Supply Chain Exam 1 McLaury

SC Cost Optimization (CH. 1)

Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non core competencies

Value of Supply Chain Management (CH. 1)

SCM creates Value by managing processes of all of those independent trading partners so that they can collaborate with one another in an efficient, effective, and cost conscious way.

Qualitative Forecasting - Delphi Method (CH. 2)

Same as Jury of Exec. except input is collected separately so there are no influences on other opinions. Advantages: Decisions enriched by competent experts; No Groupthink; Useful for new products Disadvantages: Bias; time/resources on surveys; risk of loss of confidential info if external expert is used; time-consuming so is best for long-term forecasting

Qualitative Forecasting - Sales Force Estimation (CH. 2)

Same as Jury of Exec. except performed with a group of sales people. Advantages: No additional cost to collect; More reliable forecast as it is based on opinions of salespersons direct contact w. customer Disadvantages: Not good for long term forecasting; Salesperson may add bias; salesperson may not be aware of econ. environment

End-to-End SCM (CH. 1)

Supply chains are generally described as spanning from end-to-end, i.e., from suppliers-suppliers on one end, through your internal operations, and out to you customers-customers on the other end

Supply Chain Tiers (CH. 1)

Tier 1 is the most important. -Known as Direct Supplier/Customer Manufacturer acts as the "middle-man" and the supplier/customer closest to them is tier 1. -Suppliers and Customers can be both tier 1 and tier 2

Quantitative Forecasting Techniques (CH. 2)

Time Series: Based on assumption that the future is extension of the past. Historical data is used to predict future demand (Most used) Cause and Effect: Assumes one or more factors predict future demand Generally recommended to use combo of quant. and qual. techniques

Logistics Management Elements (CH. 1)

Transportation Mgmt: Tradeoff decisions between cost and timing of delivery/customer service via truck, rail, air, pipeline and water Customer Relationship Mgmt: Strats to ensure deliveries, resolve complaints, improve comms and determine service requirements. Network Design: Creating distribution networks based on tradeoff decisions between cost and sophistication of distribution system

Variations in Quantitative Forecasting (CH. 2)

Trend: Movement of variable over time. May be easily observed by plotting actual demand on graph over time to see increase or decrease Random: Instability in data caused by random occurrences. Generally very short-term and caused by unpredictable events like weather, disasters Seasonal: Repeating pattern of demand from year to year, or some time interval, with some periods of higher demand than others Cyclical: Wavelike pattern extended over many years and can't be easily predicted

Cause and Effect Forecasting (CH. 2)

Two C/E Models: -Simple Linear Regression -Multiple Linear Regression Regression uses historical relationship between an independent and dependent variable to predict future values of dependent variable (demand)

Time Series - Simple Moving Average Forecasting (CH. 2)

Uses calculated average of historical demand during a specified number of most recent time periods Advantage: Provides consistent demand over long periods of time and smooths random variations Disadvantage: Fails to identify trends or seasonal effects Also creates shortages when demand increases

Total Market Stockout (CH. 1)

When customers sell out all remaining inventory and there is a supply disruption

Bullwhip Effect (CH. 2)

When individual supply chain participants second-guess what is happening with ordering patters, potentially over-reacting. Rising demand = down-stream participants increasing orders Falling demand = orders decrease/stop, inventory accumulates

2 Basic Supply Chain Capability Models (CH. 1)

Efficient and Responsive Efficient: SC & Processes designed to minimize costs; Predictable supply and low cost; low-cost prod. and highly utilized capacity; high inventory turns; Ideal for Functional Products: staples that are bought everywhere, don't change over time, stable predictable demand Responsive: SC designed to Respond Quickly to market demand -Fast response -Min. Stockouts -Need Flexible Capacity (volume) - Inv. of Parts - Minimize lead time - Need to have a variety of products available for customers when they want to buy Ideal for Innovative Products -Rapidly changing -SHort life-cycle products -Great variety -Very unpredictable demand

SCOR Model: Enable (CH. 1)

Enabling processes facilitate a company's ability to manage the supply chain and are spread throughout every stage. Allows us to enable our capabilities as we plan, source, make, and deliver NOT a stage the occurs after all oters

Forecasting (CH. 2)

Estimates future demand for products so that they can be purchased or manufactured in appropriate quantities in advance of need

Globalization (CH. 1)

Expanding SC. International, mature and emerging markets have become a part of the overall business growth strategy for many companies.

