APICS MOD 2

Monthly S&OP Process

Optional Step : Product Review - update on new product developments, product changes, process changes that can impact supply/demand Step 1: Data gathering - statistical forecasts updated Step 2: Demand planning phase - statistical forecast reviewed by product/brand, marketing, sales - highest ranking demand side professional chairs - demand manager prepares dashboards (consolidates plans, demand plan in units and dollars, metrics, assumptions, events, opportunities, risks, decisions) - meeting brevity: product family level, subfamilies by exception, what changed since last meeting (replanning), validating assumptions - strategies to close gaps between demand and business plan - success of demand plan depends on quality of communcations - outcome: one forecast (sales and marketing handshake) Step 3: Supply planning phase - supply management team may alter operations plan if necessary - use consensus demand plan to generate production plan - identify constraints that prevent operations from being able to satisfy demand plan = operations handshake - supply/demand match: production plan matches demand plan - supply/demand mismatch: produce above demand for certain periods to meet later spikes in demand, increase capacity by hiring, adding shift, planning overtime, leasing equipment, outsourcing (or opposite), reducing demand plan as last resort Optional Step: Financial Review Step 4: Pre - meeting - key players review data, set executive meeting agenda - purpose: identify area where consensus can be reached without needing executive input and add the more contentious items to executive review agenda Step 5: executive meeting - VPs meet monthly to review decisions and strategy - participants: CEO, demand/supply/finance executives, direct reports to CEO - goal: consensus demand plan - review metrics, changes, new risks, opportunities, other events - executives want to know: are plans on budget, schedule, scope? how are product mixes performing? do current strategies need modifying and when do decisions need to be made? - communication of agreed upon plan to all internal participants is critical - depends on quality of internal communications process - executive committee compares the demand plan to the business plan to see if actions need to be taken to bring them in line with each other (e.g., additional marketing activities). Outcome: Consensus Demand plan and production plan that reflects results of demand side sensing and influencing activities and supply and finance side capabilities and constraints replanning used in each meeting - start with results from last month purpose of S&OP meetings: give each area of org sufficient time to prepare tactical plans and study the plans submitted to them so they can assess what impact the plans would have on their area of concern. S&OP processes ensures that detailed reviews are occurring, that decisions from each part of org get reliable understanding of org's current needs and capabilities, and that checks and balances are in place to give executives understanding of and control over the direction of the org

Rough Cut Capacity Planning (RCCP)

RCCP takes a more detailed, medium term look at production priorities as described in MPS and determines whether capacity is available to carry out the scheduled activities Checks at this point: bottlenecks, gateway work centers, critical suppliers - RCCP reviews key resources and bottleneck areas, not all operational capacity Bottleneck: facility, function, department, or resource whose capacity is less than the demand placed upon it Similar to resource planning, RCCP has inputs for critical resources and standard resource capacities (bill of resources vs resource profiles) - Difference is that for RCCP these inputs specify individual items rather than product families Bill of resources (bill of capacity): a listing of the required capacity and key resources needed to manufacture one unit of a selected item. RCCP uses these bills to calculate the approximate capacity requirements of the MPS. Resource planning may use a form of this bill Goals of RCCP for master production schedule output: The output of the RCCP process is a workable master production schedule. An MPS is considered workable if the master scheduler has verified that: - Bottleneck capacity per item per time period is sufficient - The plan makes the best use of resources - Customer delivery promises can be kept - The plan is still economical given all excess costs that will be incurred such as overtime RCCP mid range capacity planning; validates critical resource availability (bottlenecks) for MPS process of converting MPS into key resource reqiurements comparison of load vs available or demonstrated capacity for each key resource Inputs: Preliminary MPS, critical resources, bill of resources Output: MPS

Sales and Operations Planning (S&OP)

a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continual basis by integrating customer focused marketing plans for new and existing products with the management of the SC. Process brings together all plans for business into one integrated set of plans. It is performed at least once per month and is reviewed by management at an aggregate (product family) level. Process must reconcile all supply, demand, and new product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company's plans for the near to immediate term, covering a horizon sufficient to plan for resources and to support annual business planning process. Executed properly, S&OP process links strategic plan for business with its execution and reviews performance measurements for continuous improvement S&OP is both a plan and process

Managing MRP

degree of inflexibility in MRP due to fixed LTs MRP has ease of replanning System nervousness is when too frequent alterations of plans can be frustrating for those who have to put them into effect such as purchases 1. avoiding system nervousness - In net change approach, only those parts of MRP that require changes have to be altered. Other option is more difficult and is regeneration of entire plan - establish time fences in master schedule (rescheduling only with authorization) - pegging components to end products in BOM. System nervousness can make sound system costly and inefficient Can be a symptom of excessive reprioritizing on shop floor or in purchasing, can underlie a variety of problems such as quality issues or other conditions. Need to understand root causes of system nervousness 2. Reconciling JIT or lean with MRP - small bucket or bucketless systems - MRP usually uses a bucket system of timing orders. Reducing the bucket size from a week to a day or even less speeds up the flow considerably. In bucketless systems, orders can move through the work area on a JIT basis. As soon as an operation is complete, the item moves into inventory, reducing the quantity of scheduled receipts in the MRP system. Inventory balances are then reduced by backflushing, which means using the BOM to deduct component quantities from inventory as soon as the unit has been completed - Balanced flow - used in repetitive work centers such as assembly lines. MRP takes care of scheduling and planning for delivery of parts to the line in small lots. JIT pulls the materials through the facility with visuals signals such as Kanban cards or empty bins

Demand Mgmt Process: 1. Planning Demand

demand plan: consensus document requesting P/S from supply side to meet expected future demand for org's P/S in each period. Estimate of how many products customers will purchase, at what price, when needed so suppliers can determine actions. demand plan is plan for action based on: - forecasts - planned demand generation activities Key output: regular updates to demand plan demand plan inputs: - forecasting - product/brand management - marketing - sales - business plan/strategy - assumptions and level of uncertainty in forecasts Use of demand plan - used to see demand in units/dollars - used for validation and control of plans of individual departments Key control to keep demand plan realistic: treat plans as requirements for product from supply side - holds demand side accountable for producing too much inventory, planning horizon and revision period - 18 months - regular revision (quickly reflects changes)

Time Fence for Material Requirements Planning

each planned component will have its own set of time fences the purpose of using time fences in MRP is to ensure that materials needed for orders are committed to those orders and not used for other purposes the planning time fence is usually set when the material is ordered or production is begun on the component; the demand time fence is usually set when the material is received or production of the component is complete time fences in MRP help manage the end item's cumulative LT because the operation will have its requisite materials available when they are needed

Lagging Indicators

economic and financial factors that reflect the changes that have already occurred in the economy they usually confirm a pattern and often provide data or actionable info about six months after the fact and are therefore more reactionary Examples: - unemployment rate - outstanding business/commercial loans - inventory to sales - changes in company profits - spending by businesses - consumer price index - average duration of unemployment GRI compiles data on lagging indicators indicators selected to use an independent variables (predictors) should be easy to measure, objective, pertinent to the strategy, cost-efficient, and embraced by the group whose processes are being analyzed

Qualitative Forecasting Method: Judgment/Expert Judgment

executives, salespersons, market analysts, can use their detailed knowledge of their products and their customers, along with their memory of the difference between prior forecasts and actual results to generate a forecast or to adjust a quantitative forecast

Mix forecast

forecast of the proportion of products that will be sold within a given product family, or proportion of options offered within a product line...even though the appropriate level of units is forecasted for a given product line, an inaccurate mix forecast can create material shortages and inventory problems

principles of forecasting

forecasts are: - necessary - always wrong (regular review, should be altered if error too large) - should include estimate of error (if margin of error too large, need to alter forecasting method or arrange SC to accommodate for uncertainty, error estimate in dollars so can address large risks first) - more accurate for groups than single items - near term more accurate than long term (shortening LT for items can shorten FC period and thus improve accuracy)

Resource Profile

in Resourcing Planning Resource profile: the standard hours of load placed on a resource by time period. Production lead time data are taken into account to provide time phased projections of the capacity requirements for individual production facilities

Routing File

map of component's journey from work center to work center Operation number Operation description and standards work centers

Simple (linear) and multiple regression

simple regression (linear regression): uses a formula to make an association between the dependent variable y (element being predicted) and the independent variable x (the predictor), with two other elements, alpha and beta how do we tell whether there is enough correlation to use this predictor in our sales forecast? Coefficient of correlation (r) - r is a number between -1 and 1 - 0 is no correlation multiple regression: extension of simple regression, there are multiple predictive variables rather than just one

When load and capacity are out of balance

2 options: 1. change capacity to match load - add or reduce work hours. - hire or lay off workers. - shift the workforce to understaffed sites - change routings, instead of moving workers reroute work to take advantage or over utilized/underutilized stations - hire subcontractors or temporary workers 2. change load to match capacity - change lot sizes - change the schedule

Keys to Successful CRM Implementation

- determine thorough, well thought out architecture in the beginning - enhance, not sacrifice efficiency - coordinate implementation across firm - train all who will use system according to need, keep staff informed - measure implementation against customer needs and expectations Levels of tech integration 1. disconnected 2. interfacing 3. internally integrated 4. multi enterprise integrated

WMS and Warehousing IT

WMS - goal: improve warehousing quality over paper based - tightly integrated with ERP EDI - directs info electronically around entire SC to compatible computers Bar Coding - production ID info coded in bars and spaces on package; scanner reads directly into database RFID - chip with product info, can track single item anywhere, sending info through internet to SC AIDC - advanced read write incarnations of RFID; include RFID plus voice transmitter for hands free operations

Benefits of Time Fences

- help balance the need for production system to maintain schedules and control costs against the need for it to be flexible - costs for changes dramatically increase when nearing the final deadline of a time horizon - flexibility is needed because customers can cancel orders or request changes, equipment can fail, capacity issues, late deliveries

Strategies Employed to Speed Up Manufacturing

1. Concentrate on constraints - Goldratt's theory of constraints - a production process is no faster than its slowest function, known as the constraints. Capacity is limited by constraint - Elevate the constraints - work to remove the constrain - Put some inventory in queue before the constraint as a time buffer. - Control rate of material feeding into constraint. - Improve the flow at the constraint in any way possible - Adjust loads to avoid the constraint when you can. - As last resort, change schedule 2. Use visual signals - The Kanban system speeds up operations by pulling inventory through the work center instead of pushing it up to the next workstation where it sits in a queue - Kanban: the triggering of material movement to a work center only when that work center is ready to begin the next job. It in effect eliminates the queue from in front of a work center, but it can cause a queue at the end of a previous work center - Idea is to keep lot sizes as small as possible to optimize use of space and labor - Kanban systems use display cards as visual signal to tell a workstation to begin operations 3. Develop pull partnership 4. learn to be lean

Situations for Managing and Prioritizing Demand

1. Supply org cannot meet demand plan without changes - find ways to better use current capacity 2. demand plan overstates actual demand; changes will impact sales and costs - use time fences to delay production as long as feasible 3. demand plan understates actual demand; changes will impact sales and costs - extend planning horizon to give more time to increase capacity, add incentives for substitutes 4. large one time sales opportunity would impact other orders, costs, profit - establish process for unusual demand evaluation and reporting demand as soon as possible to allow time for decision making - sales mgmt determines how to prioritize other orders if one time order is accepted

Four Ways to Stage Capacity Growth

1. one step lead strategy: expanding all at once ahead of demand 2. stepwise lead strategy: expanding in steps ahead of demand 3.stepwise lag strategy: expanding in steps behind demand (to catch up) 4. stepwise overlapping strategy: expanding in steps that are sometimes ahead and sometimes behind forecast demand

forecasting process

1. specify purpose 2. determine level of aggregation (units) 3. determine time horizon 4. visualize data (map historical data to see trends/seasonality) 5. choose forecasting method/model (qualitative, quantitative, both. historical data and steady trends, choose time series, no data or trends change choose associative forecast) 6. prepare data (remove seasonality/deseasonalization) 7. test forecast using historical data 8. forecast (add seasonality back in) 9. perform S&OP (demand, supply, finance agree on one forecast = one number system) 10. review and improve

CPFR Model

Activities: - Strategy and Planning - Demand and Supply Management - Execution - Analysis Idea is to formalize collaborative tasks while reducing redundant work by specifying what work is best done by each SC partner

Capacity Objectives

Balance Supply with Load Too much capacity - supply > demand - layoffs, idle machines, unused storage, high inventories. if full capacity used --> high inventory, if capacity reduced to actual demand --> people/work centers/space is wasted. too little capacity - demand > supply - stock outs, broken orders, overtime, temps, work shifts just right amount - supply = demand - on time fulfillment - quality items - optimal use of resources

S&OP Functions

Basic premise of S&OP is that there should be one plan to unite all major functions - sales, operations, finance S&OP assumes that key players will agree to unified plan, carry it out tactically, and continuously monitor and adjust it in monthly S&OP meetings Key to getting buy in to S&OP is to emphasize that it is all about improving communications - links business planning and tactics - opportunities to be proactive rather than reactive - defines short to medium term (12 to 18 months or more) - unified, cross functional plan and process (reconciles functional business plans into one plan) - builds bridge from customer value to SC efficiency - replanning motivates continuous improvement

Forecasting

Business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance purpose of forecasting is to engage demand planning

Capacity Requirements Planning

CRP takes place at MRP level assigns each facility, work center, and operation a load and does load leveling Steps to determine site capacity: 1. check open order file - orders tell you how much capacity is already scheduled at work center 2. check planned order releases 3. check routing file 4. check work center file - provides capacity info about center, info needed to calculate MFG LT Output: adjustment of load or capacity (or both) to meet plan, as required

Capacity Management, Planning, and Control

Capacity Mgmt - balance demand and supply for cost effective service - 4 levels 1. Resource planning 2. RCCP 3. CRP 4. input/out control Capacity planning - identify and deploy necessary resources at all planning levels capacity control - monitor daily input/output and balance with plan

Sharing Data Among Trading Partners

DI - Customer Role: NA - Supplier Role: Integrate IS to share - inventory data, expertise, inventory related DI, service related DI QRP - Customer Role: Provide POS data to supplier, submit orders Supplier Role: synchronize supply and demand, forecast CR - Customer Role: Notify suppliers of actual daily sales or warehouse shipments - Supplier Role: commit to replenish without receiving orders, prevent stockouts, reduce inventory, improve turnover VMI - Customer Role: sell, do joint forecast, manage relationships, support logistics Supplier role: display/store/deliver/receive/stock/count, schedule replenishment, keep inventory records, represent

Demand Management Functional Responsibilities/Interfaces

Demand Mgmt helps parties understand each other Operations: represent demand side interests in operations terms sales: daily, sufficient inventory, time to market product development/brand mgmt: long term, seek value added marketing: medium to short term, tailoring capacity to demand

Demand Prioritization

Demand prioritization starts at the level of master scheduling and also occurs at the material requirements plan level include setting time fences to keep operation running on time and on budget once they are committed rather than allowing disruptive last-minute changes. includes allocation of supply it must be measured and managed to ensure that customer service levels are met

