Supply Chain Exam 1
Supply Chain Cost Optimization (trends in SCM)
Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non-core competencies.
Level Production Strategy (basic production strategies)
Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for make-to-stock firms - Plywood, steel, light bulbs, razors are examples. Maybe the changeover is long, or its inefficient to stop/ start.
Seasonal Variations
Repeating pattern of demand from year to year, or over some other time interval, with some periods of considerably higher demand than others (e.g., holiday shopping, restaurant customers, swim suits sales by region, building construction slowing in winter by region)
Delphi Method
Same as the Jury of Executive Opinion except input of each of the participants collected separately so people are not influenced by one another. - This is done in several rounds until a consensus forecast is achieved. *Advantages:* - Decisions are enriched by the experience of competent experts. - Decisions are not likely a product of group-think. - Very useful for new products *Disadvantages:* - Experts may introduce some bias. - Companies must spend time & resources collecting data by survey. - If external experts are used there is a risk of loss of confidential information. - The Delphi Method can be time-consuming and is therefore best for long-term forecasts.
Independent Demand (Single Level Bill of Materials)
The *external demand for an item that is unrelated to the demand for other items* (e.g., finished product). The demand for these items is forecasted and can be affected by trends, seasonal patterns, and market conditions.
Time Series
The main purpose of a time series model is to collect and study past data of a given time series in order to generate probable future values for the series. - In other words, forecasts for future demand rely on understanding past demand. - Accordingly, time series forecasting can be characterized as the act of predicting the future by understanding the past
Net Requirement (terms used in MRP)
The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.
Supply options (APP)
*Change inventory levels* - Increase inventories - build stock in advance of demand WHY to use available capacity - Decrease inventories - temporarily reduce inventory below normal safety stock levels during peak demand periods to meet customer requirements. *Change capacity:* - Vary production output through overtime or idle time - Vary work force size by hiring or layoff - Using part-time workers - Subcontracting
Demand options (APP)
*Influencing demand* - in alignment with available production capacity: - Advertising - Promotional plans - Pricing *Backordering during high demand periods* - accept demand greater than supply capabilities. *Counter-seasonal product mixing* - Develop a product mix with antithetic (seasonal) trends that level the required production capacity
manufacturing resource planning (MRP II)
- A system that creates detail production schedules using realtime data. - Coordinates arrival of materials with availability of machine and labor. - MRP II is used by itself, also as a module of more extensive enterprise resource planning (ERP) systems.
return (SCOR model)
- Also known as *Reverse Logistics*, this is the part of supply chain management that deals with planning and controlling the process of moving goods specifically from the point of consumption back to the point of origin for repair, reclamation, remanufacture, recycling, or disposal. - As this process quite literally goes against the normal outbound flow of products to the market, supply chain managers have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have questions and problems
deliver (SCOR model)
- Also known as the Logistics phase, this is the part of supply chain management that oversees the planning and execution of the forward flow of goods and related information between various points in the supply chain to meet customer requirements. - Where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to transport products to customers, and set up an invoicing system to receive payments, among other aspects.
enable (SCOR model)
- An additional aspect of the model is referred to as "Enable." - Enabling processes facilitate a company's ability to manage the supply chain and are spread throughout every stage. - In other words, we want to enable our capabilities as we plan, source, make, and deliver (and return). - This is not a stage that occurs sequentially after all of the others. - Enabling processes include elements such as - Supply Chain Systems and Network Operations - Systems Configuration Control - Interfaces - Gateways - Database Administration - Electronic Data Interchange (EDI) - Telecommunications Services - Performance Measurement - Contract Management - Business Rules - Standards - Training and Education
enterprise requirement planning (ERP)
- ERP an extension of MRPII and includes DRP which determines replenish needs of product inventory at branch warehouses, when there are multiple warehouses in the network. - It is typically implemented through a software platform of integrated functional modules facilitating the sharing of real-time information and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively.
Aggregate Production Plan (APP)
- Hierarchical planning process that translates annual business, marketing plans, and demand forecasts into a production plan for a product family* in a plant or facility. - The planning horizon of APP is at least one year and is usually rolled forward by three months every quarter. - Includes those costs relevant to aggregate planning decisions: inventory, setup, machine operation, hiring, firing, training, and overtime costs.
