BUS 370 Exam 2

Reasons for why supply chain management is critical

Global sourcing, financial impact, and performance impact/total cost of ownership

Supply chain management

The broad set of activities carried out by organizations to analyze sourcing opportunities, develop sourcing strategies, select suppliers, and carry out the activities required to procure goods and services

Total cost of ownership (TCO)

Purchase price, amount paid to the supplier for the product or service, is not the only consideration

Strategic sourcing process

1. assess opportunities

2. profile internally and externally

3. develop the sourcing/category strategy

4. screen suppliers and create selection criteria

5. conduct supplier selection

6. negotiate and implement agreements

Insourcing

The use of resources within the firm to provide products or services

Advantages of insources

high degree of control, ability to oversee the entire program, and economies of scale/scope

Disadvantages of insources

reduced strategic flexibility, required high investment, and potential suppliers may offer superior products/services

Outsourcing

The use of supply chain partners to provide products or services

Advantages of outsourcing

high strategic flexibility, low investment risk, and access to state of the art products/services

Disadvantages of outsourcing

Possibility of choosing a bad supplier, loss of control over the process and core technologies, communication and coordination challenges, increased risk of SC disruption and social responsibility

Factors affecting decision of insourcing vs outsourcing

environmental uncertainty, competition in the supplier market, ability to monitor suppliers performance favor outsourcing; while relationship of product/service to buying firm’s core competencies favors insourcing

Sourcing portfolio analysis

A structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing opportunity

Sourcing portfolio analysis quadrants

critical, bottleneck, leverage, and routine

Critical quadrant (sourcing portfolio analysis)

High value potential, high risk

Bottleneck quadrant (sourcing portfolio analysis)

Low value potential, high risk

Leverage quadrant (sourcing portfolio analysis)

High value potential, low risk

Routine quadrant (sourcing portfolio analysis)

Low value potential, low risk

Single sourcing

The buying firm depends on a single company for an item or service 

Multiple sourcing

Shares its business across multiple suppliers, typically due to volume requirements, geography, or risk mitigation 

Advantages of single sourcing

Volume leveraging, transportation economies, and reducing quality variability

Disadvantages of single sourcing

Knowing they have the business, suppliers can actually increase prices in the short term, increased supply risk, and buyers can become “captive” to a supplier’s technology

Advantages of multiple sourcing

Create competition, spread risk, and required if the purchased volume is too great for 1 supplier

Disadvantages of multiple sourcing

Reduces supplier loyalty, can increase risk in the event of a shortage, and may result in different product attributes with varying quality

Weighted-point evaluation system

A common type of multi-criteria decision model in which the user (buying firm) assigns weights to performance measures (such as cost, quality, and delivery), then rates the supplier in regard to how well they perform against those criteria 

Procure-to-pay cycle

The set of activities required to first identify a need, assign a supplier to meet that need, approve the specification or scope, acknowledge receipt, and submit payment to the supplier 

Trends in SM

Sustainable supply and supply chain disruptions,

Logistics management

The part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements

Logistics management key business activities

Transportation, warehousing, material handling, packaging, inventory management, logistics information systems

Why increasing interest

cost, delivery performance impact, flexibility, globalization of markets, technological breakthroughs, and environmental concerns

Environmental concerns in logistics

Sustainability - fuel efficiency, pollution, reduction of packaging, recover, recycling, and reuse

Transportation modes

Highway, water, rail, air, pipline, and digital networks

Highway transportation mode

Strength: Flexibility to deliver where and when needed. Often, the best balance among cost, flexibility, and reliability/speed of delivery

Weakness: Not fast or cheap

Water transportation mode

Strength: Highly cost-effective for bulky items. Most effective when linked to a multimodal system

Weakness:  Limited locations. Relatively poor delivery reliability/speed

Rail transportation mode

Strength: Highly cost-effective for bulky items. Can be most effective when linked to a multimodal system

Weakness: Limited locations, although less so than with water. Better reliability/speed of delivery than water

Air transportation mode

Strength: Quickest mode of delivery. Flexible, especially when linked to the highway mode

Weakness: Often the most expensive mode on a per-pound basis

Roadrailers

Specialized rail car the size of a standard truck trailer that can be quickly switched from rail to ground transportation by changing the wheels

Multimodal solutions

A transportation solution that seeks to exploit the strengths of multiple transportation modes

Warehousing

Any operations that store, repackage, stage, sort, or centralize goods or materials 

Consolidation warehousing

Form of warehousing that pulls together shipments from a number of sources (often plants) in the same geographical area and combines them into larger

Cross-docking

Form of warehousing in which large incoming shipments are received and then broken down into smaller outgoing shipments to demand points in a geographic area 

Break-bulk

Specialized form of cross-docking in which the incoming shipments are from a single source or manufacturer

Hub and spoke

Form of warehousing in which strategically placed hubs are used as sorting or transfer facilities. The hubs are typically located at convenient, high-traffic locations. The “spokes” refer to the routes serving the destinations associated with the hubs 

