C720 - Supply Chain Management

Transportation (Pipeline)

Inventory in transit

Work in Process (WIP)

Inventory used in production

Finished Goods

Products ready for customer

Replacement Parts

Inventory used to maintain machinery

AKA: MRO (Maintenance & repair inventory)

Supplies

Items used in production, but not part of final product

Safety Stock

Extra inventory to prevent stock out

Stock Out

Depleted inventory

Ordering Cost

Any cost associated with ordering materials

Carrying Cost

Storage/Handling costs; Cost incurred to store or hold inventory

Economic Order Quantity (EOQ)

Model used for finished goods

Economic Production Quantity (EPQ)

Model used for raw materials or production

EOQ

Demand is constant

EPQ

Production rate is constant

Quantity Discount Model

The more you buy, the more you save

Reorder Point (ROP)

When the quantity on hand of an item drops to this amount, the item is reordered

ABC Analysis

Categorizing items based on importance from A to C

A Items

Very tightly controlled and accurate records

B Items

Less tightly controlled and good records

C Items

Simplest controls possible and minimal records

Pareto Principle

80% of revenue is driven by 20% of inventory items

Vendor Managed Inventory (VMI)

When the supplier/vendor manages inventory on behalf of the supplier

Just-In-Time (JIT) Inventory

Receiving inventory just in time, when its ready to be used after production

Just-In-Time 2

When the relationship is strengthened between supplier and the customer

Ex: Coca-Cola employee working in a Walmart distribution center

Demand

How much customers are asking for your product

Demand Planning

Estimating how much goods/services customers will buy from you

4 Types of Demand

1). Peak Demand

2). Seasonal Demand

3). Unexpected Demand

4). Chase Demand

Peak Demand

Controlled by the organization; Expected spike in demand

Seasonal Demand

Expected spike in demand based on specific season; Halloween, Christmas, Easter

Unexpected Demand

Unexpected spike in demand outside of the company's control

Ex: Face masks during the COVID pandemic

Chase Demand

When demand is up, you increase production. When demand is down, you decrease production.

Ex: Restaurants staffing more employees during busy times such as nights and weekends

2 Types of Inventory Systems

Periodic and Perpetual

Periodic Inventory System

- Monitors inventory levels periodically, at random time intervals

- Requires physical count to know inventory levels; Best for small businesses

Inexpensive & low maintenance inventory system

Perpetual Inventory System

Continuously monitors inventory levels at all times

Knows the exact count of inventory at all times; Best for big businesses

Expensive & high maintenance inventory system

Best inventory system for accurate financial statements

Periodic

Open order window is used with a _________inventory system

SWOT Analysis

strengths, weaknesses, opportunities, threats

Simple Tool

SWOT analysis is used by new business ventures as a ________

Strategic Tool

SWOT analysis is used as a ________________ to gain competitive advantage

Strengths & Weaknesses

Internal factors of SWOT analysis

Opportunities & Threats

External factors of SWOT analysis

Supply Chain

The connected chain of all of the business entities, both internal and external to the company, that perform or support the logistics function

2 Types of Supply Chain

Agile and Lean

Agile Supply Chain

Supply chain that focuses on speed and adaptability

Supply chain more suitable for innovative industries like tech and fashion

Supply chain more suitable for products with a short life cycle and unpredictable demand

Lean Supply Chain

Supply chain that focuses on streamlined processes

Supply chain most suitable for traditional products with minimal innovation

Supply chain that focuses on eliminating waste and reducing cost

Supply chain most suitable for products with a long-life cycle and stable demand

Vertical Integration

Owning multiple assets in a supply chain

Focal Firm

The company in the middle of the supply chain that owns the end product

Backward Vertical Integration

When a focal firm purchases the supply aspect of the supply chain

Forward Vertical Integration

When a focal firm purchases the retail aspect of the supply chain

Logistics

The movement of supplies & materials through the supply chain

Inbound Logistics

The flow of raw materials & information into a business from its suppliers

Outbound Logistics

The flow of products (finished goods) & information from a business to its customers

Global Logistics

The movement of supplies & materials through the supply chain internationally

Reverse Logistics

Includes product returns, warranties, recycling and material reuse, and waste disposal

3rd Party Logistics (3PL)

Using another company to do your logistics (outsourcing)

Strategic Alliance

a partnership formed to create competitive advantage

2 companies share a building. A solar panel company offers to install solar panels for $100,000. You and the other company decide to split the cost, since both of your companies will benefit from the solar panels.