Goal of SCM
- Increase Customer Service - Reducing both: - Inventory Investment and - Operating Expenses (i.e., costs)
Time Fencing
- MPS is the plan that drives the business. Even small changes in the MPS can cause major changes in the detailed production schedule and the material plan, creating nervousness and instability throughout the organization - To minimize the impact of changes in the MPS, many companies have adopted a time fencing policy separating the planning horizon into a firmed time period and a planned time period:
make (SCOR model)
- Make or manufacturing is the series of operations performed to convert materials into a finished product. - Finished product is manufactured, tested, packaged, and scheduled for delivery. - Quality management is an important aspect of the manufacturing process. - This is the most metric-intensive portion of the supply chain, where companies are able to measure quality levels, production output, and worker productivity.
plan (SCOR model)
- Planning establishes the parameters within which the supply chain will operate. - Companies need a strategy for managing all of the resources necessary to address how a product or service will be created and delivered to meet the needs of their customers. - Planning includes the determination of marketing and distribution channels, promotions, quantities, timing, inventory and replenishment policies, and production policies.
supply chain management
- Refers to a network of independent companies that work together and coordinate their actions to deliver a product(s) or service(s) to market for the benefit of all companies in the network (i.e., collaboration and coordination). - Acknowledges all of traditional logistics activities and also includes aspects of activities such as: - Marketing - New Product Development - Finance - Customer Service (order-to-cash process)
Logistics
- Refers to activities that occur within the purview of a single organization. - Traditional logistics focuses on activities such as: - Inventory Management - Warehousing (material handling and storage) - Distribution (order fulfillment, pick, pack & ship) - Transportation
source (SCOR model)
- Sourcing is the process of identifying the suppliers that provide the materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s). - This phase involves not only identifying reliable suppliers but also building a strong relationship with those suppliers. - Supply chain managers must also develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance
End-to-End Supply Chain Management
- Supply chains are generally described as spanning from end-to-end, i.e., from your suppliers-suppliers on one end, through your internal operations, and out to your customers-customers on the other end. - All supply chains follow the basic model: {plan->source->make->deliver} {------------enable------------}
closed loop MRP
- Synchronizes purchasing and procurement plans with the master production schedule. - The system feeds back information about manufacture and materials on hand to the MRP system, WHY so plans can be adjusted according to capacity and other requirements. - The system is a closed loop MRP because of its feedback feature. =
two reasons firms implement SCM
- achieve cost savings - better coordinate resources
fundamentals of forecasting
1. your forecast is likely wrong - adapt to changing conditions - be open to change 2. simple forecast methodologies trump complex ones - complex forecasts hide key assumptions built into the model - simple models are easier to understand and analyze 3. a correct forecast does not prove your forecast method is correct 4. don't trust infrequently used data 5. all trends will eventually end 6. most forecasts are biased 7. technology is not the solution - good forecasting comes from sound logic, not tech
Scheduled Receipt (terms used in MRP)
A committed order awaiting delivery for a specific period.
Old paradigm.
A company gained synergy as a vertically integrated firm encompassing the ownership and coordination of several supply chain activities. - Organizational cultures emphasized short-term, company focused performance
New paradigm
A company in a supply chain focuses activities in its' area of specialization and enters into voluntary and trust-based relationships with supplier and customer firms. "Outsourcing non-core competencies" - All participants in the supply chain benefit. - Boundaries are dynamic and extend from "the firm's suppliers' suppliers to its customers' customers (i.e., "end-to-end") - Supply chains also deal with reverse logistics to handle product returns, warranty repairs, and recycling.
Material Requirements Planning (MRP)
A computer-based materials management system that calculates the exact quantities, need dates, and planned order releases for subassemblies, component parts and materials required to manufacture a final product. MRP requires: 1. The independent demand information, i.e., finished product forecast 2. Parent-component relationships from BOM 3. Inventory status of final product and each of the components and materials. 4. Planned order releases (output of MRP) *Advantage of MRP* - provides planning information *Disadvantage of MRP - loss of visibility* (especially acute for products with a deep BOM), ignores capacity and ignores shop floor conditions.
Master Production Schedule (MPS)
A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period. - More detailed than APP and easier to plan under stable demand. - Planning horizon is shorter than APP, but longer than the lead time to produce the item.