Measures of Forecast Error

Forecast Error Forecast Error as a Percentage Forecast Accuracy MAD Tracking Signal MSE MAPE

Forecast Error/APE/Forecast Accuracy

Forecast Error = abs value (A-F) APE = abs value (A-F)/A Forecast Accuracy = 1 - Forecast Error APE **abs value measures size of forecast error not direction

MRP Inputs/Outputs

Inputs - MPS - planning factors (SS concerns/LTs) - BOM - Inventory Status (what material is already available for use in mfg the FGs, what is on hand, on order, LT, SS) Output - planned production/purchase orders

Inventory and Alternatives to Inventory

Inventory: those stocks or items used to support production (raw materials and work in process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts) Inventory can provide protection against supply and demand variability Need for inventory 1. Production - raw materials, WIP 2. Supporting activities - Maintenance, repair, operating supplies 3. customer service - FGs, spare parts The management alternatives to inventory include the following: - Reduced variability in the quality, amount, and timing of supply deliveries - Shorter production cycle times - Careful maintenance of production equipment - Improved demand forecasting and/or use of actual demand orders

Mean Absolute Deviation: MAD

MAD = sum of abs (A - F) / n - N = number of periods - only magnitude of deviation counts in MAD Drawback to MAD calculation is that it is an absolute number that is not meaningful unless compared to the forecast - MAD can be used as basis for safety stock calculation Normal MAD distribution curve - 1 MAD = sufficient stock 80% of time, 20% chance of stock out - 2 MAD = sufficient stock 95% of time, 5% chance of stock out - 3 MAD = sufficient stock 99% of time, 1% chance of stock out - chance of stock out = 1 - percent chance of sufficient inventory for desired service level - # MAD in units x # safety factory = # units of safety stock

Standard Deviation

Mad in units x 1.25

Master Scheduling Grid

Master scheduling Grid 1. controlling priorities 2. weekly dates for specific products The master scheduling grid calculates PAB and ATP for demand prioritization purposes. It also calculates the MPS for operations purposes The line items in the master scheduling grid are: - Forecast - Customer order - PAB - ATP - MPS - reflects the anticipated build schedule for those items assigned to the master scheduler. it becomes a set of planning numbers that drivers MRP. It represents what the company plans to produce expressed in specific configurations, quantities, dates

Projected Available Balance (PAB), Available to Promise (ATP)

PAB: an inventory balance projected into the future PAB: beginning inventory + any additional supply - any demand = ending inventory PAB prior to DTF = Prior period PAB + MPS - Customer Orders PAB after the DTF = Prior Period PAB + MPS - Greater of forecast or customer orders ATP: the uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer order promising Methods to compute ATP are discrete ATP (noncumulative), cumulative ATP with look ahead, and cumulative ATP without look ahead First Period ATP = inventory on hand + MPS - Sum of customer orders before next MPS Following Period ATP = MPS - sum of customer orders before next MPS

linking demand management components

Planning, communicating, influencing, and managing and prioritizing demand can be linked in several ways, including cycling through each component iteratively, prioritizing certain components to match org strategy or using business tools such as CPFR, distributor integration (DI), quick response programs (QRP), continuous replenishment (CR), and VMI. • These are used by integrating POS data and forecasting to reduce LTs, lower ICC, and smooth out bullwhip • Partners must be willing to share info and do it quickly • Need to build partnerships and trust • Goal is to replace estimates with data reflecting customers' buying patterns

Quantitative Forecasting Methods

Quantitative forecasting uses mathematical formulas to predict the future results based on past trends 2 categories: 1. time series and 2. associative forecasting

Time Horizons of Capacity Management

S&OP and Production Planning - Resource Planning - Long Range Master Scheduling - RCCP - Mid Range MRP - CRP - Short range Production Activity Control - Capacity Control - short range

Strategic and Business Planning

Strategic Plan - mission and resources needed to get there - goals: market share, revenue, profits and growth - objectives: add value to customers and owners Business Plan - inputs: demand plan and long term forecasts - explicit vision to achieve strategy over 1-3 years - in dollars and grouped by product family - point of reference for S&OP - guidance for tactical prodcution and sales plans

Operations Planning and Control

Strategic planning --> business planning --> S&OP: consensus demand plan and production plan --> master scheduling: MPS --> MRP --> Purchasing/ PAC, FAS, Capacity control inputs to S&OP: demand management, resource planning outcome of S&OP: master plan

Offsetting

The process of counting backward from a due date to accommodate a lead time is called offsetting Do this because components are likely to have different lead times, so if you want them all to arrive simultaneously at one work site you have to schedule different release dates based on the different LTs

Time Fences

Time fences: a policy or guideline established to note where various restrictions or changes in operating procedures take place a time fence marks off a zone in which otherwise available product may not be promised to deliver without permission

Trend

Trend: the general upward or downward movement of a variable over time 2 common examples: linear (upward sloping, neutral, negative) or exponential (skyrocketing up or down) trends can change direction at any time as a result of internal or external forces

Leading Indicators

a specific business activity index that indicates future trends leading indicators provide info that enables organization to anticipate or predict micro/macroeconomic changes in the future Examples - Yield curve - Building permits - orders for plant equip - manufacturer's orders for durable goods/materials - changes in money supply - S&P 500 - long vs short term interest rates - consumer optimism

Master Scheduling

after S&OP, MS creates MPS - this commits company to produce specific products on particular dates MS plans FINISHED GOODS Master schedule: includes time periods, forecast, customer orders, projected available balance, ATP, and the MPS. takes into account the forecast; the production plan; and other considerations such as backlog, availability of material, availability of capacity, and management policies and goals Master schedule item: a part number selected to be planned by the master scheduler. This item deemed critical - the master scheduler, not the computer, maintains the plan for these items. Master scheduling process has to disaggregate product family data into numbers of individual products based on inventory levels, forecasts, demand plans, order backlogs, etc. used to decide what you need to production and how much of each item to produce

Factors affecting demand

base demand is long term average for product/service many factors increase/decrease based demand - trends - cycles - seasonality - random/irregular variation - promotions

Demand Manager

center of communication feedback and performance goals: - communicate consensus demand plan and outcome of S&OP - give feedback to demand org on effectiveness of demand mgmt efforts - alert demand and supply of need for action

BOM

complete list of components for a manufactured or assembled item BOM's essential contribution is to assist in scheduling all the orders for all the materials needed to manufacture the products in the MPS multilevel BOMs can be exploded or expanded to drill down into details modular (planning) BOMs are used for planning modular components (not finished product but component for use in product)

Joint Replenishment System

coordinating the lot sizing and order release decision for related items and treating them as a family of items. The objective is to achieve lower costs because of ordering, setup, shipping, and quantity discount economies. This term applies equally to joint ordering (family contracts) and to composite part (group technology) fabrication scheduling Joint replenishment is when a family of related items is released as if it where one item

linkages as cycle

cycle can be shortened to operational level to reduce need for mgmt and prioritization and or planning when principles and techs of demand management are implemented throughout SC timely communications reduce need for mgmt and prioritizing demand since supply can more quickly respond to changes in demand

Cycles (and other external drivers)

cycles are period upward, neutral, or downward shifts in demand lasting longer than one year • ex. Economic cycles of recession and growth form wave pattern external demand drivers such as economic cycles, population growth, major events or disasters are sometimes used to qualitatively adjust a quantitative forecast Cycles are demand patterns that repeat but follow a wavelike pattern that can span multiple years and may change at any time there they cannot be predicted easily

demand forecasting

forecasting the demand for a particular good, component, or service

Planning Horizon

the amount of time a plan extends into future should at least equal the cumulative LT for the product

Cumulative/End to End Lead Time

the longest planned length of time to accomplish the activity in question. It is found by reviewing the lead time for each bill of material path below the item; whichever path adds up to the greatest number defines cumulative LT

demand management process

weighs both customer demand and a firm's output capabilities and tries to balance the two. 4 components 1. planning demand 2. communicating demand 3. influencing demand 4. managing and prioritizing demand

Demand

need for a particular product/component

Resource Planning

- 15 to 18 month capacity planning - capacity at business level and production plan level - resources that take long to acquire - lead time to get equipment, install it, and get it producing - RP decisions always require top management approval - duration of planning horizon depends on LT of needed resource - long LT items driven by business plan, realigning facilities driven by production plan long range capacity planning: calculates load and compares to capacity for: - plant equipment workforce inputs: business plan, production plan, critical resources, resource profile output: action plan

Customer Focused Orgs

- Are easy to do business with -- - Add value to their products or services, integrating products and info so that customers feel more educated during and after the decision-making process - Are innovative not only in their design of services and products but in their marketing, delivery, and customer care - Design all business contact points from the customer's perspective - Shared detailed insights about customers within the organization or supply chain

Criteria for productive, cost effective packaging

- Efficiency of handling during loading, unloading, storage - Protection against damage to the cargo - Communication (packages should be labeled for ease of identification, tracking, customs, and handling) - low environmental impact

Potential Benefits of RFID Integrated in ERP

- SC partners can check the items in shipment without opening/unbundling - inventory tracking will be continuous, automated and always current - reduce or eliminate theft by tracking inappropriate item movement - counterfeiting will be reduced due to unique identifier - can select which data are useful to improve operations rather than drowning in data

Safety Lead Time

- Safety lead time is ordering supplies earlier than needed as a measure of security against unpredicted manufacturing and transportation lead time fluctuations - replenishment orders placed before (or after) normal order point - could result in overstocks - can impact bullwhip effect - large orders with long lead times (container ships) could result in significant overstocks or stock outs - best for slow moving items to avoid larger overall inventory investment

Vendor Managed Inventory (VMI)

- Vendor has access to customer's POS inventory data for items they supply - Vendor is responsible for maintaining the inventory level required by the customer and performs actual resupply - Specific VMI functions • unlike traditional relationships, supplier takes over multiple inventory functions o determine how inventory will be stored and displayed o provide bins, vending machines, storage units, o replenish inventory on schedule it determines based on POS data o maintain inventory records o handle delivery, receiving, stocking, and counting functions o provide a permanent vendor representative at customer's premises to perform the resupply and reorder functions

Qualitative Forecasting Method: Delphi Method

- a more involved and sophisticated qualitative forecast - survey experts, keep anonymous - work toward consensus in successive rounds by highlighting areas where there is disagreement and allowing responders to change their responses after reading the current group opinion - anonymity is used for: 1) helps prevent dominant personalities or emotions from influencing the group opinion (called groupthink effect) 2) prevents a stake in the ground mentality - when a person has already publicly committed to a forecast result and doesn't want to lose face by changing his or her declared position Delphi method is time consuming and labor-intensive, used only for strategic level estimation

Controlling Errors

- compliance scanning and package label control - rules minimizing shipments, for ex: -- do not ship unless it is included in most recent version of PO release -- do not ship +/- days outside of delivery requested date -- do not ship +/- amount outside of PO -- do not ship +/- amount outside of PO total - recovery strategies after rush orders, delays, slowdowns in customs

Supplier Relationship Management (SRM)

- comprehensive approach to supplier interactions - goal is to streamline org-supplier processes and make them more effective - includes e-procurement - methodology will assist in: -- reducing procurement and excess inventory costs -- supporting a customer focused business (customization and quality in desired time frame) -- continuously improving supply processes

Customer Value Segmentation Strategies

- define valuable customers - deliver timely, detailed info to help identify most valuable customers - define what product features/services mean most to best customers - measure impact

Developing Supply Plans

- developing a supply plan is the strategic design of a supply network based on TCO, make vs buy decisions, and desired levels of buyer supplier relationships - supply plans set the org's design for how it will identify and manage suppliers Supply Plan Validation and Refinement 1. corporate strategy alignment 2. corporate mission and culture alignment 3. risk assessment 4. centralized vs autonomous sourcing - benefit of centralized: control - benefit of autonomous: local expertise, personalize supplier relationships 5. additional optimization 6. planning for future growth

Customer Loyalty Program Design Considerations

- encourage specific Customer behavior - Targeting segments' needs - Positioning (including resource allocation) - what are the implications of the loyalty program to other segments? - Program offer - what will program consist of? Bonus points? - Cost and benefit structure - what is long term net value of each program element? - Communication - how will customers be notified about loyalty program?

Measure of Customer Service Levels

- is cost of achieving a given service level a sound investment? - fill rates: unit fill rate, line item fill rate, monetary value fill rate - stockout frequency - lead time monitoring: speed of performance, consistency, flexibility, malfunction recovery - order status reporting - customer satisfaction: establish, then fulfill expectations

warehousing: Limitations of equipment and automation

- may add costs without increasing value - must blend with space, labor skills, layout - may require expert advice and software to select

Distributor Integration (DI)

- occurs when distributors are integrated using info systems so expertise and inventory located at one distributor are available to the others, distribution systems can be integrated for better inventory control and customer service - In inventory-related DI, each distributor can check the inventories of other distributors to locate a needed product or part. Distributors gain flexibility without having to carry excess stock. Total system inventory is lowered, and customer service levels are raised - In service-related DI, individual distributors build expertise in different areas. When customer request comes in, it is routed to distributor with most expertise - Obstacle: ownership of the inventory - Another obstacle in creating a DI alliance is that distributors may doubt the benefits of participating in such systems

principles for demand management and prioritization process

- org's intent is to fulfill demand whenever feasible and will result in an increase in marginal profits even when demand comes from unexpected orders - when demand differs from supply within timeframe that allows for supply capacity/operations to be changed without impact on costs or other operations, prioritization is not necessary

Continuous Replenishment (CR)

- relies upon sharing POS data by retailer and supplier - supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales without stock outs and without receiving replenishment orders. The result is a lowering of associated costs and an improvement in inventory turnover - Goal is continuous reduction of inventory levels at the store as the forecasts become more accurate - Lost sales due to stock outs are avoided and inventory turnover is improved

Quick Response Programs (QRP)

- system of linking final retail sales with production and shipping schedules back through the chain of supply; employs POS scanning and EDI and may use direct shipment from factory to a retailer - the customer submits the individual order. The supplier uses the POS data as the basis for scheduling production and determining inventory levels to improve synchronization of supply with actual demand - Having same info as retailer does not mean that supplier forecasts are same as retailers, but QRP can still achieve significant reductions in LT

Safety Stock

-inventory retained to protect against demand and lead time variations - set target frequency for use - this frequency is reviewed - need to balance cost of SS and cost of stockouts - to decrease: less frequent orders, less demand during variability, shorter lead time, more accurate forecast - organizational, regulatory, or industry requirements may mandate a minimum level of SS - amount of SS depends on: frequency of ordering, variability of demand during LT, length of LT, accuracy of forecasting, org/regulatory/industry requirements 3 methods for determining amount of SS: 1. fixed amount: use experience/intuition to set SS at a location at a fixed level. acceptable for inventory with stable demand. level can be periodically reviewed 2. coverage: sets SS for a given period at the level of inventory requested in the demand plan. The advantage of coverage is that the SS will adjust itself based on average (seasonal) demand 3. statistical: involves calculating a normal distribution (bell curve) of the variation in demand with average demand at the center. The standard deviations (sigmas) show analysts how high or low demand can get from the center. To provide protection against peaks in demand safety stock is set to match the maximum variation in demand at a desired customer service level SS has diminishing returns - as SS increases, achieves smaller amounts of increase in customer service level

