Supply Chain Exam 1

2 main reasons companies implement supply chains

1. achieve cost savings & 2. better coordinate resources

Fundamentals of Forecasting

1. your forecast is most likely wrong; 2. simple forecast methods trump complex; 3. a correct forecast does not prove your method was correct (chance); 4. if you don't use data regularly trust it less when forecasting; 5. all trend will eventually end; 6. hard to eliminate bias so most forecasts are biased; 7. technology is not solution to better forecasting - it is a TOOL

Qualitative Forecasting

Based on opinion & intuition; when data is limited/unavailable/not relevant - 5 qualitative models: personal insight, just of executive opinion, delphi method, sales force estimation, customer survey

Collaborative Planning, Forecasting & Replenishment

CPFR - business practice that combines intelligence of multiple trading partners who share plans/forecasts/delivery schedules w/ each other to ensure a smooth flow of goods & services across supply chain; can reduce Bullwhip Effect - real value of CPFR comes from sharing of forecasts among firms rather t han relying on algorithms/models

The most commonly used forecasting accuracy measures are mean absolute deviation (MAD), Mean Multiple Regression (MMR) & Mean absolute percentage error (MAPE)

FALSE - instead of MMR it's MSE - Mean Squared Error

Dependent demand items are generally forecasted based on market conditions and/or historical sales/usage data

FALSE - it is calculated, independent demand is forecasted

the four broad categories of inventory are raw materials, work-in-process, semi-finished goods & finished goods

FALSE - not semi finished but MRO (materials used in repairs & operating

SCOR: DELIVER

Logistics phase - oversees the planning/execution of the FORWARD FLOW OF GOODS & related info b/t various points in supply chain to meet customer requirements; coordinate receipt orders/network of warehouses/pick carriers/set up inv. system

SCOR Model: Make

Make/manufacturing is the series of operations performed to convert materials -> finished product; finished product is manufactured/tested/packaged/ scheduled for delivery; quality management - important aspect of manu process i.e. 6 Sigma; most metric-intensive portion of supply chain - companies able to measure quality levels /production output/worker productivity

Jury of the Executive Opinion

People who don't know most abt the marketplace would likely form management panel to discuss/determine forecast - conduct series of forecast meetings until reach agreement; enriched by experience of competent experts/don't need to spend time & resources collecting data by survey BUT experts may introduce bias/become biased by colleagues or strongly opinionated leader

Running Sum of Forecast Errors

RSFE - measure of forecast bias - indicates tendency of forecast to be consistently higher/lower than actual demand; positive RSFE -> forecasts generally too low & negative RSFE -> forecasts too high overestimating demand

SCOR: Return

Reverse Logistics - deals w/ planning & controlling process of moving goods from point of consumption -> point of origin for repair/reclaim/remanu/recycling/disposal; goes against normal outflow

Efficient Capability Model

SC & processes designed to minimize cost; predictable supple/low cost, high inventory turns, ideal for functional products - staples ppl don't buy everywhere/don't change overtime/stable predictable demand

Globalization

SC international, mature & emerging markets have become part of overall business growth strat, both breadth & depth of global ops

Value

SCM creates value by managing processes of all independent trading partners so they can collaborate w/ one another in an efficient, effective and cost conscious way

The foundational elements of supply chain are Integration, Supply Management, Logistics Management, and Operations Management

True

Chase Production Strat

adjusts capacity to match demand; MAKE-TO-ORDER

Supply Chain Links

all supply chain link are interconnected and a disruption w/ one will likely impact all - the chain is only as strong as its weakest link

Supply Chains

any organization offering product or service has one; can be very simple or complex; consists of suppliers -> manufactures -> customers .- flow of materials and products

Cause and Effect

assumes 1 or more factors (ind variables) predict future demand (i.e. seasons)

Time Series

based on assumption that future is an extension of past - historical data is used to predict future demand - most frequently used among all models

Today

companies are refocusing on their core competencies, outsourcing things not in core comps & using expertise of their trading partners; will continue to focus on building relationships/sustainability/corporate social responsibility/improving SC capabilities

New Paradigm

company in a supply chain focuses activities in it's area of specialization/enters into voluntary & trust-based relationships w/ supplier and customer firms - "outsourcing non-core comps"; all participants in supply chain benefit, boundaries are dynamic and extend end-to-end

Forecast Bias

consistent deviation from the mean in one direction (high or low) - bias exists when demand is consistently over/under forecast; negative result = actual demand less & positive = actual demand greater than forecast; should measure for forecast bias routinely and make corrections as needed

Inventory Turnover Ratio

cost of goods sold / avg. inventory value; the more turns the better - # of times an inventory cycles during year

Customer Survey

customers directly approached/asked to give opinions abt particular product; direct method of assessing info from primary sources / simple to administer and comprehend / does not introduce bias BUT poor questions = unreliable info, customers don't always answer & tie consuming & costly to survey large pop

Sustainability & "Greening" the SC

customers prefer products that are made/sourced in "the right way" minimizing business' social/economic/environmental impact on society & enhancing positive effects

Independent Demand

demand for an item UNRELATED to demand for other items/finished product/spare part/service part - demand for these is FORECASTED i.e. bicycle

Dependent Demand

demand fr an item directly related to other items/finished products/component or material used in making finished product - demand is CALCULATED i.e. seat, handle bar, wheels, pedals, etc.

