Intro to Supply Chain Management, Chapter 1-4, Midterm Exam 1

Work in Process (WIP)

- 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. • Due to the range of potential stages of completion, and the fact that materials in WIP may be in a state of continuous transformation, many companies view WIP as the "black hole" of inventory as they may not have very good or very timely visibility into this part of their inventory. • Best practice generally suggests minimizing the amount of WIP inventory in the manufacturing area since too much WIP may clutter up the physical space and impede the process flow.

What are the benefits of maintaining adequate product inventory?

- Allows a company to fill customer orders immediately. - - Allows a company to support manufacturing operations and the production plan while avoiding delays.

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. • Materials that you need to run the manufacturing operation and the business but do end up as part of the finished product. — Some MRO tems 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 mom, etc.

Enterprise Requirements Planning (ERP)

- an extension of MRP II - facilitates the sharing of information and the real-time communication and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively.

Aggregate Production Planning

- balances production, inventory, resources and demand - a marketing activity that does an aggregate plan for the production process, in advance of 6 to 18 months, to give an idea to management as to what quantity of materials and other resources are to be procured and when, so that the total cost of operations of the organization is kept to the minimum over that period

Hidden costs of too much inventory

- financial resources tied up in inventory - underlying problems being hidden rather than being exposed and solved no incentive for process improvements

effects of having too little inventory

- production disruptions - longer delivery replenishment lead times - reduced responsiveness - lost revenue

Closed-loop MRP

- synchronizes the purchasing or materials procurement plans with the master production schedule ○ 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. ○ It incorporates the aggregate production plan, the master production schedule, the material requirements plan, and the associated capacity planning tools needed to check the feasibility of the plan

Advantages of ERP Systems

-Added visibility leads to reduced supply chain inventories -Helps to standardize manufacturing processes -Measure performance & communicate via a standardized method

Disadvantages of ERP systems

-Substantial time & capital investment -Complexity -Firms adapt processes to meet ERP system

Common metrics for inventory

-Units = # units available -Dollars -dollars tied up in inventory -Weeks of Supply- (avg. on-hand inventory) / (avg. weekly usage) -Inventory Turns (cost of good sold) / (avg. inventory value)

How can the Bullwhip Effect be Alleviated?

-collaboration -synchronizing the supply chain -reducing inventory

Supply Strategies

1. 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. 2. Change Capacity ○ Vary production output through overtime or idle time. ○ Vary workforce size by hiring or layoff . - Use part-time workers. - Subcontract the work

2 models for determining "when to review"

1. Continuous Review System 2. Periodic Review System

Steps to Develop the Aggregate Production Plan

1. Determine the demand and capacity for each period covered by the aggregate planning horizon. 2. Identify constraints which may influence the plan. 3. Determine the direct labor and material costs and the indirect manufacturing costs for each product or product family covered by the aggregate production plan. 4. Identify or develop strategies and contingency plans to manage the potential upside or downside in the market. 5. Agree on a plan that best meets the planning goals and objectives.

The two common inventory ordering system categories are:

1. Fixed - Order Quantity System 2. Fixed-Time Period System

EOQ Calculation will be impacted by volume economies of scale such as:

1. Individual Item Purchase Price Discounts (discounts for ordering larger quantities) 2. Multiple-Item Purchase Price Discounts (if u buy combo of items from a supplier, u can get a discount). 3. Transportation Freight-Rate Discounts - ordering large quantity, can get Freight Rate discounts which will lower the per unit costs.

Demand Strategies

1. Influencing Demand - so that it aligns to available production capacity. 2. Backordering - accept demand greater than supply capabilities. 3. Counter-seasonal product mixing - develop a product mix with antithetic (seasonal) trends that level the cumulative required production capacity (ex: lawn mowers and snow blowers). - Even out supply plan as much as possible, invest in 2 seasonal items to balance production plan.

Basic Production Strategies

1. Level Production Strategy 2. Chase Production Strategy 3. Mixed Production Strategy

Costs related to inventory

1. Purchase Costs: Actual invoice amounts charged by suppliers (investment). 2. Carrying Costs: Associated with holding inventory: a. storage, b. insurance, c. security, d. inventory taxes, e. depreciation or rent of facilities, f. interest, g. obsolescence and spoilage, and h. the opportunity cost of funds invested in inventory. 3. Ordering Costs: costs of placing na order with a vendor. 4. Stockout costs: opportunity cost of missing a customer order. 5. direct costs - directly traceable to unit produced 6. indirect costs - cannot be directly traced to the unit produced. 7. Fixed costs (aka sunk costs) - costs no matter how much is produced. 8. Variable costs - dependent on the unit volume produced

What are the 4 main categories of inventory?

1. Raw Materials 2. Work-In-Process (WIP) 3. Finished Goods 4. Maintenance, Repair, and Operating (MRO) supplies.

Functions of Inventory - Why hold inventory?