Master planning

-long term resource plan - near medium term sales and operations plan - takes forecasts and determines what production can accomplish using available capacity (S&OP) plus investments in capacity (resource planning) - overarching goal: satisfy stakeholders including ROI

Components of an SRM system

-strategic sourcing and RFQ/ITT submissions and analysis - procurement of goods and services through internet trade exchanges or auctions - collaborative product design and planning - purchasing supplier scheduling using direct system links - catalog mgmt - supplier databases and rating systems Web Enabled SRM - internal interfaces - external/supplier interfaces - SRM analytics - SRM services - SRM procurement

Demand Management

1) function of recognizing all demands for G/S to support marketplace 2) in marketing, process of planning, executing, controlling, and monitoring the design, pricing, promotion, and distribution of G/S to bring about transactions that meet org and individual needs Art of synchronizing supply and demand plans - long term strategic needs - medium term aggregate demand and forecasting and master planning - short term demand forecasting and item level master scheduling

Allocation of Supply

1) the classification of resources or item quantities that have been assigned to specific orders but have not yet been released from the stockroom to production. It is an uncashed stockroom requisition 2) a process used to distribute material in short supply allocation involves finding ways to commit to inventory and scheduled production to specific customer orders

CRM technologies to support Marketing and Sales

1. Account Management 2. Sales Force Automation * complete customer view, shared by marketing, sales and support 3. business intelligence 4. marketing automation * commitment to be customer focused

Types of Carriers

1. Common/public - perform bulk of shipping; required to serve commercial shippers benefits: - availability, rates supported by regulations - carrier assumes risks drawbacks - most economic regulations to consider - must publish reasonable rates 2. private - shippers own fleet of vehicles for carrying own goods (and some other goods) benefits - control of vehicles - possible cross licensing since deregulation for backhaul loads drawbacks - maintenance cost - problems when business slows - core competency? - empty backhauls 3. contract - work on contract with specific clients, not required to serve all shippers; negotiable (not regulated) rates benefits - low rates, custom services drawbacks - not required to provide service 4. exempt - free from most federal regulation (state licensed in US); restricted to specific markets, mostly agricultural benefits - low rates, no regualtion - adapted to special niches drawbacks - limited availability for most products - limited range of operation

Currency Issues

1. Counter party risk - risk that the other party will fail to honor the terms of the agreement Buyer: no goods or inferior goods seller: no payment or counterfeit/fraud - payment in advance (wire transfer) -open account, trade credit, cash on delivery 2. Currency exchange risk - risk caused by the fluctuating rate of exchange between their two currencies Buyer: exchange rate unfavorable seller: exchange rate unfavorable currency hedging: used to offset the risks associated with changing value of currency - most common tool used in currency hedging is currency futures in which one party agrees to buy/sell a fixed amount of a given currency at a fixed exchange rate on a fixed date in the future - futures traded on organized exchanges to minimize counterparty risk

Logistics Outsourcing Considerations

1. Current Costs? - consider current costs - how much will it save - is it worth the risk - are the benefits worth paying for 2. Special Strengths? - how did company get started - what does it do best - is there a match between its strengths and your needs 3. Customer Skills? - evaluate the bidders' customer skills - are the bidders reliable - are their references credible 4. Subcontracting ability? - will contractor subcontract effectively and honestly to get the most competent service - are they biased toward their own divisions or toward certain firms that lack competence or over charge

Transportation Capacity Constraints

1. Economies of Distance - more distance means higher cost but not uniformly - longer trips allow: fewer starts and stops, more cruising, non urban miles (trucking) 2. Economies of Volume - volume adds to cost but full loads earn discounts. higher volume may qualify for full load pricing, spreads cost over more pounds 3. Economies of Density - denser loads may cost more in total but less per pound. higher density (tighter packing) spreads cost over more pounds - good unless weight limit precludes full load 4. Stowability and Handling - shape storage efficiency? - difficult loading and unloading? - specialized handling equipment? - packaging and grouping for handling? - redesigning awkwardly shaped products for efficient storage can greatly reduce costs of transport/warehousing 5. Economics of Liability - susceptibility to damage - perishability - susceptibility to theft - value per pound 6. Conflicts of Interest - manufacturers: large lot sizes for lower unit set up costs, logistics: reduce inventories and improve system responsiveness - FTL reduces per item transportation costs, LTL reduces inventory holding costs - LT reduced if goods are transported as they are made, transportation costs reduced if orders wait until ship via TL - high product variety, high transportation and storage cost - suppliers: flexible delivery times, large stable volume demands, consistent product mixes - manufacturing: high production output and low production costs - logistics and warehousing: minimize transportation costs by using quantity discounts and minimizing inventory - finance: minimize order changes, inventory, and product variety - retailers: short order lead times and quick delivery - customers: variety and low prices

Export- Import Participants

1. Freight forwarders - Company that arranges transportation for commercial cargo - Freight forwarder: middle man between carrier and org shipping the product, combines smaller shipments to take advantage of lower bulk costs - not themselves carriers, they are independent agents. - Smaller companies benefit as they don't have staff to maintain foreign shipping, one of forwarder's function is to consolidate smaller shipments into larger ones that qualify for discounts - Larger companies can benefit from expertise of specialists 2. Non-vessel operating common carriers - Buys space on inland carriers and resells it to shippers at a marked-up price 3. Consolidators - Combines small shipments into larger ones to qualify for full vehicle discounts 4. Customs house brokers - Job is to ensure that all documentation required to pass customs is complete and accurate - Pays all import duties under power of attorney from importer, liability from any unpaid duties lies with importer, not broker 5. Export management companies and export trading companies - ETC looks for companies making goods it wants to buy and resell in foreign markets 6. Shipping associations - smaller shippers have formed shipping associations - usually NPOs - to negotiate with carriers for rate discounts on same terms as large shipping companies 7. Ship brokers and ship agents - Assist exporters with details of arranging ocean transport - Ship broker is an independent contractor that brings exporters together with ship operators that have appropriate vessels available to carry the shipper's freight 8. Export packing companies - provide specialized packaging services required for cargo that may have to undergo long journeys and pass customs inspections in another country - Packing company can choose packaging materials that provide adequate protection with the least bulk and weight

Logistics: Integrating the SC

1. Locate the right countries - map all countries in forward and reverse SC - analyze if different locations could make logistics more efficient/effective 2. Development effect export-import strategy - determine volume of freight/# of SKUs - decide where to place inventory for strategic advantage, which borders to cross, which to avoid 3. select warehouse locations - determine optimal number - calculate distance from markets 4. select transportation modes and carriers - determine mix that will most efficiently connect SC 5. select right number of partners - select minimum number of companies to manage forward and reverse logistics, consider their local market and regulatory knowledge 6. develop state of the art info systems - reduce inventory costs by more accurately/quickly tracking demand info and location of goods

Ways to Determine OQ

1. Lot for lot - lot sizing technique that generates planned orders in quantities equal to the net requirements in each period - Order no more and no less inventory than needed - quantity ordered will differ in each period depending upon current requirements - Common uses: JIT manufacturing, ordering A items in ABC inventory classification, retail environments 2. Fixed order quantity - a lot sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples thereof, if net requirements for the period exceed the FOQ - cheapest/simplest way to introduce discipline into the ordering process is to order the same amount every time - fixed amount may be determined by the amount in a box/pallet or need to fill shipping containers to achieve full container discounts - Unless customer demand is stable over time, FOQ won't produce satisfactory requirements although this method is straightforward, inexpensive, and disciplined 3. Economic Order Quantity - sophisticated form of FOQ, - determine the most cost-effective number of items to order when replenishing inventory - Minimum cost occurs when carrying costs = ordering costs - Basic EOQ model assumes known demand, lead time, no discounts

Order Fulfillment Channels

1. Manufacturer storage with direct delivery - mfg directly ships to customer - used for perishable goods, low variety/make to order goods - primary benefit to mfg is direct relationship with customer 2. Manufacturer with drop ship - distributor/retailer takes order from customers and customers receive goods directly from manufacturer - transload and cross docking - high value sporadic demand items - mfg does not have direct contact with customer 3. manufacturer to DC to retailer - traditional SC - mass produced low cost items with high competition 4. independent distributor with omni channel network - distributor is channel market buying goods from mfg in bulk and aggregating for one stop shop for customers/retailers 5. independent aggregator with e-business network - Amazon - depends on direct marketing - direct shipments of goods to customers through parcel shipments Direct to Consumer model: - skips retailers, goes from supplier to DC to customer - online shopping causing orgs to change delivery patterns and move to direct to consumer

Transportation Objectives

1. Movement of materials through the network - efficient use of time: inv in transit can't be sold or used in production which puts premium on moving materials as infrequently and rapidly as possible. transportation costs tradeoff inventory costs. - efficient use of money: line haul costs (basic cost of carrier operation to move a container) include vehicle, driver, vehicle operating, general and administrative, and insurance and security costs - minimal harm to environment 2. Temporary Storage - park without unloading for short term storage (logistics parks) - take early, slow route from crowded facility (if same cost) - divert in mid course due to order or demand changes or warehouse capacity

Owned Vs. Leased Warehouses

1. Private warehouses owned by firm benefits - control and flexibility to suit to products/SC - no markup - market presence cons - fixed costs, loss of budgetary flexibility - depreciates 2. Public warehouses available for hire - flexibility to scale ( can increase/decrease warehousing cost to match market fluctuations) - potential for cost savings from economies of scale (multiple clients) and lower labor costs - good choice to accommodate for market fluctuations 3. Contract warehouses - potential cost savings with equal or better service than private warehousing - tailored services - to needs of client - flexibility - more flexibility than private warehousing, company can test new market without investing in capital - expanded geographic market

Inventory Management Roles

1. Purchasing and Materials Management - adequate raw materials at low inventory costs 2. Manufacturing and Finance - efficient and low cost production balanced against low inventory costs 3. Sales and Marketing - sufficient inventory to meet customer delivery requests and service levels

Warehousing Objectives

1. Rapid Response to changes in market/orders - strategic placement, optimal numbers facilitate response to markets and order changes 2. minimize variances in logistics service - tech and automation aid efficient handling to promote predictable service 3. minimize inventory to reduce costs - determine most efficient number of warehouses to reduce inventory, prevent stockouts 4. consolidation of movements - warehouse placement, transportation interface, efficient materials handling all required for effective consolidation of shipments 5. high quality and engage in continuous improvement - subject all aspects of warehousing to CI 6. life cycle support and reverse logistics - place warehouses for returns, repairs, as well as to support product movement during growth, development, maturity

Types of Inventory

1. Raw Material Inventory - includes purchased parts, materials, subassemblies to production process that have been acquired but not yet entered production 2. WIP Inventory - goods in various stages of completion, inventory at which value has been added but is not yet FG 3. FG Inventory - ready to use products waiting to be purchased 4. MRO Inventory - needed to maintain production but not in final production. MRO is expensed rather than an asset like the other types of inventory 5. In Transit Inventory - inventory in transportation network and distribution system. Measured by average annual inventory in transit. Reduce through lower transit times

Inventory Management KPIs

1. Reduce Inventory Costs - holding - ordering - transporting 2. Hit Customer Service Targets - Quality - Availability - On time delivery

Ten Steps to Successful Alliances

1. align internally 2. select proper partners 3. negotiate win/win deal 4. establish ground rules 5. appoint a dedicated alliance manager 6. encourage collaboration 7. engage in collaborative corporate mindset 8. manage multifaceted relationship 9. conduct pulse checks 10. plan for change

Logistics: Info In Place of Inventory

1. improve communications - talk regularly with suppliers about plans/tends - continuous improvement tools 2. collaborate with suppliers - JIT - remove obsolete inventory 3. track inventory precisely - RFID, GPS 4. keep inventory in transit - reduces inventory costs - one way to do this: cross docking 5. use postponement centers - avoid filling warehouses with wrong mix of FGs - delay product assembly 6. mix shipments to match customer needs - match deliveries to customer needs by mixing different SKUs on same pallet, mix pallets from different suppliers 7. speed up customs - pre clear freight

Where should warehouses be located?

1. services - availability of services is most important factor 2. neighborhood - consider available space, soil support, nearness to market, not restricted to warehouse districts 3. costs - services, location (urban costs more), taxes, insurance, transportation (tradeoff with cheaper land - cheaper land farther away) 4. community inducements - tax incentives, infrastructure support, trained and available workforce 5. regulations - environmental impact statements can slow construction, inflate costs

Time Fences in Master Scheduling

2 types of time fences: demand time fence (DTF) and the planning time fence (PTF) the 2 times fences create three zones: frozen zone, slushy zone, liquid zone 1. demand time fence/ frozen zone: capacity and materials are committed to specific orders. changes require approval of the senior management. Frozen time zones are bounded by a demand time fence 2.planning time fence/slushy zone: Capacity and materials are not as strongly committed. there is room to negotiate in the form of tradeoffs, the master scheduler is allowed to make these decisions 3. liquid zone: after the planning time fence, all changes are permissible as long as they don't violate the limits set in production plan or by the policy in sales and operations plan

3PLs/4PLs

3PL: third party takes over some or all logistics functions and performs them itself 4PL: logistics specialist takes over entire logistics operation and subcontracts some or all specific functions - presence of subcontractors makes it 4PL 3PL Benefits - improved focus on areas of competence - more current tech; more tech flexibility - more efficient warehousing (economies of scale) - improved customer service - more workforce flexibility 3PL risks - less control over some aspects of logistics/strategy - potential for inefficient service (if you do it better yourself) 4PL benefits - improved focus on areas of competence - higher quality logistics, reduced costs, or both - greater business flexibility 4PL risks - less control over all aspects of logistics/strategy - potential for loss of effectiveness or higher costs if 4PL deals with favored providers

Plan Do Check Action Model

4 step process for quality improvement Allows org to control demand influencing activities to fullest extent possible 1. Plan - to effect improvement is developed - perform research and develop detailed strategies for influencing demand - budget, schedule, list of tasks assigned to people - set measurable target indicating increase in demand activities should generate - review and approve prior to S&OP meetings, adjusted as needed - results in commitment to execute consensus plan 2. Do - carry out plan (small scale preferred) - execute plan - launch, manage, retire products - create demand reinforce brand value - acquire new customer, retain old - provide periodic data on results - managers serve as problem solvers and verify correct activities are occurring 3. Check - effects of plan are observed - review metrics against plan, document feedback such as customer opinions - key: detriment root cause of any difference between plan and actual - perform activities periodically - dashboards to track and monitor metrics 4. Action - results are studied to determine what we learned and can predict - demand manager leads re-planning efforts to respond to variance from plan and address root causes of variances - re planning can lead to increase/decrease investment in certain activities - long term focus needed since marketing efforts take long time to show results

