Intro Supply Chain Exam 1 Rutgers Spiegle

chase production strategy

Adjusts CAPACITY TO MATCH DEMAND. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant. MAKE TO ORDER

Aggregate Production Plan (APP)

Hierarchical planning PROCESS THAT TRANSLATES annual business, marketing plans, and demand forecasts INTO A PRODUCTION PLAN for a product family* in a plant or facility at least 1 year & rolled forward by three months every quarter.

Finished Goods

Those items on which all manufacturing operations, including final testing, have been completed. These products are AVAILABLE FOR SALE and/or shipment to the customer.

SC Tiers

Tier 1 = direct suppliers/customers 1, 2, 3, n s/c can be both tier 1 & 2

backorder

cannot ship finished product to customers against their open orders

Aggregate planning strategies: supply options

change inventory levels change capacity

Steps to develop Aggregate Production Plan

1. determine DEMAND 2. determine CAPACITY for each period 3. identify CONSTRAINTS 4. determine direct LABOR 5. identify STRATEGIES 6. AGREE on plan

Fundamentals of forecasting

1. forecast most likely wrong 2. Simple forecast methodologies trump complex ones (danger is complexity) 3. Correct forecast does not prove forecast method is correct 4. If you dont use the data regularly trust it less 5. All trends eventually end 6. Hard to eliminate bias 7. Technology is not the solution to better forecasting (its a tool) - people are the answer.

Why hold inventory?

1. meet customer demand (cycle stock) 2. buffer against uncertainty in supply/demand (safety stock) 3. decouple supply from demand (strategic stock) 4. decouple dependencies in supply chain (sep ops in process, smoothing)

MPS Master Production Schedule

A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period DRIVES THE BUSINESS

Advantages of ERP Systems

Added visibility leads to reduced supply chain inventories Helps to standardize manufacturing processes Measure performance and communicate via a standardized method

Rough-cut capacity planning (RCCP)

A medium-range capacity planning module used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available.

capacity requirement planning (CRP)

A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.

Distribution Requirements Planning (DRP)

A time-phased finished good inventory replenishment plan in a distribution network. The function of determining the need to replenish inventory at branch warehouses. logical extensIon of MRP

Finished goods are worth...

more than raw materials or WIP since all of the material, labor, and overhead costs are fully applied to finished goods.

Service inventory

ACTIVITIES carried out in advance of the customer's arrival

Planning Processes

APP, MPS, MRP, DRP, Capacity Planning Aggregate Production Planning (APP) Master Production Scheduling (MPS) Materials Requirement Planning (MRP) Distribution Requirements Planning (DRP) Capacity Planning

Major ERP applications include:

Accounting and Finance Customer Relationship Management Human Resource Management Manufacturing Supplier Relationship Management Supply Chain Management

Two reasons firms implement supply chain management?

Achieve cost savings and better coordinate resources

Too much inventory...

ties up capital; can be a liability

Two types of ERP Systems Implementation

Best of breed: best application for each indiv Single integrator solution: all application sfrom vendor

Forecasting

Business function that ESTIMATES FUTURE DEMAND demand of products so can be purchased/manu in appropriate quantities. developed through data analysis and judgment key building block statistically wrong basis for downstream SC planning

ATP Available to promise

Business function that provides a response to customer order inquiries, based on resource availability.

How to alleviate bullwhip effect

COLLABORATION through electronic data interchange (EDI), point of sale (POS) SYNCHRONIZING supply chain by coordination REDUCING INVENTORY by just-in-time (JIT), vendor management inventory (VMI), and quick response (QR) CPFR: Collaborative planning, forecasting, replenishment

Supply Chain Management

COORDINATION of a network of independent organizations (trading partners) CREATING product and MOVING it from suppliers to customers when/where wanted. Market for benefit of all companies in network.

CPFR

Collaborative planning, forecasting, replenishment business practice combining intelligence of multiple partners sharing plans etc. real benefit: SHARING OF FORECASTS Significantly reduces bullwhip effect by: Better customer service Lower inventory costs Improved quality Reduced cycle time Better production methods

Main purpose of time series modeling

Collect and study past data to generate probable future

What does supply chain management do?

DELIVERS VALUE by managing processes - partners collaborate efficiently, effectively, cost-consciously

Plan/Planning (SCOR)

DETERMINATION of marketing and distribution channels, promotions, quantities, timing, inventory and replenishment and production policies. SCOR (not Supply chain planning--ch 3)

2 ATP methods of calculating quanities

DISCRETE available to promise (on hand supply-ordered) CUMULATIVE available to promise

Warehousing/Distribution

FACILITIES that allow companies to store materials and finished products to receive, breakdown, repackage, and ship materials out to a manufacturing location or to a customer.

