
1. forecast most likely wrong 2. Simple forecast methodologies trump complex ones (danger is complexity) 3. Correct forecast does not prove forecast method is correct 4. If you dont use the data regularly trust it less 5. All trends eventually end 6. Hard to eliminate bias 7. Technology is not the solution to better forecasting (its a tool) - people are the answer.
Why hold inventory?
1. meet customer demand (cycle stock) 2. buffer against uncertainty in supply/demand (safety stock) 3. decouple supply from demand (strategic stock) 4. decouple dependencies in supply chain (sep ops in process, smoothing)
Total Cost
= Purchase Cost + Order Cost + Carrying Cost
Scheduled Receipt
A committed order awaiting delivery for a specific period
Fixed-Order Quantity System
A continuous inventory review system in which the same order quantity is used from order to order. When the inventory position drops to a predetermined reorder point, a predetermined fixed order quantity is placed The time between orders (i.e., order period) varies from order to order.
MPS Master Production Schedule
A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period DRIVES THE BUSINESS
Rough-cut capacity planning (RCCP)
A medium-range capacity planning module used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available.
Firmed Planned Order
A planned order that can be frozen in quantity and time so that the MRP computer logic cannot automatically change when conditions change. Established by the Planner or Supply Chain Manager to prevent system nervousness. This can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders.
The Economic Order Quantity (EOQ) Model
A quantitative decision model based on the trade-off between annual inventory carrying costs and annual order costs. EOQ is a fixed-order quantity model The EOQ model seeks to determine an optimal order quantity Where the sum of the annual order costs & the annual inventory carrying costs is minimized.
capacity requirement planning (CRP)
A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.
Planned Order Release
A specific order for a specific item and quantity to be released to the shop or to the supplier.
Distribution Requirements Planning (DRP)
A time-phased finished good inventory replenishment plan in a distribution network. The function of determining the need to replenish inventory at branch warehouses. logical extensIon of MRP
Gross Requirement
A time-phased requirement prior to netting out on-hand inventory and lead-time
Service inventory
ACTIVITIES carried out in advance of the customer's arrival
Planning Processes
APP, MPS, MRP, DRP, Capacity Planning Aggregate Production Planning (APP) Master Production Scheduling (MPS) Materials Requirement Planning (MRP) Distribution Requirements Planning (DRP) Capacity Planning
Major ERP applications include:
Accounting and Finance Customer Relationship Management Human Resource Management Manufacturing Supplier Relationship Management Supply Chain Management
Two reasons firms implement supply chain management?
Achieve cost savings and better coordinate resources
Advantages of ERP Systems
Added visibility leads to reduced supply chain inventories Helps to standardize manufacturing processes Measure performance and communicate via a standardized method
Continuous Review System advantages and disadvantages
Advantages: Allows for real-time updates of inventory, which can make it easier to know when to replenish. Facilitates accurate accounting, since the inventory system can generate real-time costs of goods sold. Disadvantage: Cost of implementation. Generally requires an automated system. The hardware and software necessary to run the system can be expensive to purchase, install, and maintain.
Periodic Review System advantages and disadvantages
Advantages: Reduces the time spent analyzing inventory. Less expensive than a Continuous Review System. Disadvantages: May not provide accurate inventory counts for businesses with high sales. Can be difficult to determine the best review/reordering intervals. It also can make inventory accounting less accurate.
Too much inventory...
ties up capital; can be a liability
Two types of ERP Systems Implementation
Best of breed: best application for each indiv Single integrator solution: all application sfrom vendor
ATP Available to promise
Business function that provides a response to customer order inquiries, based on resource availability.
How to alleviate bullwhip effect
COLLABORATION through electronic data interchange (EDI), point of sale (POS) SYNCHRONIZING supply chain by coordination REDUCING INVENTORY by just-in-time (JIT), vendor management inventory (VMI), and quick response (QR) CPFR: Collaborative planning, forecasting, replenishment
CPFR
Collaborative planning, forecasting, replenishment business practice combining intelligence of multiple partners sharing plans etc. real benefit: SHARING OF FORECASTS Significantly reduces bullwhip effect by: Better customer service Lower inventory costs Improved quality Reduced cycle time Better production methods
Main purpose of time series modeling
Collect and study past data to generate probable future
MRP II
Coordinates the arrival of materials with the availability of machine and labor A computer-based system that can create detail production schedules using realtime data. used widely by itself, but also as a module of more extensive enterprise resource planning (ERP) systems."
