Supply Chain

There are four main categories of inventory:

-*raw materials* used in production, -*work-in-process* items (semi-produced but not complete), -*finished products* to provide customer service, -*maintenance, repair, and operating* supplies needed to run a business

fixed order quantity system

-An order for a pre-defined quantity for that item 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.

customer relationship management (CRM)

-Customer Relationship Management (CRM) is aligning the people, process, and technology of a company to be a customer-centric organization, *focusing on customer requirements, rather than internal company goals.* - a philosophy of putting the customer first. - *moving beyond satisfied customer and creating loyal customers*

Transportation deregulation

-Deregulation encourages competition and allows prices to adjust as demand and negotiations dictate. -U.S. transportation industry *remains mostly deregulated*

Safety Stock (aka buffer stock)

-To Buffer Against Uncertainty and Decouple Dependencies in the Supply Chain -Uncertainty in demand: sales or usage above expectations -Uncertainty in supply: shortages, delays, disruptions -Separating operational dependencies

Trends in CRM

-customer data privacy -social media -increasing customer expectations

free on board destination

-free for the buyer -seller assumes risk

free on board origin

-free for the seller -buyer assumes risk

air transportation

-inflexible -fast -highest cost on per unit basis mostly for light, high value goods, over long distances quickly

pipeline transportation

-inflexible -fast -lowest per unit cost basis -most reliable, little maitenance

water transportation

-inflexible -slow -low per unit cost basis -used for long distances across water, heavy bulky low per unit price goods

forecasting accuracy measures

-mean absolute deviation (MAD) -mean absolute percentage error (MAPE) -mean squared error (MSE)

motor transportation

-most flexible -most costly per unit basis -faster than rail and water -80% US freight

Loyal customer =

-repeat customers, profitable revenues (reduce acquiring costs), Marketing, testimonials, service(youtube vids, how to)

successful CRM program can provide:

-retention, cost effective, increased sales, customer loyalty, growth

rail transportation

-slow -inflexible -less costly than motor on per unit basis -used for long distances across land, heavy shipments, low per unit price

Forecasting

-the process of *estimating future demand* for products and services so that they can be available in appropriate quantities in time to meet the customer's requirements. -forecast will be wrong, goal is to minimize the forecast error

key tools and components of CRM

1. Predicting Customer Behaviors 2. Segmenting Customers 3. Target Marketing 4. Event Based Marketing 5. Permission Marketing 6. Crossselling and up-selling 7.personalizing Customer Communications 8. Analyzing Customer Defection 9. Customer Lifetime Value (CLV)

Bad forecasting results in just the opposite

Bad investments, inefficiencies, excess inventory or lost sales, corrective actions, poor financial performance.

inventory turnover ratio

COGS/average inventory

"Single period" inventory model

Christmas tree lots -a type of inventory system in which inventory is -only ordered for a one-time stocking. -The objective is to maximize profits.

churn reduction

Churn Reduction is all of the efforts companies develop to stop losing customers to the competition churn- process of customers changing their buying preferences because they find better or cheaper products and services elsewhere.

market positioned strategy

Close to customers to maximize distribution services and improve delivery

trend variations (quantitative variations)

Long term trend of the demand. Easily observed by plotting actual demand on a graph over time. Any *expected impact to the long term trend* (newer technology, change in population, etc.) landlines vs smartphones

intermediate positioned strategy

Midway between supply source and customers, when distribution requirements are high and product comes from various locations

exempt carriers

Person or company specializing in services or transporting commodities *exempt from regulation by the Interstate Commerce Act.*

common carriers

Person or company who transports freight for a fee that can be hired by anyone to transport goods. -like public warehouses

contract carriers

Person or company who transports freight under contract to one or a limited number of shippers. -like contract warehouses

forecasting techniques

Qualitative quantitative

seasonal variations (quantitative variations)

Repeating pattern of demand increases or decreases during specific time intervals -Hourly (morning, afternoon, evening, overnight) -Daily (weekdays, weekends, holidays) -Weekly (beginning of month, end of month) -Monthly (key activities, holidays) -Seasonally (holiday, winter, summer, back to -school)

collaboration (bullwhip alleviation)

Sharing information through the use of electronic data interchange (EDI), point of sale (POS) data, and web-based systems facilitates collaboration.

