SCM - Exam 1: Rutgers

Any organization offering a product or a service has a

supply chain

Products and services need suppliers, manufacturers, and customers

make up supply chain

Nodes or links in the supply chain are connected by

warehousing and transporation

Facility that allows a company to store materials and finished products.

Warehouse

Function that allows a company to receive, store, withdraw, package, and ship items to a manufacturing location, or finished products to a customer

Warehousing

Intermodal

using a combination of any of the other modes of transportation for a single shipment.

Supply Chain Management

- Starts with understanding the flow

- Integrates all partners within the end-to-end supply chain

- Is conducted thru defined processes

Information Flow and Product & Service Flow in both directions where as payment and return flow

run in one direction, backwards

The service supply chain is much more about managing the relationships between the trading partners than it is about managing the chain of supply

True

The goal of Supply Chain Management is to

Increase customer service while simultaneously reducing both inventory investment and operating expenses

the two main reasons that firms implement Supply Chain Management are to

achieve cost savings and better coordinate resources

includes the determination of marketing and distribution channels, promotions, quantities, timing, inventory and replenishment policies, and production policies.

Planning

the process of identifying the suppliers that provide the materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s).

Sourcing

is the series of operations performed to convert materials into a finished product.

Manufacturing

this is the part of supply chain management that oversees the planning and execution of the forward flow of goods and related information between various points in the supply chain to meet customer requirements.

Logistics

this is the part of supply chain management that deals with planning and controlling the process of moving goods specifically from the point of consumption back to the point of origin for repair, reclamation, remanufacture, recycling, or disposal.

Reverse Logistics

Material Requirements Planning (MRP)

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

Manufacturing Resource Planning (MRP II)

helps to improve internal communication and operations.

Just-in-Time

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

Total Quality Management

is a management approach to long-term success through customer satisfaction based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. Everyone in the organization has to take ownership for quality.

Business Process Reengineering

is 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.

Enabling

processes include elements such as supply chain systems and network operations, systems configuration control, interfaces, gateways, database ad- ministration, electronic data interchange (EDI), telecommunications services, performance mea- surement, contract management, business rules, standards, and training and education, to name just a few.

True

The principle mission of supply chain management is to ensure that demand is met.

Demand planning

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

• How much do I send to the customer

• How much raw material should we buy

• How much product should we make

TRUE

Forecasting and Demand Planning are crucial components of customer satisfaction.

False

Demand planning only used in supply chain

Consensus demand planning

when departments in a company work together to share information and agree on a forecast

Demand

the need for a particular product or component. Demands vary from customer order, a forecast, manufacturing of another product, etc.

Forecast

an estimate of future demand

Forecasting

is 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

is demand for an item that is unrelated to the demand for other items, such as a finished product, a spare part, or a service part - ex: bicycle

Dependent Demand

is demand for an item that is directly related to other items or finished products, such as a component or material used in making a finished product. ex: wheels

Qualitative

forecasting which is based on opinion and intuition

Quantitative

forecasting which uses mathematical models and historical data to make forecasts

Qualitative models used are

-Personal Insight

-Jury of Executive Opinion

-Delphi Method

-Sales Force Estimation

-Customer Survey

Sales Force Estimation

Basically the same as the Jury of Executive Opinion except that it is performed specifically with a group of sales people.

Time Series

based on the assumption that the future is an extension of the past. Historical data is used to predict future demand

Cause and Effect

assumes that one or more factors (independent variables) predict future demand

Naïve Forecasting

Sets the demand for the next time period to be exactly the same as the demand in the last time period.

Simple Moving Average

Uses a calculated average of historical demand during a specified number of the most recent time periods to generate the forecast.

- Formula: (M1+M2+M3+M4)/M4

Weighted Moving Average

similar to a simple moving average except that not all historical time periods are valued equally.

Formula:(% x M1) + (% x M2) + (% x M3) + (% x M4)

Exponential Smoothing

is a more sophisticated version of the weighted moving average. Requires 3 basic elements: last period's forecast, last period's actual demand, and a smoothing factor, which is a number greater than 0 and less than 1

Formula: (last month x smooth factor) + (last month actual demand x (1-smooth factor))

Linear Trend Forecasting

is 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.

basic cause-and-effect models:

-Simple Linear Regression

-Multiple Linear Regression

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.

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.

Simple forecast methodologies trump complex ones

True

A correct forecast does prove your forecast method is correct

False

It's easy to eliminate bias, so most forecasts aren't biased

False

Forecast Error

the difference between the actual demand and the forecast demand. The error can be quantified as an absolute value or as a percentage.

Mean Absolute Percent Error (MAPE)

measures the size of the error in percentage terms. It is calculated as the average of the unsigned percentage error.

