MGMT 4110

Jeans: From Factory to Floor

"How far does a typical pair of jeans travel before it ends up in your closet -- and at what cost? Reuters tracks the garment supply chain, from factories in Bangladesh to retailers near you."

Impact of GIS

- Manipulate, analyze, and present geo-information - Visual representation of a firm's location choices - Identify locations and demographic customer info - Identifying locations that relate to target market

High forecast error

- Some products sold more than 50% of forecast - Some products less than forecast

If you were trying to make a decision to consolidate the demand forecast by aggregating the demand data from two locations. What would you want the correlation coefficient of the demand data between the locations to be?

-0.9 You want it to be negatively correlated

S&OP Process

1. Data Gathering 2. Demand Planning 3. Supply of Planning

Advantages of the P System

1. It is convenient because replenishments are made at fixed intervals. 2. Orders for multiple items from the same supplier can be combined into a single purchase order. 3. The inventory position needs to be known only when a review is made (not continuously).

Market mediation

Ensuring the variety of products reaching the marketplace matches what the customer desires

In a continuous review system when demand and lead time are constant and certain, the reorder point is

Equal to the demand over the lead time

The shortest distance between two locations is

Euclidean distance

Customers are expecting

Ever-higher levels of performance Continuous reduction in costs Greater customization of products

Sales promotions

Everyday Low Prices

Sales promotions Countermeasure

Everyday low price

Demand forecast accuracy:

Everyone in the chain placing order that include increases in safety stock causing erroneous forecasts

Sales promotions:

Exaggerated demand because customers want to stock up at lower prices

The following are characteristics of truck transportation.

Expensive for large shipments Low fixed costs

Outsourcing

External arm's-length transactions ❖Short-term arrangement that fulfills a particular business need but doesn't lead to long-term strategic advantages.

Logistical Drivers

Facilities, Inventory, Transportation

Key decisions made by SC managers involve.

Facility location Inventory Risk Pooling

As the value of 'N' in moving averages increases you need less data

False

Commodity products require a responsive supply chain

False

Dabbawalas have shown that even with the right system, an organization needs extraordinary talent. True or False?

False

Decreasing the number of warehouses will result in higher service levels

False

Demand pooling is effective when the demand is highly positively correlated

False

EOQ can be used when ordering costs and holding costs are highly variable

False

Effective consumer response requires demand management but not supply management

False

In order to perform a corporate inversion a company must have manufacturing operations in the foreign country of incorporation.

False

In vendor managed replenishment systems the customer manages the inventory system and decides on the inventory policies

False

Innovative products require a physically efficient supply chain

False

It is very likely you can have a efficient (low cost) supply chain when you have high demand uncertainty (such as a gourmet restaurant).

False

Moving averages can be used effectively to forecast regardless of whether there is strong trend or not

False

Offering a very large variety of similar products makes the job of demand forecasting easier

False

One of the disadvantages of location pooling is lower service levels

False

Qualitative methods are the best way to make location decisions

False

Risk pooling suggests that demand variability increases as a result of aggregating demand

False

The Dubbawalla system gives each group a monopoly over their territory. True/False

False

The higher the value of smoothing coefficient alpha in exponential smoothing the greater the emphasis on older demand data

False

The longer the cycle time the smaller the cycle inventory

False

What has research shown to lead to lower error rates?

Familiarity and bonds

Challenges of the mass market:

Fill order even more quickly Demand for highly customized products and services Solution: mass customization via postponement

Finished goods

Final product ready for sale or shipment

The Goal:

Find a minimal-annual-cost configuration of the distribution network that satisfies product demands at specified customer service levels.

Find an acceptable facility location that minimizes the ld score

Find the Lowest Number Possible

Make to Stock (MTS) challenges

Finished goods inventory Forecasting Product variety Product mix stability

Independent Demand

Finished goods, end products purchased by customers Raw material commodity stocks, common to many products Demand rate and pattern determined outside of the firm Demand is independent of demand for other products or items

Provides Other Flexibilities

Flexibility in geographic locations, services and resources

3PL Advantages

Focus on Core Strengths Provides Technological Flexibility Provides Other Flexibilities

Change in Marketing

Focus on consumers, not products Understand cost to satisfy consumers, not sticker price Learn how consumers want to buy (convenience), over determining place of purchase Concentrate on communications with consumers, not just promotions.

Forecasting Fashion Video:

Forecast at least 6 months to 1 year ahead. Know about... Trends Colors and Patterns Items Color Analysis and Schemes Culture

continuous replenishment new skills employed by vendors

Forecasting and inventory control

Characteristics of Forecasts:

Forecasts are always wrong. The longer the forecast the worse it gets Aggregate forecasts are less wrong than disaggregated forecasts

Five assumptions

1.Demand rate is constant and known with certainty. 2.The Lead Time is constant and known with certainty. 3.No constraints are placed on the size of each lot. 4.The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup. 5.Decisions for one item can be made independently of decisions for other items.

FMEA Procedure

1.For each process step (start with high level steps), determine the ways in which the input can go wrong (failure mode) 2.For each failure mode, determine effects ❖Select a severity level for each effect 3.Identify potential causes of each failure mode ❖Select an occurrence level for each cause 4.List current controls for each cause (what prevents it from happening?) ❖Select a detection level for each cause 5.Calculate the Risk Priority Number (RPN) 6.Develop recommended actions, assign responsible persons, and take actions ❖Give priority to high RPNs ❖MUST look at severities rated a 10 7.Assign the predicted severity, occurrence, and detection levels and compare RPNs

Class A Items

10-20% of items which account for approximately 60-80% of annual $ usage Very tight control & tracking

Forecasts that

Are reasoned Are realistic Are reviewed Represent demand

The price response curve indicates that

As price increases demand decreases

Global Shipping (video):

As the container shipping industry continues to boom, companies are adopting new technologies to move cargo faster and shifting to crewless ships. But it's not all been smooth sailing and the future will see fewer players stay above water.

Why is Corporate Inversion Done?

As the percentage of sales coming from foreign operations grows relative to domestic operations, the company will find itself paying more U.S. taxes because of where it incorporated.

Order batching:

Avoiding cost of processing orders or getting truckload orders vs small less than truckload deliveries.

What was a priority to achieving their growth targets

Avon began by creating a centralized planning function—a critical priority.There was no way Avon would achieve its growth targets without a centralized planning group that could see demand and inventory levels across the region and react quickly

Why did Avon change its approach to bottle labeling?

Avon had considered the idea of labeling bottles itself instead of relying on suppliers, so that it could delay final decisions about what language to put on a product until sales trends became clear

Avon neglected its supply chain for years. What were they focused on instead?

Avon planned to double sales revenue in the Europe region from $500 million in 1996 to $1 billion in 2001.