1. To meet Customer Demand (cycle stock) a. immediately fill customer orders b. deploy product/material near where it will be used. 2. To buffer against uncertainty in demand and/or supply (safety stock) a. demand is above/below expectations. b. supply - shortages, delays, disruption. 3. to decouple supply from demand (strategic stock) a. get discounts in purchasing b. seasonal products/demand 4. To decouple dependencies in the supply chain. a. smoothing production and reducing peak period capacity needs

Steps to achieve planning goals and objectives

1. Top Management at company establishes the desired high-level planning goals and objectives. 2. Determine what is necessary to achieve these goals and objectives. (Identify the specific action steps). 3. Set start and completion dates for each action item identified. 4. Responsibility for each action item should be formally assigned to the appropriate individual or department within the company to execute.

When Establishing target inventory levels for all products and materials, address these 3 fundamental questions:

1. When to review? 2. When to order? 3. How much to order?

Intermediate Range Supply Chain Planning

3-18 months, shows the quantity and timing of ends items (finish products) Done by mid-level operations management people who have the knowledge and information about the operations necessary to develop the plan. Ex: ford plans to make 1000 XL pickup trucks per month for the next 3-18 months

EOQ Model

= square root of (2 x order cost x annual demand volume) divided by annual carrying cost x unit cost)

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. Adv: provides planning information Dis: loss of visibility, ignores capacity and ignores shop floor conditions MRP - software that organizes what raw materials you need to buy beforehand.

Manufacturing Resource Planning (MRP II)

A computer-based system that can create detail production schedules using real-time data to coordinate the arrival of component materials with machine and labor availability. ○ It incorporates the closed loop MRP system and adds the strategic, business, and financial plans.

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 (order period) varies from order to order. pre-defined quantity -> determined by reorder point and order quantity

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

Rough-Cut Capacity Planning (RCCP)

A medium-range capacity plan 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. Simple English: do we have the capabilities to achieve the master production scheduling (get finished goods?)

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.

The Economic Order Quantity (EOQ) Model

A quantitative decision model based on the trade-off between annual inventory holding costs & annual order costs. EOQ - a fixed-order quantity model EOQ model seeks to determine an optimal order quantity (where the sum of the annual order costs & the annual inventory carrying costs is minimized)

Forecast Accuracy - Tracking Signal

A simple indicator that forecast 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. Think of a smoke detector. It is preset to allow for a certain range of smoke, but beyond that range the alarm (tracking signal) goes off and warns you. Tracking Signal is RSFE / MAD

Planned Order Release

A specific order for a specific item and quantity to be released to the shop or to the supplier.

Gross Requirement

A time-phased requirement prior to netting out on-hand inventory and lead-time (total requirement: what do i need to make a bike?)

Service Inventory

Activities carried out in advance of the customer's arrival Companies in the service industry do not maintain inventory of services since services are basically produced and consumed immediately upon demand. Companies can however, maintain inventory of" facilitating goods," which are those items that are used to help facilitate the service being provided. For example: a. Restaurants offer dining services, but cannot inventory the actual dining service; they can only begin the dining service when the customers arrive. b. Restaurants can inventory the food, tableware, and other elements of the dining operation as these are facilitating goods necessary to provide the service. c. Restaurants can even prepare some of their meal options in advance, such as salads or deserts. They can inventory these facilitating products so they are ready rrive for the dining service.

Strategic 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. A company may decide to carry strategic stock to: a. hedge currency fluctuations b. take advantage of a price discount c. protect against a short-term disruptive event in supply d. take advantage of a business opportunity. e. for life cycle change: seasonal demand, new product launch, transition protection. aka: anticipation stock, build stock, or seasonal stock.

Chase Production Strategy

Adjusts capacity to match demand. Firm hires and lays off workers to match output to demand. Finished goods inventory remains consistent based on worker productivity. Works well for make-to-order firms • Adjusts output and labor based on demand Make-to-order -> demand is inconsistent.

Simple English Terms

Aggregate Production Plan - all products that we are planning to make Master Production Schedule - focuses more on each individual product MRP - raw materials and components.

Process from Aggregate Production Plan to Master Production Plan

Aggregate Production Plan: "i need 2000 cars" Master Schedule: i will need 1000 2-door cars, 750 4-door cars, 250 convertibles. Master Production Schedule: " we should have 750 4-door cars) forecasted to be done by the end of the month."

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.

Forecast

An estimate of future demand

Tier 1 Customer

Anyone we ship goods to directly (usually, wholesalers, distributors, retailers, even to final customers directly.

Barcodes

Barcode systems help businesses track products and stock levels for inventory management.

Two Types of Implementation for ERP Systems

Best of Breed and Single Integrator Solution

Services

Customers are more directly involved in the delivery of services than they are in the supply of a physical product (ex: You must "supply" your car for automotive repair service) • Service products cannot generally be produced in advance or inventoried. • Services are typically produced and consumed simultaneously and in almost every service offering, the service cannot start until the customer arrives and actively participates.