Multilevel Bill of Materials (BOM)
A display of all the *components directly or indirectly used in a parent,* together with the quantity required of each component (i.e., the planning factor). If a component is a subassembly, blend, intermediate, etc., all its components and all their components also will be exhibited, down to purchased parts and raw materials
Firmed Planned Order (terms used in MRP)
A planned order that can be frozen in quantity and time so that the MRP computer logic cannot automatically change when conditions change. Established by the Planner or Supply Chain Manager to prevent system nervousness. This can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders.
Sales & Operations Planning (S&OP)
A process that brings all the demand and supply plans for the business (sales, marketing, development, production, sourcing, and finance) together to provide management with the ability to strategically direct the business to achieve a competitive advantage - It is the definitive statement of the company's plans for the near to intermediate term, covering a horizon sufficient to plan for resources, and to support the annual business planning process. - It links the strategic plans for the business with its execution. - It is performed at least once a month and is reviewed by management at an aggregate (product family) level.
Integration
Managing all of the enabling systems necessary to facilitate the complete integration of the operations, supply, and logistics functions outlined above - Enabling Systems - Supply Chain Risk and Security Management - Performance Measurement - Project Management
Tracking Signal
A simple indicator that forecast bias is present. Determines if the forecast is within acceptable control limits and provides a warning when there are significant unexpected departures from the forecast. - If the tracking signal falls outside the pre-set control limits, there is a bias problem with the forecasting method and an evaluation of the way forecasts are generated is warranted. - Think of a smoke detector. It is preset to allow for a certain range of smoke, but beyond that range the alarm (tracking signal) goes off and warns you. Tracking Signal = RSFE/MAD
Planned Order Release (terms used in MRP)
A specific order for a specific item and quantity to be released to the shop or to the supplier.
Gross Requirement (terms used in MRP)
A time-phased requirement prior to netting out on-hand inventory and lead-time
Supply management
Managing all of the supplies and suppliers that are needed to run the business - Purchasing Management - Strategic Sourcing - Supplier Relationship Management
Chase Production Strategy (basic production strategies)
Adjusts capacity to match demand. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant. Works well for make-to-order firms - Airplane companies do this since training takes time. Union employees are sent back to the union hall, waiting to be recalled. They collect unemployment. Another example are workers that harvest crops.
Planning Bill of Materials (BOM)
An artificial grouping of items (e.g., a product family) in BOM format, used to facilitate master scheduling and material planning.
Available-to-Promise (ATP)
Business function that provides a response to customer order inquiries, based on resource availability. It generates available quantities of the requested product, and delivery due dates. It represents "the uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer order promising Methods of calculating the Available-to-Promise quantities: 1. Discrete Available-to-Promise = (on hand + supply - ordered) per period 2. Cumulative Available-to-Promise
Simple Moving Average (time series)
Calculated average of historical demand during a specified number of the most recent time periods to generate the forecast. *Advantage:* Provides a very consistent demand over long periods of time and smooths out random variations. *Disadvantage:* Fails to identify trends or seasonal effects. It will also create shortages when demand is increasing because it lags behind actual demand.
Customer Survey
Customers are directly approached and asked to give their opinions about the particular product. - Customer surveys can be done in person, over a phone, by mail, email, or online. *Advantages:* - It is a direct method of assessing information from the primary sources. - Simple to administer and comprehend. - It does not introduce any bias or value judgment particularly in the census method if the questions are constructed carefully. *Disadvantages:* - Poorly formed questions may lead to unreliable information. - Customers do not always answer the questionnaire. - It is time consuming and costly to survey a large population.
Sustainability and "Greening" the Supply Chain (trends in SCM)
Customers increasingly prefer products that are made and sourced in 'the right way'; minimizing business' social, economic and environmental impact on society and enhancing positive effects. 75% of U.S. consumers say their buying preferences are influenced by a firm's environmental reputation.
Demand Volatility and Forecast Inaccuracy (trends in SCM)
Firms will increasingly need to be more flexible and responsive to customer needs, adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration
Single Level Bill of Materials (BOM)
Display of components that are *directly used in a parent item,* together with the quantity required of each component (i.e., the planning factor). Shows only the relationships one level down
Who benefits from SCM
Firms with: - Large inventories - Large number of suppliers - Complex products and/or large number of products - Large purchasing budgets / expenditures NOTE: That is NOT to say that smaller companies don't benefit from supply chain management as well, just that larger companies with more suppliers and more complex product portfolios generally benefit more.
Globalization (trends in SCM)
Expanding the Supply Chain. International, mature and emerging markets have become a part of the overall business growth strategy for many companies. Both breadth and depth of global operations.