Periodic review

The Periodic Review System (reviews physical inventory at specific points in time) is less costly and requires higher level of safety stock

Naive forecasting (time series)

The forecast for the next time period is equal to the actual result in the last time period. ex) sales in August= 25,500 forecast for September is 25,500

cross-dock warehouse

The logistics practice of unloading materials from an incoming truck or railcar and loading these materials directly onto outbound trucks or railcars, with little or no storage in between to reduce inventory investment and storage space requirements.

simple moving average (time series)

Uses a calculated average of historical demand during a specified number of the most recent time periods to generate the forecast.

sales force estimation (qualitative)

Utilizes the knowledge of the sales force. Sales people provide the forecast for their territory / customers. This is consolidated into a total forecast

Cause and effect (quantitative techniques)

assumes that one (or more) factors (independent variables) will impact future demand. New homes-> appliances

Qualitative forecasting

based on *opinion* and *intuition* using the expertise of those making the forecast along with general available information such as Macro Economic data and trends. -used when data is limited or unavailable -qualitative models: personal insight jury of executive opinion Delphi method sales force estimation customer survey

Time series (quantitative techniques)

based on the assumption that the future is an extension of the past. Historical data is used to predict future demand

Indirect costs

cannot be traced directly to the unit produced overhead

how can the bull whip affect be alleviated

collaboration synchronizing the supply chain inventory management collaborative planning, forecasting and replenishment (CPFR) *reducing the bullwhip effect means the reduction of safety stocks* within and across the trading partners in the supply chain

third party logistics (3PL)

company is an outsourced provider that manages all, or a significant part, of an organization's logistics requirements for a fee. ex) FedEx, UPS -They typically generate savings in logistics costs due to expertise and size -Favored by small businesses -Used to a significant degree for international logistics -take care of warehousing

Dependent Demand

demand for an item that is directly related to another item's demand, such as a component or material used in making a finished product. ex) wheels, handlebars,spokes, etc.

Independent Demand

demand for final products affected by trends, seasonal patterns, & general market conditions. ex) bicycle

Variable costs

dependent on unit volume produced, vary with output level

Order / Setup Costs

direct costs associated with placing an order for inventory or setting up production machines.

Direct costs

directly traceable to the unit produced materials and labor

Quantitative forecasting

forecasting uses *mathematical models* and historical data to make forecasts

Postponement Strategy

generally suggests maintaining an amount of almost completed WIP inventory near the point of consumption to enable quick response to customer orders for customized products

order costs

incurred each time an order is placed Order preparation costs Order transportation costs Order receipt processing costs Material handling costs

carrying costs

incurred for holding inventory 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

fixed costs

independent of the unit volume produced

Reverse Logistics

involves the process of moving a product from the point of customer back to the point of origin to recapture value or ensure proper disposal. -very different from Logistics -instead of dealing with shipping large quantities, they are dealing with one item from one customer -problem resolution process -can cost 4-5 times as much as forward logistics -UNWANTED (mostly outsourced)

forecast bias

is a consistent deviation from the mean in one direction; either high or low. forecast is consistently high or low

The goal of inventory management

is to meet customer expectations while also meeting the company's financial targets. -Enable Sales -Increase profitability -Improve Cash Flow

mean squared error (MSE)

magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods. Large forecast errors are heavily penalized -actual -forecast= deviation -square all the deviations -find average of squared deviations

consolidation warehouse

many different suppliers send there products to the warehouse, then they are sorted, combined with similar shipments from other plants for further distribution closer to suppliers (amazon)

Good forecasting benefits a company

more effective planning, which can lead to efficient processes, reduced inventories & costs, improved customer service and better financial performance.

levels to customer loyalty

raving fan advocate member customer shopper prospect suspect

strategically significant customers

relationships should try to be built with them, *will provide the most value for the effort* -high lifetime value -role models for other customers -inspire change

5 R's of reverse logistics

returns, recalls, repairs, repackaging, recycling

weighted moving average (time series)

similar to a simple moving average except that the time periods are weighted to address trend. -can give more emphasis to recent data (dont divide at the end, just add them up, will equal 100%)

warehousing network

single warehouse- less warehouse costs, simpler inventory management, higher transportation costs, can limit growth potential, delays, cannot specialize warehouse multiple warehouses- complicates inventory management, higher warehouse costs, faster delivery to customers, lower transportation costs, supports growth, can specialize warehouse in services

Economic order quantity equation=

sqrt( 2 x order cost x annual demand volume/ annual carrying cost % x unit cost)