Inventory Stock Levels

Cycle Stock Safety Stock Strategic Stock Pipeline Inventory Obsolete Inventory

2 types of Aggregate Production Planning Strategies

Demand Strategies and Supply Strategies

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

What are the 2 Basic Supply Chain Capability Models?

Efficient and Responsible

Who benefits the MOST from supply chain management?

Firms with large inventories, large number of suppliers, complex products/large number of products, and large purchasing budgets/expenditures.

Firmed Time Period

From the current date out several weeks into future. The outer limit of this period to signify when changes can no longer be made automatically by the planning system. Ex: 8 weeks we arent changing anything

Planned Time Period

From the end of the Firmed Time Period to the end of the planning horizon. - free to make changes after the end of the firmed time period.

Enterprise Resource Planning (ERP)

Information system connecting all functional areas and operations of an organization via software and databases. 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.

Pipeline Inventory

Inventory in transit -ownership of this inventory has been transferred to the trading partners but may still influence decisions company makes regarding how they manage and control their internal inventory, and how much safety stock and strategic stock they hold.

Inventory can be one of the largest and most important ___________ of an organization

Inventory is usually one of the company's LARGEST ASSETS, so careful management of that asset is an essential business requirement.

Continuous Review System

Inventory levels are continuously reviewed/monitored. - As soon as inventory falls below a pre-determined level (i.e., a reorder point), a replenishment order is triggered. (using technology, could be expensive) More costly to conduct than a Periodic Review System, but it potentially requires less safety stock because inventory is constantly monitored, and replenishment actions are taken more quickly. Advantages: • Allows for real-time updates of inventory, which can make it easier to know when to replenish. • Facilitates accurate accounting, since the inventory system can generate real- time costs of goods sold. Disadvantage: • Cost of implementation. Generally requires an automated system. The hardware and software necessary to run the system can be expensive to purchase, install, and maintain.

Bin System

Inventory system that uses either one or two bins to hold a quantity of the item being inventoried 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. 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.

Cycle Stock

Inventory that a company builds to satisfy its' immediate demand. cycle stock depletes gradually as customer orders are received. amount of cycle stock that a company holds is dependent on actual demand in the immediate time period, lead time, and order quantities.

What happens if a company fails to manage inventory adequately?

It can lead to significant issues and inefficiencies throughout the supply chain, including dissatisfied customers, lost sales and revenue, and higher costs.

What is the right amount of inventory?

It depends on the supply chain strategy and set-up, the type of product(s), customers' expectations, customer service objectives, product shelf life.

Parent

Item generating demand for lower-level components.

Implementation Problems

Lack of top management commitment Lack of adequate resources Lack of proper training Lack of communication Incompatible system environment

Constraints on the Practice Use of EOQ

Limited Capital Storage Capacity Transportation Obsolescence Production Lot Size (lot sizes = minimum quantity you have to order from supplier) Unitization (usually with transportation)

Logistics

Logistics is the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities. ○ More inwardly focused on your own organization's operations. ○Does inventory management, warehousing (material handling and storage), distribution (order fulfillment, pick, pack and ship) and transportation (the movement of inventories into and out of an organization).

Mixed Production Strategy

Maintains stable core workforce while using other short-term means, such as overtime, subcontracting & part time helpers to manage short-term demand. the more work, the more output. will hire a lot of people during holidays to fill in demand.

Integration

Managing all of the enabling systems necessary to facilitate the complete integration of the operations, supply, and logistics functions (enabling systems, supply chain risk and security management, performance measurement, project management)

What is the principle mission of Supply Chain Management?

Mission: to ensure that demand is met.

Time Series Methods

Naive Forecasting Simple Moving Average Weighted Moving Average Exponential Smoothing Linear Trend

MRP Explosion

Process of converting planned production of parent item into component gross requirements (ex: if we need 10 bikes, we need 20 wheels, 10 rims, etc)

Projected on-hand inventory

Projected closing inventory at end of a period. Beginning inventory minus gross requirements, plus scheduled receipts plus planned receipts from planned order releases (what we know is ordered and coming).

2 basic forecasting techniques

Qualitative Forecasting and Quantitative Forecasting

RFID

Radio Frequency Identification - does not require direct line of sight to read a tag, and the information on the tag is updatable. Automates the supply chain: • Materials Management goods automatically counted and logged as they enter the supply warehouse • Manufacturing— assembly instructions encoded on RFID tag provide information to computer controlled assembly devices • Distribution Center shipment leaving DC automatically updates ERP to trigger a replenishment order and notify customer for delivery tracking • Retail Store — no check out lines as scanners link RFID tagged goods in shopping cart with buyers credit card

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. Pegging can be thought of as active where-used information.

Level Production Strategy

Relies on a constant output rate while varying inventory & backlog according to fluctuating demand. Firm relies on fluctuating finished goods & backlogs to meet demand. Works well for make-to-stock firms. Level of production is constant even if demand changes.