Ways to improve operational efficiency

Postponement, spot stock, and assortment

Postponement warehousing

Form of warehousing that combines warehouse operations with light manufacturing and packaging duties to allow companies to put off final assembly or packaging of goods until the last possible moment 

Assortment warehousing

Form of warehousing in which a wide array of goods is held close to the source of demand in order to reduce customer lead times

Spot stock warehousing

Form of warehousing that positions seasonal goods close to the marketplace. At the end of each season, the goods are either liquidated or moved back to a more centralized location

Information systems

Decision support tools, planning systems, and execution systems

Material handling systems

A system that includes the equipment and procedures needed to move goods within a facility; between a facility and a transportation mode; and between different transportation modes (ex: forklifts)

Packaging

The way goods and materials are packed in order to facilitate physical, informational, and monetary flows through the SC

Perfect order

 A term used to refer to the timely error-free provision of a product or service in good condition

Landed cost

The cost of a product plus all the costs driven by logistics activities

Reverse logistics system

A complete SC dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling

Forecast

An estimate of the future level of some variable 

Reasons for forecasting

Assess long-term capacity needs, develop budgets/hiring plans, plan production or order materials, get agreement within company and across SC partners

How many laws of forecasting

4

Law 1 of forecasting

Forecasts are almost always wrong (however, still useful)

Law 2 of forecasting

Forecasts for the near term tend to be more accurate

Law 3 of forecasting

Forecasts for groups of products or services tend to be more accurate

Law 4 of forecasting

Forecasts are no substitute for calculated values (future chapter on MRP)

When to select qualitative forecasting approach

Little to no data available & relationship between past events and future events is difficult or impossible to model quantitatively 

When to select quantitative forecasting approach

Historical data available & evidence of a relationship between the variable of interest and some other variable(s)

Qualitative approach examples

Markey surveys, build-up forecasts, the life cycle analogy method, panel consensus forecasting, and the Delphi method

Quantitative approach examples

timer series model approach and casual model approach

Time series model approach

Moving average, weighted moving average, exponential smoothing, and linear regression

Casual model approach

Linear regression and multiple regression

Market survey

Qualitative - structured questionnaires

Panel consensus

Qualitative - joint discussion by experts

Delphi

Qualitative - experts working individually, then shared amount group and repeated until a consensus is reached

Life cycle analogy

Qualitative - identify demand levels for 4 stages of life cycle (use demand of similar products to model new product demand)

Build-up

Qualitative - individual market forecasts aggregated

Time series forecasting

Distinguishing between random fluctuations and true changes in underlying demand patterns

Demands of time series forecasting

randomness, trend, and/or seasonality

Models of time series forecasting

Moving average, weighted moving average, exponential smoothing, and adjusted exponential smoothing

Moving average

Takes an average of actual demand from the past periods to forecast the next period

Weighted moving average

Takes a weighted average of actual demand from the past periods to forecast the next period 

Exponential smoothing

Uses forecast for the current time period, actual demand, and the weight (sophisticated weight averaging model)

Adjusted exponential smoothing

Exponential smoothing plus a trend adjustment factor

Measuring forecast accuracy

Need measures of forecast accuracy to assess how well an individual model is performing or to compare models

Ways to measure forecast accuracy

FE, MFE, MAD

FE

Forecast Error

Mean Forecast Error (MFE)

Measures the bias of a forecast model or the propensity of a model to under or over forecast. (+ = under / - = over)

Mean Absolute Deviation (MAD)

Tracks the average size of the errors, regardless of direction

Mean Absolute Percentage Error (MAPE)

Considers the absolute value of the forecast errors and indicates the magnitude of the errors

Sales and operations planning (S&OP)

A process to develop tactical plans by integrating marketing plans for new and existing products with the management of the supply chain; it brings together all the plans for the business into one set of integrated plans 

Position of S&OP within the overall business planning cycle

Tactical planning

Purpose of S&OP

Select capacity options over the intermediate time horizon 

Tactical planning timing

12-24 months out

Inputs of S&OP

Strategic capacity levels, external capacities, and demand management

Strategic capacity

Existing buildings and processes

External capacities

Suppliers and subcontractors

Demand management

Forecasts of customer demand, need for spares, pricing, and promotions

Factors in determining an approach (town down vs bottom up)

Costs, cash flow, production consistency, employment stability, overtime, customer service, inventory, and flexibility

Planning values

Values that decision makers use to translate the sales forecasts into resource requirements and to determine the feasibility and costs of alternative sales and operations plans

Top-down planning

Level and chase

Level

An S&OP in which production is held constant, and inventory is used to absorb differences between production and the sales forecast

Chase

An S&OP in which production is changed each time period to match the sales forecast

Bottom-up iterative approach

Products with very different requirements, mix is unstable, and can be data-intensive

Options for services

Smooth out demand, tiered workforce, and offloading/minimize personnel-intensive activites