SCM 345 Exam 2 Study Guide

Global storage options

--Facility ownership: private, public, contract --Size: many small facilities vs. few large facilities --Space requirements --Product location: popularity, unit size, cube --Layout options: one-story, vertical capacity, minimize aisle space

Potential supply chain modeling pitfalls

--Short-term horizon --Too little or too much detail --Thinking in two dimensions --Using published costs --Inaccurate or incomplete costs --Fluctuating model inputs --Use of erroneous analytical techniques --Lack of appropriate robustness analysis

Factors impacting network changes

1. Changes in global trade patterns 2. Changes in customer service requirements--The emergence of omni-channel supply chains 3. Shifts in customer and/or supply market locations 4. Changes in corporate ownership/merger and acquisitions activity 5. Corporate organizational change 6. Cost pressures 7. Competitive capabilities

Product Handling Functions

1. Receiving--transferring goods into the facility from the transport network. --Schedule carriers --Unload vehicles --Inspect freight --Verify order 2. Put-Away--moving goods into storage locations. --Identify product --Verify location --Fill storage/pick slots --Direct fill orders 3. Order Picking--selecting goods for customer orders. --Travel to pick slots --Validate SKU & quantity --Fill customer orders --Prep & deliver product to shipping dock 4. Replenishment--moving product from storage locations to picking slots. --Re-supply pick slots --Move pallet quantity orders to shipping dock --Verify moves 5. Shipping--loading goods for delivery to the customer. --Schedule carrier --Load vehicle --Secure freight --Complete paperwork --Call for dispatch

Common forecasting techniques

All statistical techniques used to generate forecasts require accurate data and rely on the assumption that the future will repeat the past. The key to good forecasting is to minimize forecast error by utilizing a forecasting technique that best fits the nature of the data. Three common forecasting techniques are: SIMPLE MOVING AVERAGE --Makes forecasts based on recent demand history and allows for the removal of random effects. --Pros: quick and easy to use --Cons: old demand dropped quickly; not accommodate seasonal, trend, or business cycle influences WEIGHTED MOVING AVERAGE --Assigns a weight to each previous period with higher weights usually given to more recent demand. --Pros: allows emphasis on more recent demand as a predictor of future demand. --Cons: not easily accommodate seasonal demand patterns. EXPONENTIAL SMOOTHING --Pros: simplicity and limited requirements for data, good for relatively constant demand --Cons: forecasts will lag actual demand; Not appropriate for highly seasonal demand patterns or patterns with trends

Role of Distribution Operations in Supply Chain Management - there are 6

BALANCING SUPPLY AND DEMAND Whether seasonal production must service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday decorations), distribution facilities can stockpile inventory to buffer supply and demand. PROTECTING AGAINST UNCERTAINTY Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes. ALLOWING QUANTITY PURCHASE DISCOUNTS Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can hold the additional quantities until needed, reducing the purchase cost per unit. SUPPORTING PRODUCTION REQUIREMENTS If a manufacturing operation can reduce costs via long production runs or if outputs need to properly age (e.g., wine and cheese), the output can be warehoused prior to distribution. FULFILLING OMNI-CHANNEL DEMAND Strategically located distribution facilities near key demand areas improve access to customers at a more reasonable cost for same-day, next-day, and second-day home delivery service. PROMOTING TRANSPORTATION ECONOMIES Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping "air" and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements.

Centralized vs. Decentralized Inventory

CENTRALIZED INVENTORY Means having fewer warehouses, and requires a less complicated infrastructure. Requires less safety stock and it is not as risky. DECENTRALIZED INVENTORY Has more warehouses to respond quicker to customers, and decreases delivery times. Requires more safety stock and it is more risky, although it allows for more spread over geography.

Types of Inventory in the supply chain

CYCLE STOCKS (Batching economies) Procurement (purchase discounts), production (long production run), and transportation (freight rate discounts) SAFETY STOCKS (Uncertainty) Demand- and supply-side uncertainties TIME/IN-TRANSIT (Mode choices) Inventory costs associated with goods in motion during transportation time period. WORK-IN-PROCESS STOCKS (Scheduling & production techniques) Inventory costs associated with goods in process during manufacture or assembly of a complex product. SEASONAL STOCKS (Seasonality) Seasonality in raw materials supply (e.g. production, transportation), in demand for finished product, or in both ANTICIPATORY STOCKS (Risk hedging) Inventory hold in anticipation that an unusual event (e.g. strikes, significant price increase, extreme weather)

Different forecast error measures

Cumulative sum of forecast errors (CFE) calculates the total forecast error for a set of data, taking into consideration both negative and positive errors. Mean squared error (MSE) squares each period error so the negative and positive errors do not cancel each other out. Mean absolute deviation (MAD) takes absolute value of each error, so the negative and positive signs are removed. (Bias) Mean absolute percent error (MAPE) Tracking signal can be used to measure forecast error, especially good at identifying if a "bias" exists in the forecast errors.