Personal Insight

The forecast is based on the insight of the most experienced, knowledgeable, & / or senior person. Adv: - fast and cheapest - can provide a good forecast Dis: - may be prejudiced, biased, or contain ignorance - unreliable

Inventory Management

The function of planning and controlling inventories

Assumptions of the EOQ Model

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

Demand Planning

The process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services

Capacity Requirements Planning (CRP)

The process of determining short-range capacity requirements. Simple English: do we have the capabilities and resources to get the items needed (raw materials and components) for the finished goods?

Net Requirement

The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.

Absolute Inventory Value

The value of the inventory at either its cost or its market value. (found on balance sheet)

Maintenance, Repairs & 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. Some MRO items are consumed/used during the manufacturing process. Or are used to facilitate the company's administrative activities. - is separate from production inventory but is just as important.

What happens if there is 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. -the more inventory a company holds, the more space is needed, and space costs money (security, insurance, taxes) Inventory can become a liability if it becomes unusable due to expiration, obsolescence, damage, or spoilage.

Time Fencing

To minimize impact of changes in the Master Production Schedule, many companies have adopted a time fencing policy separating the planning horizon into a firmed time period and a planned time period.

Transportation of goods includes...

Truck, Rail, Water, Air, Pipeline (truck, train, ship, airplane, pipeline)

True or False: Any organization, anywhere in the world, offering a product or a service has a supply chain.

True

Finished Goods

Units of product that have been completed and are available to sell to customers.

Scheduled Receipts (SR)

a committed order awaiting delivery for a specific period.

Forecast Bias

a consistent deviation from the mean in one direction; either high or low a good forecast is not biased. A negative result shows that actual demand was consistent forecast a positive result shows that actual demand was greater than demand. Sum of forecast error = sum of actual demand - sum of forecast demand.

Weighted Moving Average

a forecasting model that assigns a different weight to each period's demand according to its importance Formula: (W1 x M1) + (W2 x M2) + (W3 x M3) + (W4 x M4) Adv: - more accurate than a simple moving average Dis: - technique still lags behind actual demand to some degree. -Challenge: deciding on the weight for each time period.

Resource Requirement Planning (RRP)

a long-range capacity planning module, checks whether aggregate resources are capable of satisfying the aggregate production. Resources considered include gross labor hours & machine hours Simple English: do we have the resources (labor, manpower, money) to satisfy the Aggregate production plan (our long term goals for family level goods)?

ABC system

a method for classifying inventory items according to their dollar value to the firm (degree of importance) based on the principle that only a few items account for the greatest dollar value of total inventory Determine annual usage or sales for each item (how much it generates, also demand is incorporated into this). 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 A items - given the highest priority. "80/20" - generally A items account for approximately 20% of the total number of items, but about 80% of the total inventory cost/ B&C items - account for the other 80% of the total number of items, but only 20% of total inventory costs.. C items - lowest value and hence the lowest priority.

Sales and Operations Planning (S&OP)

a process to develop tactical plans by integrating customer-focused marketing plans for new and existing products with the operational management of the supply chain sales plan + operations management = marketing the products really. ○ It links the strategic plans for the business with its execution, and provides a way for management to determine resource needs and to keep a handle on the business without having to review the plans at the detailed level.

Safety Stock

a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. - aka buffer stock.

Distribution Requirements Planning (DRP)

a time-phased finished good inventory replenishment plan in a distribution network. Function of determining the need to replenish inventory at branch warehouses.

single period inventory model

a type of inventory system in which inventory is only ordered for a one-time stocking (objective = to maximize profits) ex: christmas tree lots

Base Stock Level System

a type of inventory system that issues an order whenever a withdrawal is made from inventory replenishment order quantity is equal to the quantity withdrawn from inventory. used for expensive items and slow moving goods like airplanes.

Total Cost of Ownership (TCO)

all of the costs incurred before, during, and after a purchase Total Cost = purchase price + order cost + carrying cost

2D Bar Codes

are a graphical image that stores information both horizontally and vertically. can store 7,000 characters

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. can only be read horizontally and can only hold a maximum of 85 characters.

Planning Factor in a BOM

basically, the quantity

Distribution Requirements Planning (DRP)

determination of replenishment and positioning of finished goods in the distribution network (in warehouses)

Bill of Materials (BOM)

document that shows an inclusive listing of all component parts and assemblies making up the final product

goal of inventory management

help a company be more profitable by lowering the cost of goods sold and/or by increasing sales

Order Costs

incurred each time an order is placed. ex: - order preparation costs (labor costs) - order transportation costs (like quality check) - order receipt processing costs - material handling costs

Carrying Costs

incurred for holding inventory ex: - cost of capital - taxes - insurance - obsolescence - storage

Periodic Review System

inventory levels are reviewed at a set frequency (ex: 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. Since items are only reviewed periodically, there is a greater risk of inventory dropping well below the reorder point between reviews and, therefore, a greater potential need for safety stock. Advantages: • Reduces the time spent analyzing inventory. • Less expensive than a Continuous Review System. Disadvantages: • May not provide accurate inventory counts for businesses with high sales. • Can be difficult to determine the best review/reordering intervals. less accurate.