Plan/Planning (SCOR)
DETERMINATION of marketing and distribution channels [promos, quantities, timing, inventory and replenishment, production policies] SCOR (not Supply chain planning--ch 3)
2 ATP methods of calculating quanities
DISCRETE available to promise (on hand supply-ordered) CUMULATIVE available to promise
Delete
Delete
Warehousing/Distribution
FACILITIES that allow companies to store materials and finished products to receive, breakdown, repackage, and ship materials out to a manufacturing location or to a customer.
Costs relating to inventory
Direct- directly traceable to unit produced (e.g., materials, labor, etc.) Indirect- cannot be traced directly to the unit produced (e.g., overhead; MRO items, buildings, equipment, etc.) Fixed(aka Sunk Costs) - independent of the unit volume produced (e.g., buildings, equipment, rent, allocated overhead costs, etc.) Variable- dependent on the unit volume produced vary with output level (e.g., materials, labor, utility power, etc.) Order- labor costs associated with placing an order for inventory and the cost of receiving the order. Carrying- costs for physically having inventory on-site and for maintaining the infrastructure needed to store the inventory and to secure and insure it over time.
Aggregate Planning
ESTABLISHES PRODUCTION RATES that will achieve management's objective of satisfying customer demand by maintaining, raising, or lowering inventories, while attempting to keep the workforce relatively stable.
Forecasting
ESTIMATES FUTURE DEMAND of products so they can be purchased/manufactured in appropriate quantities. developed through data analysis and judgment
Supply Chain Planning
Element of SC determines how best to satisfy requirements created by demand plan. Balance financial/service objectives & satisfy customer at same time (Ch 3)
The EOQ calculation will be impacted by volume economies of scale such as the following
Individual Item Purchase Price Discounts Multiple-Item Purchase Price Discounts Transportation Freight-Rate Discounts
Enterprise Requirements Planning Systems (ERP)
Information system connecting all functional areas and operations of an organization, and in some cases suppliers and customers, via common software infrastructure and database ways to share information
Safety Stock
Inventory above needed to meet anticipated demand and protect against uncertainty of supply/demand aka "buffer stock" Make-to-stock will carry safety stock
Cycle stock
Inventory built to satisfy immediate customer demand. depletes gradually as customer orders replenished cyclically amount held is dependent on actual demand in immediate time period, lead time, quantities
Fixed Time Period System
Inventory is checked in fixed time periods against a target inventory level. If the inventory is less than target, a quantity necessary to bring inventory back up to the target level is ordered. The amount of inventory ordered will potentially vary from period to period based on the remaining inventory at each time interval checked.
Maintenance, Repair and Operating (MRO)
Inventory items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. DO NOT END UP AS PART OF FINISHED PRODUCT ex: oil for equipment, cleaning supplies, coffee for break room
Continuous Review System
Inventory levels are continuously reviewed. As soon as inventory falls below a pre-determined level (i.e., a reorder point), a replenishment order is triggered. More costly to conduct than a Periodic Review System, but it potentially requires less safety stock because inventory is constantly monitored, and replenishment actions are taken more quickly.
Periodic Review System
Inventory levels are reviewed at a set frequency, e.g., weekly, monthly At the time of review, if the stock levels are below the pre-determined level (i.e., a reorder point), an order for replenishment is placed, otherwise no action is taken until the next cycle.
Bin System
Inventory system that uses either one or two bins to hold a quantity of the item being inventoried.
Parent
Item generating demand for lower-level components.
3 basic production strategies
LEVEL, CHASE, MIXED level production strategy - constant output Chase production strategy - capactity to demand Mixed production strategy - stable & st force
Deliver
LOGISTICS phase. oversees the planning and EXECUTION of the FORWARD flow of goods and related information between various points in the supply chain to meet customer requirements. SCOR
Business Plan
LT focus 2-10 yrs, reviewed annually. states the company's objectives for profitability, growth rate, and return on investment STARTING POINT for developing the organization's Production Plan or Aggregate Production Plan
Finished Goods
Those items on which all manufacturing operations, including final testing, have been completed. These products are AVAILABLE FOR SALE and/or shipment to the customer.
Constraints on the Practical use of EOQ
Limited Capital: The model may generate an order quantity which the company does not have sufficient available funds to purchase at one time. Storage capacity: The model may generate an order quantity which the company does not have sufficient storage capacity to handle at one time. Transportation: The item being ordered and transported may require specialized or dedicated transportation, impacting the quantity per order. Obsolescence: The model may generate an order quantity which would create spoilage or obsolescence. Production Lot Size: The supplier may require the company to order an item in full production lot sizes. Unitization: The supplier may require the company to order an item in full pack, case, or pallet configurations.