Range of Buyer-Supplier Relationships

5 variables - proximity - visibility - competitor interaction - communication - culture Buy on Market - proximity: arm's length - visibility: purchase requirements - competitor interaction: significant - communication: computerized - culture: not an issue Ongoing Relationship - proximity: medium term - visibility: some sharing - competitor interaction: some - communication: designated contact points - culture: aware Partnership: establishment of a working relationship with a supplier organization whereby two organizations act as one - proximity: longer term - visibility: full sharing - competitor interaction: limited - communication: department interaction - culture: aware and adaptive Collaboration/Strategic Alliance: relationship formed by two or more orgs that share info, participate in joint investments, and developed linked and common processes to increase the performance of both companies. Many organizations form strategic alliances to increase the performance of their common supply chain - proximity: long term relationship - visibility: sharing and partners' plans as own - competitor interaction: limited or none - communication: extensive, high trust, licensing - culture: merging Mergers/Acquisitions - proximity: ownership - visibility: internal, commonly held info - competitor interaction: none - communication: varies - culture: one culture

Inventory Costs

Acquisition costs = order quantity x unit costs Landed costs = product cost + logistics cost carrying (holding costs): variable cost that increases as level of inventory increases. percentage of dollar value of inventory per unit of time - storage costs: rent, depreciation, operating costs, taxes, material handling expenses, equipment leases, power - capital costs: interest, financing, payments to creditors and invenstors - risk costs: insurance, inventory value reductions and write offs ordering costs - cost that increases as number of orders placed increase. only vary with frequency of orders back order, lost sales, and lost customer costs - all related to customer service capacity variance costs - costs of changing capacity beyond a normal range

Advantages and Risks of Overseas Manufacture or Assembly

Advantages - low labor costs - low material costs - lower benefit costs - favorable duty rates - lower taxes - smaller capital investment (if assets are transferred to foreign country) Risks - time zone different costs/disruptions - higher transport costs/longer LTs - higher relationship management costs - possible political risk/instability - cost of hedging currency exchange risks - costs of environmentally responsible forward and reverse logistics - environmental costs - need more safety stock - higher warehousing or in transit costs - more insurance against damage, theft, spoilage

ABC Inventory Classification

Aggregate level inventory policy Based upon monetary value of inventory (standard cost) Pareto principle - dividing into A, B, C groupings. small percentage will be responsible for large portion of group's impact A - 80% of revenue come from 20% of items B - 15% of revenue comes from 30% of items C - 5% of revenue comes from 50% of items

Role of Logistics in SCM

All tasks necessary to get right product in right quantity and right condition at the right place at the right time for the right customer at the right price Logistics functions - transportation - warehousing - import/export - packaging - materials handling - inventory management - logistics info systems - 3PLs/4PLs - reverse logistics Step 1 raw material suppliers - Obtain Step 2 manufacturer - Produce Step 3 distributors - Distribute Step 4 wholesalers - Distribute Step 5 retailers - Distribute Step 6 end users

Benefits of SRM Software

Compatibility: works with most ERP systems Sourcing processing improvements: - simplified, repeatable sourcing reduces cycle time and cost - comparison easy: price and criteria visibile standardize purchasing decisions communication improvements: - faster, sometimes fully automated - for ex, supplier can check buyer's inventory

Modes of Transportation: Motor

Capabilities - small shipments, high value items, short to medium hauls - greatest accessibility for pickup and direct delivery - speedy delivery Market - low fixed costs with tax funded infrastructure - high variable costs: wages, equipment, etc - easy entry, many carriers available; TL, LTL, specialty - some regulatory limits on type of cargo Tradeoffs - labor intensive with rising rates - intense competition with resulting bankruptcies - less hazardous than rail or water for high value goods

warehouse functions: anticipation/stockpiling

Anticipation inventory such as seasonal clothing, lawn furniture, or agricultural products, is stored at the warehouse in anticipation of future demand Benefit: - enables more efficient use of production capacity by reducing the need to increase/decrease capacity for seasonal demand - reduce chance of seasonal stock outs drawback: - more warehouse capacity is required than would be necessary for JIT delivery system

Modes of Transportation: Pipeline

Capabilities - special adaptation for crude oil, petroleum - no packaging required - storage and transport combined - usable 24/365 in all weather - fixed cost similar to rail; low operating cost (no driver required) - new types of cargo being developed in slurry form Challenges - cargo limited to liquids, slurry - costly construction - monopolies (most are common carriers) - limited access - political barriers at borders - vulnerable to terrorism

Materials Handling: Automated Systems

Automated Guided Vehicle Systems (AGVS): - move along floor on tape or wire - similar in use to forklift and tow tractors - riderless with programmed stops - available with lines or platforms Sorting Systems - generally used with conveyors - automate direction of items into shipments - most devices programmable for different speeds to fit shipment requirements Robotics - used to build and break down unit loads - recognizes product stacking patterns - transfers to/from conveyor Live Racks - gravity roller conveyors - when item is take from front, rest moves down Automated Storage/Retrieval Systems (AS/RS) - automate both storage and retrieval - give access to very high storage racks - machine moves both horizontally and vertically - pickup and drop off programmed at end of aisle stations - provides maximum storage space per square foot of warehouse floor

Export Documentation

BOLs - a shipping company issuing a BOL with the buyer as a way of demonstrating ownership of goods - all international shipments are initiated by a BOL that serves as the carrier's contract and receipt for goods the carrier will transport from one destination and shipper to another specified destination and recipient - BOL serves to document claims if the shipment is delayed, damaged, or lost Air waybill (AWB) - a standardized form used for all air shipments - Unlike steamship BOL, AWB doesn't provide title to the cargo. It instead serves only as a receipt for goods and as evidence of the contract of carriage Dock receipt - Issued by a ship agent, signifies that a steamship company has received cargo from a domestic carrier Certificate of insurance - If terms of sale require insurance, a certificate of insurance will attest that either the buyer of the seller has taken out a policy covering the cargo. Certificate indicates types of uninsured losses, amount of insurance, who issued it, etc.

Effects of Inventory on Financial Statements

Balance Sheet - unsold inventory is current asset - only profit margin portion contributes to net income when sold - can determine avg inventory from balance sheet Income Statement - COGS: product expenses booked when units sold - operating expenses: period expenses (MRO) booked when sold - reducing costs is more effective than increasing sales volume Cash flows - decrease in inventory increases cash position - inventory write offs reduce owners' equity and may require reducing debts to maintain covenants

Benefits/Complexities of Contracting

Benefits - economies of scale - 3PP can increase efficiency of order processing - risk reduction - transfer risks, 3PP may be better equipped to handle uncertainty, react more quickly - increased capital available for investment - some capital supplied by 3PP - clearer focus - access to new tech - faster development cycle times - 3PP expertise may enable enterprise to accelerate development time for new products Complexities - reduces some (no longer need to perform certain tasks), increases some (monitoring, controlling, risk mgmt) - risks of poor quality, IP theft, supplier corruption/fraud, failure to meet org policy - risk of reputation damage

Trading Exchanges Benefits and Risks

Benefits for Buyers - purchasing agreement control - standard product specs - lower admin, transport, logistics, unit costs - faster time to market - catalog accuracy Risks for buyers - lower quality goods - nonconformance - product rework/returns - long term loss of suppliers and few skilled suppliers - ruining years of relationship building Benefits for suppliers - automatic connections - wider market, offer all inv - faster order to cash - better future bidding - better catalogs - cheaper transaction, transport, logistics - less replenishment lead time - supply/demand collaboration Risks for suppliers - reduction in revenue/unprofitable margins - option contracts consume capacity - fewer internal investments - business continuity risk - buyers use seller's info to buy elsewhere - exchange integration costs

Forecast Bias and Random Variation

Bias is "a consistent deviation from the mean in one direction (high or low). A normal property of a good forecast is that it is not biased" random variation is any amount of variation that, when averaged over multiple periods, equals the average demand for the same periods. Bias requires correction; random variation does not. Bias from temporary situations may not require changes to forecasting models, but a change in trend or seasonal effect requires changes to the model or its smoothing constants

Demand Mgmt Process: 3. Influencing Demand

Brand, marketing, and sales activities to convince customers to purchase products and services so that business objectives are met or exceeded influencing product development and supply side of org to recognize and support actual customer expectations and requirements generate and execute marketing and sales initiatives and determine if plans are working Plan Do Check Action Model is used to ensure demand influencing activities are being continually adapted to current situations 4Ps - demand influencing activity purpose of demand influencing is to support org's business objectives - this may be to convince customers to purchase other products or delay purchases developing and maintaining influence requires leadership skills and humility

CRM technologies

Business systems - transaction maintenance - info (pricing, promotions, inventory) - financial details Customer care (web enhanced) - response, product customization, convenience, order visibility, returns - online FAQ, CSRs, chat rooms, detailed prodcut data, service call wait choices - can reduce product returns

Trading Exchanges

Buyer - supplier queries - requisition approval - track, recieve, pay Banks/FSPs - settlement - aggregation - financing - credit Supplier - order processing - shipping - catalog maintenance Specialized services - optimize carriers - consolidated payment processing - international services Exchange (in middle) - standardize catalogs - transmit orders - prepare auctions

Scope and Elements of CRM

CRM involves sales operations (most functional activity in CRM), analysis, customer info dissemination, relationship building and collaboration Each of these elements works toward a strategic focus on product, price, placement, and promotion All of this is then focused toward one or more customer segments that can be served using a unique set of SC capabilities

CRM Strategy and Processes

CRM strategy - plans to initiate, develop, or sustain relationships with customers Components of CRM Strategy: - Service - EBS - Web systems - marketing - external data - CRM applications - Analytics CRM processes- order of marketing, sales, and customer service activities - improves time to market (through reducing specific tasks for demand mgmt to just those value added, executing demand mgmt tasks quickly, minimizing number of tasks that can be produced concurrently rather than sequentially) - formal monitoring and feedback are essential (enables and requires strategy to adapt when actual results differ from plan) - implement with plan, do, check, action, model

Modes of Transportation: Rail

Capabilities - fuel efficient - heavy loads (equal to water) - any loads (with bulk restrictions) - low value cargo - relatively low rates - low variable costs market - low variable costs, high fixed costs - few US carriers, mostly consolidated - growth in China still possible, little everywhere else - intermodal options growing Limitations - restricted destinations, little chance to expand - slow because of stops, switching (EU) - rough ride

Modes of Transportation: Water

Capabilities - huge, heavy loads hauled for distances - low value, high density cargo such as coal, crude oil, or gain - very low per mile cost and fuel efficient Market - used in US, great lakes, river, EU rivers, China and SE Asia and elsewhere - waterways maintained by taxpayers - low fixed costs for ease of entry, private fleets Tradeoffs - limited accessibility, other transport required o/from port - slow travel (trains faster but higher cost) - harmful to environment

Modes of Transportation: Air

Capabilities - speed (can eliminate SS) - smooth ride for valuable and perishable cargoes - or any - lower packaging expense Market - low fixed cost, high variable cost - trends to be run by govt or heavily regulated - competes for transoceanic carriage - tiny percentage of overall cargo market Tradeoffs - cargo secondary to passenger service (except FedEx) - very high delivery cost per ton/mile - limited access (some help from intermodal) - reliability problems

Hybrids: Package delivery services

Capabilities - speed (up to same day) - accessibility and flexible hours for pickup, delivery - perfect for perishable and high value goods (food and drugs) Market - compatible with lean/JIT - large employer and logistics provider globally Limitations - high price (traditionally limited to small, high value items)

Production Activity Control

Capacity control takes the form of input output control and operations sequencing. Capacity control is the level of capacity planning that has the shortest horizon and takes place closest to the daily action of manufacturing. This is where planned activities get carried out. Production activity control (PAC), of which capacity control is one part, consists of all of those activities meant to ensure that everything goes according to plan PAC has 4 main objectives: 1. Execute MPS and MRP 2. Make the best use of resources 3. Minimize WIP 4. Maintain customer service Control functions - Plan: ensuring that resources are available and scheduling start and completion dates - Execute: execution of plan requires gathering relevant info for the shop order and releasing the orders - Control: controlling the workflow requires: Establishing and maintain order priority, Tracking actual performance (to know where problems are), Monitoring and controlling WIP, LTs, run times, and queues, Reporting work center performance These three functions take place in a continuous loop, data gathering and analysis that takes place in the control function feeds info to the planning function to enable continuous improvement

Warehouse capacity forecasting and planning

Capacity forecasting is a function of inventory levels in the aggregate Individual inventories will vary between a minimum (Equal to SS) and maximum level, we are looking for most common inventory level - an average, the mode When random location assignment is used, the inventory that is currently at the max level will balance inventory that is currently at the min level If, instead, fixed warehouse locations are assigned to specific items, the size of the warehouse would need to be the sum of all max space per item and the warehouse would frequently have a large amount of unused space Items that need to be considered before calculating the forecasted average (mode) inventory level: 1. individual averages (mean) 2. average aggregate inventory 3. number of pallet bays 4. factor adjustments 5. warehouse size factor adjustments - partial pallets - space around inventory for movement/assembly - levels of vertical storage - target utilization of warehouse - bulk storage calculated separately

Make Vs Buy Analysis

Choosing Activities to Contract Out: 1. Is activity core competency? 2. what are consequences of losing related skills/knowledge? 3. what is landed cost or TCO? When considering contracting out components, core competency question: is component integral to the device or modular? - integral component: unique to a product, fails the whole product fails --> risky to oursource - modular component: interchangeable with other variants on the market Kuglin Customer Centered SCM 1. Is activity a core competency of enterprise? - internal and external experts - list core and non core competencies 2. does market need it? - interview customers and suppliers 3. what is relationship between market need and enterprise capability? 4. develop core competency to meet market need or outsource? - yes if consistent with mission and vision, have resources to develop competency within acceptable time frame - no, make list of companies that can provide capability and select partner

Auctions

Classic or forward auctions: have one seller and multiple buyers who bid up price for a product until highest bidder gets the item Reverse auctions: internet auctions in which supplier's attempt to underbid their competitors; company identities are known only by buyers Dutch auctions: have one seller and multiple buyers for multiple but finite quantities of the same item for sale. Price starts high and is lowered periodically. A bid immediately constitutes a contract for sale at the current price (used for US treasury securities) Demand management auctions: clearinghouses to liquidate excess supply (ex hotel rooms); buyers and sellers must be indifferent to other party Stock market style auctions: have dynamic pricing based on buy and sell offers and multiple buyers and sellers for commodities

Supplier Certification Process

Complete and thorough understanding of third party standard or org's needs 1. define requirements, process, and roles 2. evaluate alternative suppliers 3. select suppliers 4. conduct joint quality planning 5. cooperate and build relationship with supplier 6. conduct measurements 7. certify suppliers 8. conduct quality improvement programs 9. reevaluate suppliers periodically

Logistics Contract Considerations and Contract Rules

Considerations - mutually beneficial - specify what each partner will do to ensure success - commitment of time and energy - shared risks and rewards - carefully select performance metrics that address performance and customer service Specify Rules and Clauses - confidentiality - subcontractor - remedies (correcting variances from targets) - use of arbitration - escape