Long Range Supply Chain Planning

involves planning for major actions (1- 3 years, could be as long as 10 though). Top Management sets direction of company, makes strategic decisions and controls level of major resources. ex: construction of facilities or major equipment purchase and new product introduction plans.

short range supply chain planning

involves the detailed planning process for components and parts to support the master production schedule. - where the plan becomes a reality, materials are obtained, products are produced and orders are filled. Best managed by individuals who are the most directly involved with these activities - the managers, supervisors. Ex: plan and order the components and materials needed for production of the XL 150 pick-up trucks

Collaborative Planning, Forecasting, and Replenishment (CPFR)

is a 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. CPFR - benefits include: - better customers service - lower inventory costs - improved quality - reduced cycle time - better production methods

barcode reader

is an electronic device that can read and output printed barcodes to a computer

Fixed-Time Period System

order quantity is the difference between the on hand stocks on the review day and the pre-determined target inventory level . Q = R - IP where: Q = order quantity R = target Inventory level IP = inventory position (on hand) Order quantity - will differ from one order to another depending on the on-hand quantity on the day of the review. IF IP < R, the Q is ordered and R is restored when each new order is received.

Lot Size

order size for MRP logic (can only order in this certain quantity. Ex. Can only order in groups of 10)

Components

parts demanded by a parent

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

Business Planning

process of setting goals, developing strategies, and outlining tasks and schedules to accomplish the goals and objectives for the next 2-10 years. done by top management

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. A positive RSFE indicated that the forecast was too low, underestimating the demand. - stock-outs are likely A negative RSFE indicates that the forecasts were generated were too high, overestimating demand. - excess inventory and higher carrying costs.

Raw Materials Inventory

purchased items or extracted materials that are converted into components and products via the manufacturing process. ○ Every company that produces a product generally starts with some type of raw material, component part or starting material. ○ There are strategies around the question of 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 ○ Companies might be willing to increase costs by storing excess raw material inventory if they fear there may be a potential shortage of the material or if they suspect that there is an upcoming price increase and want to buy at the current lower price.

Available to Promise (ATP)

represents the uncommitted portion of a company's available inventory. Not owned by anyone yet. To find: on-hand inventory + supply - ordered = ATP. Ex: if 500 items, 200 items are supposed to go to ABC company, you have (500-200) = 300 items in ATP.

Supply Chain Planning

responsible for determining how operations will best satisfy the requirements created by the Demand Plan - have to balance supply and - demand, capacity and output.

Master Production Schedule (MPS)

specifies how much of each product is to be produced during the planning period and when that production should occur

Obsolete Inventory

stock that is expired, damaged, or no longer needed.

Reorder Point (ROP)

the lowest inventory level at which a new order must be placed to avoid a stockout - set at a level that provides enough inventory so demand is covered during the lead time (L) needed to replenish inventory (lead time = time it takes from when u order it to when it arrives. If lead time = 2, then it takes 2 weeks for inventory to come in after it is ordered - safety stock increases the Reorder Point (ROP)

Demand

the need for a particular product or component.

Inventory Turnover

the number of times that an inventory cycles or "turns over" during the year. Inventory Turnover Ratio = COGS / Average Inventory @ cost

Bullwhip Effect

the phenomenon in supply chains whereby ordering patterns experience increasing variance as you proceed upstream in the chain. When a small demand ripple in the marketplace is felt by the retailer in the supply chain, the retailer will then start adjusting their orders to the wholesalers, and the wholesalers in turn will adjust its orders to the distributor, the distributor to the supplier and so on back up hte supply chain. When the new demand reaches the material or components supplier at the other end of the supply chain, the magnitude of fluctuation becomes unrecognizable. An overreaction due to uncertainty occurs throughout the entire supply chain.

Inventory

the quantity of goods and materials that are held in stock. - includes all of the raw materials and work-in-process (materials in process of being converted into finished good) items used to support production, all of the finished products needed to provide customer service, and all of the other materials and supplies needed to run a business, i.e., maintenance, repair, and operating supplies.

What is the primary purpose of the Aggregate Production Plan?

to establish production rates that will achieve management's objective of satisfying customer demand by maintaining, rasing, or lowering inventories, while attempting to keep the workforce relatively stable goals: - meet demand - use capacity efficiently - meet inventory policy - minimize cost

Time Bucket (MRP)

unit of time/time period used in MRP (days, weeks, months, etc)

Relationship between Capacity and Demand

· If capacity and demand are nearly equal emphasis should be placed on meeting demand as efficiently as possible. · If capacity is greater than demand the firm might choose promotion and advertising in order to increase demand. · If capacity is less than demand the firm might consider subcontracting a portion of the work-load to an outside third party.

