Supply Chain Management Exam 3

Computation for Determining Period Logistics Requirements

+Forecasts (sales, marketing, input, histories, accounts) +Customer orders (current orders, future committed orders, contracts) +Promotions = Period Demand -Inventory-on-hand -Planned Receipts = Period Logistics Requirments

Exponential Smoothing

-An exponentially weighted moving average using smoothing constants to place greater weights on more recent demands -Useful when necessary to maintain data and generate forecasts for a large number of items that incorporate individual trend and seasonality components -Not as useful when there are other factors influencing demand such as promotions, price changes, or competitive actions not regularly scheduled

Advanced Planning and Schedule (APS) System Components

-Demand Management -Resource Management -Resource Optimization -Resource Allocation

Four Functions of Inventory

-Geographical specialization -Decoupling -Supply/Demand Balancing -Buffering Uncertainty

Supply Chain Planning Benefits

-Responsiveness to changes -Comprehensive perspective -Resource utilization

2 Key Indicators of Inventory Performance

-Service level -Average inventory

Time Series Forecasting Techniques

-Statistical methods utilized when historical sales data containing relatively clear and stable relationships and trends are available -Based on the assumption that the future will reflect the past -Most appropriate for short-range forecasting -Useful when trend patterns repeat with some cyclic, seasonal, or trend components -Not particularly responsive to change and discretion is required to select variables

Dimensions of Inventory Risk

-Time duration -Depth of commitment -Breadth of commitment

Moving Average

-Uses an average of the most recent period's sales to create a forecast -Useful when there are only base and irregular demand components -Not useful when there is significant seasonality or trend

Qualitative Forecasting Techniques

-Uses data such as expert opinion and special information, may or may not consider the past -Ideal for situations where little historical data and much managerial judgement are required -Developed by using surveys, panels, and consensus meetings

Multivariate

-Uses more complex statistical techniques to identify more complex demand history relationships; techniques include spectral analysis, fourier analysis, transfer functions, and neural networks -Useful when there's a complex, generally nonlinear relationship between historical patters and demand. More useful for predicting macro forecasts -Often nonsuited to detailed item-location-time period forecasts

Regression

-Uses other independent variables such as price, promotion plans, or related product volumes, to predict sales -Useful when there's a strong linear or nonlinear relationship between independent variables and demand -Not particularly responsive to change and discretion is required to select variables

Causal Forecasting

-Works well when a leading variable such as price can be identified -Types: simple regression, multiple regression

Steps in S&OP Process

1)A business plan in terms of financial forecast and a corresponding budget 2)Sales plan that is developed from the unconstrained marketing plan 3)Resource plan which is developed from the firm's internal and partner resource constraints 4)The business, unconstrained marketing, and resource plans are synthesized synchronized 5)Once this aggregate plan is approved, it becomes the basis of more detailed supply chain planning application systems

Criteria for Evaluating Forecasting Techniques

1)Accuracy 2)Forecast time horizon 3)Value of forecasting 4)Data availability 5)Type of data pattern 6)Experience of the forecaster

EOQ Model Assumptions

1)All demand is satisfied 2)Rate of demand is continuous, constant, and known 3)Replenishment performance cycle is constant and known 4)There is a constant price of product that is independent of order quantity or time 5)There is an infinite planning horizon 6)There is no interaction between multiple items of inventory 7)No inventory is in transit 8)No limit is placed on capital availability

Forecast Components

1)Base demand 2)Seasonality factor 3)Trend component index 4)Cyclical factor 5)Promotional factor 6)Irregular quantity

8 Keys to Successful S&OP

1)Executing the process every month 2)Process ownership and and clarity of roles and responsibilities 3)Organizational commitment to achieving high forecast accuracy 4)Focus on the next 3 to 12 months 5)One integrated plan that integrates the actions of the entire organization 6)Senior management decision making 7)Measuring end-to-end supply chain performance 8)No Adjustment of S&OP to operating plan or budget