Intermodal transportation

the use of multiple modes of transportation to execute a single transport shipment -growing popularity because of cost efficient and effective -most common are: rail to motor- offers point-to-point pickup and delivery (trailer on flatcar) rail to water-offers point-to-point pick up and delivery (container on flatcar) roll-on/roll-off ship-specifically designed to allow trucks to be driven directly on and off the ship without the use of cranes. (Provides flexibility and speed)

lead time

time from when you order it to when you get it

logistics includes

warehousing transportation reverse logistics that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information, from point of origin to point of consumption, in order to meet customer requirements

cyclical variations (quantitative variations)

wavelike movements that are longer than a year (business cycle). Economic swings (recession, expansion, bull or bear markets)

contract warehouse

you are renting out a warehouse form someone else for a long period of time

private warehouse

you own the warehouse

7. relationship or permission marketing

An approach to selling products and services in which a customer explicitly *agrees in advance to receive marketing information.* Customers self-select the type and time of communication they want. ex) opt-in email

jury of executive opinion (qualitative)

An experienced group of senior management executives knowledgeable about the market, competitors, and the business environment develop a forecast.

production positioned strategy

Close to supply source to collect goods and consolidate before shipping products out to customers.

customer survey (qualitative)

Customers are approached and asked to give their opinions about the particular product or service.

tracking signal (forecast bias)

Determines if the forecast is within acceptable control limits and provides a warning when there are significant unexpected departures from the forecast. =RSFE/MAD

Bullwhip effect

Forecast changes & their corresponding orders along the supply chain can become amplified and accumulate, causing the bullwhip effect whereby excess safety stock is included at all levels of the supply chain from information gaps resulting in higher Supply Chain costs

mean absolute deviation (MAD)

Identifies how far off the forecast was in absolute terms Ex. 100 units *sum all of the absolute deviations and find the average* (absolute deviation= actual -forecast)

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

Bin system

Inventory is managed based on bins, not individual units. When the bin is near depletion, an order is placed for another bin quantity to refill or replace the inventory. low value items such as nuts and bolts

what is inventory?

Inventory is the goods and materials that are held in stock for sales, service, production and maintenance.

Companies in the service industry do maintain inventory of

"facilitating goods," which are those items that are used in the service being provided. ex:) Restaurants offer dining services. They cannot inventory the actual dining service but do inventory the food, tableware, and other elements of the dining operation.

Days / Weeks of Supply

(on-hand inventory) / (avg. daily / weekly usage)

the primary function of inventory is to

*Buffer* uncertainty in the marketplace -ex) bagel shop intends to sell 1000 bagels in a day. holds dough on hand in case it sells sells 1200. *Decouple* dependencies in the supply chain (safety stock) -If one stage in the supply chain breaks down it wont effect the next stages -ex) bagel shop will hold extra dough in on hand in case the supply truck doesn't show up.

simple linear regression (cause and effect)

Only one explanatory variable is used & is the same as the linear regression model. The difference is that the x variable is no longer time but an explanatory variable. y=mx+b y = forecast or dependent variable x = explanatory or independent variable (sales volume) b = intercept of the line m = slope of the line

transportation regulation cons

Regulation discourages competition and does not allow prices to adjust based on demand or by negotiation.

transportation regulation pros

Regulation tends to assure adequate transportation service throughout the country. Protects consumers from monopoly pricing, safety, and liability.

Delphi method (qualitative)

Similar to the Jury of Executive Opinion except that the input of each of the participants is collected separately by an independent facilitator to maintain expert independence.

Random variations (quantitative variations)

Spikes in the data caused by random occurrences. These are generally very short-term and can be caused by unexpected and unpredictable events such as weather emergencies, natural or man made events or rare happening (e.g., Superstorm Sandy, 9/11, protest march, 250 year anniversary ) -look to eliminate form data

CPFR model

Step 1: Collaboration Arrangement Step 2: Joint Business Plan Step 3: Sales Forecasting Step 4: Order Planning/Forecasting Step 5: Order Generation Step 6: Order Fulfillment Step 7: Exception Management Step 8: Performance Assessment

synchronizing supply chain (bullwhip alleviation)

Supply chain participants coordinate planning and inventory management to minimize the need for reactionary corrections.

personal insight (qualitative)

The forecast is based on the insight of the most experienced, knowledgeable, & / or senior person.

Cycle Stock

-To Meet Customer Demand: -Immediately fill customer orders -Deploy the product / material near where it will be used -depends on forecast demand, supply replenishment, and financial constraints

base level stock system

-a type of inventory system that issues an order whenever a withdrawal is made from inventory. -Replenishment order quantity is equal to the quantity withdrawn from inventory. -This will maintain the inventory at a base stock level. -Used primarily for very expensive items, e.g., airplane engine -A form of just-in-time.