Demand Volatility and Forecast Inaccuracy (CH. 1)

Firms will increasingly need to be more flexible and responsive to customer needs adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration

Operations Management (CH. 1)

Forecasting & Demand Planning - Match demand to available capacity Planning Systems - link supply to demand via MRP and ERP systems Process Management - Using LEAN Manufacturing to improve flow of materials to reduce inventory levels, and using Six Sigma to improve quality compliance across all suppliers

Forecast Accuracy - Tracking Signal (CH. 2)

Indicator that bias is present Determines if forecast is within acceptable control limits and provides a warning when there are significant unexpected departures from the forecast. If tracking signal falls outside the preset limits, there is bias and needs evaluation.

What is Supply Chain Management? (CH. 1)

It is the coordination of a network of otherwise independent trading partners creating a desired product or service, and moving it from suppliers, through manufacturing, and out to customers when and where they want

Forecasting and Demand Planning (CH. 2)

Key Building blocks from which all SC Planning activities are derived

Logistics vs SCM (CH. 1)

Logistics - Activities within the purview of a single organization Focuses on activities such as - Inv Management Warehousing Distribution Transportation SCM - Network of independent companies working together and coordinate their actions to deliver product or service to market for the benefit of all companies in network Includes logistic activities and others like -Marketing -NPD -Finance -Customer Service

MRP and MRPII (CH. 1)

MRP: Method of determining what materials are needed and when they are needed to support production plan MRPII: Improve internal communication and operations - Manufacturers extended heir processes to include their own finance, marketing, sales, r&D, etc. functions to bring all their expertise into the process.

Risk Management (CH. 1)

Many companies have started to shift SC risks like holding inventory, upstream to their suppliers, and shipping finished products to customers immediately after production. Risks can only be mitigated by managing it at each node in supply chain

Running Sum of Forecast Errors (RSFE) (CH. 2)

Measure of forecast Bias. Indicates tendency of a forecast to be consistently higher or lower than actual demand Positive RSFE means forecast was too low, underestimating demand Negative RSFE means forecast was too high, overestimating demand

Mean Absolute Percent Error (MAPE) (CH. 2)

Measures size of error in percentage. Calculated as the average of the unsigned percentage error

Mean Absolute Deviation (MAD) (CH. 2)

Measures size of forecast error in units. Calculated as Sum of Absolute Deviation divided by period of time

Cause and Effect - Simple Linear Regression (CH. 2)

Modeling relationship between a single independent variable and dependent variable by fitting linear equation to data. Equation describes relationship between ind. and dep. variable as a straight line

Cause and Effect - Multiple Linear Regression (CH. 2)

Modeling relationship between two or more ind. variables and a dep. variable by fitting linear eq. to data.

Qualitative Forecasting - Jury of Executive Opinion (CH. 2)

Most knowledgeable about product and marketplace form a jury. Panel conducts a series of forecasting meetings until panel reaches a consensus Advantages: Decisions enriched by competent experts; don't have to spend time/resources to collect data by survey Disadvantages: Experts may bias; Experts may become biased by colleagues or strongly opinionated leader

Demand (CH. 2)

Need for a particular product or component. Can come from various sources.

Forecast Error (CH. 2)

Need to track forecast against actual demand and measure size and type of the forecast error. Error measurement plays a critical role in tracking forecast accuracy monitoring for exceptions, and benchmark the forecast process. Difference between Actual Demand and Forecast Demand

The Future of SCM (CH. 1)

Old Paradigm - A company gained synergy as a vertically integrated firm encompassing the ownership and coordination of several SC activities - Org cultures emphasized short- term, company focused performance New Paradigm - A company in a SC focuses activities in its area of specialization and enters into voluntary trust-based relationships with suppliers and customer firms. "Outsourcing non-core competencies" -All participants in SC benefit -Boundaries are dynamic -SC deals w. reverse logistics

SCM Planning and Control Process (CH. 1)

Operational excellence begins with effective SC planning and control techniques which: -Provides single set of numbers used to run business -Generates significant improvements

Qualitative Techniques (CH. 2)

Personal Insight Jury of Executive Opinion Delphi method Sales Force Estimation Customer Survey

SCOR Model: Plan (CH. 1)

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.