Other forecasting models used

Drift Method Holt's Linear Trend Method Holt-Winters Seasonal Method Autoregressive Integrated Moving Average (ARIMA) Box-Jenkins X-11 Econometric Model Input-Output Model You may learn more about some of the models in other courses.

Aggregate Planning

ESTABLISHES PRODUCTION RATES that will achieve management's objective of satisfying customer demand by maintaining, raising, or lowering inventories, while attempting to keep the workforce relatively stable.

Supply Chain Planning

Element of SC determines how best to satisfy requirements created by demand plan. Balance financial/service objectives & satisfy customer at same time (Ch 3)

Enterprise Requirements Planning Systems (ERP)

Information system connecting all functional areas and operations of an organization, and in some cases suppliers and customers, via common software infrastructure and database ways to share information

Safety Stock

Inventory above needed to meet anticipated demand and protect against uncertainty of supply/demand aka "buffer stock" Make-to-stock will carry safety stock

Cycle stock

Inventory built to satisfy immediate customer demand. depletes gradually as customer orders replenished cyclically amount held is dependent on actual demand in immediate time period, lead time, quantities

Maintenance, Repair and Operating (MRO)

Inventory items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. DO NOT END UP AS PART OF FINISHED PRODUCT ex: oil for equipment, cleaning supplies, coffee for break room

Logistic activities:

Inventory management, warehousing, distribution, transportation Also includes aspects of marketing, new product development, finance, customer service order to cash

Capacity planning

RRP, RCCP, CRP Resource Requirement Planning (RRP) Rough-Cut Capacity Planning (RCCP) Capacity Requirement Planning (CRP)

3 basic production strategies

LEVEL, CHASE, MIXED level production strategy - constant output Chase production strategy - capactity to demand Mixed production strategy - stable & st force

Deliver

LOGISTICS phase. oversees the planning and EXECUTION of the FORWARD flow of goods and related information between various points in the supply chain to meet customer requirements. SCOR

Business Plan

LT focus 2-10 yrs, reviewed annually. states the company's objectives for profitability, growth rate, and return on investment STARTING POINT for developing the organization's Production Plan or Aggregate Production Plan

Resource Requirement Planning (RRP)

Long range capacity planning module used to check whether aggregate resources APP

SC Planning 3 hierarchical broad categories

Long-range, Intermediate range, Short-range LR-strategy/facilities construction: Aggregate Production Plan APP IR: quantity/timing of end items pickup trucks: master production schedule MPS SR: components/parts: materials requirement planning MRP

Forecast Deviations

MAD, MAPE, MSE, Forecast Bias, RSFE

Mixed production strategy

Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand.

MRP II

Manufacturing Resource Planning - improve internal communication and operations A computer-based system that can create detail production schedules using realtime data. used widely by itself, but also as a module of more extensive enterprise resource planning (ERP) systems."

MRP

Materials Requirements Planning - what materials needed method of determining what materials are needed and when they are needed to support the production plan. A computer-based materials management system that calculates the exact quantities, need dates, and planned order releases for subassemblies, component parts and materials required to manufacture a final product. (must be customized to meet your works)

Do companies in service industry maintain inventory of services?

NO. since services are produced/consumed on demand. HOWEVER, can maintain inventory of "facilitating goods," which are those items that are used to help facilitate the service being provided. EX. cannot inventory dining services, but can inventory food, tableware, etc. "facilitating goods"

Quantitative TIME SERIES forecasting techniques

Naive - sets demand for next period exactly same as current period Simple moving average - calculated average of historical demand most recent time periods (equal values) Weighted moving average - not all historical time periods valued equally Exponential smoothing - more sophisticated version of weighted. 3 elements last period's forecast/demand and smoothing factor btn 0-1 Linear trend forecasting - best fit line across demand data of entire time series

Five qualitative models

Personal Insight--fastest/cheapest/unreliable Jury of Executive Opinion--group panel forecast Delphi Method--same as jury but decisions collected separately (time consuming) Sales Force Estimation - same as jury but salespeople (not ideal for long term forecasting) Customer Survey--customer opinion (no bias; time consuming)

Logistics

Plans, implements, controls flow/storage of goods from point of origin to point of consumption (in a single organization)

Demand planning

Process of combining statistical forecasting techniques and judgment to construct demand estimates for products/services. Mgmt review forecast to ensure that is is aligned with company strategy. All areas affected by forecasting key building block

Sales & Operations Planning (S&OP)

Process that brings all D/S plans for the business together to provide management with the ability to strategically direct the business to achieve a competitive advantage If capacity = demand then efficient c > d promo and advertising c < d subcontract

Pull or Make to order

Producing stock in response to actual demand

Push or make to stock

Producing stock on the basis of ANTICIPATED DEMAND. Demand forecasting can be done via a variety of sophisticated techniques.