Resource Requirement Planning (RRP)
Long range capacity planning module used to check whether aggregate resources APP
SC Planning 3 hierarchical broad categories
Long-range, Intermediate range, Short-range LR-strategy/facilities construction: Aggregate Production Plan APP IR: quantity/timing of end items pickup trucks: master production schedule MPS SR: components/parts: materials requirement planning MRP
Forecast Deviations
MAD, MAPE, MSE, Forecast Bias, RSFE
Mixed production strategy
Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand.
MRP
Materials Requirements Planning - what materials needed method of determining what materials are needed and when they are needed to support the production plan. A computer-based materials management system that calculates the exact quantities, need dates, and planned order releases for subassemblies, component parts and materials required to manufacture a final product. (must be customized to meet your works)
Do companies in service industry maintain inventory of services?
NO. since services are produced/consumed on demand. HOWEVER, can maintain inventory of "facilitating goods," which are those items that are used to help facilitate the service being provided. EX. cannot inventory dining services, but can inventory food, tableware, etc. "facilitating goods"
Quantitative TIME SERIES forecasting techniques
Naive - sets demand for next period exactly same as current period Simple moving average - calculated average of historical demand most recent time periods (equal values) Weighted moving average - not all historical time periods valued equally Exponential smoothing - more sophisticated version of weighted. 3 elements last period's forecast/demand and smoothing factor btn 0-1 Linear trend forecasting - best fit line across demand data of entire time series
Inventory Turnover
The number of times that an inventory cycles, or "turns over," during the year. The more turns the better
Planning factor
The number/quantity of each component or material needed to produce a single unit of the parent item
Five qualitative models
Personal Insight--fastest/cheapest/unreliable Jury of Executive Opinion--group panel forecast Delphi Method--same as jury but decisions collected separately (time consuming) Sales Force Estimation - same as jury but salespeople (not ideal for long term forecasting) Customer Survey--customer opinion (no bias; time consuming)
Logistics
Plans, implements, controls flow/storage of goods from point of origin to point of consumption (in a single organization)
Demand planning
Process of combining statistical forecasting techniques and judgment to construct demand estimates for products/services. Mgmt review forecast to ensure that is is aligned with company strategy. All areas affected by forecasting key building block
Sales & Operations Planning (S&OP)
Process that brings all D/S plans for the business together to provide management with the ability to strategically direct the business to achieve a competitive advantage If capacity = demand then efficient c > d promo and advertising c < d subcontract
Pull or Make to order
Producing stock in response to actual demand
Push or make to stock
Producing stock on the basis of ANTICIPATED DEMAND. Demand forecasting can be done via a variety of sophisticated techniques.
Projected On-Hand Inventory
Projected closing inventory at end of a period. Beginning inventory minus gross requirements, plus scheduled receipts plus planned receipts from planned order releases.
Raw materials
Purchased/extracted materials that are converted via the manufacturing process into components and products.
Two basic forecasting techniques
Qualitative - opinion/intuition; depends on skill/experience Quantitative - mathematical models/historical data
Capacity planning
RRP, RCCP, CRP Resource Requirement Planning (RRP) Rough-Cut Capacity Planning (RCCP) Capacity Requirement Planning (CRP)
Flow of products
Raw materials to interm suppliers to manufacturers to distributors to retailers to customers
Inventory Categories
Raw materials, WIP, finished goods, maintenance, repair and operating supplies (MRO)
Pegging
Relates the gross requirements for a component part to the planned order releases of the parent item, so as to identify the source(s) of the item's gross requirements. Pegging can be thought of as active where-used information.
Level production strategy
Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Make to stock
Return
Reverse logistics. planning and controlling the process of moving goods specifically from the point of consumption BACK TO POINT OF ORIGIN for repair, reclamation, remanufacture, recycling, or disposal. SCOR
3 major ERP provideors
SAP Oracle Microsoft
Time fencing
SEPARATING the planning horizon INTO FIRMED time period AND PLANNED time period: firmed time period: CURRENT date to several weeks future. cannot make automatic changes. planned time period: end of firmed time period to end of horizon. free to make changes.
