Supply Chain Management
payment flow
(one way flow from customers to manufacturers to suppliers)
SCOR Model: ENABLE
Enabling processes facilitate the company's ability to manage the supply chain and are spread throughout every stage.
disadvantages of 60s 70s SCM
High investment in facilities Overall cycle time limited by the slowest operation Breakdown of one machine will stop an entire production line.
advantages of 60s 70s SCM
Higher output and more productivity Reduced cycle times Lower in-process inventories
This is a philosophy of manufacturing based on the planned elimination of waste and continuous productivity improvement
Just-in-Time
Foundations of SCM
Operations, logistics, supply management, integration
SCOR Model: Plan
Planning establishes the parameters within which the supply chain will operate.
Backorder
The manufacturer cannot continue production of the finished product due to the material shortage (supplier disruption), and therefore, cannot ship finished product out to customers against their open orders
(market) stockout
The manufacturer temporarily stops all suppliers from supplying materials. No inventory available throughout the distribution channels in the market
sourcing involves not only identifying reliable suppliers but also...
building a strong relationship with those suppliers
Materials (ingredients) + Manufacture or Assemble =
finished product
Outbound
from manufacturers to customers
Manufacturing Resource Planning (MRP II) improves...
internal communications and operations
the supply chain is only as strong as...
its weakest link
Planning Systems
linking supply to demand via MRP and ERP systems
Transportation Management
tradeoff decisions between cost & timing of delivery / customer service via truck, rail, air, pipeline & water.
Supply chain circle starts with...
understanding the flow
Returns flow
(one way flow from customers to manufacturers to suppliers)
Single-Period Model
- a type of inventory system in which inventory is only ordered for a one-time stocking -objective is to maximize profits
Fixed Costs
- independent of the unit volume produced
SCOR Model: Deliver
- logistics phase - oversees the planning and execution of the forward flow of goods between various points in the supply chain to meet customer requirements. -companies coordinate receipts -develop a network of warehouses -pick of carriers to transport products -set up an invoicing system to get payments
Safety Stock
-"buffer stock" inventory that is above and beyond what is needed to meet anticipated demand -quantity of stock planned to be in inventory to protect against fluctuations in demand/supply -Companies operating in a make-to-stock environment will generally maintain some amount of safety stock whether based on a management decision, or based on a safety stock determination formula.
Fixed-Order Quantity System:
-A continuous inventory review system in which the same order quantity is used from order to order. -When the inventory position drops to a predetermined reorder point, a predetermined fixed order quantity is placed -The time between orders (i.e., order period) varies from order to order.
New paradigm continued
-All participants in the supply chain benefit. -Boundaries are dynamic "end-to-end" -Supply chains also deal with reverse logistics to handle product returns, warranty repairs, and recycling.
Pull or Make-to-Order 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 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.
Pull or Make-to-Order Advantages
-High levels of customer service through responsiveness -flexibility to meet uncertain customer demand. -short lead times -reduce dependency on forecasting -use short and flexible production runs -store very low inventories -reduce waste -provide opportunities for customization -improve cash flow.
To Meet Customer Demand (cycle stock):
-Immediately fill customer orders -Deploy the product / material near where it will be used
Fixed-Time Period System:
-Inventory is checked in fixed time periods against a target inventory level. -If the inventory is less than target, a quantity necessary to bring inventory back up to the target level is ordered. -The amount of inventory ordered will potentially vary from period to period based on the remaining inventory at each time interval checked.
To Decouple Dependencies in the Supply Chain:
-Separating operations in a process -Smoothing production -Reducing peak period capacity needs
Why hold inventory?
-To Meet Customer Demand (cycle stock) -To buffer against uncertainty in demand/supply -To decouple supply from demand (strategic stock) -To decouple dependencies in the supply chain
Logistics Management elements
-Transportation Management -Customer Relationship Management
Other types of inventory systems which are essentially variations on the basic continuous and periodic review methods are:
-abc system -bin system -base stock level system -"single period" inventory model
Inventory Investment Common measures include
-absolute inventory value -inventory turnover
Advantages of continuous review system
-allows for real-time updates of inventory which makes it easier know when to replenish -facilitates accurate accounting bc the inventory sustem can generate real-time COGS
Enterprise Requirements Planning (ERP)
-an extension MRPII and includes DRP which determines the need to replenish finished product inventory at branch warehouses, when there are multiple warehouses in the network. -software platform of integrated functional modules -facilitates sharing of realtime info and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively
strategies to answer how much raw material a company should hold in inventory
-buy from a supplier and have it delivered to the operation just in time for when it is needed -buy and hold a larger quantity for strategic reasons
MRO items are.......
-consumed during process of converting raw materials into finished goods -used to facilitate the manufacturing operation -facilitate the company's administration activities
Disadvantages
-cost of implementation -requires an automated system which can be expensive
Companies might be willing to increase costs by storing excess raw material inventory if they
-fear a potential shortage of materials -suspect that there's an upcoming price increase and want to buy at the current lower price
SCM Today Companies are:
-focusing on their own core competencies -outsourcing those things that are not their core competencies -using the expertise of their trading partners
A company may decide to carry strategic stock to:
-hedge currency fluctuations take advantage of a price discount -protect against a short-term disruptive event in supply -take advantage of a business opportunity -for life cycle changes: seasonal demand, new product launch, transition protection
Push or Make-to-Stock Advantages
-if good forecast/supply plan, product can be shipped to customer on demand -manufacturers can plan resources better w/ flexibility -maximize utilization of resources at the lowest cost.
Pipeline Inventory
-in transportation network and distribution system -already out in market being held by customers -The ownership of this inventory has been transferred to the trading partners, but may still influence decisions the company makes regarding how they manage and control their internal inventory, and how much safety stock and/or strategic stock to hold.
Pipeline Inventory
-inventory in transit -Inventory held / owned by suppliers, or by wholesalers, distributors, retailers, and customers.
