Chapter 6 Business Logistics and Transportation

APS evaluates constraints

- Material (availability, safety stock levels) - Machines (set-up, sequence, capacity) - Manpower (labor capacity, competence) - Money (cost) - Methods (distribution requirements, due dates)

Basic Planning Formula

Beg. Inventory + Production - Demand = Ending Inventory

Supply planning uses requirements from demand management to develop a realistic manufacturing plan. Which one of the following represents the Basic Planning Formula?

Beginning Inventory (BI) + Production - Demand = Ending Inventory (EI)

sales and operations conflict

balancing objectives: - high working capital (inventories) - lower service levels - lower quality - lower margins

Basic "three-line" plan

demand supply projected inventory beginning inventory + supply (production) - demand = projected inventory (Ending inventory)

Supply Chain Planning

determining how best to satisfy the requirements created by the Demand Plan GOAL: balance supply and demand in a way that realizes the financial and service objectives of the company PLAN SOURCE MAKE DELIVER RETURN

mean absolute deviation (MAD)

evaluates absolute error by ignoring the sign of the error

time series

focuses entirely on historical patterns and pattern changes to generate forecasts - simple moving average - weighted moving average - exponential smoothing

irregular component

includes random or unpredictable quantities that do not fit other components

logistics planning

integrates overall movement demand, vehicle availability, and relevant movement cost into a decision support system that seeks to minimize overall freight expense

collaborative planning, forecasting, and replenishment (CPFR)

is 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 - reduces the bullwhip effect

trend component

is along-range shift in periodic sales

seasonal component

is annual recurrnig upward or downward movement in demand

promotional component

is demand swings initiated by a firm's marketing activities

base demand

is long-term average demand after other components are removed

mean absolute percentage error (MAPE)

is mean MAD divided by mean demand

cyclic component

is periodic shifts in demand lasting more than a year

Demand Management

the demand management system is the information technology component of the sales and operations planning process

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

multivariate

uses more complex statistical techniques to identify more complex demand history relationships; techniques include spectral analysis, fourier analysis, transfer functions, and neural networks

regression

uses other independent variables, such as price, promotion plans, or related product volumes, to predict sales

causal

uses specific information to develop relationships between lead events and forecasted activity - regression - multivariate

forecasting

- a forecast is what is projected to be sold and when - forecasting is a critical capability as many logistics and other supply chain activities must be completed in anticipation of a sale - to achieve enhanced service or reduced inventory

planning processes

- business planning - sales and operations planning - advance planning and scheduling - collaborative planning, forecasting and replenishment

common software applications for the planning environment include

- demand planning - supply planning - logistics planning - inventory deployment

Forecast challenges

- demand variability - scale of information from marketing and sales - promotions - increased complexity - impact of supply issues on forecasting

CPFR Process STeps

- develop a joint business plan - create a joint calender to determine product flow - create a common sales forecast based on shared knowledge of each trading partner's plan - use the common sales forecast to develop - production plan - replenishment - shipment plan

Benefits of Integrated Operations Planning

- facilitates more effective planning with shorter cycle times - offers capability to consider the extended supply chain and make appropriate trade-offs to achieve optimal performance - more effective and responsive planning allows a more level assignment resources for existing sourcing, production, storage and transportation capacity - greater integration with financial plans - increased inclusion of strategic initiatives and activities - improved simulation and modeling of alternatives - easier translation between aggregate and detailed planning levels

forecasting requirements

- forecasts match the product requirements of customers with capacity of the supply chain - forecasts must be timely and accurate to align customer demands for higher service levels and more product variations with a management focus to reduce supply chain assets

Benefits gained from APS

- improved throughout times - improved delivery times - optimum inventory levels - better resource utilization - improved customer service levels - reduction in costs - mitigating the bullwhip-effect - enabling CPFR

The Bullwhip Effect

- in the absence of any other information or visibility, individual supply chain participants are second-guessing what is happening with ordering patterns and potentially over-reacting, creating the bullwhip effect

supply chain visibility

- into location status of supply chain inventory and resources - exception management for changes in the flow to minimize/prevent potential problems

how does APS work?

- it utilizes planning and scheduling techniques, considering all demand needs and supply limitations, to produce an optimized plan based on mathematical modeling

simultaneously resource considerations

- sequential decision making = sub-optimal planning and capacity utilization - to identify trade-offs where increases in some functional costs may lead to lower total system costs

resource utilization

- supply chain decisions influence many enterprise resources which consume a substantial proportion of a firm's assets - functional management must focus on resource utilization within the scope of their responsibility

Drivers of Effective Supply Chain Planning

- supply chain visibility - simultaneously resource considerations - resource utilization

forecasts are necessary to

- support collaborative planning - drive requirements planning - improve resource management through cost trade-offs of strategies

quantitative

- time series - causal

keys to S&OP Implementation

1) executing the process every month 2) process ownership and clarity of roles and responsibilities 3) organizational commitment to achieving high forecast accuracy 4) focus should be on the next 3 to 12 months 5) one plan that integrates the actions of the entire organization 6) senior management decision making 7) measuring end-to-end supply chain performance 8) S&OP forecast versus operating plan or budget

Major benefits of CPFR

1) improved customer service through better forecasting 2) lower inventories for higher profits 3) improved ROI on technology investment 4) improved relationships between trading partners 5) cost reduction

Which of the following is NOT a benefit of Integrated Operations Planning?

A. Greater integration with enterprise financial plans B. Increased inclusion of strategic initiatives and activities. C. Improved simulation and modeling of alternatives. D. Easier translation between aggregate and detailed planning levels. E. Only A, B, and D are benefits of Integrated Operations Planning Correct F. All of the above are benefits of Integrated Operations Planning

CPFR improves customer service by driving inventories up through collaboration with customers on their demand.

FALSE

There are eight (8) keys to successful S&OP implementation. Which of the following is NOT one of them?

Focus on the short-term.

QUIZ

QUESTIONS

Which of the following forecasting techniques "focuses entirely on historical patterns and pattern changes to generate forecasts"?

Time Series

Integrated Operation Planning

a dominant theme of supply chain management is the achievement of operational integration - BENEFITS - directly related to capturing efficiencies between function within an enterprise

Advanced Planning and Scheduling (APS)

a manufacturing management process by which raw materials and production capacity are optimally allocated to meet demand

sales and operations planning

a process that brings all the demand and supply plans for the business together to provide management with the ability to strategically direct the business to achieve a competitive advantage - it is the definitive statement of the company's plans for the near to intermediate term - preformed once a month - covers a horizon sufficient to plan for resources - reevaluated annually - making S&OP work in an organization requires senior leadership involvement

weighted moving average

a weighted average of the previous periods of sales

exponential smoothing

an exponentially weighted moving average using a smoothing constants to place greater weights on more recent demands

Simple Moving Average

an un-weighted average of the previous periods of sales

qualitative

relies on expert opinion, intuition and special information

collaboration

sharing information through the use of electronic data interchange (EDI), point of sale (POS) data, and web-based systems can facilitate collaboration

synchronizing the supply chain

supply chain paticipants coordinate planning and inventory management to minimize the need for reactionary corrections