Weighted Location Scoring

Balance objective and subjective factors Rational means of comparing diverse criteria

Benefits of Delphi

Benefit is in the process, less so in the product Systematically explores alternative futures Allows all points of view to be aired Works toward consensus Promotes understanding Forces participants to face the future

What was Tiffany's rationale for a vertically integrated operation in the context of sustainability?

Best means for ensuring social and environmental responsibility

Supply of Planning

Bill of resources Rough-cut capacity Demand/supply strategies

Postponement is a hybrid

Blends make to stock and make to order that enables flexibility Allows for product mix Shortens lead time Reduces inventory Allows for larger batches where set up times or process times are long Improves supply chain responsiveness

Strategic Alliances

Both risks and rewards are shared. ❖Typically lead to long-term strategic benefits for both partners.

Safety (Buffer) Stock

Buffer against uncertain demand

Market Responsiveness Inventory

Buffer stock and finished goods inventory

Profit

Business Economies Market Financial Health

How does IKEA drive a transformative agenda?

By going all in

What kind of inventory hub system did Avon implement?

Centralized inventory hub in Poland

What makes a block chain immutable?

Changes in a block requires recomputation of all blocks that are following Requires control of at least 50% of the computers on the network to make the ledgers equivalent

Distributed network optimization: Albert Goodhue: What are the 4 steps that he identifies?

Characterization of actual network Benchmarking Analysis of scenarios Analysis of results

Weighting Score Method

Choose the highest score

Elements of Cycle View

Clearly defines processes involved Defines the owners of each process. Specifies the roles and responsibilities Specifies desired outcome of each process.

What to focus on for both

Consolidate orders to take advantage of economies of scale and quantity discounts

EOQ Model:

Constant Demand, Constant Lead Time, Infinite Horizon, Single product, No limit capacity, Meet all demand.

the Four Cs in supply chain

Consumer, Cost, Convenience, and Communications

Intermodal:

Convenient Can be cheaper Truck/rail is most common Sometimes intermodal is the only option Communication for coordination: KEY

Retailer-Supplier Partnership (RSP)

Cooperative relationship between suppliers and retailers

In evaluating good and services for outsourcing it is important to review them in the context of

Cost and Criticality

What primary trade-offs are made in designing supply chains?

Cost and responsiveness

Variable costs

Costs that change with changes in volume.

Pull Process:

Customer Order Cycle

What is the advantage of having the pace and rhythm set

Determines when tasks need to be done and how long it should take, synchronize and impose discipline, feedback

Market research

Determining external customer interest through data-gathering surveys Example: Delphi Method

Demand

Different customers Different products Different locations Different quantities

Invoicing and receivables

Different customers Different terms Different discounts Different currencies Taxes

Materials from different suppliers

Different minimum order quantities Different lead times Different vendors Different amounts needed

Logistics

Different modes of transport Different delivery requirements and schedules Inbound and outbound capacity planning

Distribution

Different products Different pack out quantities Different delivery requirements Locations of warehouses and capacities Material handling

Manufacturing capabilities

Different products Different packaging types Different demand patterns and customer tastes

Two main categories of purchased goods:

Direct and Indirect materials

The main categories of purchased goods are

Direct and indirect materials

Hash

The output of a hash function

Purpose of inventory management

The planning and controlling of inventories in order to meet the competitive priorities of the organization.

Risk Priority Number

The product of the severity, occurrence, and detection scores. Severity x Occurrence x Detection

If the demand variation (std deviation of demand) in multiple independent locations is the same, then the std. deviation of demand of a single pooled location will be equal to

The product of the square root of the number of locations and the demand variation of a single location

Enablers

Identification standards Messaging standards Data synchronization

its U.S. income is taxed at a high domestic rate.

If it incorporates abroad, it can bypass having to pay higher U.S. taxes on income that is not generated in the United States.

What makes it immutable?

If you want to change one block, all blocks after that must be changed as well. ❖ Changes in a given block makes all subsequent blocks invalid and require re-computing the hashes and proof of work of all the blocks ❖ The distributed nature of the block chain (P2P network) requires control of at least 50% of the network to make all those ledgers equivalent to ledger that was tampered

In analyzing results what does he identify as the top two items

Impact on customer service Ability to handle the increased volume of transactions

Severity

Importance of the effect 1 = Not Severe, 10 = Very Severe

what to focus on for direct materials

Improve coordination and visibility with supplier

Where ships go to die

In Bangladesh, men desperate for work perform one of the world's most dangerous jobs. They demolish huge ships in grueling conditions, braving disease, pollution, and the threat of being crushed or stabbed by steel sliced from the hulls.

An increase in inbound transportation costs

In essence, the firm must balance the costs of opening new warehouses with the advantages of being close to the customer (thereby having better service levels).

Four Alternatives for Sourcing

In-sourcing Outsourcing Strategic Alliances Acquisitions

Simple Moving Average (SMA)

Include N most recent observations Weight equally Ignore older observations older than N

The major challenges with data integrity in ERP systems has to do with

Inconsistency Data integrity Redundancy

As setup costs increase the EOQ will

Increase

Why did the Dubbawallas reject the idea of using motorcycles instead of bicycles?

Increased cost to customers

Hash Pointer

Instead of just containing the address of the previous block it also contains the hash of the data inside the previous block.

In-sourcing

Internal activities ❖Activities that are core strengths

Market Responsiveness Product Design

Modular design to postpone differentiation as late as possible

Order batching Countermeasure

More frequent orders of smaller amounts

Experience & Judgment

Most widely used method of facility location all decisions are subjective and heavily dependent on experience & judgment

Complicating Factors

Moving Average & Exponential Smoothing methods work well with data that is "moving sideways" Works well with data with variable trends and weak (or long) seasons and/or cycles Must be adapted for data series which exhibit a strong trend Must be further adapted for data series which exhibit strong seasonal patterns

Forecasting: Time Series

Moving averages Exponential smoothing

Characteristics of Delphi

Multiple rounds Anonymity Statistical feedback Median and interquartile ranges displayed Feedback of reasoning Multiple rounds Outliers asked to defend or change opinions Most widely used subjective method

Experience & Judgment Pros

Myriad qualitative and quantitative factors considered and evaluated

Shortage is more serious

Need to hold safety stock to achieve service level

Financial Performance

New Business Opportunities Minimizing Risk Enhance current Business

changeover costs are high

No standardized containers Labels preprinted on containers with different languages for each country

New Belgium and Waste

Not only do they commit 1% of their sales to environmental causes but they also redefine waste by treating their own waste-water on-site, in large flats powered exclusively by either methane gas derived from waste-water treatment or by wind power.