Warehouse
Facility that allows a company to store materials and finished products
Firmed Time Period (time fencing)
From the current date out several weeks into future. - A *Firm Time Fence* is established at the outer limit of this period to signify when changes can no longer be made automatically by the planning system. - Recommended changes must be reviewed and approved by the Master Production Scheduler or an authorized person(s).
Planned Time Period (time fencing)
From the end of the Firmed Time Period to the end of the planning horizon. - The planning system is free to create or make changes to planned orders in this time period based on the data and planning logic determined by the company.
Warehousing
Function that allows a company to receive, store, withdraw, package, and ship items to a manufacturing location, or finished products to a customer
Random Variations
Instability in the data caused by random occurrences. These random changes are generally very short-term, and can be caused by unexpected or unpredictable events such as weather emergencies, natural disasters, etc. (e.g., hurricane = wood for roof repair, tree clean up, water damage)
Logistics Management
Managing all of the movement and storage of products and materials within the supply chain, whether the flow is forward or reverse - Warehousing & Distribution - Transportation - International Trade Management - Customer Relationship Management - Service Response Logistics
supply chain planning
Its objective is to balance supply and demand in a way that realizes the financial and service objectives of the company. - Operations managers are continuously involved in planning operations and resources to balance capacity and output.
Mixed Production Strategy (basic production strategies)
Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand. - Construction co., retail stores at holiday season.
Risk Management (trends in SCM)
Many companies have started shifting supply chain risks such as holding inventory, upstream to their suppliers, and shipping finished products to customers immediately after production. Supply chain risks can only be effectively mitigated by managing risk at each node in the supply chain.
Trend Variations
Movement of a variable over time. Might be more easily observed by plotting actual demand on a graph over time to see whether there is an increase or decrease. (e.g., laptops, cell phones, fashion products, toys)
Jury of Executive Opinion
People who know the most about the product and the marketplace would likely form a jury (i.e., management panel) to discuss and determine the forecast. - Generally, the panel conducts a series of forecasting meetings to discuss the forecast until the panel reaches a consensus agreement. *Advantages:* - Decisions are enriched by the experience of competent experts. - Companies don't have to spend time and resources collecting data by survey. *Disadvantages:* - Experts may introduce some bias. - Experts may become biased by their colleagues or a strongly opinionated leader.
purpose and goals (APP)
Primary purpose is to *establish production rates* that will achieve management's objective of satisfying customer demand by *maintaining, raising, or lowering inventories,* while attempting to keep the *workforce relatively stable* - Meet demand - Use capacity efficiently - Meet inventory policy - Minimize cost: - Labor - Inventory - Plant and Equipment - Subcontract
Pull or Make-to-Order
Producing stock in response to actual demand *Advantages:* High levels of customer service through responsiveness and flexibility to meet uncertain customer demand. - Pull models have short lead times, reduce dependency on forecasting, use short and flexible production runs, store very low inventories, reduce waste, provide opportunities for customization, and improve cash flow. *Disadvantages:* Every order is basically a rush order, and any problems will lead to customer dissatisfaction. - Pull models are highly dependent on customer relationship. They have a reduced ability to take advantage of economies of scale. Fast, responsive, flexible, robust and integrated systems and processes are a must for this model to work. Resource issues will have a significant and immediate impact on throughput and customer satisfaction.
Push or Make-to-Stock:
Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. *Advantages:* If the manufacturer creates a good forecast and supply plan, the product is immediately available to ship to the customer on demand from the existing finished product inventory in the warehouse. - Manufacturers also have the opportunity to plan resources better or with more flexibility, and can maximize the utilization of resources at the lowest cost. *Disadvantages:* High inventories (and capital tied up in inventory), long lead-times, dependency on forecasting, forecasting error creates non-value adding time, inefficiencies, obsolescence, shortages, and additional cost.
Projected On-Hand Inventory (terms used in MRP)
Projected closing inventory at end of a period. Beginning inventory minus gross requirements, plus scheduled receipts plus planned receipts from planned order releases.
Sales Force Estimation
Same as the Jury of Executive Opinion except it is performed specifically with a group of sales people. - Individuals in the sales function bring expertise to forecasting because they maintain closest contact with customers. *Advantages:* - No additional cost to collect data because internal sales people are used. - More reliable forecast as it is based on the opinions of salespersons in direct contact with the customer. *Disadvantages:* - Not ideal for long term forecasting - Salespersons may introduce some bias. - Salespersons may not be aware of the economic environment.
