OMIS 3200 TEST TWO

What is a forecast?

an estimate of future demand and provides the basis for planning decisions

What is the goal of demand forecasting?

to minimize deviation between actual demand and forecast

True or False: Forecasting does not require looking at factors that influence demand.

False

True or false: Buyers and seller should share all relevant informationh to generate a single consensus forcast

true

What are some benefits of good forecasting?

lower inventories, reduced stock outs, smoother production plans, reduced costs, and improved customer service

What is CPFR, and what does it stand for?

-Collaborative planning, forecasting, and replenishment

-seeks cooperative management of inventory through jpint visibility and replenishment of inventory throughout the supply chain by information sharing between suppliers and retailers

What are some reasons a widespread adoption of CPFR has stalled? (3 reasons)

Technological, organizational, and cultural challenges

True or false: Without a holistic view of account pricing, promotion, and new product introductions, the promise of collaborative initiatives was not realized.

True

What are the types of Qualitive forecasting methods? (4 types)

-Jury of Executive Opinion

-Delphi Method

-Sales Force Composite

-Customer Surveys

Describe Jury of executive opinion, and what is it good for?

-Group of senior management executives collectively develop the forecast

-Good for long range planning and new product introductions

Describe the Delphi method, and what is it good for?

-Internal and external experts are surveyed during several rounds

-Summary of responses is sent out to all the experts, they can modify their responses in next round

-Good for high-risk technology forecasting; large, expensive projects, or major new product introductions

Describe Sales force composite.

-Based on sales force's knowledge of the market and estimates of customer needs

-tendency for sales force to under-forecast

Describe Consumer survey

Questionnaire uses inputs from customers on future purchasing needs, new product ideas, and opinions about existing or new products

Describe Quantitative forecasting methods

-Use mathematical models and relevant historical data to generate forecasts

-All quantitative methods become less accurate as the forecast's time horizon increases

-For long-term horizon forecasts, use a combination of quantitative and qualitative techniques

True or False: All quantitative methods become less accurate as the forecast's time horizon increases.

True

True or False: For long-time horizon forecasts, only use quantitative techniques

FALSE; use a combination of both quantitative and qualitative techniques

Describe Time series forecasting- What are the types (5 types)

-Assumes the future is an extension of the past

-naive, simple moving average, weighted moving average, exponential smoothing, and linear trend

Describe Cause-and-effect models- What are the types (2 Types)

-Assumes one or more factors (independent variables) predict future demand

-simple linear regression, multiple regression

What are the FOUR components of Time series Forecasting models (4 components), and describe them

-Trend variations: increasing or decreasing over many years

-Cyclical variations: wavelike movements that are longer than a year (ex. business cycle)

-Seasonal variations: show peaks and valleys that repeat over consistent interval (ex. hours, days, weeks, months, seasons, or years)

-Random variations: due to unexpected or unpredictable events such as natural disasters

Descrive Naive Forecast

the estimate of the next period is equal to the demand in the past period

Describe Simple Moving Average Forecast

-uses historical data to generate a forecast.

-Works well when demand is stable over time

Describe Weighted Moving Average Forecast

-based on an n-period weighted moving average

Describe Exponential Smoothing Forecast

Type of weighted moving average, with only two data points needed

Describe Linear Trend Forecast

-trend can be estimated using simple linear regression to fit a line to a time series

Cause and Effect Models: Describe Simple regression

-Only one explanatory variable is used

-Is similar to the linear trend model

-x variable is no longer time, but instead is an explanatory variable

Cause and effect Models: Describe Multiple regression

-several explanatory variables are used to predict the dependent variable

What is a forecast error?

The difference between the actual quantity and the forecast

What is MAD?

Mean absolute deviation

What is MAPE?

Mean absolute percentage error

What is MSE?

mean square error

What is RSFE?

Running sum of forecast errors

What does a MAD of 0 indicate?

that the forecast exactly predicted demand

What does MAPE provide?

a perspective of the true magnitude of the forecast error

What is MSE to variance? Why is it that relationship?

-analogous

-large forecast errors are heavily penalized

What is RSFE? What does it indicate?

-Running Sum of Forecast Errors

-indicates bias in the forecasts or the tendency of a forecast to be consistently higher or lower than actual demand

What is a tracking signal?