Poor Service

Often could not meet demand Delayed delivery Upset sales rep had to perform heroics to satisfy customers

Package Carrier:

Rapid & Reliable Expensive for larger shipments

3 kinds of RSPs

Rapid Response Continuous replenishment Vendor managed inventory

Stages of Inventory

Raw materials: Work-in-process Finished goods

Market Responsiveness Lead Time Focus

Reduce lead time aggressively

Inventory pooling

Reduce number of inventory locations. Merge variable demands from customers

Location pooling results in

Reduced inventory levels Reduced total demand variability

What are two tangible effects of sustainability efforts that motivate companies to pursue sustainability?

Reduction in costs Increase in revenues

Data Integration Challenges

Redundancy Inconsistency Missing integrity

Coefficient of variation is a measure of

Relative variability

There are many other factors besides purchase price that influence total cost

Reliability Quality Service orientation Financial stability Value added services

Class C Items

Remaining SKU's (40-60%) which account for remaining 5-15% of annual $ usage Loose control limited tracking

Market Responsiveness Purpose

Respond quickly to unpredictable demand to minimize stock-outs, markdown and obsolete inventory

How should managers view themselves according to the case?

Responsible for design and fine-tuning systems

You have a new innovative product that you are launching, and market forecasts suggest it is going to be a big hit, what kind of supply chain should you have ?

Responsive

Rapid Response Inventory Ownership

Retailer

Rapid Response decision maker

Retailer

Information Lead Time:

Retailer to Supplier

The S & OP process has a focus on

Revenue and profitability

Integrators

SIOP (Forecasting/Planning) Cost/profit and value measurement

Demand Planning

Sales and marketing review information received and Sales forecast

Causes of Bullwhip Effect

Sales promotions: Order batching: Shortage gaming: Demand forecast accuracy:

Sourcing processes include

Scoring Assessment Selection Contracts Design Collaboration Procure Planning Analysis

Benefits of ERP Systems

Security, Regulatory and Compliance Increases productivity Streamline processes and efficiency Fosters Growth Saves Money

Physically Efficient Suppliers

Select for cost and quality

The desire for choice

Sensing customer demand is one thing, but profitably responding is another. Especially when you offer a large array of options or highly configurable final products

When using the weighted scoring method to perform location selection decisions what should also be done?

Sensitivity analysis

How was Avon Organized:

Separate factories and warehouse supplying each market Branches operating independently Country-based supply chain model

As the number of warehouses increases, generally

Service levels increase

Nodes & Links

Shipment starts and ends at nodes. Travels on links

A hurricane is forcasted for the Gulf coast. In anticipation people are stocking up on plywood and essential groceries. As a result stores are stocking out of these products This is an example of

Shortage Gaming

Physically Efficient Lead Time Focus

Shorten lead time as long as cost does not increase

Physically efficient supply chain seeks to

Shorten lead times with the same costs

Role of Transportation Video:

Showcases how freight moves through the supply chain, the importance of an efficient transportation system for reliable freight movement, and the impact the transportation system has on the economy

What are the three key elements of the Dubbawalla process?

Simple codes, buffer capacity, rigorous standards

Order batching

Small and Frequent

Within a company

Supply chain includes all functions involved in fulfilling a customer request

The push pull boundary is determined by

Supply chain timeline

Physically Efficient Purpose:

Supply predictable demand efficiently at lowest cost

Sourcing Elements

Supply risk assessment Total cost assessment SKU stratification Outsource assessment

Having flexible capacity allows you to better manage

Supply with uncertain demand

Advantages of the Q System

The review frequency of each SKU may be individualized. Fixed lot sizes if large enough can results in quantity discounts. The system only requires levels of safety stock for the amount of uncertainty in demands during the lead time, which can be lower

The Supply Chain achieves

The right Product The right Price The right Store The right Quantity The right Customer The right Time Leading to Higher Profits

How do rush orders usually impact manufacturing efficiency?

The rush orders destroyed manufacturing efficiency too. Since 40% to 50% of the items sold more than expected, the factories were constantly interrupting their schedules to switch from one product to another. Changeover costs were high—especially because the factories were set up for high-volume production.

Euclidean distance

The straight line distance, or shortest possible path, between two points

Demand/supply strategies

Way to adjust demand and supply

When Avon decided to change, how did they approach assembling an internal team?

We took 45 of our best people in Europe out of their positions and put them into the project full-time for 18 months

Bill of resources

What is needed to produce this products

Continuous Review System

When Demand and Lead Time Are Constant and Certain When demand is variable and lead time is constant

What is a corporate tax inversion?

When a company relocates headquarters overseas for tax advantages

Problems with Delphi

Who is "expert"? Over-reliance on consensus Little evidence that Delphi provides "good" long-term technology forecasts

Avon could have become even better at placing timely orders with certain vendors but instead they did something even better. What did they do?

With some suppliers, Avon has stopped placing orders entirely. Instead it gives them access to production information on a web-based system.

People

Workplace Community Health and Safety

An advantage of the Delphi method is that it

Works toward consensus Force the exploration of alternatives

3PL companies take over a company's

]Logistics function

Block Chain

a linked list of blocks each of which contains data and a hash pointer which points to its previous block, hence creating the chain

Load-Distance Method

a mathematical model used to evaluate locations based on proximity factors

Transportation Network

a set of connected nodes and links allowing the circulation of goods and/or individuals.

Goal of Delphi Method:

achieve a consensus of opinion

Order Penetration Point/Customer Order Decoupling point

any stage in a material flow in the supply chain the customer order accurate information about demand penetrates

Requires a decoupling point:

any stage in a material flow in the supply chain where the customer order penetrates. Often called order penetration point/customer order decoupling point

Failures

are any errors or defects, especially ones that affect the customer, and can be potential or actual.

Ikea and Cotton

as of 1 September 2015, all the cotton used in IKEA products comes from more sustainable sources This means that it's grown with less water, chemical fertilizer and pesticide, and increases profit margins for farmers.

The choice to in-source is often made when

assured supply is needed there is a quality advantage

Center of Gravity Method

attempts to find the lowest-cost location for a facility based on demand and distance

Managing Inventory

balance between inventory and service levels

Flying Warehouse

blimp sized aircraft capable of holding a set amount of high-in- demand items.

Capacity pooling:

build flexible capacity rather than specialized capacity Makes it possible to more easily match supply with uncertain demand

The question here is not only if the planned sales can also be produced in time,

but to answer all questions that arise, if you consider every interdependency of all key figures within the supply chain.

In the push/pull view of the supply chain the processes are

categorized based on whether they are performed in response to customer orders, or in anticipation of customer orders

How can you still differentiate Avon products if they all come in a standard bottle?

company now realizes that cap, color, and labeling can be sources of differentiation too.