CRM Strategy for Customer Segments

Customer segmentation strategy categorized by demographics, attitudes, or psychological profiles - don't make assumptions, based on valid reserach - find sources to support intuitive opinions Service-minded customer strategies 1. customer value 2.customer history 3. CRM tech for customer service support - point of differentiation is often tech for call centers/service strategies for reaching customers via tech channels right contact point self service vs high relationship

Segmentation by Customer Value

Customer value is defined as the measure of a company's contributions to its customers, based on the variety of its products, services, and intangibles the company offers The greater the customer's value, the better the treatment the customer receivers Leading edge orgs are driving to increase value generation from high yield customers. They aim to acquire and retain profitable customers and get them to spend more Pareto principle - a small percentage of the customer base (20% or less) provides a significantly higher percentage of revenue when compared to the rest - 20% of customers have high service needs --> 80% of revenue

CRM strategies for customer relationship types

Customers have a life cycle; progress in their relationship with a business, from prospect to customer, and then at critical decisions points, they consider whether to continue the relationship Some customers may be vulnerable - the likelihood of retaining their business is less than for other groups goal of any CRM strategy is to increase the number of loyal customers One of the key purposes of a CRM strategy is to allow an organization to address the various types of prospects and customers it serves at different stages in their life cycle. Very different marketing and customer care campaigns are developed based on these four types of customer relationship Prospective customers - CRM strategy determines the market research, product pricing, audience segmentation, promotional message, and contact channel that should be selected for each customer segment. Captured data can help shape future prospecting activities. Vulnerable customers - saving a customer who is about to discontinue service or stop purchasing product requires good target identification and prompt action. CRM data can be instrumental in early and accurate identification of vulnerable customers and in analyzing the most effective retention programs - Churn - the process of customers changing their buying preferences because they find better and/or cheaper products and services elsewhere - Predictive churn model uses customer info to anticipate in what groups and at what levels customer attrition may occur - Business may then decide to target special promotions to keep those customers they believe still have high value Win back customers - to win back a customer, communication should be made as soon as possible within the first week after the customer has discontinued service. Rapid communication between different parts of company is essential. Opportunity to win back customers is often only before they leave and sign a competitor's contract. - target most valuable customers Loyal Customers - CRM response to challenge of customer loyalty has been development of customer loyalty programs. - CRM program may offer complementary products/services (cross selling) or more profitable products or services (up selling)

Distribution Requirements Planning (DRP)

DRP organizes inventory requirements so the org has time to plan for when and how many goods will be required DRP - the function of determining the need to replenish inventory at branch warehouses (DCs) - resupply needs - allows central supply to plan production - gross to net calculations - planned order recommendations - exception action messages - input to MPS DRP components Inputs: - forecasts - distribution network - customer orders - inventory status Output: - Resupply action plan

Contributions to S&OP

Demand Side: Production and brand management, marketing, and sales contributions - Demand forecasts - Demand plan commitments - Demand plan numbers and assumptions - Market analysis Supply Side: Operations contributions - The S&OP plan is implemented on the supply side through a production plan. Production plan is high level view of future production requirements over a planning horizon 12 to 18 months - Product families - established on basis of similar operations capacity requirements. "Like capacity" items are grouped together so that the resulting production plan can be used directly by operations. - Output and resources - specific output targets are identified for each product family during the planning horizon. These targets include: - Operations constraints - whether there is sufficient capacity over the planning horizon to meet the plan for each product family. Constraints can be alleviated by operating above or below optimal capacity of by altering operations strategies or supply side strategies - Operations strategies - production strategy, a chase production method, or hybrid of the two - supply-demand strategies-make to stock, make to order, engineer to order, Assemble to order (finish to order), Package to order - Actual results and other data performance metrics Finance contributions - reviews the demand plan and the proposed production plan for financial feasibility and fit with business plan goals (especially financial goals) and may make a recommendation on the plan that makes the most financial sense if competing alternative exists

Aligning CRM Strategy and Product or Service Life Cycle

Development stage - essential to cultivating brand loyalty and developing lifetime customers - Info gathered through CRM can be used to identify an idea or concept that has potential to meet customer needs and increase profits - CRM can be employed to select test customer segments for new products - Development stage offers opportunity to create customer ownership - Involving key customers in product crafting phase creates sense of partnership and mutual investment --> greater potential of lifetime customers Introduction stage - CRM focus is on supporting the promotional program - Advertising costs high to rapidly increase customer awareness of product Growth stage - Customer care must be sustained during the growth - Info is used to identify strong and weak customer segments, and advertising messages must be tested for their effectiveness in reaching these groups - Managing supply and demand is particular concern during growth phase Maturity stage - Organization focuses on using its dominant position to entice its competitors' customers to switch - It must continue to attract new customers - Sales promotions may be increased to encourage retailers to give priority in merchandising - Customer care activities that affect brand image are especially important to answer to increased competition Decline stage - Customer care is critical - Customers with soon to be obsolete products must be assured that they can receive service and replacement parts - They can be provided a means of migrating to newer products - Customer care now can promote lifetime customer development

Supplier Co-Location

Enabled by SRM - typically locates a supplier/multiple suppliers within a single location - may bring together people or groups in related roles for product and process innovation, to generate ideas and design new products, or to conduct prototyping and product qualification tasks - level of integration can vary - may be market driven or may involve exploiting tech based products and services

Materials Handling - Mechanized Systems

Forklifts - vehicle of choice for unloading is forklift truck - provides max flexibility in movement, placement, retrieval of pallets - allow pallets to be raised to tops of high stacks, takes advantage of tall warehouse spaces Conveyors - move goods into or out of some types of vehicles/storage spaces - can be equipped with scanners to read bar codes --> speeds up inventory accuracy and reducing errors - advantages: inexpensive operating costs, reduced labor costs, efficient use of space (fit in narrow aisles), read bar codes, move more inventory than truck can move at less cost - tradeoff: conveyors can block access to loading area Towlines - four wheeled container towed by dragline, can be mounted to overhead or floor - can be equipped with scanners - can be complex and expensive - Advantages: efficient use of space, potential to improve inventory ID and accuracy - tradeoffs: heavy capital investment, large time and money investment to design system, rapid obsolescence Two Tractor with Trailers - can pull several trailers conveying pallets - require driver, more expensive than towlines but more flexible Bridge and Wagon Cranes - for heavy lifting - bridge: can move objects horizontally and perpendicular to truck tracks, suspended so leave floor space below free for activities. used in low/medium volume activities that require moving items that are large, heavy, awkward - wagon: offer more mobility than forklifts/conveyors, narrow aisles and use all 3D of warehouse, used to lift and swing objects that are heavy/odd shapes - advantages: easy to access most areas, extension outside of building, lift heavy objects, narrow aisles and 3D, frees floor space, remote or automated - tradeoffs: capital expense Carousel - series of bins mounted to an oval track with the option of multiple track levels - carousel rotates, moving inventory to a stationary order selector rather than requiring that person to go to the inventory storage location - Advantages: - Reduces labor required for order selection by reducing walking length and time - reduce storage requirements, - Paperwork can be eliminated when the system uses computer generated pick lists and carousel rotation A pick to light system uses a series of lights that indicate the right pick location and number of items to remove form that bin in the carousel. In some pick to light systems, a computer generates the pick lists and operates the carousel -Advantages: - Efficient use of floor space - Reduction of time and labor required to pick items from storage - Available automation to further enhance productivity

warehouse function: postponement

Goods enter a postponement center in component form for later final assembly Final configuration of the FG is postponed until an order arrives, allowing the parts to be assembled to fit the specific order Components can generally be stored more efficiently than FGs Forecasting is easier for group of products that can be assembled from the parts than it would be for the separate end products If the warehouse contained FGs, it would require SS for each item Processing at warehouse may be more expensive than finishing the product at the plant would be Benefits - more efficient storage - more accurate forecasting - less SS - mass customization drawback - increases costs for hiring/training, maybe finishing

Import Considerations

Harmonized tariff schedule - HTS: mechanism by which international tariffs are standardized. Importers and exporters use them to determine the amount of tariff to pay and must classify all goods moved across international borders using harmonized system of the country of import Harmonized system classification codes: an internationally standardized description of goods that uses a system of numbers to provide increasingly detailed classification and descriptions - HTS coding system used as a basis for customs tariffs and for collection of international trade statistics Declared value and duty drawbacks - Once exporter has determined the identity of the cargo reference to the harmonized code, the importer is responsible for declaring the value of the cargo - That value influences the amount of any import duty - The declared value of cargo should ideally be the actual price paid (or to be paid) by the importer - Duty drawback is a refund of all or part of duty paid on goods that were first imported and then re-exported. Governments differ on the details of drawbacks. Calculating import costs - there will be customs related fees and in some countries, a value added tax (VAT) - Import duties are generally assessed as a percentage of either the Incoterms CIF (cost, insurance, freight) or FOB (free on board) value Import requirements and restrictions - Governments generally look with less favor on importing than on exporting, since exports bring money into the country and imports take money out - Governments create numerous import licensing requirements, regulations, and restrictions to guard against dangers and they enforce these regulations through customs inspections World trade Org (WTO) takes as part of its mission the creation of free and fair trade around the world by eliminating many of these barriers against imports - Provides less developed nations with better access to world markets for their exportable products

Ways to Segment Market

Historical Segmentation - preconception of groups - representative groups - inaccurate CRM segmentation - actual buying behaviors - finer segments (ex. ecologically oriented products) - more accurate

Incoterms

International Commercial Terms define the obligations of exporters and importers the terms are used in foreign trade contracts to identify which parties area responsible for which transportation and customs clearance costs as well as when responsibility for the cargo transfers to the other party Transfer of control and thus risk of damage or loss is specified by these term are they legally binding? - no, but buyers and sellers may use them in POs - contracts must specify incoterm year Terms for Any Mode or Modes of transport - EXW - ex works (buyer takes over goods at sellers location, loads vehicle) - FCA - free carrier (seller delivers to main carrier, buyer loads) - CPT - carriage paid to (seller selects and pays for carriage) - CIP - carriage and insurance paid to (seller pays main carriage and insurance) - DAT - delivered at terminal (seller delivers goods to terminal) - DAP - delivered at place (seller delivers goods and buyer receives and unloads) - DDP - delivered duty paid (seller incurs all costs, including import duty) Terms for sea and inland waterway transport - FAS - free alongside ship(buyer lifts cargo onboard) - FOB - free on board (seller puts good on ocean vessel) - CFR - cost and freight (seller selects/pays for carriage) - CIF - cost insurance and freight (seller pays main carriage and insurance)

Why Have Inventory?

Inventory Functions 1. Anticipation inventory: - additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations. intended to cover the demand projected org's demand plan. 2. Safety stock (fluctuation inventory): 1) a quantity of stock planned to be in inventory to protect against fluctuations in supply or demand 2) in context of master scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. Over planning can be used to create safety stock - SS held as buffer against miscalculations of timing or quantity - SS helps meet customer service targets and reduces stockout costs 3. Lot size inventory or cycle stock: - purchase or manufacture of inventory in quantities greater than needed to receive quantity discounts or full truck discounts or to match batch sizes for production. - Cycle stock: depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received 4. Hedge inventory: - managing risks by building, buying, or contractually guaranteeing additional inventory at a set price if supply could be threatened or prices could rise. These decisions involve speculating on events such as the weather, economy, labor strikes, civil strife, or political actions 5. Buffer inventory: - material maintained to keep production throughput steady at work centers - Buffer: quantity of materials awaiting further processing. It can refer to raw materials, semifinished stores or hold points, or a work backlog that is purposely maintained behind a work center 6. Decoupling: - creating independence between supply and use of material. Commonly denotes providing inventory between operations so that fluctuations in the production rate of the supplying operation do not constrain production or use rates of the next operation - allows supply and demand functions to operate at differing, independent rates. - allows scheduling use of a work center to that some production may occur earlier than needed to avoid bottlenecks in overall production

Inventory Control

Inventory control: maintaining the desired levels of items, whether raw materials, WIP, or FG Inventory control determines two things: - how much to order - when (how often) to order Inventory management aims to reduce obvious and hidden inventory costs, Inventory control aims to determine order amounts and timing with an objective of reducing carrying, ordering, and set up costs but without sacrificing customer service goals

Inventory Ordering Systems

Inventory ordering systems are methods used to answer question of when orders should be placed 1. Order point system - determines inventory level, or point, at which a reorder must be placed - order point is where we have enough inventory to cover anticipated demand that will be consumed during the replenishment process - Order Point = demand during lead time + SS - time between orders is not fixed but varies based on actual demand during the reorder cycle - at maximum demand, stock outs could occur, or some amount of SS may be included to reduce risk of stock outs 2. period review system - order intervals are fixed (weekly, monthly, quarterly) and order quantities can vary - the warehouse determines a base stock level, or maximum level of inventory - the base stock is the inventory target, or order up to level. - inventory reviewed in each period, and the warehouse orders enough to raise the inventory position to the base stock (target) level - Maximum Level Inventory = D (T + L) + SS - Order quantity = Maximum Level Inventory - Inventory on Hand - useful for grocery stores or retailers with many items to sell because it keeps inventory tracking cost down and helps fill truckload assortments, assuming that assortments can be all shipped from same source such as consolidation warehouse 3. Min - Max System - both order timing and order amount are allowed to vary - orders submitted after inventory has fallen below minimum point, but inventory isn't allowed to go over a maximum 4. time phased order point system - MRP like time planning logic for independent demand items, where gross requirements come from a forecast, not via explosion. - This technique can be used to plan DC inventories as well as to plan for service parts because MRP logic can readily handle items with dependent demand, independent demand, or a combination. - approach that uses time periods, thus allowing for lumpy withdrawals instead of average demand. - rather than waiting until inventory drops below the order point, a TPOP system will check whether the item will fall below the order point during the order horizon - Lumpy withdrawals refer to situations such as promotions or export orders that create demand variability that order point systems have trouble adapting to because they are based on average demand - useful for parts maintained in low volumes, slow movers, irregular demand items, and large parts that cannot be stored in sufficient quantities - The shop floor warehouse needs visibility to its own inventory levels so it can allocate parts for assembly orders from the warehouse and also backflush these orders against the shop floor warehouse - DDMRP determines how to shrink total LTs by creating buffer inventories of key components that have longer lead times than other components making up a FG - DDMRP dynamically determines the best places to position the inventory and dynamically adjusts the size of the buffer inventories to minimize total LT and the total cost of carrying not on FG inventory but all component inventories

Inventory Policy

Inventory policy is a way of formalizing the results of strategic inventory decisions so that they can be implemented consistently On a broad level, inventory policy can specify centralized or decentralized inventory planning and/or warehousing, frequency of communications and coordination, or a geographical inventory positioning strategy such as postponement On a more specific level, can specify rules for order quantities, order timing, when to act on exceptions to rules, and amounts of specific items to purchase versus produce Factors when setting an inventory policy: - Customer demand - Planning horizon - Replenishment lead time - - Product variety - inventory costs - customer service requirements

Development of Lifetime Value

Lifetime customers enhance profit in various ways: - Lifetime customers lower total marketing costs - costs of acquiring new customers tend to be front. As relationship develops, expenses of marketing and sales decline - increasingly easier to satisfy lifetime customers - with improved tech, it becomes easier to retain customers through deeper knowledge of the customer's needs and buying habits. The longer you keep customer, the better you know customers and greater likelihood that you can fulfill customer needs and deliver satisfaction - lifetime customers offer increased revenue and profit opportunities - as relationship matures, revenue from these customers generally increases as the result of increased customer satisfaction and confidence and larger orders or as the result of efforts to sell the customer related products/services. As revenue grows, customer acquisition decreases, profit increases. Companies may also be better able to maintain profit margins with lifetime customers, who tend to value convenience and stability over price Lifetime customers have a win-win relationship with the businesses they frequent. The customers gain greater satisfaction, while the business enjoys decreased marketing costs and increased revenue and profit potential. Lifetime customers are not common in markets competing on price rather than added value.