Cycle Stock
-inventory that a company builds to satisfy immediate demand -depletes gradually as customer orders are recieved -replenished cyclically when supply orders are received -amount is dependent on actual demand in immediate time period, the supply replenishment lead time, and order quantities
Disadvantages of Exponential Smoothing
-lags behind trends, mainly upward trends since the smoothing factor would need to be > 1 to approach an accurate forecast -smoothing constant not given. based on judgement of company's experts
bin system cont
-mainly used for small or low value items -When the inventory in the first bin has been depleted, an order is placed to refill or replace the inventory. -The second bin is set up to hold enough inventory to cover demand during the replenishment lead time so as to last until the replacement order arrives.
1950s 1960s SCM
-maintained large material inventories to keep production running -internally focused on maximizing own internal operations -focused on mass production techniques as their principle cost reduction strategy -external collaboration nonexistent
factors that influence demand that should be considered when forecasting
-market changes -seasonality -competitive activity -pricing -changing consumer preference
disadvantages of periodic review system
-may not provide accurate inventory counts for business with high sales -difficult to determine best review/reordering intervals -can make inventory accounting less accurate
∑ Forecast Error = ∑ Actual Demand - ∑ Forecast Demand
-negative results show demand was consistently less than the forecast -positive show that it was greater -0 means no bias
advatages of simple moving average
-provides a consistent demand over long periods of time -smooths out random variations
four main categories of inventory
-raw materials -work in process -finished goods -maintenance, repair and operating supplies (MRO)
advantages of periodic review system
-reduce the time spent analyzing inventory -less expensive than continuous review system
SCOR Model: Return
-reverse logistics -deals with planning and controlling the process of moving goods from the point of consumption back to 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 also supporting customers who have questions and problems
Obsolete Inventory
-stock that is expired, damaged, or no longer needed. -never used or sold at full value
What's the "right amount of inventory" dependent on?
-supply chain strategy and set-up -type of product -customers expectations and their service objective -product shelf life
absolute inventory value
-the value of inventory at cost or market value
Objective of supply chain planning
-to balance supply and demand in a way that realizes the financial and service objectives of the company -have operation managers be continuously involved in planning operations and resources to balance capacity and output
What do companies have to do since forecasts are usually inaccurate?
-track the forecast against actual demand -measure the size and type of the forecast error (units/percentages)
What do error measurements play a critical role in?
-tracking forecast accuracy -monitoring exceptions -benchmarking the forecasting process
The Bullwhip Effect
-unstable customer demand so businesses must forecast it -forecasts aren't accurate so businesses have a safety stock -moving from end to end, each supply chain partner is farther removed from the end demand and may have less info about what's happening with demand, so they keep higher levels of safety stock. -there's no info or visibility, so participants second guess what's happening with order patterns and are overreacting, creating the bullwhip effect.
Process Management
-using lean manufacturing to improve the flow of materials to reduce inventory levels -using six sigma to improve quality compliance across all suppliers
CPFR can significantly reduce the Bullwhip Effect and provide a plethora of benefits including:
1. Better customer service 2. Lower inventory costs 3. Improved quality 4. Reduced cycle time 5. Better production methods
Aggregate Planning Strategies - Supply Options
1. Change inventory levels 2. Change capacity:
advantages of delphi method
1. Decisions are enriched by the experience of competent experts. 2. decisions are not likely a product of groupthink 3. very useful for new products
6 steps of developing the aggregate production plan
1. Determining the demand for each period covered by the aggregate planning horizon. 2. Determining the available capacity for each period covered by the aggregate planning horizon. 3. Identifying any constraints which may influence the plan. 4. Determining the direct labor and material costs and the indirect manufacturing costs for each product or product family covered by the aggregate production plan. 5. Identifying or developing strategies and contingency plans to manage the potential upside or downside in the market. 6. Agree on a plan that best meets the planning goals and objectives.
Methods of calculating the Available-to-Promise quantities:
1. Discrete Available-to-Promise = (on hand + supply - ordered) per period 2. Cumulative Available-to-Promise
disadvantages of delphi method
1. Experts may introduce some bias. 2. Companies must spend time and resources collecting survey data 3. risk of loss of confidentiality if using external experts 4. time consuming so best for long term forecasts
How Much to Order? The two common inventory ordering system categories are:
1. Fixed order quantity system 2. fixed time period system
Three basic production strategies:
1. Level Production Strategy 2. Chase Production Strategy 3. Mixed Production Strategy
Purpose/Goals of aggregate planning
1. Meet demand 2. Use capacity efficiently 3. Meet inventory policy 4. Minimize cost: a. Labor b. Inventory c. Plant and Equipment d. Subcontract
to achieve this goal, effective inventory management balances two competing considerations:
1. Reducing the amount of inventory held in stock, while . . . 2. Ensuring there is enough inventory to satisfy customer demand.
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)
When creating a quantitative forecast, data should be evaluated to detect for the following components:
1. Trend Variations 2. Random Variations 3. Seasonal Variations 4. Cyclical Variations
Supply Chain Management is facilitated through the use of Logistics: Transportation
1. Truck 2. Rail 3. Air 4. Pipeline 5. Water
Efficient supply chain processes
1. Understand the requirements of your customers. 2. Define core competencies and the roles your company will play to serve your customers. 3. Develop supply chain capabilities to support the roles your company has chosen.
