OPM 311 Study Guide

Sustainability

Managing resources to make sure (not just have tendencies) they are available for future generations

Why do companies do a weekly demand review?

Markets are too competitive and moving too fast to review less frequently (lots of variation in the world)

Reverse logistics concept -

Material moving in the opposite direction than "normal" such as returns, warrantee, core returns for remanufacturing, etc.

Time

One of competitive advantages for some companies - Speed - Flexibility Product development time Delivery Time On time delivery

Likely supplier partnerships

Only a small percentage of suppliers of a customer will enter into a partnership level of data exchange and close process integration *Check Slide* There is a circle, "target" style graphic in the Chapter 8 slides, that was presented in class. Partnering with the supply base usually does not include more than 25-30 percent of the total supplier base.

Order winning vs. order qualifiers

Order Winners: - Attributes that differentiates a company's product - E.g. - fuel efficiency in a car, towing capacity in a truck, or leather seats, or badge of a luxury car Order Qualifiers: - Necessary attributes that allow a firm to enter into and compete in a market - E.g. - Kia motors had to increase safety standards to compete in US markets - Quality is generally an order qualifier in today's markets. If you don't have it, you don't get to "play the game".

Corporate Strategy

(Long term direction) defines what the objectives for growth and sustainability in the future are - Who and what you're going to sell and for how much?

High Performance

** 1. Understanding Process Design 2. Accountability (manage systems) 3. Results/measurements of success

Simple moving average (know concept and how its calculated)

*Check Slides* With a moving average, rather than using all past demand values, the forecaster averages the most recent demand periods to predict demand in the future period. The formula for the moving average (MA) is: MAn = Ft+1 = (At + At-1 + At-2 + ... At-(n-1))/n where Ft+1, is the forecast value for period t + 1 and At, is the actual value at time t.

Weighted moving average (know concept and how its calculated)

*Check slides* - Moving average method assigns equal importance to all periods of data included in the base. - This problem can be resolved to a certain extent by using an extension of the moving average called the weighted moving average. - In this method, forecasters assign more weight to most recent values in the time series if they feel that these values reflect how the actual demand will behave in the near future. Ft+1 =∑Wt+1−iAt+1−i Where ∑Wt+1−i = 1 i=1

Pyramid Forecasting (concept) is very common.

*Check slides* Marketing and sales roll-up forecast: - Bottom: Individual product units and dollars - Middle: Product family units and dollars - Top: Total business volume (dollars) Management force-down forecast

Factors Influencing Service Capacity:

- Customer Proximity - Services Capacity - Demand Volatility and Capacity

Detailed Capacity Planning- CRP (Capacity Requirements Planning)

- Detailed Capacity Planning - Also called CRP (Capacity Requirements Planning) - short term - usually less than 2 months (1-8 weeks) - gets very inaccurate quickly as the horizon increases Where they fit: Materials Planning, Procurement Process, and Shop Floor Process

Exponential smoothing (know concept and how its calculated)

- In exponential smoothing the next period's forecast is a weighted average of all previous observations. - The basic exponential smoothing formula is: - Ft+1 = αAt + (1 - α) Ft - where α is a smoothing constant between 0 and 1. - Rewritten formula: Ft+1 = αAt + Ft - αFt = Ft + α (At - Ft) - This formula can be interpreted as: - New forecast = old forecast + α × (latest observation - old forecast)

2) Naive Forecasting Module

- Only take historical mathematical relationships and extrapolate them into the future - Don't explain WHY things happen, only what's likely - Quantitative in design

RCCP (Rough Cut Capacity Planning)

- RCCP (Rough-Cut Capacity Planning) - Also intermediate or medium term with emphasis on current constraints- done at MPS level same horizon as S&OP - 12 rolling months. Focus is on TOC (Theory of Constraints) Using information from above for scheduling Where they fit: MPS (Master Production Scheduling)

3) Causal Forecasting Module

- Regression models designed to explain variation in demand (events tend to cause demand characteristics such as rain causes umbrella sales, drought decreases agricultural equipment sales)

Impact of demand variation on Operations Management

- Requires buffer inventory for responsiveness - Buffer capacity or capacity flexibility for agility and to offset variation if high levels of customer service are to be expected

Resource Planning

- Resource Capacity Planning - Intermediate or medium term - done at S&OP level at least 12-rolling months Buy a machine, increase number of shifts Where they fit: Demand Planning and Production Planning

Strategic Capacity Planning where they fit on the planning hierarchy and how long the horizons are.