Omni-Channel Customer fulfilment models

FLOW-THROUGH FULFILLMENT In flow-through fulfillment, the product is picked and packed at the retailer's distribution center and then sent to the store for customer pickup or delivery. Advantages: Eliminates the inventory conflicts between store sales and Internet sales, No cost of the "last mile" transportation, Store-level inventory status not required, Returns handled through the retail store Disadvantages: Storage space at the store for pickup items, Longer fulfillment lead time DEDICATED FULFILLMENT Dedicated fulfillment means the retailer operates two separate distribution networks to service "bricks-and-mortar" (retail stores) and "clicks-and-mortar" (Internet sites). Advantages: Elimination of most of the disadvantages of integrated fulfillment Disadvantages: Duplicate facilities and duplicate inventories INTEGRATED FULFILLMENT Integrated fulfillment means the retailer operates one distribution network to service both "bricks-and-mortar" (retail stores) and "clicks-and-mortar" (Internet sites) channels. Advantages: Low start-up costs for retailers, Workforce efficiency Disadvantages: Order profile changes, Unavailability of products in each, "Fast pick" or broken case operation requirements for unit pick (each pick) POOL DISTRIBUTION In pool distribution, small retailers use third party logistics companies, or pool distributors, for store delivery, allowing them to achieve efficiency of a truckload shipment for the line haul and the effectiveness of allowing stores to receive LTL orders on a regular schedule DIRECT STORE DELIVERY Direct store delivery involves a manufacturer delivering its product directly to a retailer's stores, bypassing the retailer's distribution network. Advantages: Reduction of inventory in the distribution network Disadvantages: Possible reduction of inventory visibility of the products to the retailers, Requirements of close collaboration and agreement between the manufacturer and retailer STORE FULFILLMENT BOPUS In store fulfillment model, the order is placed through the Internet site. The order is sent to the nearest retail store where it is picked and put aside for the customer to pick up or the store can arrange for delivery. Advantages: Short lead time to the customer, Low start-up costs for the retailer, Returns handled through the retail store, Product available in consumer units Disadvantages: Reduced control and consistency over order fill, Conflicts between store and Internet order inventories, Requirements of real-time visibility to in-store inventories, Requirements of stores' space to store and stage products for pickups

What are silos?

Functional silos in a business are teams of employees, grouped by function, that all operate separately from each other, without cross-collaboration. While a siloed company may have clear boundaries and separation between teams, that's not as much of a good thing as corporations once believed. First of all, such rigid separation between different teams allows each team to have their own goals and agendas. Without teams working toward any shared goals or initiatives, alignment becomes impossible to come by. Departments will work toward their own interests and goals without a reason or way to tie those to the rest of the company. Additionally, teams taking strict ownership over projects and information prevents collaboration, hindering company performance. When a team can't or doesn't know how to bring in expertise from other departments, the best person for the job won't always be the one doing that job. And finally, when every team in your company has its own tools, systems, and processes, your organization ends up with added costs and complexities.

Costs in a distribution center

INVENTORY CARRYING COST Inventory carrying costs incurred by inventory at rest and waiting to be used. Four major components: Capital cost, Storage space cost, Inventory service cost, and Inventory risk cost. ORDERING AND SETUP COST Ordering cost refers to expense of placing an order, excluding the cost of the product itself. Setup cost refers to the expense of changing/modifying a production/assembly process to facilitate line changeovers. IN-TRANSIT INVENTORY CARRYING COST Generally, carrying inventory in transit costs less than in warehouses. But, in-transit inventory carrying cost becomes especially important on global moves since both distance & time increase. EXPECTED STOCKOUT COST The cost associated with not having a product/materials available to meet customer/production demand. Most organizations hold safety stock or buffer stock, to minimize the possibility of a stockout and costs of lost sales.