Short-Range

detailed planning process for components and parts to support master production schedule (MRP): planner 1st line supervisor - 1,000 engines/1000 transmissions/seats/windows etc. each week over next 1-12 weeks

Forecasting

developed through data & judgement; a function of estimating future demand for products purchased/manufactured in appropriate quantities in advance of need; forecast - a estimate of future demand

Trading Partners

each has to PLAN, SOURCE, MAKE AND DELIVER their part of supply in order to satisfy underlying demand for said product/service - supply chain management facilitates that process

SCOR: Enable

facilitates a company's ability to manage the SC/spread throughout evert stage i.e. enable our capabilities as we plan/source/make/deliver/return; not a stage that occurs AFTER ALL others but rather DURING;

if you choose to pick your desired enterprise resource planning ERP apps from top vendor of each individual application -> you are using single integrator approach to selecting ERP

false - best-of-breed-> pick the best application for each individual function

the true value of CPFR comes from sophisticated forecasting algorithms rather than exchange of info b/t trading partners

false - comes from multiple partners sharing their plans / forecasts / delivery schedules w/ one another

In fixed-order quantity system, inventory levels only checked/reviewed in pre-determined time intervals & may require you to maintain higher levels of safety stock

false - continuous inventory review system

costs which cannot be traced directly to the volume of units being produced are known as variable costs

false - fixed costs

lowest inventory stock level at which a new replenishment order must be placed to avoid a stockout is known as the "break even" point

false - replenishment threshold

Tier 1 Suppliers/Customers

final suppliers before manu/first customer or wholesale distrib - important to identify them & customers - partners that you want to build relationship w/ share info with first

To Manufacturers:

finished product manufactures (internal/external)

Who benefits MOST?

firms w/ large inventories, large # of suppliers, complex products / large # of products, large purchasing budgets/expenditures

Dem & Volatility & Forecast Inaccuracy

firms will increasingly need to be more flexible & responsive to customer needs, adapting to unexpected changes & circumstances - closer integration and collab

Bullwhip Effect

flows up the supply chain from retailer - happens when supply chain participants second-guess what is happening with ordering patterns & potentially over-reacting and increasing need for safety stock due to lack of info about what is happening with the demand

Personal Insight

forecast based on insight of most experienced/knowledgeable/most senior person available - used usually if only option; fasted/cheapest technique & can provide good forecast BUT relies on one person's opinions/judgement and therefore their ignorance/prejudice & unreliability -> someone who is familiar w/ situation often provides worse forecast than someone who knows nothing

General Supply Chain Flow Diagram

information outflow (integrated from info/planning), product and service flow (connected by trans/storage), payment flow (inwards) and returns flow - just as important as outflow

Random Variations

instability in data caused by random occurrences - usually short-term & often caused by unpredictable events i.e. hurricane = wood for repairs / tree clean up / water damage

Business Process Reengineering

involves fundamental rethinking & radical redesign of business processes to achieve big org. improvements in critical measures of performance as cost/quality/service/speed

Forecasting and Demand Planning

key supply chain planning activities are derived from; goal is to minimize forecast error; factors that influence demand MUST be considered i.e. market changes/seasons/competitive activity/pricing/changing consumer prefs, etc.

Key Disadvantages of MRP

loss of visibility & ignoring shopping/capacity shop floor conditions

Integration

managing all the ENABLING systems necessary to facilitate the complete integration of the ops/ supply & logistics functions outlined above; enabling systems, SC risk & security mngmt, performance measurement, project mngmt

Just in Time

philosophy of manu based on planned elimination of all waste & continuous productivity improvement

Seasonal Variation

repeating pattern ofr demand year to year / over interval of time w/ higher periods of demand than others i.e. holiday shopping / swim suit sales / place tickets

Sales Force Estimation

same as Jury expect performed specifically w/ group of sales people; inds working in sales bring special expertise to forecasting b/c they maintain closest contact w/ customers; no additional coast to collect data - internal sales ppl & reliable forecast BUT not ideal for long-term / may introduce some bias/ salesperson might not be aware of economic environment