- Strategic Capacity Planning - Long term - 3-5 years (9-10?) Where they fit: Business objectives

Areas in which demand management have impact:

- Supply Chain: Demand influences the supply chain design, as when the firm must find new sources of supply. - Finance: Demand influences capital investment decisions, such as investments in technology and changes in capacity. - Marketing: Demand influences new product introductions and product portfolio planning. - Human resources: Demand determines how many employees are hired or let go, and overtime for current workers.

MAPE Mean Absolute Percentage of Error (concept)

- The mean absolute percentage error (MAPE) measures the absolute error as a percentage of the actual demand, and its formula is: *CHECK SLIDE* - The MAPE is the average of the absolute percent error. - Each of the four measures of forecast accuracy has advantages and disadvantages. - For instance, the MAD is simple and easy to compute. - Forecast Accuracy in business is often measured as 100% minus MAPE Example 100% minus 15% = 85%

Effects of sustainability practices and policies on markets and operations management

- There are three performance targets that measure sustainability, i.e. triple bottom line. - A firm's triple bottom line not only includes the economic value it provides its shareholders, but the environmental and social value the company creates. - The ability to operate today in a way that does not threaten the future - Regulatory and societal pressures for an environmentally friendly corporation and its products Sustainability causes for S&OP managers to need to have a holistic view of systems - Life Cycle costing (includes recycling and/or disposal of final used-up "end of life" products) - How much does a cheeseburger cost? - Everything from the costs of growing cattle to the costs of disposal of the packaging materials left from shipping hamburgers around the world

Qualitative versus Quantitative techniques and the importance of both

- Understanding your market is the best forecast advantage you can have - Understanding customer thinking and planning - Understanding trends in the market - Qualitative inputs are often the key to competitive advantage—Everybody has the history - Businesses that are shaking up their markets are less likely to find the best advantage in history - One of the best yet simple inputs is to understand if the forecast is going up or down. Qualitative Forecasts: Use subjective inputs such as opinions from consumer surveys, sales staff, managers, executives, and experts - Delphi method is an iterative process intended to achieve a consensus (*check slides*)

Application of control charts in forecasting and control limits. Understand what control limits are and how they affect buffer capacity or inventory

- Upper and lower limits are "the voice of the process" - Be aware of trends, bias, or cycles in the data - A bias is when the data is averaging above or below the forecast in an nonrandom basis *Check slide* Tracking forecast errors and analyzing them can provide useful insight into whether forecasts are performing satisfactorily Sources of forecast errors (both quantitative and qualitative): - The model may be inadequate due to a. omission of an important variable b. a change or shift in the variable the model cannot handle c. the appearance of a new variable - Irregular variations may have occurred - Random variation - Control charts are useful for identifying the presence of non-random error in forecasts - Tracking signals can be used to detect forecast bias

1) Judgmental or Experience-Based Forecasting Module

- Used in absence of data and when (because) statistics can't account for everything - More qualitative in nature - Requires market understanding and knowledge

Two most important metrics for operational performance are:

1) Customer Service 2) Cost. - High inventory or very flexible capacity can often support high customer service - High inventory or very flexible capacity can often cause higher cost however Quality is a prerequisite to both of those metrics being successful. Profit is not generally a good Operational Performance metric. Profit is simply the difference between price and cost.

What do good management systems include?

1) Definition of good procedures and practices (Good process design) 2) Accountability to the process - Daily schedule adherence - Weekly performance review - Monthly S&OP (Sales and Operations Planning) 3) Results/measurement of success - These are designed to monitor various processes in the business and can be: - daily (i.e. daily schedule review) - weekly (i.e. Weekly Performance Review), - monthly (S&OP) - - Management system in this course is synonymous with accountability infrastructure.