3 Components of Forecast Process Development

1)Forecast technique 2)Forecast support system 3)Forecast administration

Supply Chain Planning Implementation Considerations

1)Integrated versus bolt-on application 2)Data integrity 3)Application education

4 Types of Time Series Forecasting

1)Moving average 2)Exponential smoothing 3)Extended smoothing 4)Adaptive Smoothing

3 Forecast Technique Categories

1)Qualitative 2)Time Series 3)Causal

3 Drivers of Effective Planning

1)Supply chain visibility 2)Simultaneous resource consideration 3)Resource utilization

Forecasting Goals

1)To improve collaborative planning 2)To drive requirements planning 3)To improve resource management

Typical Adjustments of EOQ

1)Volume Transportation Rates 2)Quantity Discounts 3)Production Lot Size 4)Multiple-Item Purchase 5)Limited Capital 6)Dedicated Trucking 7)Unitization

Inventory

A current asset that should provide return on capital invested

Service Level

A performance target that defines inventory performance objectives; often measured in terms of performance cycle time, case fill rate, line fill rate, order fill rate or any combination

Sales and Operations Planning (S&OP)

A process that includes information sharing and accountability to systematically develop a common and consistent plan that coordinates supply and demand plans across the organization

Supply/Demand Balancing

Accommodates elapsed time between inventory availability (manufacturing, growing, or extraction) and consumption

Buffering Uncertainty

Accommodates uncertainty related to demand in excess of forecast or unexpected delays in order receipt and order processing in delivery and is typically referred to as safety stock

Decoupling

Allows economies of scale within a single facility and permits each process to operate at maximum efficiency rather than having the speed of the entire process constrained by the slowest

Geographical Specialization

Allows geographical positioning across multiple manufacturing and distributive units of an enterprise. Inventory maintained at different locations and stages of the value-creation process allows specialization

Seasonality Factor

An annually recurring upward and downward movement in demand

Lot Sizing

Balances inventory carrying costs with the cost of ordering

Speculative Inventory

Bought prior to need to hedge a currency exchange, take advantage of a special discount, or prepare for a potential work disruption

Mean Absolute Percentage Error (MAPE)

Calculated by dividing mean absolute error by mean demand

Cyclical Factor

Characterized by periodic shifts in demand lasting more than a year

Promotional Factor

Characterizes demand swings initiated by a firm's marketing activities, such as advertising, deals, or promotions

Inventory Policy

Consists of guidelines regarding what to purchase or manufacture, when to take action, and in what quantity; drives inventory performance

Collaborative Planning, Forecasting, and Replenishment (CPFR)

Coordinates the requirements planning process between supply chain partners for demand creation and demand fulfillment activities by sharing information on promotions, forecasts, item data, and orders using either EDI or the internet

System Limitations Definitions

Define major supply chain activities constraints such as capacity limitations in production, storage, and movement

Resource Management Module of APS

Defines and coordinates supply chain system resources and constraints based on the requirements the requirements definition developed by the demand management module, product and customer definitions, resource definitions and costs, system limitations, and planning objective

Planning Objective Definitions

Defines the criteria for developing a solution such as minimizing total cost, meeting all customer requirements, or minimizing the number of instances when capacity is exceeded

Statement of Requirements

Defines what items are needed and when

Reorder Point

Defines when a replenishment shipment should be initiated--can be specified in terms of units days' supply

Available to Promise (ATP)

Designates that even though actual inventory is not currently available, it will be available for shipment or promise at a specific date in the future

Capable to Promise (CTP)

Designates when requested product can be promised for future delivery

Unconstrained Marketing Plan

Determines the maximum sales and profitability level that could be achieved if there were no supply chain operating constraints

Demand Management Module of APS

Develops the requirement projections for the planning horizon based on sales history, currently scheduled orders, scheduled marketing activities, and customer information

Forecast Calculation

Forecast quantity= (Base level x Seasonality factor x Trend component index x Cyclical factor x Promotional factor) + Irregular quantity

Simple Regression

If the SKU forecast is based upon a single factor

Multiple Regression

If the SKU forecast is based upon more than one factor

Supply Chain Visibility

Implies not only being able to track supply chain inventory and resources, but also that information regarding available resources can be effectively evaluated and managed