Demand Planning (CH. 2)

Process of combining statistical forecasting techniques and judgement to construct demand estimates for products or services

Pull Business Model (CH. 1)

Producing stock in Response to Actual Demand Advantages: High Levels of customer service through responsiveness and flexibility to meet uncertain customer demand Disadvantages: Every order is a rush order, and any problem lead to customer dissatisfaction

Push Business Model (CH. 1)

Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. Advantages: If 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 warehouse 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. Create Forecast -> Create Supply Plan -> Buy Mats to produce product -> manufacture products -> Warehouse products -> Sell products -> Deliver

Business Planning (CH. 3)

Provides the company's direction and objectives for the next two to ten years. Typically updated and re-evaluated annually.

Supply Chain Elements (CH. 1)

Purchasing: responsibility for procuring materials, supplies, and services Supplier Management - Improve performance through supplier evaluation and supplier certification Strategic Partnerships: Successful and trusting relationships with top performing suppliers Ethics and Sustainability: Recognizing suppliers impact on rep and carbon footprint

Mean Squared Error (MSE) (CH. 2)

magnifies errors by squaring each one before adding

Current Trends in SCM (CH. 1)

-globalization -demand volatility and forecast inaccuracy -supply chain cost optimization -risk management -sustainability and "greening" the supply chain

Fundamentals of Forecasting (CH. 2)

1) Your forecast is most likely wrong 2) Simple forecast methodologies trump complex ones 3) A correct forecast does not prove your forecast method is correct 4) If you don't use the data regularly, trust it less when forecasting 5) All trends will eventually end 6) It's hard to eliminate bias, so most forecasts are biased 7) Technology is not the solution to better forecasting

Reasons for Implementing SCM (CH. 1)

1. Achieve cost savings 2. Better coordinate resources

SCOR Model: Return (CH. 1)

AKA Reverse Logistics. Deals with planning & controlling process of moving goods specifically from the point of consumption back to the point of origin or repair, reclamation, re-manufacture, recycling, or disposal Goes against normal outbound flow of products to market. Managers have to create a response and flexible network for receiving defective and excess products back from their customers, and also supporting customers who have questions and problems

SCOR Model: Deliver (CH. 1)

AKA the Logistics phase. Part of SCM that oversees planning and execution of the forward flow of goods and related info between various points in the SC to meet customer requirements. Companies coordinate receipt of orders from customers, develop network of warehouses, pick carriers to transport products to customers, set up invoice system to receive payments.

Origins and Evolution of SCM (cont.) (CH. 1)

Advantages/Disadvantages of Internal Focus Advantages: Higher output/More productivity, Reduced cycle times, Lower in-process inventories Disadvantages: High investment in facilities, Overall cycle time limited by slowest operation, Breakdown of one machine will stop an entire production line.

Forecasting Techniques (cont.) (CH. 2)

Qualitative: Forecasting based on opinion and intuition. Depends on the skill and experience of the forecaster Quantitative: Forecasting using mathematical models and historical data to make the forecast.

ERP (CH. 3)

An extension of MRP II. Determines the need to replenish finished product inventory at multiple branch warehouses in the network. Requires the sharing of real-time information and collaboration across multiple business functions.

Qualitative Forecasting - Personal Insight (CH. 2)

Based on insight of most experienced, knowledgeable, or most senior person available. Advantages: Fastest and cheapest Disadvantages: Relies on one person's judgement and opinion, prejudice, ignorance; Unreliability - someone familiar w. situation makes worse forecasts than people who know nothing

Collaborative Planning, Forecasting, and Replenishment (CPFR) (CH. 2)

Business practice that combines intelligence of multiple trading partners who share plans, forecasts, and deliver schedules to ensure a smooth flow of goods and services across supply chain Real value of CPFR comes from sharing forecasts.