Fundamentals of Forecasting
1. Your forecast is most likely wrong 2. simple forecast methodologies trump complex ones 3. a correct forecast doesn't prove that your method is correct 4. if you don't use data regularly, trust it less when forecasting 5. all trends eventually end 6. it's hard to eliminate bias, most forecasts are biased 7. technology is not the solution to better forecasting
the two main reasons that companies implement Supply Chain Management are to
1. achieve cost savings 2. better coordinate resources
Ways to alleviate the bullwhip effect
1. collaboration 2. Synchronizing the supply chain 3. Reducing invetory
Push Business Model
1. create forecast 2. create supply plan 3. buy materials to produce products 4. manufacture products 5. warehouse products 6. sell products 7. deliver products
Advantages of Jury of Executive Opinion
1. decisions are enriched by the experienced and competent experts 2. companies don't have to spend time and resources collecting survey data
advantages of customer survey
1. direct method for assessing info from primary source 2. simple to administer and comprehend 3. doesn't introduce bias or value judgement if questions constructed carefully
disadvantages of Jury of Executive Opinion
1. experts may bring bias 2. experts may become biased by their colleagues or a strongly opinionated leader
Advantages of personal insight
1. fastest and cheapest technique 2. in can provide a good forecast
Aggregate Planning Strategies - Demand Options
1. influencing demand so that it aligns to available production capacity 2. backordering during high demand periods 3. counter seasonal product mixing
3 categories of supply chain planning
1. long range 2. intermediate range 3. short range
advantages of sales force estimation
1. no additional cost to collect data because internal sales people are used 2. more reliable forecast as it's based on the opinions of salespersons in direct contact with customers
disadvantages of sales force estimation
1. not ideal for long term forecasting 2. salespersons can introduce bias 3. salespersons may not be aware of economic environment
disadvantages of customer service
1. poorly formed questions = unreliable info 2. customers don't always answer 3. time consuming and costly
Disadvantages of personal insight
1. relies on one persons judgement and opinions but also on their prejudices and ignorances 2. unrealiability: someone who knows a lot about the situation can make a worse forecast than someone who doesnt know anything
Pull Business Model
1. sell products to customer 2. create supply plan 3. buy materials to produce products 4. manufacture products 5. deliver products to customer
2 important considerations about a forecast
1. statistically the forecast will be inaccurate ALTHOUGH it's still useful 2. forecast is the basis for "downstream" supply chain planning decisions (so it should be as accurate as possible)
2 componenets of qualitative forecasting
1. time series a. naive b. simple moving average c. weighted moving average d. exponential smoothing e. linear trend 2. Case and Effect a. simple regression b. multiple regression
Inventory Policy addresses 3 fundamental questions:
1. when to review? 2. when to order? 3. how much to order?
The five qualitative models
1.Personal insight 2. jury of executive opinion 3. delphi method 4. sales force estimation 5. customer survey
Scheduled Receipt
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.
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"
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.
Manufacturing Resource Planning (MRP II)
A computer-based system that can create detailed production schedules using realtime data. Coordinates the arrival of materials with the availability of machine and labor. MRP II is used widely by itself, but also as a module of more extensive enterprise resource planning (ERP) systems."
Assumptions
A constant demand (d) rate, i.e., not erratic, seasonal, etc. Inventory position (IP) is reduced (i.e., consumed/used) by a rate of (d). Replenishment order placed when reorder point (ROP) is reached. When inventory is received, (IP) increases by the order quantity (Q). (Q) computed using the economic order quantity (EOQ) model. Lead time (L), i.e., the time between placing an order and receiving delivery of the order, is known and constant. Inventory position (IP) is reviewed on continual basis.
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 during stable demand -planning horizon is shorter than APP but longer than the lead time to produce the item
Multilevel Bill of Materials
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
Work-in-Process
A good or goods in various stages of completion throughout the plant, spanning from raw material that has been released for initial processing up to fully processed material awaiting final inspection and acceptance as finished goods
Resource Requirement Planning (RRP)
A long-range capacity planning module used to check whether aggregate resources (i.e., labor and manpower) are capable of satisfying the Aggregate Production Plan.
Rough-Cut Capacity Planning (RCCP)
A medium-range capacity planning module used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available
Firmed Planned Order
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
The Economic Order Quantity (EOQ) Model
A quantitative decision model based on the trade-off between annual inventory carrying costs and annual order costs. EOQ is a fixed-order quantity model
Capacity Requirement Planning (CRP)
A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.
Planned Order Release
A specific order for a specific item and quantity to be released to the shop or to the supplier
Fixed-Time Period System
A target inventory level (R) is established Inventory levels are checked/reviewed in fixed time periods (T) If (IP) < (R) then (Q) is ordered and (R) is restored when each new order is received.
Distribution Requirements Planning (DRP)
A time-phased finished good inventory replenishment plan in a distribution network. The function of determining the need to replenish inventory at branch warehouses. -DRP is a logical extension of the MRP system and ties physical distribution to the manufacturing planning and control system
Gross Requirement
A time-phased requirement prior to netting out on-hand inventory and lead-time
Major ERP applications include:
Accounting and Finance Customer Relationship Management Human Resource Management Manufacturing Supplier Relationship Management Supply Chain Management
Advantages of ERP Systemps
Added visibility = reduced inventories Helps to standardize manufacturing processes Measure performance and communicate via a standardized method
Strategic Stock (anticipated stock, build stock, seasonal stock)
Additional inventory beyond cycle and safety stock, generally used for a very specific purpose or future event, and for a defined period of time.
Chase Production Strategy
Adjusts capacity to match demand. Hires and fires workers to match finished output to demand. Finished goods inventory remains constant. Works well for make-to-order firms
Supply chain planning is a combo of:
Aggregate Production Planning (APP) Master Production Scheduling (MPS) Materials Requirement Planning (MRP) Distribution Requirements Planning (DRP) Capacity Planning
Planning Bill of Materials
An artificial grouping of items (e.g., a product family) in BOM format, used to facilitate master scheduling and material planning.
Barcodes
Barcode systems help businesses track products and stock levels for inventory management.
Personal insight
Based on the insight of the most experienced, most knowledgeable or senior person available
Sales force estimation
Basically the same as the Jury of Executive Opinion except that it is performed specifically with a group of sales people Individuals working in the sales function bring special expertise to forecasting because they maintain the closest contact with customers.
Two Types of Implementation for ERP Systems
Best of Breed Single integrator SOlution
Companies will continue to focus on
Building relationships Sustainability Corporate Social Responsibility (CSR) Improving supply chain capabilities:
redesign of business processes to achieve dramatic organizational improvements in such critical measures of performance as cost, quality, service, and speed
Business Process Reengineering
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
Inventory Turnover Ratio
COGS / Average Inventory at Cost
1. Two models for determining When to Review:
Continuous Review System Periodic Review System
Carrying Costs
Cost of capital - specified by senior management Taxes - on inventory held in warehouses Insurance - based on estimated risk or loss over time and facility characteristics Obsolescence - deterioration of product during storage, and shelf-life Storage - facility expense related to product holding rather than product handling
Customer Survey
Customers are directly approached and asked to give their opinions about the particular product
Sustainability and "Greening" the Supply Chain
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.