4. event based marketing

-companies track your life events, business cycle ex) after you get a ticket your receive lawyer ads in the mail -An event can be something basic and predicted, like the end of a contract, a holiday, a season (Halloween, "Black Friday", "Cyber Monday", Christmas, etc.) or something more detailed and personal, like a birthday, a marriage, or a graduation.

assumptions of the EOQ model

-demand is known and constant -delivery time is known and constant -instantaneous replenishment -price is is known and constant (no price discounts) -order cost is known and constant -carrying cost is known and constant -no stock-outs are allowed

forecast error

-difference btw actual quantity and forecasted amount -goal of forecasting is to minimize forecasting error

external inventory

-downstream supply chain channel partners -pipeline inventory: Inventory that is already out in the market being held by wholesalers, distributors, retailers, and even consumers.

tools to improve efficiency and effectiveness

-eliminate the call: web self-service social media live chat voice response system -reduce the call time/cost: Multi level agent training Standard response scripts Agent incentives Charge for support

5. up selling

-involves persuading a customer to buy a more expensive item or upgrade a product or service to make the sale more profitable. It also involves selling the customer extra features or add-ons to the product they are already buying or considering. ex) warranties, buy the whole meal rather than just the burger

ABC system

-manages inventory based on degree of importance -aligns inventory levels to importance -matches inventory to sales volume -Determines which inventories should be counted & managed more closely than others -Groups inventory as A, B, & C Items -A items are the most important in sales volume and are the highest priority. -B items are of medium importance, often being relatively more expensive (per unit). -C items have the lowest priority

reorder point

The lowest inventory level at which a new order must be placed to avoid a stockout is known as the Reorder Point (ROP) The ROP is the level that provides enough inventory to meet demand during the order lead time (LT). *reorder point=demand x lead time* must be working with same units (i.e. days, months...) OR reorder point= (demand * lead time) + safety stock

Inventory Turnover

The number of times that an inventory "turns over," during the year. The more turns, the better !!

2. segmenting customers

The practice of *dividing a customer base into groups* of individuals that are similar in specific ways relevant to marketing group by income, demographics, geography, buying preferences, etc.

warehousing

The true value of warehousing lies in having the right product in the right place at the right time. Warehousing helps provide time and place utility; the ability to locate materials close to where needed. The practice or process of storing goods in a warehouse. Includes receiving, storing, breakdown, repackaging, and preparing items for shipment.

inventory management (bullwhip alleviation)

The use of just in time (JIT), vendor managed inventory (VMI), quick response (QR) and other inventory management methodologies simplify safety stock management in the supply chain.

absolute inventory value

The value of the inventory at its cost. Generally found on the balance sheet.

Strategic Stock

To Decouple Supply from Demand: -Supply pattern is different from demand pattern: -Achieve economies of scale in production or procurement -Take advantage of volume price breaks and discounts -Speculative buying in anticipation of a price increase -Seasonal product demand requirements

Transportation

Transportation management is the function of planning, scheduling, and controlling the activities related to the movement of product for a company. It includes deciding on mode, carrier and service level. Transportation provides Time & Place utility - Products have little value to the customer until they are moved to the customer's point of consumption in the time needed. motor rail water pipeline air key tradeoffs= cost, speed, flexibility

6. personalizing customer communication

Understanding customer behaviors and preferences, allows a firm to customize communications aimed at specific groups of customers and is likely to result in greater levels of sales. -shows company cares -helps form loyal customers

forecast and demand planning

are the key building blocks from which all supply chain planning activities are derived

multiple linear regression (cause and effect)

attempts to model the relationship between two or more independent variables and a dependent variable (demand) by fitting a linear equation to the observed data. -several explanatory variable ex) RU cafeteria meals

collaborative planning, forecasting, and replenishment (CPFR) (bullwhip alleviation)

business practice that combines the intelligence of multiple trading partners who share their plans, forecasts, and delivery schedules with one another in an effort to ensure a smooth flow of goods and services across a supply chain. -Better customer service -Lower inventory costs -Improved quality -Reduced cycle time -Better production methods fundamentally changes he way buyers and sellers work together The real value of CPFR comes from the sharing of forecasts among firms, rather than firms relying on sophisticated algorithms and forecasting models to estimate demand.

methods of customer service interactions

call centers- link organization to customers phone calls (most expensive, least effiient) live chats email website self-service field service

Holding / Carrying Costs

costs for physically holding inventory, maintaining the infrastructure needed to store the inventory, secure and insure it over time.

cost of acquiring customer

costs- advertising, sales person time, creating prices and promotions -Finding a new customer costs five times as much as keeping an old customer

linear trend forecasting (time series)

is imposing a best fit line across the demand data of an entire time series. Used as the basis for forecasting future values by extending the line past the existing data and out into the future while maintaining the slope of the line. y=mx+b y = forecast or dependent variable x = time variable b = intercept of the line m = slope of the line -more accurate than moving averages

terms of sale

is the delivery and payment terms agreed between a buyer and a seller. It establishes the point where ownership is transferred and payment clock starts

Demand planning

is the process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services.

