Supply Chain Final Part 1 Ch 1 - 3

What is supply chain management (SCM)?

SCM coordinates all activities involved in sourcing, producing, and delivering goods and services to customers.

Purpose of SCM

To get the right product, in the right quantity, at the right time, to the right place, at the lowest possible cost.

Main goal of SCM

To balance demand and supply while maximizing overall customer value and profitability.

Definition of a supply chain

A network of all parties—suppliers, manufacturers, logistics providers, retailers, and customers—who work together to fulfill product and service demand.

Key supply chain flows

Material flow, information flow, and financial flow connect all partners.

Material flow

The physical movement of goods through the supply chain, including raw materials, parts, and finished products.

Information flow

The sharing of forecasts, orders, and data that allow coordination and decision-making.

Financial flow

Covers payment schedules, credit terms, and transfer of ownership or title.

Upstream vs. downstream

Upstream focuses on supplier relationships; downstream focuses on distribution and customer relationships.

Internal supply chain

Refers to activities within a single organization such as production, warehousing, and inventory control.

External supply chain

Includes outside entities such as suppliers, transporters, and customers.

SCM evolution

Evolved from independent functions like purchasing and logistics into an integrated, cross-functional discipline

Importance of integration

Integration reduces delays, lowers costs, and improves responsiveness across the entire supply chain.

Push vs. pull systems

Push systems are forecast-driven; pull systems are demand-driven and react to actual customer orders.

Benefits of SCM

Improved customer satisfaction, reduced operating costs, higher efficiency, and stronger competitive advantage.

Challenges in SCM

Globalization, fluctuating demand, long lead times, and risk management.

Bullwhip effect definition

Small demand changes at the customer level cause larger swings in orders upstream in the supply chain.

Causes of the bullwhip effect

Order batching, price fluctuations, demand forecasting errors, and lack of information sharing.

Customer relationship management (CRM)

Focuses on building and maintaining strong customer relationships to increase loyalty and satisfaction.

How to reduce the bullwhip effect

Share real-time information, shorten lead times, and align incentives across partners.

Supplier relationship management (SRM)

Develops close partnerships with key suppliers to ensure reliable quality, cost, and delivery.

Distribution management

Moves and stores finished products to ensure timely delivery to customers.

Operations management

Oversees internal processes that convert inputs into finished goods and services.

Procurement management

Handles the acquisition of materials and services needed to support production and operations.

Logistics management

Plans and controls the efficient flow and storage of goods and information between origin and consumption.

Reverse logistics

Handles product returns, recycling, repairs, and disposal.

SCM vs. logistics

Logistics is a component of SCM focused on movement and storage; SCM integrates all supply chain functions end-to-end.

Technology in SCM

Tools such as ERP systems, RFID, AI, and blockchain improve visibility, coordination, and accuracy.

Global supply chains

Operate across multiple countries and time zones, balancing cost efficiency with complexity and risk.

Sustainability in SCM

Managing resources to meet current needs without compromising future generations—includes green logistics and ethical sourcing

Technology in SCM

Tools such as ERP systems, RFID, AI, and blockchain improve visibility, coordination, and accuracy.

Importance of collaboration

Close communication between partners ensures faster problem-solving and higher customer satisfaction.

Key SCM metrics

Include order fill rate, inventory turnover, on-time delivery, and total supply chain cost.

Ultimate goal of SCM

To achieve total customer satisfaction at the lowest total system cost.

What is forecasting?

Forecasting is predicting future demand for products or services to plan production, inventory, and operations.

Why forecasting matters

It helps managers make informed decisions about purchasing, scheduling, and staffing.

Goal of forecasting

To minimize the difference between actual demand and predicted demand.

Demand planning definition

The process of combining statistical forecasts with market insight to create a realistic demand plan.

Link between forecasting and demand planning

Forecasting predicts demand; demand planning adjusts it with business knowledge to make it usable.

Key takeaway

Accurate forecasting and collaborative demand planning improve service levels, reduce waste, and support smarter decisions across the supply chain.

Best practices in forecasting

Use reliable data, involve multiple departments, measure accuracy, and continuously improve.

Forecast monitoring

Regularly checking forecast accuracy and adjusting methods when needed.

Forecast horizon

The length of time a forecast covers—short, medium, or long term depending on the business.

Sales & Operations Planning (S&OP)

Integrates demand planning with production and financial planning to keep business goals aligned.

Demand planning process

Includes data collection, statistical forecasting, management review, and final plan approval.

Top-down vs. bottom-up forecasting

Top-down uses overall market data and allocates to segments; bottom-up builds forecasts from individual items or stores.

Collaborative forecasting advantages

Combines perspectives from sales, marketing, and operations for a balanced forecast.

Why forecast accuracy matters

Poor forecasts lead to either too much inventory or lost sales.

Forecast error definition

The difference between actual and forecasted demand.