Sales and Operations Planning Process steps

It is necessary for an organization to arrive at a forecast internally that all functional areas agree upon and can execute. A process that can be used to arrive at this consensus forecast is called sales and operations planning (S&OP). Step 1 (Run sales forecast reports): requires the development of a statistical forecast of future sales. Step 2 (Demand planning phase): requires the sales and/or marketing departments to review the forecast and make adjustments based on promotions of existing products, the introductions of new products, or the elimination of products. Step 3 (Supply planning phase): requires operations (manufacturing, warehousing, and transportation) to analyze the sales forecast to determine if existing capacity is adequate to handle the forecasted volumes. This requires analyzing not only the total volumes but also the timing of those volumes. Step 4 (Pre-S&OP meeting): asks individuals from sales, marketing, operations, and finance to attend a meeting that reviews the initial forecast and any capacity issues that might have emerged during Step 3. Initial attempts will be made during this meeting to solve capacity issues by attempting to balance supply and demand. Step 5 (Executive S&OP meeting): is where final decisions are made regarding sales forecasts and capacity issues. This is where the top executives from the various functional areas agree to the forecast and convert it into the operating plan for the organization.

Inventory Management Approaches - JIT, MRP, VMI and DRP

JIT (JUST IN TIME) --JIT commitment to short, consistent lead times and to minimizing or eliminating inventories is JIT principal differentiator from the more traditional approaches. --JIT saves money on downstream inventories by placing greater reliance on improved responsiveness and flexibility. --Successful JIT applications: 1. Place a high priority on efficient and dependable manufacturing processes. 2. Demand effective and dependable communications & information systems, and high-quality, consistent transportation services. MRP (MATERIALS REQUIREMENTS PLANNING) --MRP deals specifically with supplying materials and component parts whose demand depends on the demand for a specific end product. --MRP System Goals: 1. Ensure the availability of materials, components, and products for planned production and for customer delivery. 2. Maintain the lowest possible inventory levels that support service objectives. 3. Plan manufacturing activities, delivery schedules, and purchasing activities. --An MRP system is designed to translate a master production schedule into time-phased net inventory requirements and the planned coverage of such requirements for each component item needed to implement this schedule. VMI (VENDOR-MANAGED INVENTORY) --Vendor-managed inventory manages inventories OUTSIDE a firm's logistics network, specifically inventories held in its customer's distribution centers. --How VMI Works: 1. The supplier and its customer agree on which products are to be managed using VMI in the customer's distribution centers. 2. An agreement is made on reorder points and economic order quantities for each of these products. 3. As these products are shipped from the customer's distribution center, the customer notifies the supplier, by SKU, of the volumes shipped on a real-time basis. 4. The supplier monitors on-hand inventories in the customer's distribution center, and when the on-hand inventory reaches the agreed-upon reorder point, the supplier creates an order for replenishment, notifies the customer's distribution center of the quantity and time of arrival, and ships the order to replenish the distribution center. DRP (DISTRIBUTION REQUIREMENTS PLANNING) --DRP systems accomplish for outbound shipments what MRP accomplishes for inbound shipments. DRP determines replenishment schedules between a firm's manufacturing facilities and its distribution centers. DRP is usually coupled with MRP systems to manage the flow and timing of both inbound materials and outbound finished goods.

Global transportation - what options do we have?

MOTOR CARRIERS --Motor carriage is the most widely used mode of transportation in the U.S. domestic supply chain. --The economic structure of the motor carrier industry contributes to the vast number of carriers in the industry. RAILROADS --Railroad transportation is primarily used for the long-distance movement of low-value goods. --Railroads move almost any type of freight--liquid or gas, slurry or solid, hazardous or harmless--in very large quantities. AIR CARRIERS --The speed of airplanes combined with frequent scheduled flights can reduce global transit times from as many as 30 days by water carrier to one or two days by air carrier. --Faster delivery leads to reduced inventory carrying costs, stockout risks, and packaging requirements that can be traded off against high air cargo freight costs. --Air transportation is used to ship small quantities of high-value, low-weight goods. WATER CARRIERS --Water transportation has played a significant role in the development of many countries and is a major facilitator of international trade. --Domestic water carriers compete with railroads for long-distance movement of low-value, high-density, bulk cargoes that mechanical devices can easily load and unload. PIPELINES --Pipelines are the "hidden giant" of the transportation modes; This unique mode uses equipment that is fixed in place and the product moves through it in high volume. --Pipelines effectively protect the product from contamination and also provide a warehousing function. INTERMODAL TRANSPORTATION --Refers to the use of two or more carriers of different modes in the origin-to-destination movement of freight. --Greater accessibility is created by linking the individual modes. --Overall cost efficiency can be achieved without sacrificing service quality or accessibility. --Intermodal transportation facilitates global trade.