Direct Materials

components used to make finished goods

continuous replenishment inventory level decision maker

contractually agreed to levels

Final product assembly is done based on

customer demand for specific product configurations

pull boundary

customized products

In automating common processes within the ERP system the focus is on

decision making processes value added processes

As price increases ...

demand decreases Demand reaches zero at some satiating price

What effect does pooling have

diminishing effect

Effective Consumer Response: The new reality

dramatic advances in information technology, shifts in consumer demand, increasing movements of goods across international borders

Continuous replenishment inventory ownership

either party

VMI inventory ownership

either party

Higher values of α

emphasize recent demand levels

The goal of the procurement process is

enabling orders to be placed and delivered on schedule at the lowest overall cost

Total Costs

fixed costs + variable costs

Rapid response new skills employed by vendors

forecasting skills

push boundary

generic products

Indirect Materials

goods used to support the operations of a firm

4PL companies

help with the entire supply chain

Critical items

high criticality, low value/cost

Rough-cut capacity

high level production capacity requirements

Intermodal Video:

how goods are moved around the world efficiently, affordably and in an environmentally responsible way Involves at least two different modes of transportation Can reduce costs and optimize shipments Working together to deliver goods on time with improved efficiency

Cross Functional Drivers

information, sourcing, pricing

Pipeline Inventory

inventory that is created when an order for an item is issued but not yet received

Coefficient of Variation

is a measure of relative variability.

Correlation coefficient (ρ)

is always a pure value and not measured in any units.

A pull production system

is one that explicitly limits the amount of work in process that can be in the system.

Postponement can lead to ..

larger batches when process times are long Higher product variety Shorter lead times

If number is less than reorder point

make an order

The 1-5 scale rating scale

makes it easier for the teams to decide on scores

Functions of a supply chain

market mediation and physical function

The 1-10 rating scale

may allow for better precision in estimates and a wide variation in scores

Experience & Judgment Cons

may be heavily swayed by personal bias and preference

Failure Modes

means the ways, or modes, in which something might fail.

Correlation

measures the strength of the relationship between variance

Covariance

measures the total variation of two random variables from their expected values (the mean). It is expressed in the units of whatever is being measured

Pooling is beneficial when demands are

negatively correlated

Supply Chain

network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product (or service),

Relationship is nonlinear

nonlinear when the service level is close to 1 need disproportionately high safety stock to achieve very high service level 1

The S&OP process deals with

not just whether planned sales can be produced in time, but also answers the questions that arise when you consider the interdependencies that exist between the key

Hash function

one-way. This means that from the output, it is virtually impossible, or mathematically and computationally improbable, to determine what the input is In blockchains, hashes are used as identifiers for blocks, transactions, and addresses

Cycle view

processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages

Push/pull view

processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)

Third Party Logistics (3PL)

providers take over a company's logistics functions ❖Strategic partnership ❖Long term commitment ❖Multi-function arrangement ❖Process integration

Enterprise Resource Planning System:

provides an enterprise database where all business transactions are entered, processed, monitored, and reported

Block

record of new transactions Once each block is completed it's added to the chain, creating a chain

Fixed costs

remain roughly the same regardless of volume levels.

Effective postponement:

requires matching decoupling points with product design and the marketing strategy

VMI new skills employed by retailers

retail management

Failures are prioritized according to how

serious their consequences are how frequently they occur and how easily they can be detected.

Sensitivity analysis

should also be considered when doing a weighted score method

Companies that receive a significant portion of their income from foreign sources employ corporate inversion because...

since that income is taxed both abroad and in the country of incorporation.

Variance

standard deviation squared

Effects analysis

studying the consequences of those failures

What determines push-pull boundary

supply chain timeline

Avon had a fundamental mismatch between what two things?

the company's selling cycle and its supply chain.

The longer the cycle time,

the greater is cycle inventory

The higher the coefficient of variation of demand,

the greater the benefit from pooling

Postponement:

the process of delaying customization to the very end of the supply chain closest to the customer Delay the point of differentiation of inventory to the last moment, after the order is received

An important characteristic of a class of rates for truck, rail, UPS and other trucking companies

the rates are quite linear with the distance but not with volume

Time Series:

the repeated observations of demand for a service or product in their order of occurrence

Sourcing

the set of business processes required to purchase goods and services

Confirmation bias:

the tendency to interpret new evidence as confirmation of one's existing beliefs or theories.

The longer the lead time between steps

the worse the bullwhip effect

When perfectly positively correlated

there is no benefit from pooling

Price optimization

to determine how customers will respond to different prices for its products and services through different channels.

Evaluation is based on

total cost of using a supplier

Smaller Values of α

treat past demand more uniformly

Judgement Methods:

use contextual knowledge gained through experience

VMI inventory decision maker

vendor

Fixed cost aren't linear;

warehouse costs aren't linear over the entire range

Shortage gaming:

when demand exceeds supply rationing occurs. Customers exaggerate orders to counteract rationing

Sourcing Definition

where are you going to obtain something from

Purchasing Definition

where you buy something from is much more strategic. More transactional

S&OP Benefits

• Aligns entire organization around a common plan • Links business plan to departmental operations • Identifies discrepancies between planning numbers • More predictable revenue management • Improves sales forecasts and inventory management

Purpose of S&OP

• Consensus operating plan that allocates materials, people, time, money to meet marketplace demand in the most profitable manner • Focus is to maximize revenue and profitability 12 to 24 month horizon

Linear Regression

A dependent variable is related to one or more independent variables by a linear equation

Hashing

A hash function, takes any input, and produces an output of a specific size. The process of applying a hash function to some data,

Tracking Signals:

A measure that indicates whether a method of forecasting is accurately predicting actual changes in demand.

Additive seasonal method:

A method in which seasonal forecasts are generated by adding a constant to the estimate of average demand per season

Multiplicative seasonal method:

A method whereby seasonal factors are multiplied by an estimate of average demand to arrive at a seasonal forecast.

What kind of supply chain did Avon need and why?

A short selling cycle demands a flexible, responsive supply chain.

Risk pooling

A statistical concept that suggests that demand variability is reduced if one can aggregate demand, Combine risky or uncertain locations/products/events to reduce uncertainty and risk.

inventory

A stock of materials used to satisfy customer demand or to support the production of services or goods

Forecast accuracy Countermeasure

Access to point of sale data

Why did Avon choose to buy bottles from suppliers in Poland and Germany when they could get a lower per unit price from suppliers in Mexico?

Although the company may pay a slightly higher price on a per-unit basis, managing fewer relationships with more flexible, responsive suppliers resulted in a lower total cost.

Under the system each dubbawalla is _________________

An entrepreneur

How do you manage the complexity?