Naive Forecasting

sets the demand for next period to be exactly same as demand in last period - only works well for mature products

Intermediate Range

shows the quantity and timing of end items (MPS) : mid level - ford wants to make 1,000F-150 pickup trucks/week for next 3-18 months

Weighted Moving Average

similar to simple moving avg. EXCEPT NOT ALL HISTORICAL TIME PERIODS ARE VALUED EQUALLY - more accurate than simple but will still lag behind actual demand to degree

Closed Loop MRP

synchronizes purchasing or materials procurement plans w/ master production schedule; feeds back info abt completed manu & materials on hand into MRP system

single-period model

type of inventory system in which inventory is only ordered for one-time stocking

Bin System

uses either one or 2 bins to hold a quantity of the item being inventoried

Cyclical Variation

wavelike pattern that can extend over multiple years & cannot be easily predicted i.e. business cycle / GDP / China growth

To Customers:

wholesalers, distribs, retailers and consumers

Risk Management

Many companies have started shifting supply chain risks i.e. holding inventory/upstream to suppliers/shipping finished products to customers immediately after production - risks can only be effectively addressed by managing risk at each node in SC

1960's/1970's

Materials Requirements Planning (MRP) - method of determining what materials are needed & when to support production plan; Manufacturing Resource Planning (MRP II) - helps improve internal communications and ops; extend processes to include their own finance/marketing/sales/research & dev to bring all expertise into process

MAD

Mean Absolute Deviation - measures size of forecast error in units - average of absolute errors over specified period of time -> whether over/under actual demand does not matter in MAD - only magnitude of deviation

MAPE

Mean Absolute Percent Error - measures error in % terms - average of absolute/unsigned % error - easier for ppl to understand - useful variant of MAD calculation

MSE

Mean Squared Error - squares each error before adding them up & diving by # of forecast periods

Pull Business Model

Pull or Make-to-Order: producing stock in response to ACTUAL demands; adv: high levels of customer service through responsiveness/flexibilty to meet uncertain customer demand; dis: every order is basically a rush order - any issues will lead to customer dissatisfaction

Push Business Model

Push or Make-to-Stock: producing stock for anticipated demands; asdv: product is immediately available if good forecast/supply plan; dis: high inventories/long lead-times/dependency on forecasting/forecasting errors, shortages, additional costs, etc.

Responsive Capability Model

SC designed to respond quickly to market demand; minimal stock outs , need flexible capacity, inventory of parts, minimize lead time, variety of products for customers when they want to buy, ideal for innovative products - rapidly changing, short life-cycle products, unpredictable demand

Delphi Method

Same as jury EXCEPT input of each participants is collected separately so ppl are not influenced by one another - done in several rounds until consensus achieved; decisions are not product of groupthink/still enriched by experts BUT if external experts are used risk of loss of confidential info and very time consuming - best for long-term forecasts, companies must also spend time/resources collecting data by survey

SCOR: Source

Sourcing - process of identifying suppliers that provide materials/services needed for SC to deliver finished product desired by customers; involves identifying reliable suppliers & building strong relations w/ them

Logistics Management

managing all the movements & storage of products & materials w/in the supply chain whether flow is forward or reverse; warehousing/distrib, trans, internal trade mngmt, customer relationship mngmt - ensure deliveries/resolve complaints/determine service requirements/improve communication, service response logistics

Supply Management

managing all the supplies & suppliers needed to run business; purchasing management - procuring materials/supplies/services, strategic sourcing, supplier relationship management

1980's/1990's/2000's

companies started looking beyond themselves and incorporate their supply chain partners into planning activities - external collab; Just in Time, Total Quality Management& Business Process Reengineering

Old Paradigm

company gained synergy as a vertically integrated firm encompassing the ownership/coord of several supply chain activities - cultures emphasized short-term, company focused perfomance FOR FINANCIAL BENEFIT

Operations Management

managing internal resources; forecast/demand planning - match demand to available capacity, planning systems - linking supply to demand & via MRP & ERP systems, inventory management, process management - using LEAN manu & 6 sigma

Supply Chain Planning

how to satisfy the requirements created by the demand plan; to balance supply & demand in way that realizes financial/service objectives of company - op managers try & balance capacity and output; combo of APP / MPS / MRP / DRP & capacity planning; usually hierarchical & has 3 categories

Linear Trend Forecasting

imposing a best fit line across demand data of time series - extend line past existing data & into future while maintaining slope - can provide accurate forecast even if random variation but seasonal/cyclical variations are softened