ROP =
Demand during Lead Time (dL)
An ABC system classifies inventory based the degree of importance:
Determine annual usage or sales for each item. Determine % of total usage or sales that each item represents. Rank items from highest to lowest %. Classify items into groups: A: Highest Value B: Moderate Value C: Least Valuable
Capacity Planning
Determining the amount of capacity required to produce a good or service in the future.
Tier 1
Direct Supplier (to the manufacturer) Direct Customer
Individual Item Purchase Price Discounts
Discounts for ordering larger quantities. If the volume discount is sufficient to offset the added cost from carrying additional inventory, then ordering a larger volume may be desirable.
Single Level Bill of Materials
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
Inventory Policy
Establishing target inventory levels for all products and materials
Globalization
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
responsive
Fast response Minimal stock outs Need flexible capacity (volume) Inventory 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, Very short life-cycle products, Great variety, Very unpredictable demand)
Having too much inventory can result in effects like:
Financial resources tied up in inventory. Underlying problems being hidden rather than being exposed and solved, including quality problems not being immediately identified. No incentive for process improvements .
Manufacturer
Finished Product Manufacturers (internal or external)
Demand Volatility and Forecast Inaccuracy
Firms will increasingly need to be more flexible and responsive to customer needs, adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration
Who benefits the most from supply chain management?
Firms with: Large inventories Large number of suppliers Complex products and/or large number of products Large purchasing budgets / expenditures
Key elements necessary for DRP:
Forecast demands by DC Current inventory levels by DC Target safety stock by DC Recommended replenishment quantities Replenishment lead times
firmed time period
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
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.
Hidden Costs of Inventory
Having too much or too little inventory on hand can sometimes build hidden costs that create a risk for a company.
Aggregate Production Plan (APP)
Hierarchical planning process that translates annual business, marketing plans, and demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility.
Fixed-Order Quantity System
If the review determines that an order should be placed, then the order for a pre-defined quantity for that item is placed.
Multiple-Item Purchase Price Discounts
If you purchase a combination of items from a supplier you may be able to take advantage of a volume discount based on the total volume across all the items purchased rather than just an individual item's volume.
Benefits of Supply Chain Management
Improved customer service Increased revenue Lower costs Better asset utilization Adds customer value / retain customers Minimize delays / shorter lead-times Elimination of rush (unplanned) activities Reduced uncertainty throughout the supply chain Lower inventory levels throughout the supply chain Ability to effectively respond to disruptions and conflicts
Change inventory levels
Increase inventories - build stock in advance of demand in order to use available capacity Decrease inventories - temporarily reduce inventory below normal safety stock levels during peak demand periods to meet customer requirements
Enterprise Requirements Planning Systems (ERP)
Information system connecting all functional areas and operations of an organization, and in some cases suppliers and customers, via common software infrastructure and database ERP provides a means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories
Random Variations
Instability in the data caused by random occurrences -usually short term and can be caused by unexpected or unpredictable events such as weather emergencies, ect
1980's, 1990's & 2000's SCM
Instead of focusing only internally, companies started to look beyond their "four walls" and incorporate their supply chain partners into their planning partners
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
Integration
Traditional logistics focuses on activities such as:
Inventory Management Warehousing (material handling and storage) Distribution (order fulfillment, pick, pack & ship) Transportation
Continuous Review System
Inventory levels are continuously reviewed. -As soon as inventory falls below a pre-determined level (i.e., a reorder point), a replenishment order is triggered. -more costly than periodic review system, but requires less safety stock
Periodic Review System
Inventory levels are reviewed at a set frequency, e.g., weekly, monthly -At the time of review, if the stock levels are below the pre-determined level (i.e., a reorder point), an order for replenishment is placed, otherwise no action is taken until the next cycle. -greater risk of inventory dropping below the reorder points so u need safety stock
Bin System
Inventory system that uses either one or two bins to hold a quantity of the item being inventoried.
What is supply chain management
It is the coordination of a network of independent organizations (i.e., trading partners) all involved in creating a desired product/service and moving it from suppliers out to customers when and where they want it.
Parent
Item generating demand for lower-level components
Maintenance, Repair and Operating (MRO)
Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.
Implementation ERP System Problems
Lack of top management commitment Lack of adequate resources Lack of proper training Lack of communication Incompatible system environment
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
Logistics management (don't confuse with SCOR: Deliver)
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:
Mixed Production Strategy
Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand.
Finished Goods can be
Make to order or make to stock
____ is the most metric-intensive portion of the supply chain where....
Make; companies are able to measure quality levels, production output, and worker productivity
Supply management (don't confuse with SCOR: Source)
Managing all of the supplies and suppliers that are needed to run the business Purchasing Management Strategic Sourcing Supplier Relationship Management
Operations Management
Managing internal resources Forecasting and Demand Planning Planning Systems Inventory Management Process Management
Risk Management
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
Inventory Control Tools
Many inventory control tools exist in today's market. Those that incorporate barcode tracking or RFID tagging generally offer the most flexibility and ease of use. -linear barcode -2D barcode -radio frequency identification
SCM acknowledges all of traditional logistics activities and also includes aspects of activities such as:
Marketing New Product Development Finance Customer Service
Products and Services are created from
Materials Labor Time Money Equipment
There are three levels of internal inventory which may be held by companies to:
Meet customer demand Buffer against uncertainty in demand and/or supply Decouple supply from demand Decouple dependencies in the supply chain
Order Costs
Order preparation costs Order transportation costs Order receipt processing costs Material handling costs
Transportation Freight-Rate Discounts
Ordering a larger quantity may mean that you can take advantage of Transportation Freight-Rate Discounts which will lower the per unit costs.
efficient
Predictable supply and low cost Low cost production and highly utilized capacity High inventory turns Ideal for functional products (staples that ppl buy anywhere, have predictable demand, and don't change overtime)
Pull or Make-to-Order
Producing stock as a response
Push or Make-to-Stock:
Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques.