Demand Materials from different suppliers Manufacturing capabilities Inventory management Distribution Logistics Invoicing and receivables

Forecast error is defined as

Demand - Forecast

Selecting a supply chain design depends on

Demand Uncertainty and Economies of Scale

In order to use EOQ which of the following must be true

Demand is constant Lead time is constant

Functional product supply chain Primary Characteristic

Demand is stable well understood

Price Response Curve:

Demonstrate some degree of smooth price response

As holding costs increase and setup costs increase the EOQ will

Depends on the relative increase in holding costs and ordering costs

Market Responsiveness MFG

Deploy excess buffer capacity

Air freight has...

High fixed costs and Low variable costs

Problems with existing system

High forecast errors Changeover costs are high

Negative impacts of current system

High levels of inventory Poor Service

Physically Efficient Inventory

High turns minimize inventory

Strategic Items

High value/cost high criticality

Hybrid Push/Pull Systems

Hybrid of "push" and "pull" strategies to overcome disadvantages of each

Forecasting Method Decisions

Judgment methods Causal methods Time-series analysis Trend projection using regression

What comparison does the CEO of Tiffany draw in the context of educating customers about the provenance of diamonds?

Just as people care about the source of their food they will care about the provenance of their diamonds

Centralized placement

Keeping all the inventory of a product at a single location

Kiva Robot

Kiva's integrated order-fulfillment solution employs hundreds of mobile robots and distributed intelligence to enable faster, more flexible ecommerce distribution centers

One of the major challenges in sustainability reporting is

Lack of common measures

Pipeline:

Large initial fixed costs Good for predictable transportation needs Priced to incentivize use with predictable flows Should use something else for fluctuations

Make to Order (MTO) Challenges

Lead time Raw material inventory availability Set up time Demand variability

What drives companies to adopt sustainable practices?

Legislation Customers

Deciding What to Forecast

Level of aggregation Units of measurement

Which of the following are quantitative methods in location decisions?

Load distance method Break-even analysis

Quantitative Methods

Load distance method Center of gravity method Break even analysis

Which of the following are examples of quantitative methods for location selection (select all that apply)

Load-distance method Center of gravity method Break-even analysis

Forward placement

Locating stock closer to customers at a warehouse or distribution center

Drivers of SC performance

Logistical Drivers & Cross Functional Drivers

❖Provides Technological Flexibility

Logistics technology advances adopted faster by 3PL providers

What is the 'solid financial argument' that IKEA was making with its investments?

Long term energy security

3PL Disadvantages

Loss of control If logistics is one of the core competencies of a firm

The cycle inventory depends on

Lot size ordered

Push-Pull Process

Low Demand Uncertainty Low economies of scale Uncertainty is low Low economies of scale Push-Pull Supply chain

Air Freight:

Low Variable Costs High Fixed Costs Able to use revenue management effectively

Water:

Low cost for heavy loads Very S-L-O-W Used for VERY heavy loads (cars, grain, apparel) Delays are a constant issue Risk: Weather, piracy

General Items

Low critcality, low value/cost

Bulk Purchase Items

Low criticality, high value/cost

Push-Push Process

Low demand uncertainty High economies of scale Standard processes are the norm Demand is stable scale economies are high

Truck:

Low fixed costs Expensive for large shipments Must minimize idle time and distance traveled while empty Load consolidation

Reasons for outsourcing often include

Lower costs Specialized knowledge

Suppliers evaluation and selection should be based on comparing

Lowest overall cost

Moving Average Attributes

MA simply averages over the last N periods MA smooths past fluctuations in a time series Choosing a larger N yields a "smoother" MA

Physically Efficient MFG

Maintain high average utilization rate

Don't use the EOQ

Make-to-order strategy Order size is constrained

If logistics is one of the core competencies of a firm

Makes no sense to outsource these activities to a supplier who may not be as capable as the firm's in-house expertise

The three elements of strategic sourcing are

Management Sourcing Selection

Integrated Business: Info and Process

Many common process transactions are automated with emphasis centered toward the decision making processes and the value added processes of the organization

What is a shipper trying to accomplish when it comes to transportation decisions?

Minimize total cost of moving the goods

An advantage of make-to-order supply chain is

Minimizing supply and demand mismatch

Value is created by the supply chain by

Minimizing supply chain costs Providing a reasonable service level Ensuring customer satisfaction

What is the value created

Minimizing supply chain costs while keeping a reasonable service level ensuring customer satisfaction

Benefits of postponement

Minimizing wrong inventory, obsolete and markdown products The use of low-cost country manufacturing components become more effective More options without increasing costs

The major processes that make up procurement are

Purchasing and Sourcing

Make to Stock (MTS)

Push Process For anticipated demand

Build to stock is an example of

Push system

Selection

Qualification criteria Evaluation RFI/RFP Supplier assessment

Location Decision Methods

Qualitative Methods Quantitative Methods

Modify the EOQ

Quantity discounts Replenishment not instantaneous

RFID and Drones

RFly is a new drone-based wireless technology that can help companies save billions of dollars in misplaced items and faulty inventory in their warehouses

Increasing the number of warehouses yields

An improvement/increase in service level due to the reduction in average travel time to the customers. An increase in inventory costs due to increased safety stocks An increase in overhead and setup costs A reduction in outbound transportation costs

Supplier selection based on

Competitive bids (RFI/RFP) Direct negotiations Auctions

Demand Management Options

Complementary Products Promotional Pricing Reservations Rationing

Government Legislation

Compliance Incentives Staying ahead of intervention

Inventory ABC Analysis

20% of stock keeping units (SKU) account for 80% of total inventory costs Manage most important (costly) inventory items most closely. First analysis to undertake when attacking inventories!

Class B Items

20-40% of items which account for approximately 20-30% of annual $ usage Tight control and moderate tracking

Characteristics of Avon sales cycle

3 week selling cycle 12 weeks for products to cycle through system Production quantities based on forecasts Inventory shipped before selling cycle began

Anticipation Stock

Accumulation in anticipation of peak demand.