Supply Chain Disruptions (CH. 1)

Caused by natural disasters, economic/political events. Cause a big threat to revenue streams. Increased risk due to outsourcing to global suppliers.

How to alleviate bullwhip effect (CH. 2)

Collaboration: Sharing info using EDI, POI, and web based sources. Syncing the SC: Participants coordinate planning and inv. mgmt. to minimuze need for reactionary corrections Reducing Inventory: Through Just in Time, VMI, and QR

Time Series Forecasting (CH. 2)

Collect and study past data of a given time series to generate probably future values for the series Forecasts for future demand rely on understanding past demand Predicting the future by understanding the past

Origins and Evolution of SCM (cont.) (CH. 1)

Companies focused on own core competencies, outsourcing things not in their core competencies, using expertise of trading patners. Companies focus on: Building relationships Sustainability CSR Improving SC Capabilities

MRP II (CH. 3)

Computer-based system that creates detailed production schedules using realtime data

Forecast bias (CH. 2)

Consistent deviation from mean in one direction, high or low. Bias exists when demand is consistently over or under forecast. Should measure for bias routinely and make corrections

SC in the Service Industry (cont.) (CH. 1)

Customers are much more directly involved in the delivery of services than they are in the supply of physical product Frequently involves work on a tangible item provided by the customer Ex. Car for auto repair service, Clothes for dry cleaning

Qualitative Forecasting - Customer Survey (CH. 2)

Customers directly asked to give opinions about a product. Can be done in person or anything else Advantages: Direct method of getting info; easy to administer; no bias/judgement Disadvantages: Poor questions may lead to unreliable info; customers don't always answer survey; time-consuming and costly

Sustainability and "Greening" the SC (CH. 1)

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

Dependent Demand (CH. 2)

Demand for an item that is directly related to other items or finished products, such as a component or material used in making a finished product (Demand is calculated for this)

Independent Demand (CH. 2)

Demand for an item that is unrelated to demand for other items, such as a finished product, a spare part, or service part. (Demand is forecasted for this)

SCOR Model (CH. 1)

Each trading partner has to plan, source, make and deliver their part of the supply in order to satisfy the underlying demand for the product or service

Benefits of Supply Chain (CH. 1)

- Improved Customer Service -Increased Revenue -Lower Costs -Better Asset Utilization -Adds Customer Value -Minimize Delays -Elimination of rush activities -Reduced uncertainty -Lower Inv. Levels -Ability to effectively respond conflicts/disruptions

3 types of Supply Chain Planning (CH. 3)

- Long-Range Involved planning for actions such as construction of facilities and major equipment purchases. (Ford wants to grow their market share by 5% over the next 1-3 years) - Intermediate-Range Shows the quantity and timing of end item. (Ford wants to make 1000 F-150 per week for the next 3-18 months) - Short-Range Detailed planning process for components and parts to support the MPS. (1000 engines, 1000 transmissions, seats, windows each week over the next 1-12 weeks.)

Foundations of Supply Chain Management (CH. 1)

- Operations Management -Supply Management -Logistics Management -Integration

Closed Loop MRP (CH.3)

- Synchronizes the purchasing or materials procurement plans with the MPS - Idea is to reduce costs and improve the quality and accuracy of the produced parts.

What is Supply Chain (CH. 1)

-Any Org. in the world offering product or service has a supply chain -Can be simple or very complex -Exists in Large, Small, Public, Private, For-Profit, Not-for-Profit

Impact of Social Media on Forecasting (CH. 2)

-Evaluate health of brand -Improve demand prediction -Address crisis -Research competition

Forecasting Considerations (CH. 2)

1. Forecast will be inaccurate but still useful 2. Basis for most downstream SC planning decisions, so it is critical to be as accurate as possible Good Forecasting can benefit a company by creating effective planning Bad Forecasting can cause "garbage-in = garbage- out"

Goals of SCM (CH. 1)

1. Increase Customer Service - Getting produces and services that customers what to them, when and where htey want them, at the lowest possible cost 2. Reducing Inventory and Operating Expense - Doing #1 and keeping inventory as low as possible and also keeping costs low as possible