Inventory Management Approaches (key factors of difference)

Managing inventory involved four fundamental questions: 1. How much should inventory be ordered? 2. When should inventory be ordered? 3. Where should inventory be held? 4. What specific line items should be available at specific locations? Cost vs. Service Tradeoff Considerations: Regardless of the approach selected, inventory decisions must consider the basic tradeoff between cost and service. DEPENDENT VS. INDEPENDENT DEMAND Independent demand is unrelated to the demand for other items, while dependent demand is directly related to, or derives from, the demand for another inventory item or product. PULL VS. PUSH The "pull" approach relies on customer orders to move product through a logistics system, while the "push" approach uses inventory replenishment techniques in anticipation of demand to move products. SYSTEM-WIDE VS. SINGLE-FACILITY SOLUTIONS A system-wide approach plans and executes inventory decisions across multiple nodes in the logistics system. A single-facility approach does so for shipments and receipts between a single shipping and receiving point.

Inventory Classification - how can we classify?

Multiple product lines and inventory control require organizations to focus on more important inventory items and use more sophisticated and effective approaches to inventory management. ABC ANALYSIS ABC classification technique assigns inventory items to one of three groups according to the relative impact or value of the items that make up the group. A items are considered to be the most important, B items lesser importance, and C items least important. PARETO'S LAW (THE "80-20" RULE) Pareto's Law "80-20" rule suggests that a relatively small percentage of inventory might account for a large percentage of the overall impact or value. In many ABC analyses, a common mistake is to think of the B and C items as being far less important than the A items. However, all items in the A, B, and C categories are important to some extent and each category deserves its own strategy to assure availability at an appropriate level of cost (stockout cost vs. inventory carrying cost).

Types of network models and optimization models?

Network models --Customer Fulfillment Models 1. Integrated Fulfillment 2. Dedicated Fulfillment 3. Pool Distribution 4. Direct Store Delivery (DSD) 5. Store Fulfillment 6. Flow-Through Fulfillment

Types of Modeling approaches

OPTIMIZATION MODELS Designed to find the "best," or optimum solution, while recognizing relevant constraints. SIMULATION MODELS Designed to develop a computer representation of supply chain network & observe changes as cost structures, constraints, and other factors are varied. HEURISTIC MODELS (e.g. grid technique) Designed to reduce a problem to a manageable size and search automatically through various alternatives in an attempt to find a better solution.

Logistics network design process steps

STEP 1: Define the Supply Chain Network Design Process --Form a supply chain network transformation team. --Establish the parameters and objectives of the network design or redesign process. --Evaluate the potential involvement of third-party suppliers of logistics services. STEP 2: Perform a Supply Chain Audit 1. Fundamental Business Information 2. Logistics/Supply Chain System 3. Key Logistics/Supply Chain Activities 4. Measurement and Evaluation 5. Strategic Logistics/Supply Chain Issues 6. Logistics/Supply Chain Strategic Plan STEP 3: Examine the Supply Chain Network Alternatives --Apply suitable quantitative models to the current logistics system and to the alternatives under consideration. --Identify preliminary supply chain network design solutions consistent with the key objectives identified during the audit phase. --Conduct "what-if" analysis to test the sensitivity of recommended network designs to changes in key variables. STEP 4: Conduct a Facility Location Analysis --Form a location selection team. --Qualitatively and quantitatively analyze the attributes of specific regions and locales. --Identify recommended specific sites for logistics facilities. STEP 5: Make Decisions Regarding Network and Facility Location --Evaluate the recommended network and specific sites for logistics facilities (Steps 3 and 4) for consistency with the design criteria identified in Step 1. STEP 6: Develop an Implementation Plan --Develop a "blueprint for change" as a road map for moving from the current supply chain network to the desired new one. --Commit the resources necessary to assure a smooth, timely implementation, and the continuous improvement of the network decisions.

Collaborative Planning, Forecasting and Replenishment

Trading partners (retailers, distributors, and manufacturers) use available Internet-based technologies to collaborate on operational planning, allowing them to agree to a single forecast for an item where each partner translates this forecast into a single execution plan. The CPFR model includes the consumer, retailer, and manufacturer. The four major processes of the CPFR model are (1) strategy and planning, (2) demand and supply management, (3) execution, and (4) analysis. It includes the cooperation and exchange of data among business partners, and it is a continuous, closed-loop process that uses feedback (analysis) as input for strategy and planning.