Sustainability:

Activities that provide present benefit without compromising the needs to future generations Take care of yourself, take care of others, take care of the planet To enable all people to satisfy their basic needs and enjoy a better life without compromising the quality of life for future generations

Planet:

Air/Water/Land Minerals Materials Waste

Issues with MA Forecasts

All N past observations treated equally Observations older than N are not included. Requires that N past observations be retained Observations older than N are not included requires that N past observations be retained Lots of data when 1000's of items are being forecast Can't use it effectively far beyond the point where the known demand data ends

How is flexibility used

Allows production shifts to high selling products to avoid lost sales

Managing product pooling

Combining products/packaging into similar designs Forecast aggregate demand vs individual demand Pools demand variability to reduce total demand variability Postponement: differentiate products at the last minute

Functional Supply Chain Examples

Commodities Detergent Sugar Nuts and bolts

Measurement Challenges Common Metric

Companies don't yet use a common measure for their sustainability reporting

Customers

Customer behavior will drive company behavior

Reasons for large inventory

Customer service (more inventory=better service level) Ordering & setup costs (more inventory= fewer orders) Labor and equipment utilization Transportation cost (less than truckload is more expensive per lb)

Information has to flow from

Customer to supplier

Evolution of the Customer

Customers expectations continue to change Ever-higher levels of product and service performance Greater customization of products and services to their individual needs. Expect a constant stream of innovations in the goods and services Continuous reduction in cost or improvement in the benefits they receive.

Innovative product supply chains examples

Customized products High fashion Emergency Supplies Novelty Products

Types of Inventory

Cycle Stock Safety (Buffer) Stock Pipeline (WIP) Stock Anticipation Stock

In the cycle view the processes within the supply chain are broken up into a series of

Cycles

Horizontal

Data cluster about a horizontal line

Trend:

Data consistently increase or decrease

Seasonal:

Data consistently show peaks and valleys within a given year

Cyclical:

Data reveal gradual increases and decreases over extended periods

Why sustainability is IKEA's growth - Peter Agnefjäll, CEO, IKEA Group

Decided to grow within limits of the planets Creating a better everyday life for many people Positive impact on people and the planet Produce the same amount of renewable energy as the total group in consuming Investing in wind and solar Ikea is also becoming a small renewable energy company

Key Decisions on Making Forecasts

Deciding What to Forecast Choosing the Type of Forecasting Technique

what to focus on indirect materials

Decrease transaction cost for each order

Avon kept the manufacturing operation in Germany but then they centralized others into a plant in Poland? Why Poland?

Delivered major cost efficiencies, mainly because of the lower cost of labor.

What is the goal and mission of the Dubbawalla system?

Delivering food on time, every time

Why did the Dubbawallas rejected the idea of backward integration to their own kitchens?

Diverging from the mission of delivering dabbas on time.

If number is greater than reorder point

Do not make an order

Delivery Innovation

Dominos & Ford Motors has created the self driving delivery vehicle Are customers really gonna be receptive to it?

Avon's Goals In Europe:

Double sales revenue in Europe Reduce costs Increase Service Levels

With functional products the supply chain focuses on

Efficiency of the supply chain Reducing costs High turns to minimize inventory

Supply Management

Efficiency vs. Responsiveness Demand driven supply Operational excellence

Sourcing Planning and Analysis

Periodically analyze its procurement spending and supplier performance Spending should be analyzed by part and supplier to ensure appropriate economies of scale Performance analysis should be used to build a portfolio of suppliers with complementary strengths Cheaper but (potentially)lower performing suppliers should be used to supply base demand (All else being equal like quality) More expensive suppliers should be used to buffer against variation in demand/supply

Occurrence

Frequency with which a given cause occurs and creates failure modes 1 = Not Likely, 10 = Very Likely

Graphical Information Systems (GIS)

GIS analysis shows customer proximity to branches and which branch they visit, indicating a difference in perceived and actual distance.

Data Gathering

Gather all Month end data

The Procurement Process

Goal is to enable orders to be placed and delivered on schedule at the lowest possible overall cost

As the amount of inventory increases the customer service level typically

Goes Up

Pipeline (WIP) Stock

Goods in transit and in-between stages of production

What drives sustainable SCM

Government legislation Financial performance Environment Internal business process Customers

Environment

Greenhouse gas emissions Material Toxicity Raw Material Use Biodiversity Water Use and Wastewater Recycling

According to the case what is key to a mission?

Having it connected to goals that workers can be measured against on a daily basis

Why is it not necessarily a good thing when heroics are used to meet a customer need?

Heroics increases the cost and impacts manufacturing

Pull-Push Process

High Demand Uncertainty High Economies of Scale Demand is uncertain Scale economies are high

Pull-Pull Process

High Demand Uncertainty Low Economies Of Scale Customization is high Demand is Uncertain Scale economies are low

Rail:

High fixed costs High variable costs Not scheduled, built Cost effective for heavy shipments Must keep utilization high

What are backward looking metrics? What is an example of a backward looking metric at Avon.

Inventory days, for instance, are a good end-of-month measure, but they don't help in day-to-day operations.

What is not an important consideration for supply chain of a new innovative product?

Inventory holding cost

Reasons for small inventory

Inventory holding cost Cost of capital Storage and handling costs

Cycle Inventory

Inventory needed between orders or productions runs Depends on The lot size Varies directly with the cycle time (elapsed time) between orders.

Cycle Stock

Inventory resulting from batch (rather than unit) ordering or production.

From a risk perspective what is the motivation behind IKEAs investment in wind and solar power?

Isolation from power market volatility

What is Customer Service

It encompasses all points of contact between a supplier and a buyer. It is not sufficient to rely on internal customer service definitions Excellence requires a detailed understanding how customers themselves define service. Need to understand individual needs of each customer or customer group. Develop strategies to meet or exceed customer expectations.

A factor is considered important in location decisions if

It is sensitive to location It has a high impact on the company's ability to meet goals

Why do we care about forecasting?

It is the basis for strategic planning and operational planning

As the delay (Lag) time increases in the supply chain what is likely to happen to the bullwhip effect

It will get amplified

Which of the following is not inventory

Items in a customer's shopping cart

Delphi method is an example of a

Judgement method

Qualitative Methods

Judgment & experience. Weighted scoring method

Responsive supply chains are needed when

Markdowns and obsolescence are to be avoided

What are the functions of a supply chain?

Market mediation Physical function

supply chain aims to

Match Supply and Demand profitably for products and services

Raw Materials

Materials & parts waiting for processing and/or assembly

Dependent Demand

Materials, parts, and sub-assemblies used in end products Items traceable to specific end products Demand is dependent on the number of end items manufactured Dependent demand items are controlled using Materials Resource Planning (MRP) systems

Functional Product Supply chain goals

Maximize efficiency of supply chain Minimize physical costs High scale efficiencies Long range planning for supply Optimize Information flow through supply chain Source

Physically Efficient Product Design

Maximize performance and minimize cost

Innovative Supply Chain Goals

Maximize product availability Speed and flexibility is critical Where and how much inventory To position is critical Ability to react to market Availability of production capacity and ramp capabilities

What is a carrier trying to accomplish?