MAPE = ∑ ((|A - F|)/ A) / n

is a consistent deviation from the mean in one direction; either high or low.

∑ Forecast Error = ∑ Actual Demand - ∑ Forecast Demand

Forecast Bias

How can the Bullwhip Effect be Alleviated?

-Collaboration

-Synchronizing the supply chain

-Reducing inventory

-Reducing Lead Time

Collaborative Planning, Forecasting, and Replenishment (CPFR)

a business practice that combines the intelligence of multiple trading partners who share their plans, forecasts, and delivery schedules with one another in an effort to ensure a smooth flow of goods and services across a supply chain.

oThe Johnson & Johnson and Walmart "Caladryl" story

Supply Chain Planning

is the element of supply chain management responsible for determining how best to satisfy the requirements created by the Demand Plan

Supply chain planning is usually hierarchical and can be divided into categories

-Long-Range

-Intermediate-Range

-Short-Range

Long-Range

involves planning for actions such as the construction of facilities and major equipment purchase (ref., Aggregate Production Plan - APP)

Intermediate-Range

Shows the quantity and timing of end items (ref., Master Production Schedule - MPS)

Short-Range

detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning - MRP)

Executive level - Ford Motor Company wants to grow the market by 3% (1 - 3 years)

Long-Range

Mid-level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months.

Intermediate-Range

Planner, 1st line Supervisor - 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.

Short-Range

The Business Plan, with its long-term focus, provides the company's direction and objectives for the next two to ten years.

True

Aggregate Production Plan (APP)

Primary purpose is to establish production rates that will achieve management's objective of satisfying customer demand by maintaining, raising, or lowering inventories, while attempting to keep the workforce relatively stable.

Influencing demand so that it aligns to available production capacity

true

Master Production Schedule (MPS)

A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period.

Three basic production strategies

Level Production Strategy, Chase Production Strategy, Mixed Production Strategy

Level Production Strategy

Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand.

Works well for make-to-stock firms

Chase Production Strategy

Adjusts capacity to match demand. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant.

Works well for make-to-order firms

Mixed Production Strategy

Maintains stable core workforce while using other short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand.

Construction co., retail stores at holiday season.

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

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

Gross Requirement

A time-phased requirement prior to netting out on-hand inventory and lead-time

Net Requirement

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

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.

Planned Order Release

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

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.

Scheduled Receipt

A committed order awaiting delivery for a specific period.

Resource Requirement Planning (RRP)

A long-range capacity planning module used to check whether aggregate resources (i.e., labor and manpower) are capable of satisfying the Aggregate Production Plan.

Rough-Cut Capacity Planning (RCCP)

A medium-range capacity planning module 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.

Capacity Requirement Planning (CRP)

A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.

Why Do We Need Inventory?

Organizations create inventory so that they can compensate for the differences in timing between supply and demand

What is inventory?

the quantities of goods and materials that are held in stock.

Categories of Inventory

-Raw Materials

-Work-in-Process (WIP) sometimes called Semi-Finished Goods

-Finished Goods

-Maintenance, Repair and Operating (MRO) supplies

Service Inventory

Activities carried out in advance of the customer's arrival

Why hold inventory?

-To meet demand economically (cycle stock)

-To Buffer Against Uncertainty in Demand and/or Supply (safety stock)

-To Decouple Supply from Demand (strategic stock)

-To Decouple Dependencies in the Supply Chain

Cycle Stock

Inventory that is created based on a quantity that has a reasonable cost

Safety Stock - also "buffer stock"

inventory that is above and beyond what is actually needed to meet anticipated demand.

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:

-hedge currency fluctuations

-take advantage of a price discount

-protect against a short-term disruptive event in supply

-take advantage of a business opportunity

-for life cycle changes: seasonal demand, new product launch, transition protection

Pipeline Inventory

inventory in transit

Safety Stock inventory is inventory held / owned by suppliers, or by wholesalers, distributors, retailers, and customers.

False

Obsolete inventory

is inventory stock that ha2s expired, damaged, or no longer needed.

Absolute Inventory Value

The value of the inventory at either its cost or its market value.

-Generally found on the balance sheet.

Inventory Turnover

The number of times that an inventory cycles, or "turns over," during the year.

Inventory turnover ratio = cost of goods sold / average inventory @ cost

Fixed-Order Quantity System

A continuous inventory review system in which the same order quantity is used from order to order

Fixed-Time Period System

If the inventory is less than target, a quantity necessary to bring inventory back up to the target level is ordered.

Economic Order Quantity (EOQ) Model

quantitative decision model based on the trade-off between annual inventory carrying costs and annual order costs.

EOQ is a fixed-order quantity model

true

Order Costs

are costs that are incurred each time an order is placed.