Supply Chain Ch.1-4
origins of supply chain
2000s and Beyond Companies focus on relationships, sustainability, and social responsibility Companies focus on improving supply chain capabilities with initiatives such as: Third-party service providers (3PLs) Integrating logistics with other functions Using transportation to facilitate rapid response
MAPE
= MEAN ABSOLUTE PERCENT ERROR = [Absolute Value (Actual Shipments - Forecast)] / Actual Shipments Lower = Better Best in Class for Consumer Goods = 15% error
supplier development
A buyer's activities to improve a supplier's performance and/or capabilities based on the following approach -
iso 4000
A family of standards for environmental management. The benefits include reduced energy consumption, environmental liability, waste & pollution, & improved community goodwill.
supplier relationship manamgt
Automation handles routine transactions Integration spans multiple departments, processes, & software applications Visibility of information & process flows Collaboration through information sharing Optimization of processes & decision making
seasonal trend
Demand with periodic peaks and valleys around the constant rate of change
Forecasting
HISTORY (What have we sold?) + Activity (What do we have planned or know? Advertising or in store promotions) = FORECAST
outsourcing risks
Loss of control Production decisions & intellectual property Increased reliance on suppliers Increased need for supplier management
quatitative forecasting
Mathematical - i.e. statistical forecasting, Naïve
cpfr model
Step 1: Collaboration Arrangement Step 2: Joint Business Plan Step 3: Sales Forecasting Step 4: Order Planning/Forecasting Step 5: Order Generation Step 6: Order Fulfillment Step 7: Exception Management Step 8: Performance Assessment
so&p process
The S&OP process is a monthly, cross-functional (Marketing, Sales, Finance, Supply Chain Planning) cycle that is made up of five phases. S&OP has proven capabilities that have consistently helped deliver business & operational results. S&OP involves a significant portion of the organization's resources & time. There is a master calendar for all critical deliverables and meetings. Cross-functional, active participation is necessary at all levels. There are several different forecasts that - taken together and not individually - serve to provide a complete picture for decision-making.
time series
Time is only variable (i.e. Seasonal, Trends, Cyclical, Random, Naïve, 4 period moving average)Time Series Data is Numerical data obtained at regular time intervals A time-series plot is a two-dimensional plot of time series data
weighted moving average forecast
Where Ft+1 = forecast for period t+1 Ai = actual demand for period i n = number of periods to calculate moving average wi = weight assigned to period i (Σwi = 1)
linear trend forecast
trend can be estimated using simple linear regression to fit a line to a time series Ŷ = b0 + b1x Where Ŷ = forecast or dependent variable x = time variable b0 = intercept of the line b1 = slope of the line
simple moving average forecast
uses historical data to generate a forecast. Works well when demand is stable over time.
demand forecasting
A forecast is an estimate of future demand & provides the basis for planning decisions The goal is to minimize forecast error The factors that influence demand must be considered when forecasting. Managing demand requires timely & accurate forecasts Good forecasting provides reduced inventories, costs, & stockouts, & improved production plans & customer service
3pl vmi 4pl
A growing industry that involves managing a firm's sourcing or materials &/or product distribution responsibilities 3PL providers charge a fee for services for an estimated savings of 10 to 20% of total logistics costs; benefits include improved service, quality, & profits for their clients. Vendor-managed inventory services - One of the more popular roles of 3PL. Lead logistics provider (LLP), A primary 3PL provider; one that oversees other 3PL's
supplier education program
A process to identify best & most reliable suppliers Sourcing decisions are made on facts & not on perception Frequent feedback can help avoid surprises & maintain good relationships. Suppliers should be allowed to provide constructive feedback to the customer Supplier Certification refers to "an organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections." -Institute for Supply Management
Information Sharing & Lines of Communication Capabilities
Both formal & informal lines of communication should be set up to facilitate free flow of information. Confidentiality of sensitive information must be maintained Key suppliers must have the right technology & capabilities to meet cost, quality, & delivery requirements in a timely manner
shared vision and objectives
Both partners must share the same vision & have objectives that are not only clear but mutually agreeable. The focus must move beyond tactical issues & toward a more strategic path to corporate success.