Maximize return on investments required to move the goods

Pull process characteristics

Maximize service level Low complexity Focus is responsiveness Short lead time Process is order fulfillment

Triple Bottom Line

Measure of sustainability that includes social, environmental, and financial performance measures Helps ensure there is a long term supply of people, natural resources, and profit People, planet, profit

High levels of inventory

Measured in days Unfulfilled demand based on wrong language on labels Often had to air ship bottles from Mexico

The standard error of the estimate

Measures how closely the data on the dependent variable cluster around the regression line

The sample coefficient of determination, r²

Measures the amount of variation in the dependent variable about its mean that is explained by the regression line

The sample correlation coefficient, r^2

Measures the direction and strength of the relationship between the independent variable and the dependent variable.

Location Pooling Idea

Merge many locations into fewer locations Consolidates dispersed demand streams into fewer demand streams Reduces the amount of inventory needed for a given service level Pools demand variability to reduce total demand variability

The optimal network design addresses all of the following areas

Minimal cost Meet desired service levels Satisfy product demand

Push process characteristics

Minimize cost High complexity Focus is resource allocation Long lead time Supply chain planning process

Make to Stock (MTS) Advantages

Minimize production and transport costs

Make to Order (MTO) advantages

Minimize supply and demand mismatch

How is Corporate Inversions Done

One way that a company can re- incorporate abroad is by having a foreign company buy its current operations.

Attributes of Exponential Smoothing

Only 2 values (Dt, Bt-1) required Compared with N values for moving average Smoothing parameter α(0 <α<1) determined empirically Rule of thumb: α < 0.5 (unless something has changed that requires you to use a higher number)

If you worked at Avon, would you include the person who loads the trucks in a product design discussion? Why?

Only the people who load the trucks everyday know these things

What are the advantages of the Dubbawalla self-managed democracy?

Operate efficiently, keep costs low,high service quality

What were the 4 pillars of the Dubbawalla system?

Organization, management, process, culture

Fundamental problem

Oscillating demand tends to get amplified as it goes further back in the supply chain

Loss of control

Outbound logistics 3PLs interact with a firm's customers.

Multi-periods & Stochastic demand

Overage is no longer a big deal Shortage is more serious

Ordering Set Up Costs

Parameter change goes down EOQ goes down Weeks of supply decreases and inventory turnover increases because the lot size decreases.

Holding Costs

Parameter change goes down EOQ goes up Larger lots are justified when holding costs decrease.

Demand in EOQ

Parameter change goes up EOQ goes up Increase in lot size is in proportion to the square root of D.

Work-in-process

Partially finished components & sub-assemblies

Carrier

Party that moves the product

Shipper

Party that requires movement

The triple bottom line refers to what three things

People Profit Planet

Management

Performance metrics Scorecards Supplier management process

What are the types of supply chains?

Physically efficient Responsive

Internal business process

Process efficiency leads to higher profits Reduction in energy use Reduction in material use Reduction in Waste Generation

Delphi method

Process of gaining consensus from a group of experts while maintaining their anonymity. Committee of expert opinion Useful when no historical data are available Can be used to develop long-range forecasts and technological forecasting

Push Process:

Procurement, Manufacturing and Replenishment cycles

For an innovative product the following is critical

Product availability Speed and flexibility

What kind of costs?

Production/ purchasing costs Inventory carrying costs, and facility costs (handling and fixed costs) Transportation costs

Shortage gaming

Proportional and Rational Scheme

Shortage gaming Countermeasure

Proportional rational scheme, based on past sales

Safety Stock Inventory

Protects against uncertainties in demand, lead time, and supply changes

Make to Order (MTO)

Pull Process Based on actual demand

Cross-Docking:

Sorting at intermediate warehouses or on outgoing shipments, based on their final destinations. The items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse or distribution center.

Elements of Strategic Sourcing

Sourcing Selection Management

Two Sides of Procurement

Sourcing Purchasing

Market Responsiveness Suppliers

Speed, flexibility and quality

Continuous/Periodic Review:

Stochastic Demand, lead time >0, Infinite horizon, shortages allowed services.

News Vendor

Stochastic demand, Single period Horizon, Shortages allowed services

Inventory management

Storage space limitations Usage rate variations Lead time considerations Variety of products Expiration dates

What characteristic does the Dubbawalla system share with companies like Toyota, Pixar, Mondragon?

Strong sense of community

A supply chain consists of

Supplier Manufacturer Transporters Warehouses Wholesaler Retailer Customer

Supplier Scoring and Assessment

Supplier performance should be compared on the basis of the supplier's impact on total cost

Material Lead Time:

Supplier to Retailer

❖Cooperative relationship between suppliers and retailers

Suppliers have better knowledge of lead times and production capacities Retailers have better knowledge of demands and channels

In a continuous replenishment strategy

Suppliers ship at agreed upon frequency

Product Proliferation

Technology/customer taste changes and globalization Increase in product variety Higher variation leading to demand uncertainty Difficulty in forecasting Complexity in manufacturing, supply chain, marketing, and distribution Lower customer service levels

Each functional area or process group has a routine sequence of tasks performed daily.

The ERP system collects information from business processes and aids decisions for all functional business areas. An ERP system connects businesses to customers and businesses to business

Factors in Location Decisions

The Factor must be sensitive to location The Factor must have a high impact on the Company's ability to meet its goals

Detection

The ability of the current control scheme to detect (then prevent) a given cause 1 = Easy to Detect, 10 = Not easy to Detect

Flexibility:

The ability to respond to change

In the 1980's, Avon Europe had branches in only 6 countries. What aspect of their setup would limit future growth in the region?

The company realized that replicating its countrybase supply chain model in every new market would be expensive and unwieldy.

Why did Avon decide to focus on its supply chain processes rather than the information systems

The company was determined that its supply chain transformation be process-driven, not systems-driven. The leadership team felt that doing both at once would be unmanageable.

Rectilinear distance

The distance between two points with a series of 90 degree turns, as along city blocks

having a foreign company buy its current operations.

The foreign company then owns the assets, the old corporation is dissolved, and the business while it remains the same in its daily operations is now effectively domiciled in a new country

In a quick response strategy

The inventory decision maker is the retailer

Periodic Review (P)

The inventory position is reviewed at fixed intervals (P) and the order is placed at the end of the review 1.The Lead Time is constant and known with certainty. 2.No constraints are placed on the size of each lot. 3.The only two relevant costs are the inventory holding cost and the fixed cost per lot for ordering or setup.

What does Tiffany's do to ensure chain of custody

The laser mark the diamonds above a certain size

EOQ refers to which of the following

The lot size that minimizes the total annual inventory ordering and holding costs

Economic Order Quantity

The lot size, Q, that minimizes total annual inventory holding and ordering costs

In addition to training what did Tiffany's do in Cambodia that differentiated them?

They calculated a fair living wage for local realities

How does the system regulate customer behavior?

They drop customers who are repeat offenders

Each functional area or process group has a routine sequence of tasks performed repeatedly.