Service Firms offer intangible products, meaning...

Intangible Products - products that cannot be physically touched.

What happened in the 1970s?

Introduction to new computer technologies led to the development of Materials Requirement Planning (MRP) and Manufacturing Resource Planning (MRP II).

Service Supply Chain

Is about managing the relationships between the trading partners than it is about managing the chain of supply.

Forecasting and Demand Planning

Key building blocks from which all supply chain planning activities are derived - match demand to available capacity

Total Quality Management (TQM)

a management philosophy that focuses on satisfying customers through empowering employees to be an active part of continuous quality improvement

Materials Requirements Planning

a method of determining what materials are needed and when they are needed to support the production plan.

Just-in-time (JIT)

a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement.

Cause and Effect

assumes that 1 or more factors (independent variables) predict future demand (e.g. seasonality in retail markets).

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 - describes the relationship between the independent variable and dependent variable as a straight line.

Multiple Linear Regression

attempts to model the relationship between two or more independent variables and a dependent variable (demand) by fitting a linear equation to the observed data

Qualitative Forecasting

based on opinion, intuition, and judgment a. used when data is limited, unavailable, or not currently relevant. b. forecast depends on the skills and experiences of the forecaster(s) and available information

Time Series

based on the assumption that the future is an extension of the past. Historical data is used to predict future demand - forecasts for future demand rely on understanding past demand. - predict the future by understanding the past.

Good forecasting

can benefit a company by facilitating more effective planning, which can lead to reduced inventories, reduced costs, reduced stockouts, and improved customer service.

Medium-term forecasts

cover a period from 6 months to 2 years. Reviewed on a monthly basis.

long-term forecast

cover a period of 2 years or more; reviewed on an annual or quarterly basis.

Short- term Forecasts

cover a period up to 6 months and are generally reviewed on a weekly basis

Dependent Demand

demand for an item that is directly related to the demand of other items or finished products. Ex: the demand for a tire is dependent on the demand of a bike.

Forecasting Error

the difference between a forecast and the actual demand. Size of the forecast error can be measured in units or percentages.

What is the goal of forecasting and demand planning?

to MINIMIZE FORECAST ERROR

What are the Goals of Supply Chain Management?

to improve customer service while simultaneously reducing both inventory investment and operating expenses.

Logistics management elements:

transportation management, customer relationship management, network design

Integration Elements

- supply chain process integration - supply chain risk assessment and mitigation - supply chain performance measurement

Operations Management elements

-Forecasting and Demand Planning -Planning Systems -Process Management

Supply Management Elements:

-Purchasing -Supplier Management -Strategic Partnerships -Ethics and Sustainability

Supply Chains are interconnected and a disruption will....

A disruption will likely impact all involved in the supply chain. A supply chain is only as strong as its weakest link.

Current Trends in SCM

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

Fundamentals of Forecasting

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

Deliver Phase of the SCOR model

1. Aka logistics phase 2. Oversees the planning and execution of both the forward and reverse flow of goods and related information between various points in the SC to meet customer requirements. 3. Companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to transport products to customers, and set up an invoicing system to receive payments, among other aspects.

Return Phase of SCOR model

1. Aka reverse logistics 2. Deals with planning and controlling the process of moving goods from the point of consumption back to the point of origin for repair reclamation, re-manufacture, recycling, or disposal. 3. Can be a problematic part of the supply chain. 4. SC managers have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have questions and problems with delivered products. 5. Usually outsourced to a third party to handle for the company.

Explain SCM back In the 1950s and 1960s,

1. Entire focus in those days was on how to produce as much product as possible at the lowest possible cost. 2. Focus was on mass production with cost reduction and productivity improvement strategies. 3. External Collaboration and partnerships were nonexistent. Advantages and Disadvantages of this Internal focus: ○ Advantages: a. Higher output/more productivity b. Reduced cycle times c. Lower in-process inventories ○ Drawbacks: a. High investment in facilities b. Overall cycle time limited by the slowest operation c. Breakdown of one machine will stop an entire production line.

Enable Phase of SCOR model

1. Facilitates a company's ability to manage the Suppl Chain. 2. Enabling processes include: a. Supply chain systems and network operations b. Systems configuration control c. Interfaces d. Gateways e. Database administration f. Electronic data interchange (EDI) g. Telecommunication services h. Performance measurement i. Contract management j. Business rules k. Standards l. Training and education Note: This happens in all stages of the SCOR model

Make Phase of the SCOR model

1. Manufacturing is the series of operations performed to convert materials into a finished product. 2. Finished product is manufactured, tested, packaged, and scheduled for delivery. 3. LEAN manufacturing and Six Sigma are introduced in the "make" process. 4. The MOST METRIC-INTENSIVE portion of the supply chain, where companies are able to measure quality levels, production output, and worker productivity,

Planning Phase of SCOR model

1. Planning is the first phase of the SCOR model. 2. Establishes parameters within which the supply chain will operate. 3. Companies need strategy for managing all the resources necessary to address how a product or service will be created and delivered to meet the needs of their customers 4. Includes the determination of marketing and distribution channels, promotions, quantities, timing, inventory, and replenishment policies, and production policies. 5. Develop metrics to monitor the supply chain so that it is efficient and cost effective and delivers high quality and value to customers.