Quantitative CAUSE AND EFFECT forecasting techniques
Simple and multiple linear regression Regression uses historical relationship between independent (bike) and dependent (parts) variables to predict future values of dependent variable
MRP requires
The independent demand information, i.e., finished product forecast Parent-component relationships from BOM Inventory status of final product and each of the components and materials. Planned order releases (output of MRP)
Advantages and Disadvantages of ERP Systems
Substantial time and capital investment Complexity Firms adapt processes to meet ERP system
Radio Frequency Identification (RFID)
Successor to the barcode for tracking individual unit of goods. RFID does not require direct line of sight to read a tag, and the information on the tag is updatable.
reorder point (ROP)
The lowest inventory level at which a new order must be placed to avoid a stockout
SCOR Model
Supply Chain Operations Research Model Plan Source Make Deliver and return and enable
Closed loop MRP
Synchronizes the purchasing or materials procurement plans with the master production schedule. called a closed loop MRP because of its feedback feature.
Fixed-Time Period System
The order quantity is the difference between the on-hand stock on the review day, and the pre-determined target inventory level. Q = R - IP
MRP Explosion
The process of converting a parent item's planned order releases into component gross requirements
net requirements
The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.
Absolute Inventory Value
The value of the inventory at either its cost or its market value.
Why important to identify Tier 1 sup/cust?
These are partners you want to build relationship with first
Variations in Quantitative Forecasting
Trend, Random, Seasonal, Cyclical Trend Variations: movement over time (laptops) Random: Instability by random occurances short-term (hurricane) Seasonal repeating patterns year to year (holiday, swimsuits) Cyclical: wavelike pattern extend over years. hard to predict (GDP)
Time Bucket
Unit of time / time period used in MRP, e.g., days, weeks, months
Business Process Reengineering
a process that involves rethinking and REDESIGN of business processes to achieve dramatic organizational improvements
Forecast Bias
a consistent deviation from the mean in one direction; either high or low. (consistently over/under)
Make to stock supply chain carries how much inventory?
a lot. product is produced prior to receipt of a customer order. A forecast and demand plan are created and the finished
Running Sum of Forecast Errors (RSFE)
a measure of forecast bias. RSFE indicates the tendency of a forecast to be consistently higher or lower than actual demand. + = low forecast demand (underestimated) - = high overestimated demand
Just In Time
a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement AS NEEDED - reduces inventory costs
Safety Stock
a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. Over planning supply versus demand can be used to create safety stock.
Linear (1D) Bar Codes
a series of alternating bars and spaces printed or stamped on parts, containers, labels, or other media, representing encoded information that can be read by electronic readers.
"Single-Period" Inventory Model
a type of inventory system in which inventory is only ordered for a one time stocking.
Base Stock Level System
a type of inventory system that issues an order whenever a withdraw is made from inventory.
Service supply chain
about managing relationships between trading partners
Forecast errors are quantified as:
absolute value or percentage.
Enable
additional aspect of SCOR facilitate a company's ABILITY TO MANAGE the supply chain and are spread throughout every stage. In other words, we want to enable our capabilities as we plan, source, make, and deliver (and return). not a stage that occurs sequentially after all of the others.
Since forecasts inaccurate, companies track the forecast...
against actual demand and measure the size and type of the forecast error.
backorder
cannot ship finished product to customers against their open orders
Enterprise Requirements Planning (ERP)
an extension MRPII and includes DRP which DETERMINES NEED to replenish finished product inventory at branch warehouses, when there are MULTIPLE WAREHOUSES in the network.
Quality Management
an important aspect of the make/manufacturing process SCOR
intermodal
any combo of transportation for single shipment
2D Bar Codes
are a graphical image that stores information both horizontally and vertically.
ABC System
classifies inventory based the degree of importance
Order costs
costs that are incurred each time an order is placed. Order preparation costs Order transportation costs Order receipt processing costs Material handling costs
Carrying Cost
costs that are incurred for holding inventory in storage. Cost of capital - specified by senior management Taxes - on inventory held in warehouses Insurance - based on estimated risk or loss over time and facility characteristics Obsolescence - deterioration of product during storage, and shelf-life Storage - facility expense related to product holding rather than product handling
outbound transportation
customers: wholesaler/distributor to retailer to customer
Independent demand
demand for an item unrelated to demand for other itmes (demand is forecasted) "bicycle" EXTERNAL
dependent demand
demand is directed related to other items (demand is calculated) "components for bicycle" INTERNAL
2 Aggregate planning strategies
demand options supply options
bill of materials (BOM)
document that shows an inclusive listing of all component parts and assemblies making up the final product. single level - directly in use (planning factor) multi level - directly/indiretly used planning bom - artificial grouping of items (product family) used to facilitate master scheduling/
2 supply chain capability models
efficient and responsive efficient - low cost / functional products responsive - fast / innovative products
Firmed Time Fence
established at the outer limit of firmed time period to signify when changes can no longer be made automatically by the planning system.