Supply Chain Flows

1) Inventory: Downstream (Materials) Opposite Direction (Returns) 2) Information and data: Both upstream and downstream (tech data, ideas, forecasts, schedules, communication) 3) Monetary Flows: Upstream (Cash) Opposite Direction (Rebates, Returns) All supply chains start with dirt (raw materials)

Types of forecasting modules

1) Judgmental or Experience-Based 2) Naive - using tools with little qualitative input 3) Causal - understanding relationships between events and demand changes

Measuring and Defining Capacity

1) Theoretical, Design capacity: - The maximum output rate or service capacity an operation, process, or facility is designed for - E.g.: If 3 shifts or 7 days were being utilized 2) Effective capacity: - Theoretical capacity minus allowances such as personal time and maintenance - Capacity calculated with influences - E.g. equipment is in place 3 shifts but staffed only 1 shift (What we should be able to do) 3) Demonstrated, Actual capacity: - How much actual capacity that has been demonstrated recently - Is actual output - what we do - Generally the capacity to be used in current planning for RCCP (rough-cut capacity planning) until some action is taken or understood to change the output expectations - Calculated estimates are great but what the actual output has been is what reality is (demonstrated) Understand the importance of demonstrated (actual) capacity in planning.

TOC (Theory of Constraints) 5 steps in concept and where buffer is best positioned in a process using TOC. Also be familiar with the DRUM/BUFFER/ROPE methodology associated with TOC.

1. Identify the most pressing constraint 2. Change the operation to achieve maximum benefit, given the constraint (exploit the constraint) 3. Synchronize all steps to same speed as constraint 4. Explore and evaluate ways to overcome the constraint 5. Repeat the process until the constraint levels are at acceptable levels - Start the process all over again looking at next constraint in the process

Step One of TOC (Theory of Constraints)

1. Identify the most pressing constraint - Understand the bottleneck (constraint) in the process --> could be internal, could be external (E.g. supply chain or market demand)

Porter's 5 Forces - understand concepts

1. Threat of Entrants 2. Buyer Power 3. Threat of Substitutes 4. Supplier Power 5. Existing Rivlary

Industry 4.0 and what it means

1.0) Industrial Revolution 2.0) Mass Production, Assembly Line, Henry Ford 3.0) Computers and Automation Industry 4.0) Systems Integration (Measurements for clothing, ordering from the internet, driverless cars, security systems) The term started with a German focus on system integration using more automation from evolving technologies.

Step Two of TOC

2. Change the operation to achieve maximum benefit, given the constraint (exploit the constraint) - Run through breaks, run 24 hours a day, etc.

Strategic Capacity Planning

3-5 years (M&A, Open more factories) Goal: - To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand - Overcapacity --> operating costs that are too high - Undercapacity --> strained resources and possible loss of customers - Must align with other strategic goals of the organization

Step Three of TOC

3. Synchronize all steps to same speed as constraint - Schedule the process to the drumbeat of the constraint - Place buffer in three places: 1. At the beginning (raw materials or components) 2. At the constraint (before) 3. At finished goods (If MTS)

Step Four of TOC

4. Explore and evaluate ways to overcome the constraint - Look for ways to increase the capacity through investment or supplementing, etc. - More equipment - More people - More facilities - Buy versus make - Etc.

Step Five of TOC

5. Repeat the process until the constraint levels are at acceptable levels - Start the process all over again looking at next constraint in the process

80/20 Rule

80% Planning 20% Execution Vilfredo Pareto: - 20% items = 80% items sold - 20% items = 80% revenue

Delphi method of forecasting input

A survey system using "experts" in the particular market being forecasted Developed by the US military for estimating effects of technology on the battlefield: 1. Choose participants 2. Obtain feedback from questionnaires or surveys 3. Summarize the results 4. Give results back to participants and ask new additional questions 5. Summarize again 6. Repeat steps 4 and 5 until a majority consensus is met or it is clear it will not be

Time series analysis concept (sequential data) and pattern components: 1) trend 2) cyclical 3) seasonal and 4) irregular. Don't memorize these, just be familiar with the concepts of each pattern.