Segmentation

Market Segmentation: Who? Where? When? Why? What? How Many? Customer Segmentation: groups of individuals that are similar in specific ways relevant to market Why Segment Markets? #1 Reason: to increase organization's profits over the long term

Mean Absolute Percentage Error: MAPE

MAPE is a useful variant of MAD because it shows the ratio, or percentage, of the absolute errors to the actual demand for a given number of periods MAPE = sum ( abs value (A - F )/ A ) [%] ) / n Percentage based error measurements such as MAPE allow the magnitude of error to be clearly seen without needing detailed knowledge of product whereas when an absolute error in units (or error in dollar amounts) is provided it requires knowing what is considered normal for the product

Master Production Schedule

MPS - plans independent demand MPS also takes in account interplant demand - plant's need for a part or product that is produced by another plant or division within the same organization Purpose 1. provides sales-operations contract - assures sales force of product availability - assures operations of sales force commitment 2. balance supply with demand for: - low inventory costs - fewer stockouts - more efficient production Stages of verifying capacity: 1. First draft of MPS 2. Rough cut capacity planning to verify that the production targets are feasible 3. Master scheduler revises plan or capacity if capacity isn't sufficient to meet the targets or greatly exceeds expected load

Evolution of MRP software

MRP - Material Requirements planning - automates BOM - improves on time delivery, frees up time to plan - assume infinite capacity - hence impossible schedules Closed Loop MRP - refinement of MRP; provides feedback on capacity available - tradeoff: installation and training costs MRPII - Manufacturing resource planning - includes financials (crosses boundaries) - makes capacity more visible - translates detailed info to financial statements - helps realign with plan

Material Requirements Planning

MRP: a set of techniques that uses BOM data, inventory data, and the master production schedule to calculate requirements for materials MRP plans production/POs for dependent demand items dependent demand items do NOT require forecast, only calculation some items can be have both independent/dependent demand (can be used as component or sold separately) MRP - performs gross to net calculations - creates planned order recommendations - generates exception action messages

Mean Squared Error: MSE

MSE magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods Squaring errors makes them absolute MSE = sum of (error for each period)2 / number of forecast periods Process of squaring errors (MSE) gives you a much wider range of numbers than MAD - The greater the range gives you a more sensitive measure of the error rate, which is especially useful if the absolute error numbers are relatively close together and reduction of errors is important

Marketing Automation

Major components of marketing campaign management: - Media based marketing - Direct marketing - E-commerce marketing - Marketing events =Campaign management by customer type * Prospecting campaigns * Vulnerable customer campaigns (customer retention) * Win back campaigns * Loyalty campaigns (cross selling and up selling) = Promotions = Response management

warehouse function: mixing

Mixing resembles break bulk but involves shipments from more than one manufacturer In a typical mixing set up, the warehouse receives full vehicle shipments of different products from manufacturers in diverse locations, with each shipment receiving the full load discount At the warehouse, shipments are broken down and assembled into the product mix desired by each customer or market. Mixing avoids multiple smaller shipments from each manufacturer along with the required separate handling, storage, and display. It also makes more efficient use of storage space in the warehouse Mixing typically benefits from a full load discount and more efficient use of storage space in the warehouse. benefits - serves customer by reducing their costs for handling/storage - increases efficient use of warehouse space

Why Some Strategic Alliances Fail and Some Succeed

Most effective supplier relationships have: - individual excellence - interdependence - importance - investment - info - integration - institutionalization (formal status) - integrity - interpersonal skills Why Some fail - shift in corporate strategy - immature IT - uncertain market - treat like merger (event) - poor mgmt - poor monitoring - inadequate resources

Demand Mgmt Process: 4. Managing and Prioritizing Demand

Need Org/SC wide view Optimize demand across system Management is involved in setting and enforcing policies to promote optimization process Need to prioritize demand because sales will differ from planned demand and because supply cannot often produce products in exact timing and mix by specified demand plan prioritization can be based on customer segmentation strategies. can ration supply, can prioritize production/distribution

Measuring Capacity Equations

Need to know 3 things to measure capacity: available time, utilization, efficiency Available Time = Hours of Operations x Number of Workers or Equipment Utilization = Hours Worked / Available hours x 100 Efficiency: Standard Hours of Work / Hours Worked x 100 Rated Capacity: Available Time x Utilization x Efficiency Demonstrated Capacity = Output for n period / n

NAFTA

North American Free Trade Agreement Original NAFTA goal: establish free trade zone with no trade barriers in canada, US, and mexico Achievement: many tariffs dropped, others scheduled for elimination export challenge: master the complex rules for establishing cargo's country of origin to quality for low or no tariffs Benefits of NAFTA - importers pay no tariffs (depending on phaseout) - maquiladora; manufacture or assembly of duty free components - US company has work done in Mexico; duty assessed only on value added (labor), not total value Drawbacks - lack of infrastructure in mexico - complex paperwork related to country of origin or exported items - ongoing trucking restrictions into and out of mexico - ill will due to plant closings and layoffs

Logistics Objectives/Tactics/Value Proposition

Objectives - rapid response capability - minimum variance - minimum inventory expense - consolidated shipments - high quality - product life cycle support Tactics - coordinating functions: requires cross functional approach - integrating SC - substituting info for inventory - reducing number of partners - pooling risks Value Proposition - achieve customer service at lowest total cost - cost minimization and service - total cost concept of logistics: all logistical decisions that provide equal level of service should favor option that minimizes total of all logistical costs

Aggregate Inventory Management

Objectives: - support org strategy and operations - support financial objectives - balance: customer service, operations efficiency, inventory investment cost objectives Ways to Aggregate Inventory: - demand pattern - production process - stage of production flow - relative value to org - product or SKU family or type - distribution pattern S&OP plans production at family/aggregate level

Offshore vs Insource/Locally Outsource

Offshore = different country outsource = can be same country Offshore - market growth - additional sourcing opportunities - streamlining and efficiency Insource/Locally Outsource - offshoring complexities (ex. culture) - less organizational maturity, less TQM emphasis - risks (ex. supply failure)

Warehouse function: break bulk and cross dock

Operations at break bulk and cross dock facilities are similar except for the way orders come into the warehouse Break bulk: 1) dividing truckloads, railcars, or containers of homogenous items into smaller, more appropriate quantities for use 2) a DC that specializes in break bulk activities - A break bulk facility can build new truckloads of assortments of goods all destined for a given location - Take shipments from one manufacturer and send immediately to a number of consignees - 1 shipment broken apart to multiple customers Cross docking: packing products on the incoming shipments so they can be easily sorted at intermediate warehouses or for outgoing shipments based on final destination. The items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse. Cross-docking reduces inventory investment and storage space requirements. Benefits of Break Bulk cross dock - combining inbound or outbound shipments for economies of scale to reduce logistics costs - reduce handling costs because put away and picking are avoided (no storage)

CRM Org Structures

Org Structures 1. demand management activity teams - media based vs direct marketing - marketing to prospects, vulnerable, win back 2. job rotation and mentoring 3. customer focused jobs, structures Technologies - collection, storage, and use of customer data - single integrated transactional database (customer data warehouse for analysis) - data mining and DSS - call center - campaign management

Supplier Segmentation

Pareto rule applies to suppliers: 20% of suppliers will deliver 80% of value to org's objectives/bottom line Supplier segmentation increases responsiveness without significantly increasing cost because it helps orgs with complex networks of suppliers manage their risks and responses. Cost and risk analyses can be simplified when suppliers with similar attributes can be analyzed together. Forms of supplier segmentation: - Ideal relationship type - segmenting suppliers by ideal relationship type involves analyzing what a supplier would bring to some form of partnership if one were to be pursed. - Supplier capabilities - can help compete on focus or differentiation basis because segment suppliers based on their ability to deliver on key business objectives at the core of these strategies - Customization vs standardization - some suppliers specialize in being responsive and able to provide custom solutions while others specialize in providing standardized solutions at economies of scale - Level of innovation - some suppliers are better partners when working to develop innovation in a product's design than others - Lead times - grouping suppliers by similar LTs can help when scheduling orders for goods, when tracking supplier performance LT consistency can be tacked against peers

Portals

Portal: multiservice website that provides access to data that may be secured by each user's role. Users can aggregate data and perform basic analysis Business Portals (CRM/SRM): - intranets and extranets - authentication and security - read only exceptions, forecasts, demand pull signals - dynamically aggregate internal and external info Web browser/dashboards help people interact with systems of other people Consumer portals: multiservice websites - email - personalized home pages - online shopping and search - news

Demand Mgmt Process: 2. Communicating Demand

Principles of Effective Communication: 1. Communicate Soon to Minimize Surprises - true for good/bad/uncertain news - develop structure for communicating uncertain news - develop culture that rewards early sharing of good/bad news 2. structure communications to ensure they occur - helps people communicate sooner - person to person interaction needed - key communication step is during consensus review, need to challenge and validate assumptions to acknowledge uncertainties - result is consensus demand plan that is integrated with finance and supply plans - output of S&OP is that supply side of org uses consensus numbers to perform master scheduling and supply planning - monitoring performance/providing feedback links to demand influencing and demand prioritization activities, master scheduling, supply planning, and S&OP - one way to ensure communications occur and feedback is used is to keep plans realistic and rely on full time demand manager 3. focus communications to fit audience - timely - disassembled to fit needs - units vs dollars - right amount of info - key tool to focus communications to audience = dashboards

Effects of Adding Warehousing

Pro - customer service improves - transportation costs decline with shorter distances to travel - rapid delivery may improve competitive position - decentralized system allows better service to small customers con - inventory costs rise with redundant functions, safety stock - set up and overhead costs go up total costs- decreases to a point, then increases warehousing costs - increases and then levels off inventory costs - increases transportation costs - decreases then increases cost of lost sales - decreases

Forming Strategic Alliances

Proactive Reasons to form: - to add value to products - to enable strategic growth - to increase market access - to strengthen operations - to increase org expertise - to build org skills - to enhance financial strength Factors to consider in deciding to form strategic alliances Limitations: - strategic importance - number of suppliers - complexity - uncertainty - new relationships

DRP: Push/Pull/Hybrid

Push Systems - forecasts and schedules centrally coordinated - drawbacks: customers don't determine own orders, doesn't account for local conditions Hybrid Systems (ex DRP) - push to given echelon, pull from there, use demand data from retail end - increase centralized and decentralized coordination and control - responsive to local demand Pull Systems - each partner determine owns orders (serial autonomy) - drawbacks: may contribute to bullwhip effect if partners are not collaborating across chain, doesn't account for needs of other SC partners, ignores supplier's ability - benefit: entity doing order can operate independently to balance supply and demand requirements as sees fit

Supplier Rating Systems

Rating Systems - use data from SC info systems - can be ongoing: real time rating based on: -- conformation rates -- number of floor failure events -- amounts of conditionally accepted materials -- time line performance communicating ratings - suppliers know ratings and when they trigger corrective action - automated systems can allow them to self correct - scorecards, performance alerts, surveys

Segmentation by Customer Needs

Refer to specific product features, contact channels, or logistics channels (time and placement) Challenge of defining what customers value is a good example of the benefits of customer focused segmentation based on analyzing actual buying behaviors Value profile - businesses need to understand what customers want, why, and how much - preferred contact channels, reliability, best value does not equal price, convenience, product/service features Once value profile has been created, a value proposition can then be drafted that details how each segment's perception of value will be fulfilled by the product/service. The value proposition is a key part of the promotional strategy and customer relationship

Performance Management - Measuring Customer Service

Response to Inquiries: goal: prompt, accurate metrics: - time delay from initial contact to response - number of errors detected in response - executive complaints Order processing goal: fast, accurate, on time delivery metrics: - order cycle time - percentage of orders with errors - website ease of use level of service goal: correct product, time, place, condition, packaging, quantity, and documentation metrics: - percentage of orders shipped complete and on time - number of backordered items - average age of backorders - value of backordered items Product/service quality goal: cost of quality metrics: - executive complaints - defect rates - warranty costs - product returns - website downtime

Retail Vs B2B Customer Strategies

Retail: rank of importance 1. bundle of services 2. product quality 3. price B2B customers: Expectations 1. complementary core competencies - business customers want to focus their main resources on their own core competencies and turn over functions to business with expertise in those areas. Failure by providers puts business customer at risk with own customers 2. knowledge of customer's business requirements - business customers value provider's understanding of how their business operates 3. continuous improvement successful customer centric B2B strategy must include extensive training of sales and service reps, with great attention paid to profiling customer and end user needs, avoiding problems or remedying them quickly, and analyzing data periodically to identify areas for improvement

Logistics: Risk Pooling

Risk pooling: associated with management of inventory risk. Manufacturers and retailers that experience high variability in demand for their products can pool together common inventory components associated with a broad family of products to buffer the overall burden of having to deploy inventory for each discrete product reducing stock outs by consolidating stock in centralized warehouses. The risk of stock outs increases as supply chains reduce the safety stock or component parts inventories held at each node and move toward JIT ordering procedures When inventory is placed in a central warehouse instead of in several smaller warehouses, the total inventory necessary to maintain a level of service drops without increasing the risk of stock outs. Tradeoff: lead times and transportation costs increase with centralized warehouses

Strategic Sourcing Using SRM

Strategic Sourcing - comprehensive approach for locating and sourcing key material suppliers - focus on development of long term relationships with trading partners who can help the purchaser meet the profit and customer satisfaction goals Tactical Buying - purchasing process focused on transactions and nonstrategic material buying -- stable, limited fluctuations -- defined standard specs -- noncritical to production -- no delivery issues -- reliable quality

warehouse functions: spot stocking and assortment warehousing

Spot Stocking - Focused on strategic markets - allocating inventory in advance of heavy demand in strategic markets rather than the inventory being stocked year-round or shipped as its being produced - Customers and producers benefit from spot stocking of items in key markets to minimize the chance of shortage during peak demand - used for limited product lines and highly seasonal products that can be centrally stored during most of the year and spot-stocked in season at warehouses near the places where they will be purchased and used. Manufacturers use spot stocking for agricultural products used only during one limited operation, such as harvesting. Assortment warehousing - stores the goods close to the customer to ensure short customer LTs - benefits the customer by reducing the number of suppliers it has to deal with to acquire the assorted goods. It also reduces transport costs by allowing larger shipment quantities