This sequence of tasks or activities that takes a set of inputs and converts them into desired outputs is called a business process.

Why do companies engage in a corporate inversion?

To reduce US taxes paid on overseas earnings

Physical function

Transforming raw materials into finished goods and transportation between points in the supply chain

Vendor managed inventory

❖Supplier decides on the appropriate inventory levels and the appropriate inventory policies to maintain these levels. ❖Supplier suggestions initially approved by retailer

Rapid Response

❖Suppliers receive POS data from retailers ❖Suppliers use this information to synchronize their production but ship based on purchase orders received

continuous replenishment

❖Suppliers receive point-of-sale (POS) data from retailers ❖Suppliers use these data to make shipments at previously agreed-upon intervals to maintain inventory level

Three Types of Strategic Alliances

❖Third Party Logistics (3PL) ❖Retailer-Supplier Partnerships (RSP) ❖Distributor Integration (DI)

A decoupling point is where inventory is held for final product differentiation

True

An ERP System produces and shares real-time information across the enterprise

True

The moving average allows you to see the underlying trend by smoothing out the fluctuations

True

Corporate Inversion

U.S. based companies, move overseas to reduce the tax burden on income.

Achieving service excellence requires

Understanding how the customer defines service

Bullwhip Effect Video

Unexpected distortion of the supply chain Caused by repetitive variation in demand Negative affect on business performance: Inventory disruptions, quality control problems, diminished customer service.

Innovative product supply chains Primary Characteristic

Unpredictable or highly Variable Demand Lost sales are expensive

Anticipation Inventory

Used to absorb uneven rates of demand or supply when demand far exceeds the ability to produce at that time Predictable, seasonal demand patterns lend themselves well to the use of anticipation inventory

Private Ledgers

Users are NOT anonymous Permission is required to have a copy of the ledger and participation in verifying transactions

Public Ledgers

Users are anonymous Each has a copy of the ledger and participates by verifying transactions

Demand Management

Value creation via products, services Pricing and Promotion Strategies Minimizing bullwhip

Issues

Value of α(0 <α<1) determined empirically via trial and error Can't use it effectively far beyond the point where the known demand data ends

There are two basic types of costs a company incurs

Variable Costs & Fixed Costs

Risks of Third Party Sourcing

❖Underestimation of coordination costs ❖Loss of internal capability ❖Growth in vendor power ❖Loss of sensitive data & information ❖Supply disruptions

When to Conduct an FMEA

❖When new systems, products, and processes are being designed or redesigned ❖When carry-over designs are used in new applications ❖When improvement goals are planned for an existing process, product or service. ❖When analyzing failures of an existing process, product or service.

Sales and Operations Planning Process

❖ A integrated business process that drives collaboration, focus and alignment across multiple divisions and departments in a company

SC Challenges

❖ Order Changes and Cancellations ❖ Workers Unavailable ❖ Production Facility Failure ❖ Late Delivery of Materials ❖ Suppliers' Conflicting Obligations ❖ Adversarial Relationships: Win/Lose relationships ❖ Transactional Relationships: No value added ❖ Limited Communications

How is Sales and Operations Planning Process done

❖ Single environment for optimally synchronizing, demand, inventory, and supply plans .......While considering costs, revenue and profit objectives of organization

There are three primary ways to obtain bitcoins:

❖ buying on an exchange, ❖ accepting them for goods and services, and ❖ mining new ones.

Why Have Strategic Alliances?

❖Add value to products ❖Improve market access ❖Strengthen operations ❖Add technological strength

Focus on Core Strengths

❖Allows a company to focus on its core competencies ❖Logistics expertise left to 3PL logistics experts

FMEA Benefits

❖Allows us to identify areas of our process that most impact our customers ❖Helps us identify how our process is most likely to fail ❖Points to process failures that are most difficult to detect ❖Prioritizes what needs to be worked on and why ❖Can be used for products, processes and services

Push Strategies

❖Classical manufacturing supply chain strategy ❖Manufacturing forecasts are long-range ❖Longer response time to react to marketplace changes ❖Inventory obsolescence as demand for certain products disappears ❖Increased variability ❖Inefficient use of production facilities (factories)

Possible Scenarios

❖Constant Demand and Constant Lead Time ❖Variable Demand and Constant Lead Time ❖Variable Demand and Variable Lead time

Distributor Integration (DI)

❖Distributors and retailers formally share information ❖Distributors have wealth of information about customer needs and wants ❖Successful manufacturers use this information when developing new products and product lines. ❖Distributors typically rely on manufacturers to supply the necessary parts and expertise

Supply Chain Decisions

❖Facilities location ❖Transportation ❖Demand forecasting ❖Inventory management ❖Aggregate planning/Risk pooling ❖Sourcing

Acquisitions

❖Gives the acquiring firm full control over the way the particular business function is performed ❖Can be difficult and expensive. (Culture/Competitors)

Artificial Intelligence in SCM

❖Hard to plan for demand ❖Excessive safety stocks and bullwhip effect ❖Supplier unreliability ❖Transport network unpredictability ❖Demand by customers and partners for access to a "real person" (or a very good imitation) ❖Seeing the real bottom line impact of supply chain decisions

Increased variability (Bullwhip effect) leading to:

❖Large inventory safety stocks ❖Larger and more variably sized production batches ❖Unacceptable service levels

Overage is no longer a big deal

❖Leftover inventory can be used in the following periods (unlike that in the single-period case) ❖Cost of overage is holding cost ❖Possible economies of scale for fixed ordering cost

Use the EOQ

❖Make-to-stock strategy with relatively stable demand. ❖Carrying and setup costs are known and relatively stable

Strategic Alliances Characteristics

❖Multifaceted, goal-oriented, long-term partnerships ❖Agree to work in cooperation, not competition ❖Risks and rewards are shared by partners ❖Ideally provide long-term strategic benefits for both partners

When to Insource?

❖Organization has specialized capabilities ❖Has a cost and/or quality advantage ❖Protect proprietary knowledge ❖Assure sources of supply

Early stages of product assembly are done in a "push" manner

❖Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) ❖Uncertainty is reduced so safety stock inventory is lower

Pull Strategies

❖Production and distribution are demand-driven ❖Coordinated with true customer demand ❖None or little inventory held ❖Only in response to specific orders ❖Fast information flow mechanisms ❖POS data ❖Shorter lead times ❖Decreased variability in the supply chain and especially at manufacturers

Why do Companies Outsource?

❖Reduce costs ❖Proximity to users and markets ❖Focus on core value-add activities ❖Take advantage of specialized knowledge

Exponential Smoothing:

❖Stationary time series ❖Include all past observations ❖Weight recent observations much more heavily than very old observations