Collaborative negotiations (aka integrative negotiations) - distributive negotiations
Both sides work together to maximize the outcome or create a win-win result Requires open discussions and a free-flow of information between parties Refers to a process that leads to self-interested, one-sided outcome
New paradigm
Boundaries are dynamic and extend from "the firm's suppliers' suppliers to its customers' customers (i.e., second tier suppliers and customers)."
ethical and sustainable sourcing strategies
Business Ethics is the application of ethical principles to business Utilitarianism Rights and duties Corporate Social Responsibility is the practice of business ethics Ethical Sourcing is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior
Commitment & Top Management Support Change Management
Commitment must start at the highest management level. Partnerships tend to be successful when top executives are actively supporting the partnership Companies must be prepared to manage change that comes with the formation of new partnerships
supplier recognition programs
Companies should recognize & celebrate the achievements of their best suppliers. Award winners exemplify true partnerships continuous improvement, organizational commitment, & excellence. Award-winning suppliers serve as role models for other suppliers.
outsourcing
Concentrate on core capabilities Reduce staffing levels Accelerate reengineering efforts Reduce management problems Improve manufacturing flexibility.
reducing costs
Cost reduction achieved through: Reduced purchasing costs Reducing waste Reducing excess inventory, and Reducing non-value added activities Continuous Improvement through Benchmarking - improve over competitors' performance Trial & error Increased knowledge of supply chain processes
e-procurement
Cost savings Frees-up time to concentrate on core business Concentrate large volumes of small purchases with a few suppliers, using e- catalogues, available to the organization's users. Reverse auctions - Pre-qualified suppliers enter Web site & at pre- designated time & date, try to underbid competitors, monitoring bid prices until the session is over.
Why is accurate forecasting important?
Customer service (fill orders) Increase sales Happy consumer at shelf Carry less inventory (forecasting drives how much you make) across supply chain Less garbage
qualitative forecasting
Delphi method - group of experts who eventually develop a consensus Executive Committee Consensus - group of knowledgeable executives share opinions Sales Force Composite - sales rep interpretation of customer purchasing plans Customer Survey - based on customer purchasing plans
ethical policies
Determining where all purchased goods originated and the manner in which they were made Knowledge of the suppliers' workplace principles Inclusion of ethics as a performance rating Independent verification of vendor compliance Report of supplier compliance to stakeholders Provision of detailed ethical sourcing expectations to suppliers
iso 9000
Developed by International Organization for Standardization (ISO) - series of management & quality standards in design, development, production, installation, & service. Companies wanting to sell in the global market seek
cpfr
Developed by Wal-Mart & Warner-Lambert in 1995 J&J has a dedicated CPFR team co-located near strategic customers Objective of CPFR is to optimize the supply chain by improving demand forecast accuracy, delivering the right product at the right location, reducing inventories across supply chain, avoiding stock outs, and improving customer service. Top 3 challenges of CPFR: Cost, Trust, organization & procedural changes
solutions of bullwhip
Everyday Low Prices - EDLP Smaller, more frequent orders Allocate product based on historical sales Information Sharing Communication, Communication, Communication
Supplier certification programs are used to identify strategic supplier alliance candidates
Firms use in-house formal certification programs, & most require ISO 9000 / 14000 or similar certifications as part of the certification process
increasing supply chain responsiveness
Firms will increasingly need to be more flexible and responsive to customer needs Supply chains will need to benchmark industry performance and meet and improve on a continuous basis
qualitative method
Generally used when data are limited, unavailable, or not currently relevant. Forecast depends on skill & experience of forecaster(s) & available information Four qualitative models used are - Jury of executive opinion Delphi method Sales force composite Consumer survey
sustainable sourcing
Green purchasing is aimed at ensuring products or materials meet environmental objectives e.g. waste reduction, reuse and recycling Sustainability is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, environmental, and social challenges Considers worker safety, wages, working conditions, human rights
sustainable sourcing goals
Grow revenues New sustainable product introduction Reduce costs Increase resource efficiencies Manage risk Link brand to social consciousness of consumer Build intangible assets Build social and environmental responsibility
What are keys to Strong supplier partnerships and why are they important?