Having too little inventory can result in effects like:
Production disruptions. Longer delivery replenishment lead times. Reduced responsiveness.
Projected On-Hand Inventory
Projected closing inventory at end of a period. Beginning inventory - gross requirements + scheduled receipts + planned receipts from planned order releases
Total Cost =
Purchase Cost + Order Cost + Carrying Cost
Raw Materials
Purchased items or extracted materials that are converted via the manufacturing process into components and products.
What type of management is an important aspect of the manufacturing process
Quality management
Tracking Signal =
RSFE / MAD
Suppliers
Raw Material Suppliers - tier 3 Intermediate Suppliers - tier 2 Finished Material Suppliers - tier 1
Supply Chain Cost Optimization
Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non-core competencies.
Logistics
Refers to activities that occur within the purview of a single organization.
Pegging
Relates the gross requirements for a component part to the planned order releases of the parent item, so as to identify the source(s) of the item's gross requirements.
1. Level Production Strategy
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
Two main variables to calculate
Reorder Point (ROP) Order Quantity (Q)
Base Stock Level System cont
Replenishment order quantity is equal to the quantity withdrawn from inventory. This will maintain the inventory at a base stock level. Used primarily for very expensive items, e.g., airplane engine A form of just-in-time
The 3 major ERP providers are:
SAP Oracle Microsoft
collaboration
Sharing information through the use of electronic data interchange (EDI), point of sale (POS) data, and web-based systems can facilitate collaboration
intermediate range (3-18 months)
Shows the quantity and timing of end items Mid-level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months.
MRO supplies
Some MRO items are consumed during the process of converting raw materials into finished goods, e.g., oil for the manufacturing equipment. Other MRO items are used to facilitate the manufacturing operation, e.g., cleaning supplies, spare parts, etc. While still other MRO items may be used to facilitate the company's administrative activities, e.g., office supplies, coffee for the break room, etc. MRO inventory is separate from production inventory, but it is just as important. Frequently these items are expensed at the time they are purchased, and there may be a separate function, group, or individual who plans and orders these MRO items, from those who plan and order production items.
SCOR Model: Source
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).
Obsolete Inventory
Stock that is expired, out-of-date or no longer needed.
Disadvantages of ERP Systems
Substantial time and capital investment Complexity Firms adapt processes to meet ERP system
Radio Frequency Identification (RFID)
Successor to the barcode for tracking individual unit of goods. RFID does not require direct line of sight to read a tag, and the information on the tag is updatable.
Producing and delivering products and services requires ... What makes up a supply chain?
Suppliers, Manufacturers, Customers
Integration elements:
Supply Chain Process Integration Supply Chain Risk Assessment and Mitigation Supply Chain Performance Measurement
Synchronizing the supply chain
Supply chain participants coordinate planning and inventory management to minimize the need for reactionary corrections
To Decouple Supply from Demand (strategic stock):
Supply pattern is different from demand pattern: Achieve economies of scale in purchasing; take advantage of volume price breaks/discounts Speculative buying in anticipation of a price increase Economical order size, lot size, production output Seasonal products/demand
Closed Loop MRP
Synchronizes the purchasing or materials procurement plans with the master production schedule. The system feeds back information about completed manufacture and materials on hand into the MRP system, so that these plans can be adjusted according to capacity and other requirements. The system is called a closed loop MRP because of its feedback feature
Independent Demand
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
Inventory Management
The function of planning and controlling inventories.
Transportation
The item being ordered and transported may require specialized or dedicated transportation, impacting the quantity per order
2. When to Order?
The lowest inventory level at which a new order must be placed to avoid a stockout is known as the Reorder Point (ROP)
Limited Capital
The model may generate an order quantity which the company does not have sufficient available funds to purchase at one time
Storage Capacity
The model may generate an order quantity which the company does not have sufficient storage capacity to handle at one time
Obsolescence
The model may generate an order quantity which would create spoilage or obsolescence
Assumptions of the EOQ Model EOQ = Sq rt[(2 x order cost x annual volume) / (carrying costs % x unit cost) ]
The model must be calculated for one product at a time. The demand must be known and constant throughout the year. The delivery replenishment lead time is known and does not fluctuate. Replenishment is instantaneous. There is no delay in the replenishment of the stock, and the order is delivered in the quantity that was demanded, i.e. in one whole delivery. The purchase price (i.e., unit cost) is constant and no discounts or price breaks are factored into the model. Carrying cost is known and constant. Order cost is known and constant. Stockouts are not allowed
Planning factor
The number/quantity of each component or material needed to produce a single unit of the parent item
Fixed-Time Period System
The order quantity is the difference between the on-hand stock on the review day, and the pre-determined target inventory level. Q = R - IP Q= order quantity r = target inventory level ip = inventory position
MRP Explosion
The process of converting a parent item's planned order releases into component gross requirements
Unitization
The supplier may require the company to order an item in full pack, case, or pallet configurations
Production Lot Size
The supplier may require the company to order an item in full production lot sizes
Net Requirement
The unsatisfied item requirement for a specific time period. Gross requirement for period - current on-hand inventory.
Maintenance, Repair & Operating (MRO) supplies
These are materials that you need to run the manufacturing operation and the business, but do not end up as part of the finished product.
Finished Goods
Those items on which all manufacturing operations, including final testing, have been completed. These products are available for sale and/or shipment to the customer.
Reducing inventory
Through the use of just in time (JIT), vendor managed inventory (VMI), and quick response (QR), all of which will be discussed later in this course.
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 culture in which they work
Total Quality Management
To Buffer Against Uncertainty in Demand and/or Supply (safety stock):
Uncertainty in demand: sales or usage above expectations Uncertainty in supply: shortages, delays, disruptions
Time Bucket
Unit of time / time period used in MRP, e.g., days, weeks, months
Change capacity:
Vary production output through overtime or idle time Vary work force size by hiring or layoff Using part-time workers Subcontracting
Nodes or links in the supply chain are connected by...