Raw materials

Purchased/extracted materials that are converted via the manufacturing process into components and products.

Two basic forecasting techniques

Qualitative - opinion/intuition; depends on skill/experience Quantitative - mathematical models/historical data

Flow of products

Raw materials to interm suppliers to manufacturers to distributors to retailers to customers

Inventory Categories

Raw materials, WIP, finished goods, maintenance, repair and operating supplies (MRO)

Quantitative CAUSE AND EFFECT forecasting techniques

Simple and multiple linear regression Regression uses historical relationship between independent (bike) and dependent (parts) variables to predict future values of dependent variable

Level production strategy

Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Make to stock

Return

Reverse logistics. planning and controlling the process of moving goods specifically from the point of consumption BACK TO POINT OF ORIGIN for repair, reclamation, remanufacture, recycling, or disposal. SCOR

3 major ERP provideors

SAP Oracle Microsoft

Time fencing

SEPARATING the planning horizon INTO FIRMED time period AND PLANNED time period: firmed time period: CURRENT date to several weeks future. cannot make automatic changes. planned time period: end of firmed time period to end of horizon. free to make changes.

Why important to identify Tier 1 sup/cust?

These are partners you want to build relationship with first

MRP requires

The independent demand information, i.e., finished product forecast Parent-component relationships from BOM Inventory status of final product and each of the components and materials. Planned order releases (output of MRP)

Advantages and Disadvantages of ERP Systems

Substantial time and capital investment Complexity Firms adapt processes to meet ERP system

SCOR Model

Supply Chain Operations Research Model Plan Source Make Deliver and return and enable

Closed loop MRP

Synchronizes the purchasing or materials procurement plans with the master production schedule. called a closed loop MRP because of its feedback feature.

Variations in Quantitative Forecasting

Trend, Random, Seasonal, Cyclical Trend Variations: movement over time (laptops) Random: Instability by random occurances short-term (hurricane) Seasonal repeating patterns year to year (holiday, swimsuits) Cyclical: wavelike pattern extend over years. hard to predict (GDP)

Just In Time

a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement AS NEEDED - reduces inventory costs

Business Process Reengineering

a procedure that involves the fundamental rethinking and RADICAL REDESIGN of business processes to achieve dramatic organizational improvements in such critical measures of performance as cost, quality, service, and speed.

Forecast Bias

a consistent deviation from the mean in one direction; either high or low. (consistently over/under)

Make to stock supply chain carries how much inventory?

a lot. product is produced prior to receipt of a customer order. A forecast and demand plan are created and the finished

Running Sum of Forecast Errors (RSFE)

a measure of forecast bias. RSFE indicates the tendency of a forecast to be consistently higher or lower than actual demand. + = low forecast demand (underestimated) - = high overestimated demand

Service supply chain

about managing relationships between trading partners

Forecast errors are quantified as:

absolute value or percentage.

Enable

additional aspect of SCOR facilitate a company's ABILITY TO MANAGE the supply chain and are spread throughout every stage. In other words, we want to enable our capabilities as we plan, source, make, and deliver (and return). not a stage that occurs sequentially after all of the others.

Since forecasts inaccurate, companies track the forecast...

against actual demand and measure the size and type of the forecast error.

Enterprise Requirements Planning (ERP)

an extension MRPII and includes DRP which DETERMINES NEED to replenish finished product inventory at branch warehouses, when there are MULTIPLE WAREHOUSES in the network.

Quality Management

an important aspect of the make/manufacturing process SCOR

intermodal

any combo of transportation for single shipment

outbound transportation

customers: wholesaler/distributor to retailer to customer

Independent demand

demand for an item unrelated to demand for other itmes (demand is forecasted) "bicycle" EXTERNAL

dependent demand

demand is directed related to other items (demand is calculated) "components for bicycle" INTERNAL

2 Aggregate planning strategies

demand options supply options

bill of materials (BOM)

document that shows an inclusive listing of all component parts and assemblies making up the final product. single level - directly in use (planning factor) multi level - directly/indiretly used planning bom - artificial grouping of items (product family) used to facilitate master scheduling/

2 supply chain capability models

efficient and responsive efficient - low cost / functional products responsive - fast / innovative products

Firmed Time Fence

established at the outer limit of firmed time period to signify when changes can no longer be made automatically by the planning system.