Important to achieving win-win competitive performance for the buyer and supplier -- these require a strategic perspective as opposed to a tactical position Involve "a mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship"
personal relationships mutual benefits and needs
It is people who communicate & make things happen Partnership should result in a win-win situation, which can only be achieved if both companies have compatible needs. An alliance is much like a marriage, & if only one party is happy, then the marriage is not likely to last
Who benefits most?
Large inventories Large number of suppliers Complex products Customers with large purchasing budgets
functional products innovative products
MRO items & other commonly low profit margins with relatively stable demands & high levels of competition characterized by short product life cycles, volatile demand, high profit margins, & relatively less competition
continuous improvement
Making a series of small improvements over time results in the elimination of waste in a system Buyers & suppliers must be willing to continuously improve their capabilities in meeting customer requirements of cost, quality, delivery, & technology
benchmarking
Measuring what other businesses do best and matching their performance is an effective approach to improving supply chain performance. Benchmarking data regarding sourcing practices can be obtained in any number of ways, both formal & informal.
so&p performance metrics
Metrics are used throughout the S&OP process to assess performance as well as help us improve the business. How sales are performing against plan? Metric: Gross Trade Sales (GTS) How good is our customer service? Are we delivering what we have been asked for? Are we delivering on time? Metric: UFR (Unit Fill Rate) How good is our forecasting? Metrics: Mean Absolute Percentage Error (MAPE) & Bias
simple regression
Only one explanatory variable is used & is similar to the previous trend model. The difference is that the x variable is no longer time but an explanatory variable.
acceptable operational gap
Operational gap must be kept as small as possible to ensure alignment between how the company will invest its resources - both people and working capital - to strategically & tactically achieve the business plan. Acceptable drivers of operational gap include: Differences between consumption trending & shipment trending White space outside average product lead-times New products in LE but not yet forecastable in Op Plan Op Plan may include the high side of a range of event/new products forecast while the LE includes the low side ONLY IF the "general manager" of the business has approved the risk
Criteria Used by Gartner for Top 25 Supply Chain rankings
Peer Opinion 25% Gartner Opinion 25% Three-year Weighted ROA 25% Inventory Turns 15% Three-year Weighted Revenue growth 10% Composite Scores
causes of bullwhip
Price fluctuations Order Batching Shortage Gaming Forecast Accuracy Issues
the greening of scm
Producing, packaging, moving, storing, delivering and other supply chain activities can be harmful to the environment Supply chains will work harder to reduce environmental degradation Large majority (75%) of U.S. consumers influenced by a firm's environmental friendliness reputation Recycling and conservation are a growing alternative in response to high cost of natural resources
drivers strategic sourcing
Reduce costs & delivery cycle times Improve quality & long-term financial performance Increase number of global competitors Increase customer focus Reduce high costs of globalization & materials, Deliver more innovative products more frequently & cheaply than competitors
Cost savings and better coordination of resources are reasons to employ Supply Chain Management
Reduced Bullwhip Effect - the magnified reduction of safety stock costs based on coordinated planning and sharing of information Collaborative planning, forecasting, and replenishment activities reduce the Bullwhip Effect and lead to better customer service, lower inventory costs, improved quality, reduced cycle time, better production methods, and other benefits.
The Weighted-Criteria Evaluation System
Select the key dimensions of performance mutually acceptable to both customer & supplier. Monitor & collect performance data. Assign weights to each of the dimensions. Evaluate performance measures between 0 & 100. Multiply dimension rating by weight & sum of overall score. Classify vendors based on their overall score: Unacceptable, Conditional, Certified, & Preferred Audit & perform ongoing certification review.
trends in srm
Sourcing & procurement are increasing in importance in organizations. They are becoming more strategic More companies expect more cost reductions to come from their procurement functions Staff is being reallocated from low-level transaction activities to more strategic & higher value-added positions Companies with effective transaction activities tend to reduce costs better & have strategic & automated systems
firms using scm...