Warehousing and Transportation Collectively referred to as logistics
Customers
Wholesaler & Distributor Customers - Tier 1 Retail Customers - Tier 2 Consumers - Tier 3
obsolete inventory characteristics
Writing obsolete inventory off of the books and disposing of it may be a difficult decision to make as all or part of the obsolete product's value may be lost and it may reduce a company's profit. Unusable inventory takes up space and costs money to maintain, so it may be better to absorb the loss as soon as an item has met the obsolescence criteria rather than delay and continue to lose money on storage and related fees. There may be a cost associated with the actual disposal of the inventory. Some companies may donate this inventory to a non-profit organization if it has any remaining value, which not only helps the non-profit but also avoids disposal costs and may result in a tax benefit for the company.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
a business practice that combines the intelligence of multiple trading partners who share their plans, forecasts, and delivery schedules with one another in an effort to ensure a smooth flow of goods and services across a supply chain.
maintaining adequate finished product inventory allows...
a company to fill customer orders immediately
maintaining adequate materials inventory allows ...
a company to support manufacturing operations and the production plan while avoiding delays.
Safety Stock
a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. Over planning supply versus demand can be used to create safety stock.
service involves the use of
a tangible item
Base Stock Level System
a type of inventory system that issues an order whenever a withdrawal is made from inventory
Cyclical Variations
a wavelike pattern that can extend over multiple years, and therefore can't be easily predicted
B&C
account for the other 80% of the total number of items, but only 20% of total inventory cost -B items require more management bc more expensive per unit and are prone to obsolescence
Service Inventory
activities carried out in advance of the customer's arrival
Market stockouts impact...
all customers
barcode reader
an electronic device that can read barcodes and transmit the data to a computer. These might be handheld cordless devices, corded devices that attach directly to a PC's USB port, or computers with integrated laser scanners
The EOQ model seeks to determine
an optimal order quantity Where the sum of the annual order costs & the annual inventory carrying costs is minimized.
2D Barcodes
are a graphical image that stores information both horizontally and vertically. 2D Barcodes can store over -7,000 characters, allowing transmission of almost two paragraphs of information.
Linear (1D) Bar Codes
are a series of alternating bars and spaces printed or stamped on parts, containers, labels, or other media, representing encoded information that can be read by electronic readers. -limitations: read horizontally and only holds 85 characters
Carrying Costs
are costs that are incurred for holding inventory in storage.
Manufacturing
assembly instructions encoded on RFID tag provide information to computer controlled assembly devices
Cause and Effect
assumes that one or more factors (independent variables) predicts future demand
How often is S&OP performed?
at least once a month and is reviewed by management at an aggregate level
The planning horizon of APP is
at least one year and is usually rolled forward by 3 months every quarter
Multiple Linear Regression
attempts to model the relationship b/w two or more independent variables and a dependent variable (demand) by fitting a line into the data
simple linear regression
attempts to model the relationship between a single independent variable and a dependent variable (demand) by fitting a linear equation to the observed data
What can bad forecasting cause?
bad supply plan -garbage in = garbage out
Qualitative forecasting
based on opinions and intuition
Time Series
based on the assumption that the future is an extension of the past. historical data is used to predict future demand (most frequently used)
companies view WIP as the
black hole of inventory because they dont have good time visibility into this part of inventory
it's generally recommended to use...
both quantitative and qualitative forecasting
a _______ is the starting point for ...
business plan; developing the organization's Production Plan or Aggregate Production Plan
advantages of linear trend forecasting
can provide an accurate forecast into the future even if there's random variation
inventory is usually the largest asset so...
careful management is an essential business requirement
expand on 1-7
chapter 2
Supply Chain Management delivers value by managing the processes of all of those independent trading partners so that they...
collaborate with one another in an efficient, effective, and cost conscious way
Product and services flow
connected by transportation and storage activities (one way from suppliers to manufacturers to customers)
Carrying Costs
costs for physically having inventory on-site and for maintaining the infrastructure needed to store the inventory and to secure and insure it over time
Order Costs
costs that are incurred each time an order is placed.
Advantage of Exponential Smoothing
creates a forecast more responsive to trends than previous models
Network Design
creating distribution networks based on tradeoff decisions between cost & sophistication of distribution system.
forecasting and demand planning are crucial components of...
customer satisfaction
Dependent demand
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 for these items is Calculated!
Independent Demand
demand for an item that is unrelated to the demand for other items -a finished product, a spare part, or a service part DEMAND FOR THESE ITEMS IS FORECASTED
ROP is set at a level that provides enough inventory so
demand is covered during the lead time (L) needed to replenish inventory
variable costs
dependent on the unit volume produced vary with output level
short range (1-3 months)
detailed planning process for components/parts to support the MPS
organizations must have a formal forecasting process to...
develop an agreed upon set of numbers that becomes the driver for demand planning
Supply chain managers must also...
develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance
The order quantity in this system will
differ from one order to another depending on the on-hand quantity on the day of the review
Forecast Error
difference b/w the actual demand and the forecast demand. the error can be quantified as an absolute value or as a percentage
The business plan provides the company's:
directions objectives for the next 2-10 yrs
Failing to manage inventory adequately can lead to significant issues and inefficiencies throughout the supply chain, including
dissatisfied customers, lost sales and revenue and higher costs
MRO are needed to run the manufacturing operation but
do not end up as part of the finished product
Bill of Materials (BOM)
document that shows an inclusive listing of all component parts and assemblies making up the final product
in periods of rising demand...
downstream participants increase
2 Basic Supply Chain Capability Models
efficient responsive
what happens if capacity and demand are nearly equal?
emphasis should be placed on meeting demand as efficiently as possible.