Naive Forecasting (time series)
Sets demand for next time period to be exactly the same as demand in last time period. *Advantages:* Works well for mature products and is very easy to determine. *Disadvantages:* Works for mature products only. Any variations in demand will create inventory issues.
Intermediate-Range
Shows the quantity and timing of end items (ref., Master Production Schedule - MPS) - Mid-level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months.
Cause and Effect
Two basic cause-and-effect models: - Simple Linear Regression - Multiple Linear Regression Regression uses historical relationship between an independent and a dependent variable to predict the future values of the dependent variable, i.e., demand
Time Bucket (terms used in MRP)
Unit of time / time period used in MRP, e.g., days, weeks, months
Collaborative Planning, Forecasting, and Replenishment (CPFR)
a business practice combining intelligence of multiple trading partners who share plans, forecasts, and delivery schedules with one another to ensure a smooth flow of goods and services across a supply chain - Better customer service - Lower inventory costs - Improved quality - Reduced cycle time - Better production methods
Forecast Bias
a consistent deviation from the mean in one direction; either high or low. - In other words, bias exists when the demand is consistently over- or under-forecast. A good forecast is not biased. ∑ Forecast Error = ∑ Actual Demand - ∑ Forecast Demand In the formula above, if the sum of the forecast error is not zero, there is bias in the forecast. - A negative result shows that actual demand was consistently less than the forecast - A positive result shows that actual demand was greater than forecast demand
Total Quality Management
a management approach to long-term success through customer satisfaction based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. Everyone in the organization has to take ownership for quality.
Material Requirements Planning (MRP)
a method of determining what materials are needed and when they are needed to support the production plan.
Just-in-Time
a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement.
Business Process Reengineering
a procedure that involves the fundamental rethinking and radical redesign of business processes to achieve dramatic organizational improvements in such critical measures of performance as cost, quality, service, and speed.
Cyclical Variations
a wavelike pattern that can extend over multiple years, and therefore, cannot be easily predicted. (e.g., business cycle, China growth, GDP, bull or bear markets)
Simple Linear Regression
attempts to model relationship between a single independent variable and a dependent variable (demand) by fitting a linear equation to the observed data. The equation describes the relationship between the independent variable and dependent variable as a straight line.
Multiple Linear Regression
attempts to model the relationship between two or more independent variables and a dependent variable (demand) by fitting a linear equation to the observed data. Depending on the data and the number of independent variables, the mathematics involved can be complex.
Short-Range
detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning - MRP) - Planner, 1st line Supervisor - 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.
Bill of Materials (BOM)
document that shows an inclusive listing of all component parts and assemblies making up the final product.
Forecasting
estimating demand for products for purchase or manufacture in appropriate quantities before needed. 1. Statistically speaking, the forecast will be inaccurate ("wrong"). Although it is still useful. 2. The forecast is the basis for most "downstream" supply chain planning decisions. - *Good* forecasting can benefit a company by more effective planning, leading to reduced inventories, costs, stock outs, and improved customer service. - *Bad* forecasting can be the root cause for creating just the opposite. A familiar statement, for forecasting: "garbage in = garbage out." If a forecast is bad, everything else based on that forecast will also be bad.
personal insight (qualitative forecasting)
forecast based on insight of the most experienced, most knowledgeable, or most senior person available. - Sometimes, this approach the only option, but methods including more people are more reliable. *Advantages:* - It is the fastest and cheapest forecasting technique. - It can provide a good forecast. *Disadvantages:* - It relies on one person's judgement and opinions, but also on their prejudices and ignorance. - The major weakness is unreliability; someone who is familiar with the situation often provides a worse forecast than someone who knows nothing.
Manufacturing Resource Planning (MRP II)
helps to improve internal communication and operations. - Manufacturers extended their processes to include their own finance, marketing, sales, research and development, etc. functions to bring all their expertise into the process.
Linear Trend Forecasting (time series)
imposing a best fit line across the demand data of an entire time series. Used as the basis for forecasting future values by extending the line past the existing data and out into the future while maintaining the slope of the line. *Advantage:* can provide an accurate forecast into the future even if there is random variation. *Disadvantage:* seasonal and cyclical variations are softened, making this method more useful for annual forecasts than for monthly forecasts.