Source Phase of the SCOR model

1. Process of identifying the suppliers that provide the products/materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s). 2. Building strong relationships with suppliers 3. Develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance of the buying process over time and potentially supplier performance as well.

What are the 2 main reasons that companies implement Supply Chain Management?

1. achieve cost savings 2. better coordinate their resources.

Old Paradigm

A company gained synergy as a vertically integrated firm encompassing the ownership and coordination of several supply chain activities. - organizational cultures emphasized short-term, company-focused performance

New Paradigm

A company in a supply chain focuses activities in its areas of specialization and enters into voluntary and trust-based relationships with supplier and customer firms - outsourcing non-core competencies (areas in which company is not good at).

Business Process Reengineering

A procedure that involves the fundamental rethinking and radical redesign of business processes to achieve dramatic organizational improvements in such critical measures of performance as cost, quality, service, and speed.

What does APICS stand for?

American Production and Inventory Control Society

Manufacturing Resource Planning

An advanced version of MRP that ties together all parts of the organization into the company's production activities. Also helps to improve internal communications and operations.

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. Advantages: a. No additional cost to collect data because internal sales people are used. b. More reliable forecast as it is based on the opinions of salespersons in direct contact with the customer. Disadvantages: a. Not ideal for long-term forecasting b. Salespersons may introduce some bias. Salespersons may not be aware of the economic environment.

Delphi Method

Basically 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. Advantages: a. Decisions are enriched by the experience of competent experts. b. Decisions are not likely a product of groupthink. c. Very useful for new products Disadvantages: a. Experts may introduce some bias. b. Companies must spend time & resources collecting data by survey. c. If external experts are used there is a risk of loss of confidential information. d. The Delphi Method can be time-consuming and is therefore best for long-term forecasts.

Customer Survey

Customers are directly approached and asked to give their opinions about the particular product • Customer surveys can be done in person (e.g., one-on-one, focus group), over the phone, by mail, email, or online. Advantages: - It is a direct method of assessing information from the primary sources. - Simple to administer and comprehend. - It does not introduce any bias or value judgment particularly in the census method if the questions are constructed carefully. Disadvantages: - Poorly formed questions may lead to unreliable information. - Customers do not always answer the questionnaire. - It is time-consuming and costly to survey a large population

Tier 2 Customers

Customers who receive our product or service through a Tier 1 Customer (wholesaler/retailer)

Forecasting Error Formula

Forecast Error Value = A - F Forecast Error % = ((A-F)/A) x 100 Where: A = actual demand F = forecast demand

Facilitating goods

Many services require the use of Facilitated Goods, which are tangible elements that are used along with the service provided. Ex: In a Restaurant, the service is the food service. But the facilitating goods are the food, kitchen equipment, tables and chairs, cash register. Other ex: if you have a hotel, you are providing a service. But you need facilitated goods, such as beds, desks, lamps, toilets, etc.

What are the Foundations of Supply Chain Management?

Operations Management, Supply Management, Logistics Management, Integration

Jury of Executive Opinion

People who know the most about the product and the marketplace would likely form a jury to discuss and determine the forecast Process: Panel conducts a series of forecasting meetings to discuss the forecast until the panel reaches a consensus agreement. Advantages: 1) Decisions are enriched by the experience of competent experts 2) Companies don't have to spend time and resources collecting data by survey. 3) Useful for new products Disadvantages: 1) Experts may introduce some bias 2) Experts may become biased by their colleagues or a strongly opinionated leader.

Qualitative Forecasting Models

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

The SCOR (Supply Chain Operations Research) model contains 6 important components. What are they?

Plan, Source, Make, Deliver, Return, Enable

Tier 2 Supplier

Supplies INDIRECTLY to the manufacturer (directly supplies to Tier 1 Supplier).

Pull Business Model

Producing stock in response to actual demand ADV: - high levels of customer service through responsiveness and flexibility to meet uncertain customer demand - short lead-times, reduce dependency on forecasting. DIS: - every order is basically a rush order and any problems will lead customer dissatisfaction. - highly dependent on customer relationship. - fast, responsive, flexible, robust, integrated systems and processes are a must for this model to work.

Push Business Model

Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. aka "make-to-stock" adv: - product is immediately available to ship to customer -plan resources better Dis: - high inventories cost money (capital tied up in inventory) - long leadtimes - dependency on a GOOD forecast. (products are PUSHED through the supply chain to meet anticipated demand)

Materials, equipment, labor, time, money, and other resources are used to create ....