-determines if forecast is within acceptable control limits

Finish the statement: If tracking signal falls outside pre-set control limits, then.... (2 answers)

-there is a bias problem with the forecasting method

-evaluation of forecast generation is warranted

True or False: Biased forecast will lead to excessive inventories or stockouts.

True

True or False: The key to accurate forecast is solo work with only a few members

-False

-Key to accurate forecasts is collaboration with different partners inside and outside of the firm working together to eliminate forecasting errors

True or False: Collaboration can lead to a significant downfall in forecasting accuracy.

-False

-Collaboration can lead to significant improvements in forecasting accuracy

What is demand sensing?

-a way of identifying short-term trends quickly so companies can better forecast what, when, and where consumers want goods

Describe 3 indicators of a good demand sensing.

Real-time inputs from several external sources to generate forecasts of the prevailing market situation.

Using pattern recognition technologies from Artificial Intelligence and Machine Learning from sources of big data to generate useful information.

An automated model with self-adjusting algorithms that can learn from data without human intervention and generate forecasts for execution daily

What is AI?

-Artificial Intelligence: self learning machines

What is ML?

-machine learning

-a type of AI that uses algorithms to better predict data

What is Cloud-based forecasting?

-supplier hosted or software-as-a-service (SaaS) advanced forecasting applications that is provided on a subscription basis

Benefits of cloud-based forecasting (6 benefits)

Increase data storage and data analysis capabilities

New capabilities without extensive training

Reduction in IT costs

Improvement in forecast accuracy

Reduction in stockout and inventory carrying costs

Improvement in employee productivity

define resource planning.

process of determining the production capacity required to meet demand

what is capacity?

maximum workload that an organization is capable of completing in a given period of time

What is the goal of resource planning?

minimize the discrepancy between an organization's capacity and demand

What might a missed due date or stockout cascade downstream and end up magnifying?

bullwhip effect

What are the 3 categories operations planning can be divided into?

-Long range- Aggregate Production Plan (APP)

-Intermediate (master production schedule-MPS)

-Short range (materials requirement planning-MRP)

Describe Long-range-Aggregate Production Plan (APP)

usually covers a year or more, involves the construction of facilities and major equipment purchase

Describe Intermediate (In terms of operations planning)

plan spans 6 to 18 months

shows the quantity and timing of end items

Describe short range (in terms of operations planning)

plan covers few days to few weeks

detailed planning process for components and parts to support the master production schedule

What is a process that translates annual business plans and demand forecasts into a production plan for a product family?

Aggregate Production Plan (APP)

What is a product family?

different products sharing similar characteristics components or manufacturing processes

What does an Aggregate Production Plan set?

-aggregate output rate

-workforce size

-utilization and inventory

-backlong levels for the facility

Describe the planning horizon for the APP

at least one year and usually rolled forward by three months every quarter

What are some relevant costs of APP?

-inventory

-setup

-machine operation

-hiring

-firing

-training

-overtime

What are the 3 strategies of APP?

-Chase Strategy

-Level Strategy

-Mixed Production Strategy

Describe the Chase Strategy for APP

• Adjusts capacity to match demand

• Firm hires & lays off workers to match demand

• Finished goods inventory remains constant

• Works well for make-to-order firms

• Generally produce one-of-a-kind, specialty products

• Generally require low skilled labor

• Can be problematic when highly skilled workers are needed in a tight labor market

Describe the Level Strategy for APP.

• Relies on constant output rate varying inventory & backlog according to fluctuating demand

• Firm relies on fluctuating finished goods & backlogs to meet demand

• Works well for make-to-stock firms

• Inventory carrying and stockout costs are major cost concerns

• Works well with highly skilled workers

Describe the Mixed Production Strategy for APP

• Maintains stable core workforce using overtime, subcontracting & part-time workers to manage short-term demand

• Complementary products (with different demand cycles) may be produced

• Additional shift may be scheduled

• Works well with firms producing multiple products

What is MPS?

-master production schedule

-detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period

What are the differences between APP and MPS?

• More detailed than APP & easier to plan under stable demand

• Planning horizon shorter than APP, but longer than the lead time to

produce the item

• Note: For the service industry, the master production schedule may just be the appointment book

Define the MPS

production quanitity to meet demand from all sources and used for computing the requirements of all time phased end items

Define MRP

-material requirements plan

-system of converting end items from the master production schedule into a set of time phased component part requirements

Define system nervousness

small changes in the upper-level-production plan cause major changes in the lower-level production plan

What are time fences?