Irregular Quantity

Includes rand or unpredictable quantities that do not fit within the other categories

Forecast Administration

Includes the organizational, procedural, motivational, and personnel aspects of forecasting and its integration into the other firm functions

Forecast Support System

Includes the supply chain intelligence to gather and analyze data, develop the forecast, and communicate the forecast to relevant personnel and planning systems

Extended Exponential Smoothing

Incorporates the influence of trend and seasonality when specific values for these components can be identified

Logistics Planning

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

Safety Stock

Maintained in a logistical system to protect against demand and performance cycle uncertainty--- used only near the end of replenishment cycle when uncertainty has cause higher-than-expected demand or longer-than-expected performance cycle times

Production Planning Systems

Match the requirements plan with the production constraints to satisfy the necessary requirements at the minimum total production cost while not violating any constraints

Economic Order Quantity (EOQ)

Model that determines an exact order quantity policy by balancing the cost of ordering and the cost of maintaining average inventory

Product and Customer Definitions

Provide constants regarding the firm's products and customers such as: product descriptions and physical characteristics, standard costs, bill of material, ship-to location, distribution assignment, and special service requirements that define what is being manufactured, what is being distributed, where it is being delivered, and the performance cycles involved in distribution

Adaptive Smoothing

Provides a regular review of the alpha factor fit

Reorder Point Calculation

Reorder Point (Units)= Average daily demand in units x Average performance cycle length in days + Safety Stock in Units

Base Demand

Represents long-term average demand after the remaining components have been removed. The average over an extended time.

Transit Inventory

Represents the amount typically in transit between facilities or on order but not received

Demand Management

Seeks to provide increased accuracy, flexibility, and consistency in determining inventory requirements

Integrated Business Planning (IBP)

Similar to S&OP but also includes: -Greater financial integration -Increased inclusion of strategic initiatives and activities -Improved simulation and modeling of alternatives -Easier translation between aggregate and detailed levels of planning

Resource Allocation Module of APS

Specifies the resource assignments and communicates them to the ERP system to initiate appropriate transaction results including requirements for procurement, product, storage, and transport

Resource Definitions

Specify the physical resources used to accomplish supply chain activities such as manufacturing, storage, and movement capacities including the performance characteristics and costs associated with resource usage

Order Quantity

The amount order for replenishment

Resource Optimization Module of APS

The computational engine of the supply chain planning system that uses the requirements from the demand management module and the definitions, resources, limitations, and objectives from the resource management module to determine how to most effectively meet customer requirements while optimizing resource utilization

Performance Cycle

The elapsed time between the release of a purchase order by a buyer to the receipt of shipment

Inventory Carrying Cost

The expense associated with maintaining inventory; Relevant financial accounts include: capital, insurance, obsolescence, storage, and taxes

Trend Component Index

The long-range shift in periodic sales

Forecast Technique

The mathematical or statistical computation used to combine base, cyclical, and seasonal factors with elements of promotion history into a forecast quantity Examples: time series modeling, correlation modeling

Simultaneous Resource Consideration

The need to simultaneously consider supply chain demand, capacity, material requirements, and constraints to identify trade-offs where increased functional costs might lead to lower total system cost

Case Fill Rate

The percent of cases or units ordered that are shipped as requested

Order Fill

The percent of customer order filled completely

Line Fill Rate

The percent of order lines filled completely

Cycle Inventory (Base Stock)

The portion of average inventory that results from replenishment

Demand Management Forecasts

The projections of monthly, weekly, or daily demand that determine production and inventory requirements

Average Inventory

The rolling mean across time of materials, components, work-in-process, and finished products; = one-half order quantity plus safety stock and in transit stock

Obsolete Inventory

The stock that is out-of-date or that has not experienced recent demand---eventually donated, destroyed, or sold at a loss

Production Planning

Uses the statement of requirements obtained from demand management in conjunction with manufacturing resources and constraints to develop a workable manufacturing plan

Resource Utilization

With functional resource trade-offs in mind, the need for a coordinated approach that considers service requirements while minimizing combined supply chain resources