Good forecasting
facilitates more effective planning - leads to reduced inventory, reduced costs, etc. Best = consistently accurate as possible; minimize error (need verifiability)
Quantitative forecasting techniques
time series - future is extension of past; historical data (purpose - to collect and study past data to predict future) cause and effect--simple linear/multiple linear regression (assumes factors predict future demand)
Work-in Process
goods in various stages of completion throughout the plant, from released raw material to fully processed material awaiting final inspection and acceptance as finished goods.
Bullwhip effect
less info available as go backward from consumer BACK to supplier. Greater need for safety stock. Supply chain participants second-guess and over-react, creating bullwhip effect. Rising demand = increased orders. Falling demand = decrease and inventory accumulates When ripple felt by retailer, retailer adjusts to wholesalers on up. magnitude of fluctuation becomes unrecognizable by time reach supplier
What is goal of supply chain?
increase customer service while reducing inventory investment and operating expenses
Tracking Signal
indicator that forecast bias is present. is forecast within acceptable limits? If not, there is a bias
Aggregate planning strategies: demand options
influencing demand - aligns to product capacity back-ordering during high demand counter-seasonal product mixing
Inventory becomes a liability when?
it becomes unusable due to expiration, obsolescence, damage, or spoilage.
strategic stock
large inventory for specific purpose or future event built up to withstand long holdups or scarcity due to natural calamities, strikes, or war. also bus oppt, life cycle changes, new launch, transition protection, price discount advantage aka "anticipation stock, build stock, seasonal stock"
Make to order supply chain carries how much inventory?
little to none; not produced till customer orders
disadvantage of MRP
loss of visibility; ignores capacity and shop floor conditions
Mean Squared Error (MSE)
magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods.
Why is holding inventory necessary?
maintain operations and ensure products available
factors that influence demand
market changes, seasonality, competitive activity
Mean Absolute Percent Error (MAPE)
measures the size of the error in percentage terms. It is calculated as the average of the unsigned percentage error.
Finished goods are worth...
more than raw materials or WIP since all of the material, labor, and overhead costs are fully applied to finished goods.
Mean Absolute Deviation (MAD)
measures the size of the forecast error in UNITS.
WIP best practice:
minimize the amount of WIP inventory in the manufacturing area since too much WIP may clutter up the physical space and impede the process flow.
Multiple linear regression
model the relationship between TWO OR MORE independent variables and a dependent variable (demand) ex. advertising and promotion and selling price
Simple linear regression
model the relationship between a SINGLE independent variable and a dependent variable (demand)
The more inventory you have...
more space needed, more taxes, security, etc.
Stockout
no inventory available
Lot Size
order size for MRP logic
Components
parts demanded by a parent.
external inventory held:
pipeline inventory (inventory in transit/distribution already in market held by suppliers or dis/ret/customers ownership transferred to tradign partners but still influence deisions for how much safety/strategic stock to hold.
Advantages of MRP
provides planning info
Inventory
quantities of goods and materials that are held in stock. largest asset of org
Bad forecasting
root cause for more inventory etc
uncertainty in demand =
sales or usage above expectations
uncertainty in supply =
shortages, delays, disruptions
3 levels of internal inventory held:
strategic stock, safety stock, cycle stock
Study ppt 1 slides 50+
study
SC disruption
supplier cannot deliver material as planned The manufacturer cannot continue production. temp stops production causes backorder No inventory available = stockout
Inbound transportation
suppliers: suppliers to manufacturer
Work-in-Process can be viewed as...
the "black hole" of inventory as they may not have very good or very timely visibility into this part of their inventory.
Total Quality Management
the approach to long-term success through customer satisfaction based on the participation of all members of an organization to improve the quality of their work
Forecast Error
the difference between the actual demand and the forecast demand. a critical role in tracking forecast accuracy, monitoring for exceptions, and benchmarking the forecasting process.
Source/Sourcing
the process of IDENTIFYING the suppliers that provide the materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s). SCOR
Reducing the bullwhip effect means
the reduction of safety stocks (and associated costs) within and across the trading partners in a supply chain.
Make/Manufacture
the series of OPERATIONS performed to convert materials into a finished product. most METRIC-intensive portion of the supply chain SCOR
Companies willing to store excess raw material when?
they fear there may be a potential shortage of the material or if they suspect that there is an upcoming price increase and want to buy at the current lower price.
Modes of transportation
truck, rail, air, pipeline, water