Good forecasting

facilitates more effective planning - leads to reduced inventory, reduced costs, etc. Best = consistently accurate as possible; minimize error (need verifiability)

Work-in Process

goods in various stages of completion throughout the plant, from released raw material to fully processed material awaiting final inspection and acceptance as finished goods.

What is goal of supply chain?

increase customer service while reducing inventory investment and operating expenses

Tracking Signal

indicator that forecast bias is present. is forecast within acceptable limits? If not, there is a bias

Aggregate planning strategies: demand options

influencing demand - aligns to produc capacity backordering during high demand counter-seasonal product mixing

Nodes integrated through

information and planning

Inventory becomes a liability when?

it becomes unusable due to expiration, obsolescence, damage, or spoilage.

strategic stock

large inventory for specific purpose or future event built up to withstand long holdups or scarcity due to natural calamities, strikes, or war. also bus oppt, life cycle changes, new launch, transition protection, price discount advantage aka "anticipation stock, build stock, seasonal stock"

Bullwhip effect

less info available as go backward from consumer BACK to supplier. Greater need for safety stock. Supply chain participants second-guess and over-react, creating bullwhip effect. Rising demand = increased orders. Falling demand = decrease and inventory accumulates When ripple felt by retailer, retailer adjusts to wholesalers on up. magnitude of fluctuation becomes unrecognizable by time reach supplier

Make to order supply chain carries how much inventory?

little to none; not produced till customer orders

disadvantage of MRP

loss of visibility; ignores capacity and shop floor conditions

Mean Squared Error (MSE)

magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods.

Why is holding inventory necessary?

maintain operations and ensure products available

Total Quality Management

management approach to long-term success through customer satisfaction based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. Everyone in the organization has to take ownership for quality.

factors that influence demand

market changes, seasonality, competitive activity

Mean Absolute Percent Error (MAPE)

measures the size of the error in percentage terms. It is calculated as the average of the unsigned percentage error.

The more inventory you have...

more space needed, more taxes, security, etc.

Mean Absolute Deviation (MAD)

measures the size of the forecast error in UNITS.

WIP best practice:

minimize the amount of WIP inventory in the manufacturing area since too much WIP may clutter up the physical space and impede the process flow.

Multiple linear regression

model the relationship between TWO OR MORE independent variables and a dependent variable (demand) by fitting a linear equation to the observed data. ex advertising and promotion and selling price

Simple linear regression

model the relationship between a SINGLE independent variable and a dependent variable (demand) by fitting a linear equation to the observed data.

Stockout

no inventory available

external inventory held:

pipeline inventory (inventory in transit/distribution already in market held by suppliers or dis/ret/customers ownership transferred to tradign partners but still influence deisions for how much safety/strategic stock to hold.

Quantitative forecasting techniques

time series - future is extension of past; historical data (purpose - to collect and study past data to predict future) cause and effect--simple linear/multiple linear regression (assumes factors predict future demand)

Advantages of MRP

provides planning info

Inventory

quantities of goods and materials that are held in stock. largest asset of org

Bad forecasting

root cause for more inventory etc

uncertainty in demand =

sales or usage above expectations

uncertainty in supply =

shortages, delays, disruptions

3 levels of internal inventory held:

strategic stock, safety stock, cycle stock

Study ppt 1 slides 50+

study

SC disruption

supplier cannot deliver material as planned The manufacturer cannot continue production. temp stops production causes backorder No inventory available = stockout

Inbound transportation

suppliers: suppliers to manufacturer

Work-in-Process can be viewed as...

the "black hole" of inventory as they may not have very good or very timely visibility into this part of their inventory.

Nodes connected by:

transportation and warehousing

Forecast Error

the difference between the actual demand and the forecast demand. a critical role in tracking forecast accuracy, monitoring for exceptions, and benchmarking the forecasting process.

Source/Sourcing

the process of IDENTIFYING the suppliers that provide the materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s). SCOR

Reducing the bullwhip effect means

the reduction of safety stocks (and associated costs) within and across the trading partners in a supply chain.

Make/Manufacture

the series of OPERATIONS performed to convert materials into a finished product. most METRIC-intensive portion of the supply chain SCOR

Companies willing to store excess raw material when?

they fear there may be a potential shortage of the material or if they suspect that there is an upcoming price increase and want to buy at the current lower price.

Modes of transportation

truck, rail, air, pipeline, water