Supplier Certification Benefits

Supplier certification - certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer's requirements. Such requirements can include cost, quality, delivery, flexibility, maintenance, safety, and ISO quality and environmental standards To achieve certification's highest potential, companies must clearly communicate what they will be measuring and how. Criteria should be consistent from one supplier to the next. The outcome can be used not only for selection but also for supplier improvement. Companies usually opt to pursue the certification process only with actual or key suppliers. Benefits for Customers - more efficient, safer and cleaner products - safeguards consumers - extend CSR to suppliers - selection and performance evaluation - consolidate suppliers - trust suppliers/share info Supplier Benefits - access to wider market - market capabilities - higher quality lowers costs - learn intermediate customers' needs - learn best practices - single source provider - shows commitment

Supplier Selection

Supplier searches can use traditional methods - approved vendor lists, referrals or prior relationships, location specific consulting orgs, formal RFQs, or invitations to tender (ITTs) or interned enabled methods can be used Internet enabled sourcing - Many cost savings initiatives enabled by internet sourcing - Larger number of sources located across globe can be evaluated in shorter span of time - Available as a gesture of purchased SRM software, through ERP, SaaS - Can make use of trading exchanges and online auctions - Negotiation automation tools include RFQ or ITT submissions and response gathering - No need for bulky catalogs Once org has applied its selection criteria to its supplier search, it will generate a short list of order qualifiers - suppliers who can meet all minimum criteria on technical specs, price, delivery LT< and terms of sale. Org will then select a supplier based on best overall weighted value. After that, process of negotiation can begin Selection Criteria: strategic supply plans, technical specs, quality, financial strength, costs, alignment with SC needs, CSR policies

Functions of Purchasing

Supplier selection Negotiation Order placement Supplier follow up Supplier performance measurement and control Value analysis Evaluation of new materials and processes some carried out by PMs others by purchasing agents/planners

Total Cost of Ownership

TCO: the TCO of the supply delivery system is the sum of all the costs associated with every activity of the supply stream. The main insight that TCO offers is that the acquisition cost is often a very small portion of the TCO Umbrella: TCO --> Landed Costs --> Purchase price/production cost Landed cost: includes the product cost plus the costs of logistics, such as warehousing, transportation, and handling fees TCO includes landed costs and considers all lifetime ownership costs such as durability, ongoing maintenance costs, and responsible disposal Use of TCO: - The intent of TCO is to get decision makers to see SC activities as investment in capabilities rather than expense to minimized - used to select between supply chain strategy options - Once strategy has been selected, TCO used for performance measurement to assess how well the strategy is contributing to organizational strategy and as a high-level control over the end to end SC processes - TCO compares the differences between incremental (or marginal) costs of alternative SC solutions. An incremental cost is the cost associated with producing one additional unit of a product or service. Measuring incremental costs considers the effects of system constraints on proposed solutions Costs to Include in TCO Analysis: - omit costs that are same between alternatives, include costs that differentiate alternatives - tangible and intangible - landed costs (MOST IMPORTANT) - process change costs (cost of evaluating choices and implementing changes, pre transaction costs) - ongoing costs (post transaction costs, costs throughout life of product) - net costs TCO Challenges: - analyses grow more complex as more costs considered - may require sophisticated tools - can be difficult to implement - orgs that have long standing department specific cost reduction policies may penalize individuals for failing to minimize cost in their department - requires process changes at executive level - to implement, incorporate into control and continuous improvement tools

Segmentation by Preferred Channel

Tech has given customers more options and better service and has lowered cost of doing business for orgs Because of potential savings, some business sectors have chosen to reward customers that use the channels such as discount for setting up auto pay Another option is to educate customers on benefit of a particular channel From Expensive to Cheap 1. retail sales associates 2. live call center help 3. live instant messaging 4. automated phone system 5. email resposne 6. self help websites and catalogs company encourages and rewards cheaper channels, but not requred need to test customer receptivenss to each channel

Free Trade Zones

There will be no: - customs formalities, duties, quotas - duties or quotas on reexports - fines - retail trade Benefits - deferral of all duties and federal excise taxes until goods leave the FTZ for customs, chance to repack, reprocess, for compliance - reduced import duties on some cargoes - chance to inspect (and reject) cargo before paying duties - avoidance of quotas - indefinite cost effective storage - manufacture and assembly without inverted duties Drawback - host country receives reduced revenues from import duties. However, with the numerous advantages of an FTZ many countries do provide them

Segmenting Customers

To develop customer segments, first understand wants and needs of individuals in terms of value or preferred contact channel and then look for patterns that can become basis for segments Customer info is basis for customer segmentation and all marketing and sales strategies based on understanding of wants and needs of those segments Acquiring info involves market research and multiple sources, including customer themselves Sources of Customer Info in CRM: - transaction records - sales and service reps - distribution points - purchased data Voice of the Customer (related to QFD) - involve customer - research and measurement tool - scripted: why leaving, how satisfied - customers talk freely; what company won't normally hear - know customers intimately; anticiapte desires

Payment terms

Trade Credit - sale of goods or services in which payment is not due right away - gives the buyer time to convert the good/service into revenue themselves before making the payment Open Account - buyer has a credit limit with a the org or a bank - buyer can make orders or write drafts up to the limit to pay for goods/services on receipt or on a deferred basis both of theses are offered only to trading partners with good credit records and healthy financials

Trading Blocs

Trading bloc: an agreement between countries intended to reduce or remove barriers to trade within member countries. Frequently but not always, those countries are geographically close Different types of trading blocs: - Free trade areas or zones - Preferential trade agreements - Customs unions - Common markets - Economic unions - Customs and monetary unions - Economic and monetary unions Countries can belong to a variety of trading blocs, and WTO tracks status of proposed blocs EU is regional trade bloc NAFTA is example of trade bloc

Strategic Sourcing and SRM vs Traditional Purchasing

Traditional Purchasing Focus: purchase price or landed cost; transactional Business Boundaries: never crosses Tech: benefits from tech visibility: internal Strategic sourcing focus: TCO; collaborative Business boundaries: opportunities for realigned and collaborative processes, data flow, and workflow tech: applies to higher degree visibility: entire SC

Measuring Customer Satisfaction

Traditional metrics issues - absence of issues, not satisfaction - complaints measure dissatisfaction - only small number reported quality of channel's service - trustworthiness - treated fairly, with respect, in competent, friendly manner? - resolution effectiveness measurement approaches - voice of customer - transaction customer feedback questionnaires - monthly/quarterly customer feedback questionnaires - performance review participation - responses to social networking negative comments

Transportation Mode Selection Criteria

Value Density vs Packaging Density method to find best mode of transportation for shipping a specific product type is to compare the product's value density (the value of units being transported per cubic foot or meter) vs its packaging density (the amount that can be packed per cubic foot or meter) Items with higher value density merit shipping by a faster method, items with lower value density can be sent by a slower method and then held in inventory The more units that are handled per cubic foot/meter, the more the need for automated materials handling low packaging density, low value density = low cost transport and storage low packaging density, high value density = fast delivery high packaging density, high value density = need for efficient materials handling/automatic sorting

Value Added Warehousing

Warehouse operation can reduce the overall cost of logistics by their efficiency and effectiveness in receiving goods and packaging or arranging them for reshipping Warehouse operations may improve customer service by cutting lead times, packaging goods for easy handling and identification, and arranging shipments to fit the recipient's unique requirements Examples - attention to packaging - 3PL specialized services - coordination with transportation, packaging, mfg - final assembly

VMI and Consignment Combinations

Yes VMI, Yes Consignment: supplier decides on replenishment but only sold inventory is invoiced. supplier employs restockers Yes VMI, No Consignment: Supplier decides on replenishment. Goods are immediately invoiced. Buyer owns inventory No VMI, Yes Consignment: Seller wants items on site but may not be fast selling. Suppliers invoices when used No VMI, No Consignment: Traditional: firm owns and manages inventory or sells it to independent distributors

Warehousing capabilities

activities - receiving: inspection, prep for receiving reports, POs - pre packaging - when received in bulk --> packaged in smaller quantities/other products - put away: removing material from dock/location of receipt, transporting to storage area, placing in staging, moving to specific location, recording movement and ID of location where material has been placing - storing - putting items under warehouse control - order picking - selecting required quantity of product for movement to packaging area and documenting move - moving - physical transportation within a facility - shipping (packaging, packing and marking) - outgoing shipments - cycle counting functions - consolidation - break bulk and cross dock - postponement and processing - stockpiling seasonal inventory - spot stocking advance shipments - assortment (similar to spot stocking) - mixing

Commitment required for a successful alliance

commitment to change - change is constant, inevitable - reinvent self and alliance incrementally commitment to relationship - max commitment (new alliances cost more than retaining existing ones) - common models, structured methods, and decision making structure to drive efficiency and effectiveness commitment to communication - dynamic interaction at all points and mutual decisions

Customer Focused Marketing

customer focused marketing is based on several fundamental marketing concepts: - customer requirements must driver product and service design - design should start with analysis of actual customer requirements or needs -all products and services have more than one market segment - primary justification for defining market segments is the marketing assertion that no single set of customer requirements describes all potential customers - logistics and marketing strategy must focus on customer segments - marketing must enable possession of the product or service by providing marketing info in a manner likely to reach and be appreciated by that segment. Logistics must make product/service available to the customer at time and place customer segment finds it convenient - profitability is more important than sales volume - an essential benefit of customer segmentation is an identification of the size and value of each segment, which can help predict whether a given change in strategy will increase profits what has driven the change to a customer focused business environment? - orgs need to understand customer segments to improve two-way communication with customers and to fulfill customer segment needs because today's customer is harder and more expensive to win and keep - As customers begin to assume that products and services will be of high quality, the competitive differentiator becomes price or value - Tech like the internet makes it easy for customers to shop for lowest price - Creates pressure on company's bottom line/profit - One way to respond to this pressure is to niche market - to develop and market products to specific customer segments that have shown they value and are willing to pay for what this product or service offers - Resulting pressure on profit makes it even more important that companies retain their customers, since customers become more profitable the longer they are retained

Sales Force Automation (SFA)

customer retention: - sales promotion and discount mgmt - dashboards - data synchronization with mobile devices - calendars and contact lists for automated workflow - real time visibility - online networking (SaaS or cloud computing) SFA tools: - contact mgmt - account mgmt - sales activity mgmt - event mgmt - opportunity/pipeline mgmt - quotation mgmt - knowledge mgmt

Supplier Performance Measurement

effective SRM performance measurement systems: - track performance of all suppliers to some extent, with a focus on critical component suppliers or suppliers with prior quality issues - collaborate with suppliers on performance measurements, reporting, and improvements - automate key supplier performance measurement activities - standardize the supplier performance measurement procedures across the org Verify Suppliers: - flexibility, promptness, consistency - reliability - commitment to QA - financial stability - tech investment Best Practices: - set goals and incentives - apply SCOR metrics to suppliers - measure internal customer satisfaction by interviewing users of supplier's products - communicate level of satisfaction

Lot for Lot Replenishment and Fixed order Quantity Replenishment

exact number needed for production is number to make/buy thus it is often used for dependent demand items (since no SS needed) used when excess inventory is undesirable = JIT, and in production of expensive infrequently ordered items lot size can vary order smaller quantities more frequently so --> high set up/ordering costs FOQ used in MRP when operations require fixed batch sizes and order quantities

Export Considerations

export declaration - Automated Export System captures and stores US export data electronically, allows exporters to self-file their electronic export information - US form includes basic info such as: description of commodity, The shipping weight, list of marks and numbers on containers, number and dates of any required export license, place and country of destination, parties to the transaction, - Form exists for purpose of compiling trade statistics as for enforcement export license - Shippers need to acquire export license - Licenses come in two types: 1. general export license allows export of most goods without restrictions 2. validation export license is required for shippers who wish to sell military hardware, computer chips, and other strategically sensitive items abroad commercial invoice - States the value of the goods in the shipment and specifies payment terms and methods - Constitutes the buyer's and seller's invoice for the transaction document types Certificate of Origin - provides info on the country where the goods were produced for assigning tariffs and for compliance with government trade restrictions - certificate states that the goods actually did originate in the exporting country and are not merely reshipped for there to benefit from the lower duty ATR certificate - certificate that is required for trade between EU and Turkey. It grants zero duty to "free circulating' goods in the EU, which are goods originating in the EU or imported to the EU with all import duties and taxes paid. Agricultural goods, minerals, and steel are excluded and must use form EUR1 ATA carnet - Containers traveling under an ATA Carnet can cross several boundaries duty and tax free without customs inspections - ATA = admissions temporaire - Carnets cover almost any types of goods, excluding disposable and consumable items, used worldwide pro forma commercial invoice - may be sent to a potential buyer in advance of the actual sale, may contain same info as regular commercial invoice and serve as both a price quote and documentation for the potential buyer to use in securing a letter of credit to finance the purchase consular invoice - similar to commercial invoice but also contains info needed for customs in the importer's country

Item Inventory Management

goal is to enable planners to translate strategic inventory goals into measurable results (proper production and distribution of each SKU) Inventory Rules - when to order inventory - how to determine order size per order - relative importance of each inventory item - inventory control procedures for individual items Master scheduling plans inventory production at item level

Organization of Storage Locations

goal: optimal velocity and cube utilization 100% accessibility Methods 1. Random location (floating inventory location) - parts are placed in any space that is empty when they arrive, requires less storage space - maximizes cube utilization - need locator file - can be rapid if org uses warehouse automation systems such as directed pick and putaway 2. fixed storage location - need more space but learn fixed locations - locator file may not be needed - acceptable for warehouses that do not need dense cube utilization (space is not premium, low throughput, few SKUs, slow parts) 3. ABC - good for secure/fast moving requirements 4. group by function - good for modular units, assists assembly - point of use storage has special assembly staging areas near inventory storage 5. group by velocity - place fast moving items near docks 6. group by physical similarity - frozen/refrigerated items, bulky items 7. separate reverse stock - bulk storage items (or defective/obsolete) out of way, replenishes working stock

Funds Flows in SCs

goes upstream: customer --> producer --> supplier not linear - some upstream payments may occur before final good is purchased electronic payments reduce cash to cash cycle time (cash to inventory to credit sales and back to cash) advantages: - improves customer supplier relationships (lower perceptions of risk, improved reliability, better communications) - reduces imbalances between larger and smaller players (helps avoid sizable retailers requesting more liberal payment terms from manufacturers)

Logistics: Reducing SC Partners to Effective Number

having fewer logistics partners generally increases efficiency but could create tradeoffs in other logistics objectives. Echelons - Add to operating expenses - Hold inventory - Add to cycle time - Expect to make a profit The more partners there are in the supply chain the more difficult and expensive the supply chain is to manage Handoffs among partners cost money and time Having many partners means carrying more inventory Reducing the number of partners can reduce operating costs, cycle time, and inventory holding costs