Products and Services

Cause and Effect Forecasting Includes 2 models

Simple Linear Regression and Multiple Linear Regression.

Tier 1 Supplier

Suppliers DIRECTLY to the manufacturer

in terms of people/organizations, what does a supply chain consist of ?

Suppliers, Manufacturers, and Customers

Efficient Supply Chain Capability Model

Supply Chain and processes are designed to minimize cost. Predictable supply and low cost, high inventory turns. Ideal for Functional Products (stable predictable demand)

Responsible Supply Chain Capability Model

Supply Chain is designed to respond quickly to market demand. - fast response, minimal stock outs, need flexible capacity (volume), 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.

Most Supply Chains follow the ______ model?

The Supply Chain Operations Research (SCOR) model

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.

Independent Demand

The demand for an item that is unrelated to the demand for other items. ex: finished product (ex: bike)

What is a supply chain?

The global network used to deliver products and services from raw material to end customers through an engineered flow of information, physical distribution, and cash.

What are customers actually paying for in the service industry?

The labor and intellectual property of the service provider.

Quantitative Forecasting includes 2 ways to do it

Time Series and Cause & Effect

Variations in Quantitative Forecasting

Trend variations - trends Random variations - instability in data due to random occurrences like natural disasters. Seasonal variations - repeating pattern of demand from year to year. Ex: holiday shopping, swim suits sales. Cyclical variations - wavelike pattern that can extend over multiple years, cannot be easily predicted.

True/False... Supply Chains exists in organizations that are large/small, public/private, for-profit/non-profit?

True

Simple Moving Average

Uses a calculated average of historical demand during a specified number of the most recent time periods to generate the forecast (Denominator can change depending on how many periods you want to go back). Advantage: Provides a very consistent demand over long periods of time and smooths out random variations. Disadvantage: fails to identify trends or seasonal effects. Also will create shortages when demand is increasing because it lags behind actual demand. . Formula: (M1 + M2 + M3 + M4)/ 4 (months can change ofc)

Bad Forecasting

if a forecast is bad, everything else (the supply plan) will be bad. - inefficient, lost money, etc.

Linear Trend Forecasting

imposing a best fit line across the demand data of 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. Adv: - can provide an accurate forecast even if there is random variation. Dis: - more useful for annual forecasts than for monthly forecasts.

In a supply chain, how does Payment Flow?

indicates the flow of funds or money paid to members in the SC for product and services rendered. (flows from Tier 2 customer to tier 2 supplier -> right to left)

In a supply chain, how does Information Flow?

information such as forecasts, orders, confirmations, invoices must flow in both directions (so everyone is on the same page)

Mean Squared Error (MSE)

magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods. MSE = sum of (A-F)^ 2 all over n (number of time periods)

Operations Management

manages internal resources and processes that helps to convert raw materials to finished goods (includes forecasting and demand planning, planning systems, inventory management, process management)

logistics management

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)

Supply Management

managing all of the supplies and suppliers that are needed to run the business (purchasing management strategic sourcing, supplier relationship management)

Mean Absolute Percent Error (MAPE)

measures the size of the error in percentage terms. MAPE = sum of abs value of ((actual - forecast )/ actual) all over number of time periods.

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. MAD = Sum of the absolute value of Actual - Forecasted Demand all over number of time periods

Naive Forecasting

past demand = future demand. Adv: - works well for mature products (well-established products in the market) and is very easy to determine. Dis: - works for mature products only. Any variations in demand.

What is Supply Chain Management?

refers to a network of independent companies that work together and coordinate their actions to deliver a product or service to market for the benefit of all companies in the network (collaboration and coordination). In other words: how people, process, technology, equipment, infrastructure, money, and information all integrate efficiently, and effectively to facilitate the flow of products and services from the raw material stage to finished product manufacturing, out into wholesale and distribution channels, and ultimately to retailers and consumers to the benefit of everyone in the SC.

Exponential Smoothing Model

uses a sophisticated weighted average procedure to generate a forecast. Requires 3 basic elements: last period's forecast, last period's actual demand, and a smoothing factor that is a number greater than 0 and less than 1. Adv: - creates a forecast more responsive to trends than previous methods Dis: - smoothing constant is not a given -> determined based on the best judgment of a company's experts.

Regression

uses historical relationship between an independent and a dependent variable to predict the future values of the dependent variable, i.e. demand.

Quantitative forecasting

uses mathematical models and historical data to make forecasts

Difference between SCM and Logistics?

• SCM acknowledges all of traditional logistics activities and also includes aspects of activities such as ○ Marketing ○ New product development ○ Finance ○ Customer service. • SCM goes beyond logistics by recognizing the need for integration of these functions and by promoting collaboration between internal and external members of a SC. • SCM goes beyond the 4 walls of your organization. SCM incorporates all of those traditional logistics activities as well as aspects of activities such as forecasting and demand management, procurement, supplier relationship management, planning and scheduling, new product development, finance, and customer relationship management.