A time series is a time-ordered sequence of observations taken at regular intervals over a period of time Pattern Components of a Time Series: 1. Trend- Slope of time series or average rate of change 2. Cyclical- Long-term, repetitive pattern (think macroeconomics) 3. Seasonal- repetitive pattern during a fixed period 4. Irregular- random variation, also called "noise" Time series is simply chronological data

Flexibility

Ability for a company to produce a range of different products or services to respond effiently to changes in demand - Example: Burger King --> Have it your way

Seasonal factoring to apply seasonality to future forecasts

Add 4-5 past years together to get: - Total annual demand average for past few years - Total demand average per quarter for past years - Determine percentage of each average quarter compared to average annual demand - Divide new forecasted annual demand by 4 (for the 4 seasons) to create quarterly base prior to seasonal factors applied - Multiply the seasonal factor times Q1, Q2, Q3, and Q4 Note that adjustments based on market knowledge are always appropriate

IOT (Internet of Things) and what it means.

Another term associated with human and technological interaction the interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive data. - IoT is a key component in this whole equation, mainly from an industrial perspective, which looks a bit more at: - Processes - Data analysis - People interaction

APICS

Association for Operations Management - Premier professional group in the Operations and Supply Chain Management space

Using customer supplied data and especially forecasts

Be careful because customers often forecast high for a buffer factor. Well managed supplier businesses factor this tendency into their forecasting process.

Have familiarity with the simple Operations business planning model. Know that the Business Planning feeds into the Demand Plan and Production Plan. Know that the Demand Plan feeds into the Production Plan

Business Objectives --> Demand Plan --> Production Plan Business Objectives/Plan: Strategic Capacity Planning (long term: 3-5 years) Demand Plan and Production Plan: Resource Capacity Planning (12 rolling months: medium term) Done at S&OP level

Demand Plan inputs (See Operations ERP business planning model) and to the forecasting process for the business

Business Plan: What will we service? - 2 ways to grow a business: - Get new customers - Get old customers to buy more - What products, what markets, what customers, revenue, profit/pricing, cost drivers, economic assumptions Marketing --> Long term - trying to change customer behavior - Marketing/Demand development: what are the activities that are being invested in to grow the business - New Product Introductions: Companies today are introducing more new products than ever seen before - Channel Management: How distribution is managed (A new channel that many companies use is Amazon) Sales --> Short term - trying to get people to buy the product - Sales funnel review: - Potential clients: quotes or Inquiries - Inquiries or quote requests^ - Actual orders received from customers^ - Typical time to close orders - Forecasted % of orders typically closed (Sales Orders) - Know opportunities - Know closure rate - Know closure cycle time - Calculate results History: Much of this quantitative - Experience by product family - Statistical history - Seasonality, etc.

Porter's Fourth Force

Buyer Power: - Market of outputs - Customers putting the firm under pressure (Walmart versus a mom and pop) Example: P&G (Low power over main customers)

Understand the progression of the Hoshin-Kanri approach to planning

Communication is an emphasis throughout the whole business - Workers on the floor (low level) are involved in upper level business decisions such as objectives *Check slide* Hoshin - "Direction" or which way should our company be heading Kanri - "Execution" or how do we accomplish the direction Catchball - Back and forth dialogue between managers and their teams to establish Kanri

Triple Bottom Line

Companies aren't just worried about Financials --> Also worried about social and environmental issues Financial, Environmental and social value

Collaborative Planning (concept)

Companies working together to share data(usually technology and communication based) for the benefit of both, such as a retailer sharing POS (point of sale) information with a supplier. - Improves forecasting validity if players cooperate - Collaborative planning, forecasting, and replenishment can help moderate the impact of the bullwhip effect

Outsourcing

Contracting to other organizations to do work that can be done faster there and at a lower cost Does not have to be outside country

3 main trade-offs in Operations Management:

Customer service - Cost Tradeoff: - High inventory or very flexible capacity can often support high customer service but also causes a higher cost Inventory buffer - Cash Tradeoff: - Creating inventory buffers allow for more flexibility but also cause for higher cash costs Increasing capacity needs Trade-off: - Large increments: Can respond quicker to increases in demand, also cheaper option long term if business operations are successful - Higher risk - Small incremental growth: Lower financial risk, more difficult to respond to large increases in demand