Mean Absolute Deviation (MAD)

A common way to measure average forecast error (concept only—no math needed).

Bias in forecasting

Occurs when forecasts consistently overestimate or underestimate actual demand.

Qualitative vs. quantitative forecasting

Qualitative uses judgment when data is scarce; quantitative relies on numerical analysis.

Collaborative Planning, Forecasting, and Replenishment (CPFR)

A shared process between supply chain partners to improve accuracy and responsiveness.

Purpose of CPFR

To synchronize planning, forecasting, and inventory management among suppliers and retailers.

Steps of CPFR

Plan and establish collaboration, create a joint forecast, reconcile differences, and execute the plan.

Benefits of CPFR

Reduces forecasting errors, minimizes stockouts, and lowers inventory costs.

Cyclicality

Longer-term demand swings caused by business or economic cycles.

Random variation

Unpredictable demand changes caused by chance events.

Irregular variation

Extreme one-time events like strikes, natural disasters, or product recalls.

Moving average forecasting

Uses the average of a fixed number of past periods to predict future demand.

Exponential smoothing

Gives more weight to recent data to make forecasts more responsive to changes.

Simple vs. weighted moving average

Simple treats all past periods equally; weighted assigns more importance to recent data.

Seasonality

Regular fluctuations tied to the time of year, holidays, or weather.

Trend

A long-term movement upward or downward in demand.

Components of demand

Trend, seasonal variation, cyclical variation, random variation, and irregular variation.

Causal model (cause-and-effect)

Assumes demand is influenced by one or more independent variables such as price or advertising.

Time series model

Uses past demand data over time to predict future trends.

Examples of quantitative methods

Time series models, cause-and-effect models, moving averages, and exponential smoothing.

Historical analogy

Uses demand patterns from a similar product to predict new product demand.

Delphi method

A panel of experts answers rounds of questionnaires until a consensus forecast emerges.

Market research

Forecasts based on surveys or studies of customer preferences.

Quantitative forecasting methods

Use historical data and mathematical models to predict future demand.

Examples of qualitative methods

Executive judgment, market research, Delphi method, and historical analogy.

Quantitative forecasting methods

Use historical data and mathematical models to predict future demand.

Qualitative forecasting methods

Use judgment, intuition, and experience rather than numbers—helpful when data is limited.

Key planning processes

Business planning, aggregate production planning, sales and operations planning (S&OP), master production scheduling (MPS), materials requirements planning (MRP), capacity planning, and distribution requirements planning (DRP).

Main idea of planning

To make sure the right products are made in the right quantities at the right time.

Goal of supply chain planning

To align supply, production, and distribution with company financial and service objectives.

What is supply chain planning?

Supply chain planning decides how to best meet the demand plan by balancing supply and demand across operations.

Short-range planning.

Handles detailed daily or weekly scheduling of parts and materials, usually for 1–12 weeks

Intermediate-range planning

Covers product quantities and timing over 3–18 months, such as the Master Production Schedule.

Long-range planning

Focuses on facility construction, major equipment, and overall growth plans—usually covers several years..

Levels of planning

Long-range (strategic), intermediate-range (tactical), and short-range (operational)..

Hierarchy of planning
Strategic → Tactical → Operational, with each level feeding the next for smooth execution.

Business planning definition

The company’s long-term plan (2–10 years) stating profitability, growth, and ROI goals.

Purpose of business planning

To set the company’s direction and guide aggregate and production plans.

Aggregate production plan (APP)

A one-year plan translating business goals and demand forecasts into overall production levels for product families.

Goal of aggregate production planning

To meet demand while using capacity efficiently, stabilizing workforce levels, and minimizing costs.

Aggregate planning costs include

Inventory, setup, labor, overtime, training, and subcontracting costs.

Demand adjustments in aggregate planning

Influencing demand through pricing, promotions, backorders, or counter-seasonal products.

Supply adjustments in aggregate planning

Changing inventory levels, adjusting production rates, using overtime or layoffs, and subcontracting.

Example of influencing demand

Airlines offering weekend discounts or telecom companies lowering weekend rates to balance demand.

Example of counter-seasonal product mix

Producing lawnmowers and snowblowers to balance production year-round.

Sales and Operations Planning (S&OP)

A monthly process integrating marketing, production, and financial plans to ensure all functions align.

Purpose of S&OP

To balance supply and demand and create one unified plan for the company.

Benefits of S&OP

Better communication, improved forecasting, and coordinated resource use.

S&OP process frequency

Usually reviewed monthly and updated to reflect current conditions.

S&OP integrates

Marketing plans for new and existing products with production and supply chain capabilities.

Typical S&OP timeline

Four-week cycle: demand review, supply review, pre-S&OP meeting, and executive S&OP meeting.

Master Production Schedule (MPS)

A detailed plan showing what products to make, when, and in what quantities.