Purpose/Goals of aggregate planning
establish production rates that will achieve management's objective of satisfying customer demand by maintaining, raising or lowering inventories, while attempting to keep a stable workforce
S&OP links the strategic plans for the business with its...
execution
Supply Chain Management is the way business gets done. It is the....
execution process of any business
How can good forecasting benefit a company?
facilitates more effective planning which results in 1. reduced inventories 2. reduced costs 3. reduced stockouts 4. improved customer service
serivce companies can maintain inventory of
facilitating goods which are items that are used to help facilitate the service being provided
disadvantages of simple moving average
fails to identify trends or seasonal effects creates shortages when demand is increasing because it lags behind actual demand
Examples of independent and dependent demand
finished product= bike (independent) component parts= frame, seat, handle bars, wheels, ect (dependent)
The real value of CPFR comes from the sharing of forecasts among firms, rather than...
firms relying on sophisticated algorithms and forecasting models to estimate demand.
forecast allows everything else downstream to...
flow more smoothly
negative RSFE
forecasts were generally too high, overestimating demand. -excess inventory and higher carrying costs will occur
positive RSFE
forecasts were generally too low, underestimating the demand. -Stockouts are likely
Nodes/Links in the supply chain
from x supplier to y manufacturer to z customer through logistics
A items
given highest priority 20% accounts for 80% of total inventory costs
Materials Management
goods automatically counted and logged as they enter the supply warehouse
Goal of inventory management
help a company be more profitable by lowering the cost of goods sold and/or by increasing sales
supply chain planning is usually...
hierarchical
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
Supply Chain Planning is the element of supply chain management responsible for determining ...
how best to satisfy the requirements created by the Demand Plan.
Organizations must balance the production plan with capacity. This directly impacts ...
how effectively the organization deploys its resources in producing goods
A key decision in any product-based supply chain is
how much inventory to keep on hand
Linear Trend Forecasting
imposing a best fit line across the demand data for 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
Supplier Management
improve performance through: Supplier evaluation Supplier certification
Goal of supply chain management
increase customer service while simultaneously reducing both inventory investment and operating expenses
Tier 2,3...n
indirect supplier indirect customer
General Supply Chain Flow Diagram
information flow Product and services flow Payment flow returns flow
what do managers gather to make a business plan?
input from the various organizational functions such as finance, marketing, operations, and engineering
service firms offer
intangibles
Information Flow
integrated through info and planning (in all directions through suppliers, manufacturers, and customers)
Then...
integrates all partners within the end to end supply chain
ABC system is a method to determine which
inventories should be counted and managed more closely than others -groups inventory as a b or c based on a set of criterion
APP includes those costs relevant to aggregate planning decisions:
inventory, setup, machine operation, hiring, firing, training, and overtime costs
long range (1+ year)
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)
Forecast Bias
is a consistent deviation from the mean in one direction; either high or low aka bias exists if demand is consistently over or under forecast
lastly...
is conducted through defined processes
demand
is the need for a particular product or component.
what does a tracking signal mean?
it's a simple indicator to show if 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
MAPE is easier for people to understand bc
it's in percentage terms
in service firms, customers are paying for
labor and the intellectual property of the service provider
Order Costs
labor costs associated with placing an order for inventory and the cost of receiving the order
multilievel bill of materials
level 0 = finished product (independent demand) level 1+ = dependent demand
make to order
little to no finished goods inventory maintained
Disadvantage of MRP
loss of visibility ignores capacity ignores shop floor conditions
Mean Squared Error (MSE)
magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods.
when the demand reaches the material or components supplier at the other end of the supply chain, the...
magnitude of fluctuation becomes unrecognizable
Holding some inventory may be necessary to
maintain operations and ensure that products are available when customers demand them
the second step is Demand Planning where
management and other experts within the company review the forecast to ensure that it's aligned with the company's strategy, business policies, and business knowledge and make necessary adjustments
Forecasting & Demand Planning
match demand to available capacity
Since supply chain nodes are all interconnected, a disruption with one...
may impact all
Mean Absolute Percent Error (MAPE)
measures the size of the error in percentage terms. It is calculated as the average of the unsigned percentage error.
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
Material Requirements Planning (MRP)
method of determining what materials are needed when they are needed to support the production plan.
Efficient Supply Chain and processes are designed to
minimize costs
Best practice generally suggests
minimizing the amount of WIP becuase it clutters up physical space and impedes the process flow
advantage of weighted moving average
more accurate than simple moving average if demand's increasing/decreasing
finished goods are worth
more than WIP/raw materials
Trend Variations
movement of variable over time might more easily be observed by plotting actual demand on a graph overtime to see whether there's an increase or decrease
Retail Store
no check out lines as scanners link RFID tagged goods in shopping cart with buyers credit card
inventory turnover
number of times that an inventory cycles, or "turns over," during the year the more the turns the better
Who is responsible for short range? What are those responsibilities?
operations (managers, supervisors, foremen, ect) Job assignments Job scheduling Dispatching Ordering
Who is responsible for intermediate range? What are those responsibilities?
operations middle management -Sales planning -Production planning -Setting employment -inventory, and subcontracting levels -Analyzing operating plans
SCOR Model: Make
operations to convert materials into finished goods
Lot Size
order size for MRP logic
In periods of falling demand...
orders decrease or stop, and inventory accumulates.
Components
parts demanded by a parent
The main purpose of a time series model is to collect and study the ...
past data of a given time series in order to generate probable future values for the series
Jury of Executive Opinion
people who know most about the product and the marketplace form a jury to discuss and determine the forecast -the panel conducts a series of until the panel reaches an agreed forecast
Single Integrator Solution
pick all the desired applications from a single vendor
Best-of-breed
pick the best application for each individual function. Disadvantage - software may not integrate well but this may not be a major issue in future
S&OP is the definitive statement of the company's...
plan for the near to intermediate term, covering a horizon sufficient to plan for resources and to support the annual business planning process
time series can be characterized as the act of
predicting the future by understanding the past
Supply chains exist in organizations that are:
profit, nonprofit, public or private, large or small
the plan states the company's objectives for...
profitability growth rate return on investment
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
Advantage of MRP
provides planning information
two basic forecasting techniques
qualitative and quantitative forecasting
MAPE is a useful variant of the MAD calculation because it shows the...