Logistics Trends

highest spends: motor carriers, smallest spends: pipeline transportation is 62% of logistics majority of carrying costs = warehousing record breaking shipments came into US ports - port strikes halted container traffic - negotiated higher wages increased sea freight costs - major logistics nightmare and costs for companies relying on goods air freight fell logistics fell as percentage of GDP transportation sector grew

Letter of Credit

in an international transaction, organizations need a more sophisticated form of payment, and in many import-export transactions this takes the form of a letter of credit (L/C) L/C offers security from counterparty risk in a tidy, but complicated package bank assures the seller that the buyer can pay purchase price of the goods and that the bank will therefore honor the buyer's checks to the seller up to that amount. The bank makes this assurance either because it has reason to believe that the buyer's credit is good or because the buyer has an account with the bank Sequence of events: 1. L/C is issued 2. Seller's bank is notified 3. Seller ships cargo 4. Seller ask its banker for money 5. Seller's bank asks buyer's bank for money 6. Buyer's bank waits for cargo (perhaps) 7. Everyone gets paid Buyer paying in advance is taking on greatest amount of risk reduces risks for buyer and seller by putting bank in middle of transaction

Using Tech to implement CRM

internal data (demographics) and external data (mailing lists) feed into single, operations focused integrated database single, operations focused integrated database leads to customer datawarehouse CDW consolidates info and stores for easy acess and retrieval customer data warehouse provides benefits of: - strategic marketing - sales productivity - new product development - channel management - one to mone marketing

Methods of Assessing Inventory Accuracy

inventory accuracy: when the on-hand quantity is within an allowed tolerance of the recorded balance. This important metric is measured as the percent of items with inventory levels that fall within tolerance. Target values usually are 95% to 99%, depending on the value of the item. For logistical operations purposes, it is sometimes measured as the number of storage locations with errors divided by the total number of storage locations 1. Periodic Count - traditional method, requires store shutdown - annual count of all items - often done by temp employees - disruptive, expensive, error prone - necessary for retail 2. Cycle Count - count some items each day - count all items a set number of times annually - count A items more often than B/C items - timely correction of errors - no store shutdowns - key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors

Inventory Planning

inventory planning: the activities and techniques of determining the desired levels of items, whether raw materials, WIP, or FGs including order quantities and SS levels inventory planning can be centralized, decentralized, or a hybrid of the two: - centralized: inventory is pushed out downstream to later stages in the SC by the lead organization or channel master. Later stages such as DCs have no say in what they receive, but the central system usually attempts to replace inventory that is sold and to plan for seasonal effects or other trends. Centralized planning can minimize overall inventory levels but may respond slowly to local demand. System wide inventory optimization - decentralized: each SC stage determining its own inventory requirements and placing orders independently, so there is no coordinating expense. Autonomy and Local expertise. Can lead to bullwhip if actual customer demand is not available to all stages - hybrid systems: use centralized planning up to a certain point in the SC (such as DCs), followed by decentralized inventory planning at all later points. Point of push/pull moved to another point in SC inventory planning has two major components: 1. where to locate inventory 2. the desired levels of items at each selected location

Locations of Inventory - Echelons

inventory should be located where it can serve a valid purpose as a buffer between the stages of the SC, reduce overall costs, and meet customer service goals - warehouses, distribution centers, in transit Echelons: - Echelon: a level of SC nodes - Echelons can be helpful in planning the locations of inventory because organizations can decide how many to have - Each echelon adds material, labor, overhead, and inventory costs - The organization performs strategic network design to determine the optimum number of echelons, following by analysis of number and geographic location of specific sites Echelons - add costs - provide buffer for later echelons - may provide consolidation or break bulk service that may reduce total inventory/costs Echelon Inventory - considers inventory at a node to include all inventory at that echelon plus all inventory at later points in SC and in transit. - aggregates demand for more accurate order calculation

Operations Strategies: Chase, Level, Hybrid

level - aims for same output in each period. - maintains a stable production rate while varying inventory levels to meet demand - offers benefits of simplicity and predictability. - tradeoff is potential for inventory to pile up during periods of low demand or for stock outs if demand spikes upward chase - maintains a stable inventory level while varying production to meet demand. - results in demand matching which aims to match production to demand for each period. - benefit if the strategy succeeds in only producing what is demanded is a reduction of inventory costs. - On the negative side, resources must be ramped up during periods when demand is high with increases in costs for overtime, additional hiring, training. Layoffs may be necessary when demand falls, resulting in loss of competent, trained workers who may not be available again when demand picks up. Plant capacity must be built up to produce at highest level of demand rather than at average level hybrid - combines elements of chase and level production. - The plant runs near full capacity for part of the cycle, allowing inventory to build up, and then slows or shuts down to allow the inventory to shrink as customers buy the product

CRM and the Need for It

marketing philosophy: putting customer first - collection and analysis of customer data for sales and marketing decision support - understand and support customer and prospect needs - competitive survival strategy: responding to change quickly is differentiator between winners and losers - provide product-service package

Goals of Warehousing

maximize value to SC by effectively using - warehouse space (horizontal and vertical) - human labor - equipment - software - IT - automation

Corporate Social Responsibility (CSR)

org, its employees, and suppliers hold selves accountable for: - consumer health and safety - employee health and safety - environmental sustainability - maintainability - employment policy - community reinvestment and use of local goods and services legal review is needed to ensure compliance with related laws and regulations in each jurisdiction

Hybrids: Intermodal Transport

piggyback - trailer or container on rail flat car trainship or containership service - truck trailer, rail car (trainship), or container (containership) o ship or barge, land bridge truck plane service - air transport plus surface transit to and from terminal freight truck on railroad car - truck loaded on flatbed rail car in EU so driver can sleep benefits - flexibility - efficiency - lower cost

demand planning

process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services (both high and low volume; lumpy and continuous) across the SC from suppliers' raw materials to the consumer's needs. Items can be aggregated by product family, geographical location, product life cycle, and so forth, to determine an estimate of consumer demand for finished products, service parts, and services. Numerous forecasting models are tested and combined with judgment from marketing, sales, distributors, warehousing, service parts, and other functions. Actual sales are compared with forecasts provided by various models and judgments to determine the best integration of technique and judgment to minimize forecast error

Promotions (or other internal drivers)

promotions, such as discounts/advertising, or other internal drivers of demand such as deals to gain favorable product placement, will have a measurable impact on demand if they are successful promotions that take place in regular patterns will resemble or reinforce seasonality promotions can explain 50-80% of sales variation promotions are worked into forecasts using associative forecasting (ex. Using marketing spend as driver)

qualitative forecasting methods

qualitative forecasts rely on judgment rather than math depend on the experience level of the forecaster, so results can vary widely When to use qualitative forecasting methods: 1. new product 2. when hard data is lacking bias is a risk - estimators may be motivated to estimate too high or too low depending on their incentives • one way to mitigate bias is to ask estimators to provide a pessimistic estimate, a most likely estimate, and an optimistic estimate and average the three two common types of qualitative forecasting are judgmental/expert judgment forecasting and the Delphi method

Random (irregular) variation

random variation: a fluctuation that is caused by uncertain or random occurrences random variation is what is left when seasonality is removed idea is to minimize this component by finding more and more explainable factors statistical process control: used to track variation in manufacturing or other processes, all variations are categorized as either common cause (general cause) or special cause (assignable cause) random variation is akin to a common cause demand that is stripped of everything but random variation should conform to a normal distribution (bell curve) trends, seasonality, promotions, cycles are asking to special causes, or causes that have an identifiable effect on demand

Seasonality

seasonality (aka seasonal variation): a predictable repetitive pattern of demand measured within a year where demand grows and declines. These patterns are calendar related and can appear annually, quarterly, monthly, weekly, daily, and/or hourly whenever seasonality is present to a significant degree, it needs to be removed before forecasting and then added back in later seasonality is the demand pattern that, based on history, will repeat itself on a calendar basis and therefore can be predicted.

Demand Management and Prioritization Policy

should clearly indicate who is allowed to manage and prioritize demand - should be limited to appropriate mgmt levels in supply org based on levels of risk - strategic risks made at executive level, lower level demand mgmt decisions made at supply manager levels - keep responsibility for lower risk decisions at mgmgt level rather than delegate to individual sales persons to prevent them from pursuing their customer's best interest - retain mgmt and prioritization on demand side of org since they have info on most valuable customers and marketing/sales goals

Service Sector Forecasting

some service businesses present special forecasting challenges, since their demand may fluctuate hour by hour rather than on a monthly basis these rapid changes in demand have significant implications for scheduling and ordering Ex. Restaurants must forecast level of aggregate demand but also amount of demand for each of menu items, running out of an item means disappointing customers, stocking too much of a perishable item means financial losses and waste POS is helping in tracking data as it occurs, helps determine all capacity requirements of a restaurant - numbers of workers to put on each shift, number of registers to maintain, number of tables, space requirements, etc.

Traditional Relationships vs Strategic Alliance

strategic alliance: relationship formed by two or more orgs that share info (proprietary), participate in joint investments, and develop linked and common processes to increase the performance of both companies traditional purchaser supplier relationship: one point of interaction between partners, typically between buyers and sales strategic alliance: multiple points of interaction

Exponential smoothing

three inputs in its equation - 1. the last period's forecast, 2. the last period's demand, 3. a smoothing constant (a number greater than 0 and less than 1 represented by the Greek letter alpha) new forecast = (alpha x last period's demand) + [(1 -alpha) x last period's forecast] alpha is a percentage weighting where 1 = 100% as you increase alpha closer to 1 or 100%, you get closer and closer to a naive forecast, with 1 being a naïve forecast since it is 100% weighted on last period's demand and 0% weighted on the prior period's forecast most smoothing constants are between 0.05 and .5 - 0.05 gives minimal weight to preceding period's demand while, 0.5 would equally weight he actual and forecast results this method is often use when you want to minimize the lag that exists when trends shift, but like all-time series models it cannot eliminate this lag smoothing constant = 1 = same as naïve forecast (full weight on last historical month)

Quantitative Forecasting: Time Series

time series is more commonly used because the methods are less complex mathematically and thus easier to explain to decision makers time series methods assume that the factors that influenced the past will continue on into the future naïve forecasting assumes that the last period's demand will be this period's forecast - can be cost effective but does not account for trends, and any random spike or trough in demand would be carried forward simple moving average: 3 month average, smooths out irregular demand but lags trend. use when demand is constant from period to period. can be used to prevent overreactions to random irregular spikes because it smooths these. Using more periods makes method less sensitive to random variation by smoothing more but lags trend more Weighted moving average: smooths but lags trends less. weights selected using expert judgment steps in time series forecasting 1. visualize - spot seasonality, trend 2. deseasonalize - remove seasonality. - need several years of data to calculate seasonal index - divide by seasonal index when deseasonalizing, 3. reasonsalize - multiple by seasonal index

Expediting

to rush or chase production or purchase orders that are needed in less than the normal LT application - any stage of SC - should be rare Caused by - inventory shortage - poor demand forecasting Expediting of Transportation - faster mode of transport (overnight, upgrade from ground to air) - additional costs (paid by customer or org depending on reason)

Methods of Inventory Tracking

tracking is necessary to keep inventory secure and accounted for, can help minimize the losses from pilferage or misplacement because an organized system makes it difficult for items to be misplaced or stolen inventory shrinkage: losses of inventory resulting from scrap, deterioration, pilferage, and so forth Inventory Tracking System - order of steps is important 1. identify item by SKU 2. verify quantity 3. request and get approval for move or get order 4.execute inventory movement 5. create record of the transaction completion Improving tracking - keep it secure - keep it neat - make labels easily visible and put on everything - use bings and arrangements to ease counting - treat A, B, C items suitably - use technology

Tracking Signal

tracking signal = algebraic sum of forecast errors / MAD algebraic sum of forecast errors is a cumulative sum that does not use absolute values for errors so tracking signal could be positive or negative to show direction of bias organizations use tracking signal by setting a target value for each period, such as +/- #, if the tracking signal exceeds the target value, it would trigger a forecast review tracking forecasts on a monthly basis helps measure two aspects of the forecast: 1. forecast bias: if the tracking signal is continually negative, we are consistently over forecasting. If consistently positive, we are under forecasting. Ideally tracking signal should oscillate between positive/negative values. If not it should be the first thing to work to eliminate 2. suitability of forecasting method: if tracking signal remains in a range of + target # to - target #, the method being used to forecast the item should be considered to be working correctly. If it is outside this range, review forecasting methodology to find something more suitable

Quantitative Forecasting: Associative Forecasting

used when trends vary too much for time-series methods to be useful in predicting demand also called casual, correlation, explanatory, or extrinsic forecasting, uses data gathered from one or more internal or external sources as a predictor of something that is presumed to be correlated the predictor is called the independent variable the element being predicted is called the dependent variable and it could be demand for a product family or for total organizational sales while time series demand is best for short/medium term forecasting the associative method is best for long-term forecasting, especially at the aggregate level this is because these models require larger data sets and generally have higher costs, they use info with predictive value to form a forecast rather than just looking at past results simple and multiple regression

CPFR

way to integrate components of demand management among SC partners 1) collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, all operations required to replenish raw materials and finished goods. 2) a process philosophy for facilitating collaborative communications Developing effective business processes to synchronize SC operations across enterprise boundaries Depends on willingness to work with shared data efficiently in real timem Internet based each enterprise feeds data into shared servers for immediate joint web based access Challenges - Increase costs - money and time to acquire and train - Resistance to data sharing - Bridging internal functions

Warehouse function: consolidation

when a warehouse receives materials from more than one plant and combines them into outgoing CL or TL shipments to a specific customer reduces logistics costs through economies of scale because the consolidated shipments more easily qualify for CL and TL discounts Reduces congestion at customer's dock Warehouse may have to add sorting and perhaps assembly capability There will be training and hiring costs plus costs for remodeling if more space is required

linkages to match org strategy

•Planning demand (fixed high capacity strategy) - meeting demand to max extent possible by providing the necessary capacity to meet peak demand at any time. Strategy can be pursued if costs of maintain excess capacity are less than those of losing business •Communicating demand (highly variable capacity strategy) - matching supply to demand as closely as possible by being flexible enough to increase or reduce capacity spontaneously as demand changes. These strategies require contract work, outsourcing, and flexible work scheduling •Influencing demand (moderately variable capacity strategy) - leveling production and carefully managing demand to meet optimal capacity. Focus is on influencing demand so that there is little need to change capacity. Process can be called demand shaping because it involves convincing customers to buy certain models based on excess inventory. Demand is influenced by carefully scheduling delivery of products/services •Managing and prioritizing demand (fixed average capacity strategy) - controlling demand to max extent possible through scheduling, promotions, queues, and rationing. Focus is on managing and prioritizing demand because fixed average capacity will result in periods of insufficient supply. Strategy can be beneficial for products/services that require development and retention of expert personnel or other expensive resources