Benefits of Strategic Alliance

1). Lowers financial risk

2). Access to new customers

3). Access to new resources

Benchmarking

When a company compares its performance to the performance of its competitors

Constraints

restrictions placed on potential solutions to a problem

3 Types of Constraints

1). Demand

2). Supply

3). Process

Demand Constraint

When demand is low, but supply is high

Supply Constraint

When supply is low, but demand is high

Process/Throughput Constraint

Anything that prevents a company from producing products or reaching goals

Process Bottleneck

Occurs at the point in the process that requires the longest time or the slowest rate of production

Regulatory Bottleneck

Legal constraints

Technology Bottlenck

Constraints caused by technology, software, or hardware

Labor Bottleneck

Constraints due to lack of employees

Financial Bottleneck

Constraints due to limited budgets

Physical Bottleneck

Constraints caused by weather, construction, traffic, accidents, etc. Usually outside of human control

Decision-Making Bottleneck

Constraint caused by indecisiveness

Theory of Constraints

5-step process that organizations can use to overcome bottlenecks

Theory of Constraints: Step 1

Identify constraint

Theory of Constraints: Step 2

Exploit constraint

Theory of Constraints: Step 3

Focus resources on accomplishing step 2

Subordinate everything to the systems constraint

Theory of Constraints: Step 4

Elevate the constraint

Reduce the effects of constraints by offloading work or expanding capability

Theory of Constraints: Step 5

Once overcome, go back to step 1 and find new constraints

Forecasting

A prediction based on past experiences

Aspects of Forecasting

Customer demand, planning, historical data, scheduling

2 Types of Forecasting

Quantitative and qualitative

Quantitative Forecasting

Uses historical and numerical data to predict the future

Qualitative Forecasting

Based on intuitive or judgmental evaluation. Used when data is scarce, not available, or no longer relevant.

Qualitative Forecasting Methods

Buildup, survey, test, panel of experts, and executive opinion

Buildup Method

Data gathered from lower-level employees to senior management

Survey Method

Data gathered through questionnaires, interviews, and focus groups

test Market

Data gathered from participants located in a specific region

Panel of Experts

Delphi technique; Data gathered from a group of experts

Executive Opinion

Data gathered from company executives

Quantitative Forecasting Methods

Time series: simple and weighted moving average

Time Series

A sequence of observations taken at regular intervals over a period of time

Simple Moving Average

Predicts a value by averaging a fixed number of most recent actual values

Weighted Moving Average

Forecasting model that assigns a different weight to each period's demand according to its importance

Seasonal Index

A number used to adjust data to seasonal demand.

Master Production Scheduling

Short term planning

Aggregate Planning

Long term planning

Independent Demand

Finished goods, on master production schedule to produce

Dependent Demand

Not finished goods, raw materials that will be used in production

Planning Horizon

Length of time it takes to plan, forecast, and schedule production of a product

Medium range: 6-18 months

Long term: 5-10 years

Time Fence

Any boundary on a planning horizon

Time Bucket

Unit of measure for the time period used in a forecast

Ex: Weekly basis, monthly basis, etc.

Materials Requirements Planning (MRP)

The process of planning production by ensuring that raw materials get to the factory floor on time and finished products get to customers in a timely manner.

Materials Requirement Planning (MRP)

Uses master schedule file (demand), bill of materials, and inventory file (inventory levels)

Manufacturing Resource Planning (MRP 2)

Includes the planning of materials, personnel, and machinery. Focuses on production