Drum/Buffer/Rope Methodology

Drum-Buffer-Rope: Drum --> Constraint (Controls the speed of the operation) Rope --> Between raw materials and every time the drum (constraint) finishes a part so that new parts are released once the constraint finishes - Eli Goldratt developed the TOC process that includes Drum-Buffer-Rope methodology *Check slide*

ERP

Enterprise Resource Planning: Planning in the business Process of how we run the business: Integration to manage all of the resources of an organization Also a computer system but isn't only software

Porter's Third Force

Existing Rivalry: - When intensity is high, strategic goals are difficult to obtain (Silk / Almond Breeze versus milk) Example: Delta

Forecasting

Forecasting is required to do Operations Mgmnt and Supply Chain Mgmt Qualitative Forecasting: - Forecasts that use subjective inputs such as opinions from consumer surveys, sales staff, managers, executives, and experts - Qualitative techniques permit the inclusion of soft information such as: - Human factors - Personal opinions - Hunches - Market knowledge - These factors are difficult, or impossible, to quantify but extremely important --> sometimes referred to as business savvy Quantitative forecasting: - These techniques rely on hard data - Quantitative techniques involve either the projection of historical data or the development of associative methods that attempt to use causal variables to make a forecast

Do forecasts stay the same forever?

Forecasts are not perfect. If a forecast is accurate it is typically temporarily so.

Effects of globalization, information velocity and free trade on supply chain and operations complexity and challenges

Globalization: Companies face more challenges when they have to worry about costs of doing business abroad, the productivity and quality of the work of foreign workers, extended shipping times, and the difficult of choosing trustworthy suppliers Information Velocity: The speed at which information is transmitted through a particular medium (from company to company) Free trade: Has allowed for companies and corporations to trade with other countries and open up more opportunities

Choosing alpha

Happens through (experience and trial and error). Usually alpha is between .1 and .3. Alpha can be >0 to <1.

Scalability -

How fast can we move up our supply speeds when they're being demanded - Flexibility and readiness of capacity for changes. - Think availability - Make changes as product matures - Identification of capabilities needed to transition Speed and Flexibility

Bullwhip effect conceptually

Increasing upstream supply chain variation resulting from forecasts in a supply chain or distribution channel. Collaborative planning, forecasting, and replenishment (CPFR) can help us moderate the impact of the bullwhip effect. - Bullwhip effect is fast increase in need for a product caused by an increase in the forecast demand from manufacturers believing there will be an increase in demand - Example: Winter is coming and there will be an increased amount of snowstorms so shovel manufacturers create more products for sale - Walmart wants to reduce bullwhip effect because they want to stay cheap so when supply chain costs go up as a result of the bullwhip effect they can't keep their costs cheap

Careers in OSCM (Operations and Supply Chain Management)

Industrial Engineer, Manufacturing Engineer, Project Manager, Quality Manager, Traffic/Distribution Manager, VP of Quality

Balanced Scorecard

Know what the balanced scorecard is and how it helps organizations do strategic planning (don't have to memorize the details of it but should know the 4 main or major elements-Financial, Customer, Learning and Growth, and Internal Processes) Concept used by many large organizations to plan out and balance their business decisions. Financial: To succeed financially, how should we appear to our shareholders? - Can't do more than we can fund Customer: To achieve our vision, how should we appear to our customers? - Understanding what customers might want if we can give it to them Learning and Growth: To achieve our vision, how will we sustain our ability to change and improve? - Understanding do we hav the resources to keep up with our processes Internal Business Processes: To satisfy our shareholders and customers, what business processes must we excel at? - Core competency

Transformation process within the supply chain

Leads to creation of wealth (resources --> products) Price of final product is higher than combined price of resources In any OM system, outputs should meet standards for that system. If the output does not meet the standards, then changes need to be made to the transformation process, the inputs, or both. - Inputs: Raw Materials, Machines, Labor, Capital, Energy, Facilities, and Management - Outputs: Goods and Services Feedback Control Loop shows whether outputs meet the standards of the system

Core Processes to Support Direction

Processes to the compas

Outputs (direct to Production Plan and a reference link to Master Scheduling)

Production plan: Resource planning (rolling 12 months --> medium term) - Done at S&OP level Master Production Scheduling: RCCP - Rough-Cut Capacity Planning (12 Rolling months --> medium term) - Emphasizes current constraints - Focus is on TOC (Theory of Constraints)

Buffer:

Refers to "extra" inventory or capacity to offset variation in process and demand

Be familiar with the concept of causal effects on forecasting

Regression models designed to explain variation in demand (events tend to cause demand characteristics such as rain causes umbrella sales, drought decreases agricultural equipment sales) - Example: Drought affecting certain demands for products or economic factors affecting demand.