ratio/percentage of the absolute errors to the actual demand for a given # of periods
Every company that produces a product generally starts with
raw materials
Ethics and Sustainability
recognizing suppliers' impact on reputation and carbon footprint
Seasonal Variations
repeating patterns of demand from year to year or over some other time interval with some periods of considerably higher demand than others
Too much inventory ties up capital which could otherwise be used for purposes such as
research and development, marketing and sales, stockholder dividends, salary increases, etc
Responsive Supply Chain designed to
respond quickly to market demand
Purchasing
responsible for procuring materials, supplies, and services
forecast bias should be measured
routinely because bias creates problems in the supply chain
Finished product is manufactured, tested, packaged, and
scheduled for delivery
disadvantages of linear trend forecasting
seasonal and cyclical variations are softened, making this method more useful for annual forecasts more so than monthly
In addition to storage costs, a company may also have to pay for
security, insurance, taxes, etc. to hold inventory
customers play a vital and more involved role in the delivery aspect of the...
service supply chain
Naive Forecasting
sets the demand for the next time period to be exactly the same as the demand in the last time period
Distribution Center
shipment leaving DC automatically updates ERP to trigger a replenishment order and notify customer for delivery tracking
Organizational cultures emphasized
short term, company focused performance
make to stock
significant amounts of finished goods inventory can sometimes be maintained
too much inventory can be a
significant liability
Weighted moving average
similar to simple moving average except that not all historical time periods are valued equally
the two basica cause and effect models
simple linear regression multiple linear regression
Exponential Smoothing
sophisticated version of weighted moving average requires 3 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
The more inventory a company holds, the more
space is needed, and space costs money
Demand planning is the process of combining...
statistical forecasting techniques and judgment to construct demand estimates for products or services.
disadvantage of weighted moving average
still lags behind actual demand to a small degree challenge is deciding the weight for each time period
Customer Relationship Management
strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements.
Strategic Partnerships
successful and trusting relationships with top-performing suppliers
A supply chain consists of the flow of materials and products from
suppliers to manufacturers to customers
downstream
supply chain is disrupted between the manufacturer and the customers
upstream
supply chain is disrupted between the supplier and manufacturer
Refers to a network of independent comapnies that work together and coordinate their actions to deliver a product(s) or service(s) to market for the benefit of all companies and services (i.e., collaboration and coordination).
supply chain management
CPFR requires a fundamental change in the way ...
that buyers and sellers work together.
forecasting
the business function that estimates future demand for products so that they can be purchased or manufactured in appropriate quantities in advance of need
Planning includes
the determination of marketing and distribution channels promotions quantities timing inventory replenishment policies production policies.
inventory can be held externally to the company by
the downstream supply chain trading partners
forecast
the estimate of future demand
what happens if capacity is greater than demand?
the firm might chose promotion and advertising so demand increases
what happens if capacity is less than demand?
the firm might consider subcontracting part of their work
first step is forecasting where
the forecast is developed through data analysis and judgement
Regression uses the historical relationship between an independent and a dependent variable to predict...
the future values of the dependent variable aka demand
the farther out into the future you forecast... (think abt the weather)
the greater the deviation will likely be
simple linear regression describes the relationship b/w...
the independent variable and dependent variable as a straight line
dependent demand
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
Forecasting and Demand Planning are
the key building blocks from which all supply chain activities are derived
Multiple Linear Regression is dependent on the data and
the number of independent variables
Logistics
the part of supply chain management that plans, implements, and controls the flow and storage of goods from the point of origin to the point of consumption
Inventory
the quantities of goods and materials that are held in stock -includes raw materials, work-in-process items, finished products
Reducing the Bullwhip Effect means
the reduction of safety stocks (and associated costs) within and across the trading partners in a supply chain
When a small demand ripple in the market place is felt by the retailer at the end of the supply chain...
the retailer will then start adjusting their orders to the wholesalers, and the wholesaler in turn will adjust its orders to the distributor, the distributor to the factory, and so on back up the supply chain
Delphi Method
the same as the Jury of Executive Opinion except that the input of each of the participants is collected separately so that people are not influenced by one another This is done in several rounds until a consensus forecast is achieved.
what does qualitative forecasts depend on?`
the skill and experience of the forecasters and the available info
the service supply chain is much more about managing the relationships between...
the trading partners than it is about managing the chain of supply.
What if the tracking signal falls outside the preset control limits?
there is a bias problem with the forecasting method and an evaluation of the way forecasts are generated is warranted.
identifying tier 1 suppliers and customers is important because...
these are your partners who you want to build a relationship with
some suppliers and customers can be both...
tier 1 and tier 2
the goal of the forecasting and demand planning process
to minimize forecast error
Who is responsible for long range? What are those responsibilities?
top management -r&d -new product plans -capital expenses -facility expansion
An overreaction due to
uncertainty occurs throughout the entire supply chain
forecasts for future demand rely on...
understanding past demand
Measuring Inventory Performance Common Metrics
units dollars weeks of supply = - (avg. on-hand inventory) / (avg. weekly usage) inventory turns = COGS / avg inventory
Inventory can become a liability if it becomes
unusable due to expiration, obsolescence, damage, or spoilage
simple moving average
uses a calculated average of historical demand during a specific number of the most recent time periods to generate the forecast
quantitative forecasting
uses mathematical models and historical data
where does demand come from?
various sources such as a customer order, a forecast, the manufacturing of another product, etc.
most supply chains are enabled through
various types of processes and technologies
When do you use qualitative forecasting?
when data is limited, unavailable or not currently relevant
disadvantages
works for mature products only. any variations in demand will create inventory issues
Advantages of naive forecasting
works well for mature products and is very easy to determine
MAPE =
∑ ((| A - F |)/ A) / n
MSE=
∑ (A-F) ² / n
RSFE =
∑ et Where: et = forecast error for period t
MAD =
∑(| A - F |) / n a = actual demand f = forecast demand n = # of periods
Inbound
from suppliers to manufacturers