Long-Range
involves planning for actions such as the construction of facilities and major equipment purchase (ref., Aggregate Production Plan - APP) . - Executive level - Ford Motor Company wants to grow the market by 3% (1 - 3 years)
Exponential Smoothing (time series)
is a more sophisticated version of the weighted moving average. Requires 3 basic elements: last period's forecast, last period's actual demand, and a smoothing factor, which is a number greater than 0 and less than 1 (used as a weighting percentage). *Advantage:* Exponential smoothing will create a forecast more responsive to trends than previous methods. *Disadvantage:* Exponential smoothing will still lag behind trends, especially upward trends since the smoothing factor would need to be greater than 1.0 to approach an accurate forecast. The smoothing constant is not a given. It has to be determined based on the best judgment of a company's experts.
Mean Squared Error (MSE)
magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods. - Squaring errors effectively makes them absolute since multiplying two negative numbers results in a positive number. MSE = ∑ (A-F) ² / n Where: A = Actual demand F = Forecast demand n = Number of time periods
Operations Management
managing internal resources - Forecasting and Demand Planning - Planning Systems - Inventory Management - Process Management
Mean Absolute Percent Error (MAPE)
measures size of the error in percentage terms. - Companies use MAPE, it is easier to understand forecast error and accuracy in percentage terms rather than in actual units. - MAPE is a useful variant of the MAD calculation because it shows the ratio, or percentage, of the absolute errors to the actual demand for a given number of periods. MAPE = ∑ ((|A - F|)/ A) / n (expressed as a percentage) Where: A = Actual demand F = Forecast demand n = Number of time periods
Mean Absolute Deviation (MAD)
measures the size of the forecast error in units. It is calculated as the average of the unsigned, i.e., absolute, errors over a specified period of time. - Absolute errors for a series of time periods are added and then divided by the number of time periods. The resulting value is the MAD measure of forecast inaccuracy. - Whether the forecast is over or under the actual demand is irrelevant; only the magnitude of the deviation matters in the MAD calculation. MAD = ∑(|A - F|) / n Where: A = Actual demand F = Forecast demand n = Number of time periods
service supply chain
much more about managing the relationships between the trading partners than it is about managing the chain of supply
Error measurement
plays a critical role in tracking forecast accuracy, monitoring for exceptions, and benchmarking the forecasting process. - Interpretation of statistics can be tricky, particularly when working with low-volume data or when trying to assess accuracy across multiple items.
Running Sum of Forecast Errors (RSFE)
provides a measure of forecast bias. RSFE indicates the tendency of a forecast to be consistently higher or lower than actual demand. - A *positive* RSFE indicates that the forecasts were generally too low, underestimating the demand. - In this situation, stock-outs are likely to occur as companies are unable to meet customers' actual demand. - A *negative* RSFE indicates that the forecasts were generally too high, overestimating demand. - In this situation, excess inventory and higher carrying costs are likely to occur. RSFE = ∑ et Where: et = forecast error for period t
business planning
provides the company's direction and objectives for the next two to ten years. - Management gathers input from the various organizational functions such as finance, marketing, operations, and engineering, to develop the Business Plan. - The plan states the company's objectives for profitability, growth rate, and return on investment - It is then typically updated and reevaluated annually. - It is also typically used as the starting point for developing the organization's Production Plan or Aggregate Production Plan.
carrier
refers to the company that transports the goods
mode
refers to the way in which goods are transported
Weighted Moving Average (time series)
similar to a simple moving average except not all historical time periods are valued equally *Advantage:* More accurate than a simple moving average if actual demand is increasing or decreasing. *Disadvantage:* Though better than a simple moving average, this technique will still lag behind actual demand to some degree. The challenging part of using a weighted moving average is deciding on the weight for each time period.
Dependent Demand (Single Level Bill of Materials)
the *internal demand for items that are assembled or combined to make up the final product* (e.g., component parts). Demand for these items is calculated based on the demand of the final product in which the parts are used, by using the planning factor.
Forecast Error
the difference between the actual demand and the forecast demand. The error can be quantified as an absolute value or as a percentage. Since forecasts are inaccurate, track the forecast against actual demand and measure the size and type of the forecast error. - The size of the forecast error can be measured in units or percentages.
intermodal
using a combination of the other modes of transportation for a single shipment (i.e. using planes and trains)