S&OP

Sales and Operations Planning: A monthly risk management process for the planning horizon of demand and fulfillment agreements. It's the monthly "handshake" between demand and fulfillment at the top management level

Seasonality and effect on forecasting

Seasonality is the process of a product gaining an increase in demand as the result of a change in the seasons and then after the season passes the demand decreases back down --> This process repeats each year when that season occurs for the product Ex: Winter causes for large increase in demand for shovels and snowblowers. Once winter passes shovels and snowblowers lose a lot of demand Seasonality can happen any time in the 4 quarters of a year but must demonstrate repeated demand surges and dips in the same quarters, year after year.

Business Imperatives

Short list of top priority goals that must be done in next 12 months

Core competency

Skills or key areas of expertise that a company has developed over time which distinguish the company from its competitors on the satisfaction of the costumer's needs. - Unlikely to subcontract these operations or processes. - Price, quality, time, innovation, and flexibility - Company cannot excel in all five core competencies - Therefore a company has to identify a subset of these core competencies that it can be good at, and develop and nurture it Examples: - Raymond - welding competency quality - Apple - R&D (Research and Development) Innovation - Walmart - Supply Chain Management - price

Understand the importance of the process capability at the bottom of the planning process-

Strategy and Objectives Hierarchy: - Operations objectives: Yearly objectives to support the Business Imperatives and longer term Strategy - Processes to Support Objectives/Imperatives: Process design with capability to achieve the objectives (for example growth or speed) If business is to be successful their process design needs to reflect their objectives and goals. Example: Grow the business - what are the process changes that will result in growth?

Offshoring

Subcontracting to companies outside of our country

Porter's Fifth Force

Supplier Power: - Market of inputs - When there are few substitutes, supplier power is high (petroleum versus nuts and bolts) Example: Nestle (strong power over bean growers) College textbook companies have a lot of power over their customers

Lead time:

The time between the initiation and completion of a production process. Understand businesses having time-based strategy but also knowing that the market need today often requires businesses to be agile-flexibility and speed. Most companies are asking suppliers for shorter lead time. Customers are asking for broader scope of product configurations.

Ownership of the Demand Planning Process and Inputs

The top management of Sales and/or Marketing, usually at the Vice President level. Business Plan (What products, what customers) Marketing (What are the promotions, and strategies used to effect customer behavior) Sales (Sales funnel: Many possible customers but only a few make orders) History: Mostly Quantitative

Mission

This answers the questions, "what are we in business for?", "What's important to the business?"

Porter's First Force

Threat of Entrants: - When barriers to entry are low, companies can expect a lot of rivals to enter the market (shampoo versus heat treating) Example: Apple --> Low threat of entrants

Porter's Second Force

Threat of Substitutes: - Similar products or services that satisfy the same need as the existing firm (Cushman trucks versus airplane engines) - More substitutes lower profits Example: Ford --> Higher threat of substitutes

True or false: Good Process design deteriorates over time unless there are management systems (accountability infrastructures) in place to create process accountability

True

Difference between the references of "upstream" versus "downstream" supply chain management.

Upstream: Toward suppliers (Consumers --> Wholesalers --> Manufacturers --> Suppliers) (Cash) Downstream: Toward customers (suppliers --> Manufacturers --> Wholesalers --> Consumers) (Materials/products)

Two main sides to business

o 1) Demand (Sales and Marketing) responsible for forecasts, affecting customer behaviors, getting orders for products or services and understanding markets o 2) Fulfillment (Operations and Supply Chain Management) responsible for making and delivering products and services. o Accounting is the function that coaches and "keeps score" for the business through profit and cost analysis.