8. customer defection analysis

leads to churn reduction The process of analyzing the customers who have stopped buying to determine why.

Inventory control tools

linear bar code-Linear bar codes do have some limitations: they are one-dimensional, can only be read horizontally, and can only hold a maximum of 85 characters. 2D bar code-2D Barcodes can store over 7,000 characters, allowing transmission of almost two paragraphs of information. Radio frequency Identification- automates the supply chain

Internal inventory

meet customer demand buffer against uncertainty in demand and/or supply decouple supply from demand decouple dependencies in the supply chain cycle stock->safety stock->strategic stock

5. cross selling

occurs when a company sells an additional related or complementary product or service to an existing customer after the initial purchase. ex) If you're buying an item on Amazon.com, you may be shown other similar items to the one you are looking at, or companion products to the item that you are considering

The economic order quantity (EOQ) model

order costs = carrying costs -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 -total cost= purchase+order+carrying

public warehouse

own by someone else, you pay rent to store your companies inventory there (outsourcing)

private carriers

person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled. -do it yourself -like private warehouses

timing of customer service transaction

pre-transaction elements transaction elements post-transaction elements

running sum forecast error (RSFE) (forecast bias)

provides a measure of forecast bias. RSFE indicates the tendency of a forecast to be consistently higher or lower than actual demand. *sum of actual errors*, closer to zero the better positive= too low, underestimating demand negative= too high,overestimating demnad

mean absolute percentage error

provides a perspective of the true magnitude of the forecast error Ex. 100 on 1,000 <10%> vs. 100 on 100,000 <1%> *sum the percentage errors and find the average* percentage error= (actual-forecast)/actual

break-bulk warehouse

receive products form one supplier, sort them into more appropriate quantities and distribute them -close to customer base, FTL travels further, LTL travels smaller distance

5 primary functions of a warehouse

receiving- Physical receipt of material, identification, inspection for conformance with the Bill of Lading (model, quantity, check for damage), update computer system records, put-away, and filing of receiving paperwork. storage- The safe and secure retention of products per customer requirements. picking- Withdrawing products from stock for use or shipment. packing-Putting product into an appropriate container for safe secure and efficient transport. Marking and labeling the container with a Bill of Lading and other information that may be required. shipping-Preparing products for outgoing shipment. Staging and loading on the correct transportation vehicle. Includes palletizing, weight distribution, and properly loading for shipment.

1. predicting customer behavior

-Collect and analyze customer *buying history, preferences, and trend information* which could then be used to predict customer buying behaviors going forward. -This information could also be used to determine how effective marketing, advertising and promotions have been in the past and determine whether these practices should be continued or altered.

quantity discount or price-break model

-Considers the tradeoff between purchasing in large quantity to take advantage of the price discount and issuing fewer orders, against holding higher inventory. -only one solution will work in an EOQ price discount model

two important consideration about forecasting

1.) Though the forecast will be inaccurate, it is still useful. Some information is better then no information 2.) The forecast is the basis for most supply chain planning decisions.

continuous review

A Continuous Review System (verifying inventory levels after each movement) is more costly but requires less safety stock

sales force automation (SFA)

A core component of CRM systems used to document and measure sales team activities. Sales Activity Management- Tool offering sales reps a *guided sequence of sales activities* Sales Territory Management- Sales managers obtain information on each sales rep's activities Lead Management- Prescribed tactics to convert prospects into customers. Knowledge Management- Establish *data repository* that can be used by all areas of the company *to improve sales and supply chain performance.*

customer lifetime value

A prediction of the net profit attributed to the entire future relationship with a particular customer. CLV is an important metric for determining how much support to provide existing customers vs. money to spend on acquiring new customers.

3. Target Marketing

A segment of customers a company has decided to aim its marketing efforts. A well-defined target market is the first element of any marketing strategy -more effective than mass marketing

forecast error value= forecast error %=

Actual- forecast (can be -) (error value/actual) x100 (cant be -)

obsolete inventory

Inventory items that is expired, damaged, or no longer able to be sold at full value. *Obsolete inventory will never be sold at full value.* -Obsolete inventory must be valued at the lower market value to correct the financial records. This will reduce the company's profit. -Unusable inventory takes up space and costs money to store. So it may be better to absorb the loss as soon as an item has been deemed obsolete. -There is a cost associated with the actual disposal of the inventory which must follow recycling and disposal regulations. -Some companies donate this inventory to non-profit organizations, which not only helps the non-profit but also avoids disposal costs and may result in a tax benefit for the company.