Start with key suppliers Move on to other suppliers, customers, and shippers Integrate second tier suppliers and customers (second tier refers to the customer's customers and the supplier's suppliers)
supply elements
Supplier management - improve performance through Supplier evaluation (determining supplier capabilities) Supplier certification (third party or internal certification to assure product quality and service requirements) Strategic partnerships - successful and trusting relationships with top-performing suppliers Ethics and sustainability - recognizing suppliers' impact on reputation and carbon footprint
vendor managed inventory
Suppliers manage buyer inventories to reduce inventory carrying costs & avoid stockouts for buyer From the buyer-firm's perspective - Supplier tracks inventories Determines delivery schedules and order quantities Buyer can take ownership at stocking location From the supplier's perspective - Avoids ill-advised customer orders Supplier decides inventory set up & shipments Opportunity for supplier to educate customers about other products
quantitative
Time series forecasting - based on the assumption that the future is an extension of the past. Historical data is used to predict future demand Cause & Effect forecasting - assumes that one or more factors (independent variables) predict future demand It is generally recommended to use a combination of quantitative & qualitative techniques
logistics trends
Transportation management - tradeoff decisions between cost & timing of delivery / customer service via trucks, rail, water & air Drones, Driver-less vehicles, and Electric trucks. Customer relationship management - strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements Network design - creating distribution networks based on tradeoff decisions between cost & sophistication of distribution system
Successful partnership: build trust
With trust, partners are more willing to work together, find compromise solutions to problems, work toward achieving long-term benefits for both parties, &, in short, go to the extra mile.
performance metrics
You can't improve what you can't measure Measures related to quality, cost, delivery, & flexibility are used to evaluate suppliers. Metrics should be:1) understandable, 2) easy to measure, & 3) focused on real value-added results A multi-criteria approach is best Total cost of ownership (TCO), is made up of all costs associated w/acquisition, use, & maintenance of a good or service
sourcing
all of firm's activities used to manage external resources. Strategic sourcing - managing the firm's external resources to support firm's long term goals.
insourcing cosourcing
backsourcing) - Reverting to in-house production when quality, delivery, and services that are outsourced do not meet expectations (selective sourcing) - The sharing of a process or function between internal staff and an external provider & provides flexibility to decide what areas to outsource, when, and for how long.
BIAS
have a tendency to over and underforecast = [True Value (Actual Shipments - Forecast)] / Actual Shipments Lower = Better Consistent NEGATIVE BIAS = Excess Inventory Consistent POSITIVE BIAS = Service/Sales risk
early supplier involvement
highly effective supply chain integrative techniques Key suppliers become more involved in the internal operations of the firm, particularly with respect to new product & process design, concurrent engineering & design for manufacturability techniques
supply base rationalization
is often the initial supply chain management effort Buyer-supplier partnerships are easier with a rationalized supply base & result in - Reduced purchase prices Fewer supplier management problems Closer & more frequent interaction between buyer & supplier Greater levels of quality & delivery reliability
rewarding and punishing suppliers
provides an incentive to surpass performance goals Punishment is a negative reward, may be to reduce future business; or a bill-back amount equal to the incremental costs resulting from a late delivery or poor quality Strategic supplier agreements can reward suppliers by allowing - A share of the cost reductions More business and/or longer contracts Access to in-house training seminars & other resources Company & public recognition
foundations of supply chain
supply, operations, integration, logistics
forecast error
the difference between actual quantity & the forecast - Forecast error, et = At - Ft Where et = forecast error for Period t At = actual demand for Period t Ft = forecast for Period t
naive forecast
the estimate of the next period is equal to the demand in the past period.