-used to deal with nervousness by separating the planning horizon

What do time fences separate the planning horizon into? (2 things) Define them

-Firmed Segment (AKA demand time fence)- from current period to several weeks into future. Can only be altered by senior management

-Tentative segment (AKA planning time fence)- from end of firmed segment to several weeks into the future

Define ATP.

-Available-to-Promise Quantity

-difference between confirmed customer orders and the quantity the firm planned to produce

What are the 3 methods of calculating the ATP quantities?

1. Discrete available-to-promise

2. Cumulative available-to-promise WITHOUT look ahead

3. Cumulative available-to-promise WITH look ahead

3 Steps of Discrete ATP

1. Add Beginning Inventory to MPS for Period 1 and subtract Committed Customer Orders (CCO) from Period 1 up to but not including the period of the next scheduled MPS

2. For all subsequent periods, there are two possibilities -

− If no MPS has been scheduled for the period, the ATP is zero

− If an MPS has been scheduled for the period, the ATP is the MPS minus the sum of all CCOs from that period up to the period of the next scheduled MPS

3. If an ATP for any period is negative, the deficit must be subtracted from the most recent positive ATP, and revise quantities to reflect changes

What is BOM? How many levels are there, and name them.

-Bill of Materials

-document shows an inclusive listing of all component parts and assemblies making up the final product- shown in various levels

-2 levels : Level 0 and Level 1

Describe Level 0 (BOM)

-Final Product- Called INDEPENDENT Demand item is affected by trends, seasonal patterns, and general market conditions

Describe Level 1 (BOM)

-Called DEPENDENT demand item- all components and subassemblies required for the final assembly of one unit

Define Indented BOM.

multilevel BOM shows the parent-component relationships and specific units of components known as the planning factor

At each level of indentation in the BOM, how much does the level number increase by?

1

What does the Super Bill of Materials include (4 types) and define it.

-planning BOM

-pseudo BOM

-phantom BOM

-family BOM

-enables the firm to forecast the total demand end products

What is option overplanning?

when exact proportion of each option is uncertain, the percentage is increased slightly to cover the uncertainty

Describe the MRP system.

-computer-based materials management system that calculates exact quantities, need dates, & planned order releases for subassemblies & materials required to manufacture a final product

List the requirements for MRP management system.

• Independent demand information

• Parent-component relationships from BOM

• Inventory status of final product & components

• Planned order releases (most important output) - net requirements of the final product and appropriate lead times

Define Planned order releases

-most important output

-net requirements of the final product and appropriate lead times

Describe Closed-loop MRP

-includes aggregate production planning, master production scheduling, and capacity requirements planning

Define MRP II

-combined MRP with materials and resource planning

Describe the operations/"duties" of a complete MRP II system modules

-book orders

-schedule production

-control inventory

-manage distribution

-perform accounting and financial analyses

Terms used in MRP: Define Parent

item generating the demand for lower level components

Terms used in MRP: Define Components

parts demanded by a parent

Terms used in MRP: Define net requirements

equals gross requirement for that period minus the current on-hand inventory and any scheduled receipts

Terms used in MRP: Define scheduled receipt

committed order awaiting delivery for a specific

Terms used in MRP: Define Project on-hand inventory

equals beginning inventory minus gross require plus scheduled receipt and any planned receipt from an earlier planned order release

Terms used in MRP: Define Planned order receipt

projected receipt based on generation of a planned order release

Terms used in MRP: Define planned order release

specific order to be released to the shop supplier

Terms used in MRP: Define Time bucket

time period used in the MRP

Terms used in MRP: Define Explosion

describes process of converting a parent items planned order releases into component gross requirements

Terms used in MRP: Define Planning factor

number of components needed to make a unit of the parent item

Terms used in MRP: Define Firmed planned order

planned order that MRP software logic system cannot automatically change when conditions change

Terms used in MRP: Define Pegging

relates gross requirements for a component to planned order releases that created the requirements

Terms used in MRP: Define low level coding

assigns lowest level on bill of materials to all common components to avoid duplicate MRP computations

Terms used in MRP: Define lot size

order size for MRP logic and may be determined by various lot sizing techniques