Goals of SCM

increase customer service WHILE reducing inventory investment and operating expenses (i.e. cost) - hard to do since can be in conflict w/ one another; 2 MAIN reasons companies implement SCM - 1. Achieve cost savings & 2. better coordinate resources

Tracking Signal

indicates if bias is present, determines if forecast is within acceptable control limits - if falls outside pre-set control limits there is a bias issue & provides a warning

Demand & planning

management/experts review forecast to ensure alignment w/ company's strat/ business policies/ knowledge & make needed changes; process of combing statistical forecasting techniques and judgement to construct demand estimates fr products/services; demand - need for a particular product or component; comes from customer order/forecast/manu of another product

1950's/1960's

manufacturers were internally focused on maximizing own internal ops; focus was on cost reduction as principle & productivity improvement strats

Products and Services are created from:

materials, equipment, labor, time, money, and other resources

Quantitative Forecasting

math formulas & historical data

Total Quality Management

mngmt approach to long-term success through customer satisfaction based on participation of all members of an org in improving processes/goods/services and work culture

Trend Variation

movement of variable over time; i.e. laptops / cellphones / fashion / toys); simple linear regression & multiple linear regression: model relationship b/t 2 or more independent variables & demand - use historical relationship b/t ind and dependent variable to predict future values of the dependent variable (demand)

SCOR Plan

planning est. SC operating parameters within which the SC will operate; companies need strat for managing all necessary resources to address how product/service will be created & delivered to meet the needs of customers; planning includes marketing/distrib channels, promotions, quantities, timing inventory/replen policies and production policies

Long-Range

planning for actions like construction of facilities/major equipment purchase (APP): exec level: ford wants to grow market share by 5% over next 1-3 years

Forecast Error Measurement

plays critical role in tracking forecast accuracy - monitoring for exceptions/bench marking forecasting process; forecast error - difference b/t actual demand and forecast demand - can be absolute value or percentage

From Suppliers:

raw materials, intermediate, and/or finished material suppliers - multiple tiers of suppliers

SC Cost Optimization

reducing purchasing costs/waste/excess inventory/non-value added activities; improving demand planning- increase outsourcing of non-core comps

SCM

refers to NETWORK OF INDEPENDENT COMPANIES working together to deliver product/services to market for benefit of all companies within network; includes all traditional logistics AND marketing/new product development/finance/customer service

Logistics

refers to activities that occur w/in SINGLE ORGANIZATION & focus on activities such as inventory management/warehousing/distrib/trans

Level Production Strat

relies on constant output rate while varying INVENTORY and backlog according to fluctuating demand - MAKE-TO-STOCK

Forecasting cont.

statistically will be inaccurate but it is still useful - basis for most "downstream" supply chain decisions; good forecasting -> benefit company through more effective planning/reduced inventories, costs, stockouts & better customer service; bad -> root cause for creating the opposite; the further into the future = greater deviation in forecast

End-to-End SCM

supply chains described as spanning from end-to-end i.e. from suppliers - suppliers on one end thru internal ops -> out to customers - customers on other end; most supply chains are enabled thru various processes/technologies; all follow basic model: PLAN -> SOURCE -> MAKE -> DELIVER

Supply Chain Management

the coordination of a network of otherwise independent trading partners creating a desired product or service & moving it from suppliers -> manu -> out to customers WHERE and WHEN they want it 1. starts w/ understanding of the flow 2. integrates all partners within the chain 3. conducted through defined processes

Service Firms

they offer INTANGIBLE PRODUCTS - cannot be physically touched; what customers are paying for in service industry is the LABOR and INTELLECTUAL PROPERTY of the service provider - people's intelligence used to deliver programs; customers much more directly involved in deliver of services than physical product - service is not tangible but frequently involves work on TANGIBLE item owned by customer i.e. car repairs / dry cleaning; generally cannot be produced in advance or inventoried, typically PRODUCED AND CONSUMED SIMULTANEOUSLY - service cannot start until customer arrives and actively participates; many services require use of FACILITATING goods - tangible elements used along w/ service provided (restaurant -> chairs / food/ tables/ etc.)

A Forecast is an estimate of future demand and provides the basis for supply planning decisions

true

ERP - allows supply chain members to share info so that scarce resources can be fully utilizied to meet demand while minimizing chain inventories

true

Intense global competition that led manus to adopt SCM and other practices i.e. Just-In-Time

true

Simple Moving Average - time series forecasting model which works well when the actual demand is either trending up or down over long period of time

true

demand trends were very significant and should be emphasized in forecasting calculation for upcoming demand period

use WEIGHTED MOVING AVERAGE

Simple Moving Average

uses calculated average of historical demand during specified # of most recent time periods to create forecast; provides consistent demand over long periods of time but fails to identify trends/seasonal effects