Supply Chain Management (CH. 1)

1. Starts with understanding the flow 2. Integrating all partners within end-to-end supply chain 3. Conducted thru defined processes

Origins and Evolution of SCM (cont.) (CH. 1)

1960's & 1970's Introduced new computer tech that lead to development of Materials Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII)

Origins and Evolution of SCM (cont.) (CH. 1)

1980's, 1990's, 2000's Instead of focusing internally, companies started to incorporate supply chain partners into planning activities Just-in-Time is a philosophy of manufacturing based on planned elimination of all waste and continuous productivity improvement TQM is a management approach to long-term success through customer satisfaction based on participation of all members of an org in improving processes, goods, services, and the culture in which they work. Everyone takes ownership for quality Business Process Re engineering is a procedure involving fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, service, speed.

Forecasting Techniques (CH. 2)

Goal is to minimize forecast error. Factors influencing demand need to be considered.

Origins and Evolution of SCM (CH. 1)

Goes back to 1950's when discipline was limited to materials mgmt. and logistics U.S. Manufacturers maintained large material inventories to keep production running. Focus was on how to produce as much as possible at lowest possible cost Manufactures were internally focused on maximizing internal ops. - Focus was on mass production techniques as their principal cost reduction and productivity improvement strats. External collaboration/partnerships were nonexistent

Supply Chain Planning (CH. 3)

How to best satisfy the requirements created by the Demand Plan. - Attempt to balance supply and demand.

Time Series - Linear Trend Forecasting (CH. 2)

Imposing a best fit line across demand data of an entire time series. Used as basis for forecasting future values by extending line past existing data and out into the future while maintaining slope of line. Advantage: Accurate forecast into future even with random variation Disadvantage: Seasonal cyclical variations softened, making it better for annual forecasts than monthly.

SCOR Model: Make (CH. 1)

Series of ops. performed to convert materials into a finished product Finished product is manufactured, tested, packaged, and scheduled for delivery Quality management is important aspect of Make process Most metric-intensive part of SC. Companies are able to measure quality levels, production output, and worker productivity.

SC in the Service Industry (cont.) (CH. 1)

Service Products can't generally be produced in advance or inventoried Services are typically produced and consumed simultaneously and almost all offerings, services can't start until customer arrives and participates. Many services require facilitating goods which are tangible elements that are used along with service provided Ex. A Bank needs Cash, office supplies, computers, records, etc.

SC in the Service Industry (CH. 1)

Service firms offer intangible products. Customers are paying for labor and the intellectual property of service provider

Time Series - Naive Forecasting (CH. 2)

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 easy to determine Disadvantages: Works for mature products only. Any variations in demand creates inv. issues.

Time Series - Weighted Moving Average Forecasting (CH. 2)

Similar to simple moving except not all historical time periods are valued equally Advantage: More accurate if actual demand is increasing or decreasing Disadvantage: Lags behind actual demand to some degree. Hardest part if deciding on weight for each time period.

Time Series - Exponential Smoothing (CH. 2)

Sophisticated version of weighted moving average. Needs 3 Basic Elements: last period's forecast, last period's actual demand, and smoothing factor, which is a number > 0 and < 1 Advantage: Creates more responsive forecast to trends Disadvantage: Will lag behind trends, especially upward trends since smoothing factor neds to be > 1 to be accurate. Smoothing constant has to be determined based on judgement of experts

SCOR Model: Source (CH. 1)

Sourcing is the process of identifying the suppliers that provide materials and services needed for SC to deliver finished product Involves finding reliable suppliers and building strong relationships with them SC managers must develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance

The Structure of Supply Chains (CH. 1)

Suppliers - Manufacturer - Customers

Integration Elements (CH. 1)

Supply Chain Process Integration: When SC Participants work for common goals; requires intra-firm functional integration; Based on efforts to change attitudes and adversarial relationships SC Risk Assessment and Mitigation SC Performance Mgmt

Logistics (CH. 1)

Supply Chain is facilitated through logistics Inventory, Warehousing, Truck, Rail, Air, Water, Pipeline