Exam 3 UARK Supply chain

Desired end result

greater value for the end user or consumer

Demand Management

• To estimate and manage customer demand and use this
  information to make operating decisions.

• To further the ability of firms throughout the supply chain to
  collaborate on activities related to the flow of products, services,
  information, and capital

Demand forecasting

foundation of many SC manager decisions

how to balance supply and demand

all forecasts will be wrong

select the forecasting technique with the lowest forecast error

forecasts

serve as a plan for both marketing and operations to set goals and develop execution strategies

two typs of demand forecasting

independent

dependent

independent demand

demand for the primary item, known as base demand

dependent demand

demand directly influenced by demand for an independent item

fluctuation types

random

trend

seasonal

random fluctuation

cannot be anticipated and is usually the cause to hold safety stocks to avoid stockout

trend fluctuation

gradual increase or decrease in demand over time for an organization

seasonal fluctuation

patterns will normally repeat themselves during the year

weighted moving average

assigns a weight to each previous period with higher weights usually given to the more recent demand

adds more weight to the recent months

pros of weighted moving average

allows emphasis on more recent demand as a predictor of future demand

cons of weighted moving average

not easily accommodate seasonal demand patterns

simple moving average

make forecasts based on recent demand history and allows for the removal of random effects

distributes the weight equally throughout the past months

pros of simple moving average

quick and easy to use

cons of simple moving average

old demand dropped quickly; not accommodate seasonal, trend, or business cycle influences

common qualitative methods

executive judgement

sales force composite

market research/survey

delphi method

executive judgement

expert opinions from different departments is averaged

sales force composite

forecast based on the opinions of salespeople

market research/survey

directly collecting information from consumers about purchases

Delphi method

panels of experts individually questioned (not as a group); effective for long range forecasting

sales and operations planning (S&OP)

it is necessary for an organization to arrive at a forecast internally that all functional areas agree upon and can execute, this process can be used to arrive at this consensus forecast.

CPFR

collaborative, planning, forecasting, & replenishment

CPFR

Trading partners (retailers, distributors, and manufacturers) use available internet-based technologies to collaborate on operational planning, allowing them to agree to a single forecast for an item where each partner translates this forecast into a single execution plan

order management

defines and sets in motion the logistics infrastructure of the organization

two phases of order management

influence and order

execute the order

Phase 1: influence and order

organization attempts to change the manner by which customer place orders

phase 2: execute the order

order receipt: electronic vs. manual

order fulfillment: inventory policy, number location of warehouses

order shipments: transportation mode choice

customer service

Anything that touches the customer, including all activities that impact information flow, product flow, and cash flow between the organization and its customers

customer service as a philosophy

elevated to an organization-wide commitment

customer service as a performance measure

assess performance through measures like on-time delivery and percentage of orders filled complete

customer service as an activity

a task that an organization must perform to satisfy customers

customer relationship management (CRM)

align the supplier’s resources with its customers in a manner that increases both customer satisfaction and supplier profits

how much, how, when, what in CRM

maximize efficiencies of the shipping organizations logistics network

4 basic steps in the implementation of the CRM process

segment the customer base by profitability

identify the product/service package for each customer segment

develop and execute the best processes

measure performance and continuously improve

what is activity based costing- principle behind why companies use this

A methodology that measures the cost and performance of activities, resources, and cost objects. Resources are assigned to activities, then activities are assigned to cost objects based on their use. ABC recognizes the causal relationships of cost drivers to activities

customer segmentation

danger zone

build segment

cost engineer segment

protect segment

Danger Zone segment strategies

change the manner in which the customer interacts with the shipper to move the customer to another segment

charge the customer the actual cost of doing so

or switch the customer to an alternative distribution channel

which customer is the least profitable

danger zone customers

which customer is the most profitable

Protect customers

strategies aim to maintain the cost to serve but build net sales value to help drive the customer into the “Protect” segment

build segment

strategies aim to find more efficient ways for the customer to interact with the shipper

cost engineer segment

Protect segmant

most profitable, provide shipper with the most cost efficiencies

Order to cash cycle

refers to outbound-to-customer shipments

all of the activities that occur when an order is received by a seller until the product is received by the buyer, plus the flow of funds back to the seller based on the invoice.

replenishment cycle

term is used more frequently when referring to the acquisition of additional inventor as in materials management

marketing objective

allocate resources to the marketing mix to maximize long-term profitability of the firm

logistics objective

minimize total costs, given customer service objectives where: total cost= transportation cost+ warehousing costs+ order processing and information costs + lot quantity costs + inventory carrying costs

stockout

occurs when desired quantities of finished goods are not available when or where a customer needs them

Item

a case, an inner-pack, or an “each” on an order

line

a single product on a multiple product order

item fill rate

the percentage of items in stock available to fill an order

line fill rate

the percentage of total lines filled complete on an order

four elements of customer service

time

dependability

communications

convivence

time

absolute length of lead time

sellers

order to cash

buyers

order cycle, lead time, replenishment time

dependability

consistent lead time, safe delivery, correct orders

communications

pre-transaction, transaction, post-transaction

convience

flexible logistics service level

the buyer waits until the product is available

theoretically, that will cost the company $0 more than likely when the product substitutability is low

the buyer back-orders the product

increase in variable costs for the seller

the seller loses current revenue

buyer cancels order (or portion of) negative impact on sellers’ revenue

the seller loses a buyer and future revenue

worst situation for seller- difficult to calculate

break even point

where the cash flow lost and inventory investment cross

inventory on the balance sheet is an

asset

variable expense on the income statement, direct impact on COGS

Direct impact on service levels

Part of corporate strategy

Constant balancing of too much vs. too little

Major logistics cost tradeoff is between transportation and inventory

inventory

COGS

cost of goods sold

basic inventory management

A set of techniques used to manage the inventory levels within different companies in a supply chain

• Goal is to reduce cost (efficiency) while maintaining service levels customers require (effectiveness)

• Forecast + product price = inputs that IM needs to balance

3 types of inventories

cycle stock

safety stock

seasonal

cycle stock

needed to meet demand between normally scheduled orders

safety stock

necessary to compensate for demand uncertainty and order lead times

seasonal stock

produced and stockpiled in anticipation of future demand

rationale behind different types of inventories

1. Procurement (purchase discounts), production (long production run), and
transportation (freight rate discounts)
2. Demand- and supply-side uncertainties
3. Inventory costs associated with goods in motion during transportation time
period.
4. Inventory costs associated with goods in process during manufacture or
assembly of a complex product.
5. Seasonality in raw materials supply (e.g. production, transportation), in
demand for finished product, or in both
6. Inventory held in anticipation of an unusual event (e.g. strikes, significant price
increase, extreme weather)

inventory carrying costs

Incurred by inventory at rest and waiting to be used. Four major components: Capital cost, Storage space cost, Inventory service cost, & Inventory risk cost.

ordering and setup costs

Refers to the expense of placing an order, excluding the cost of the product itself. Setup cost refers to the expense of changing/modifying a production/assembly process to facilitate line changeovers.

expected stockout cost

Cost associated with not having a product/materials available to meet customer/production demand. Most organizations hold safety stock or buffer stock, to minimize the possibility of a stockout and costs of lost sales

in transit inventory carrying cost

Generally, carrying inventory in transit costs less than in warehouses. However, in-transit inventory carrying cost becomes especially important on global moves since both distance & time increase

what is different between ordering and inventory carrying costs

Ordering cost and carrying cost respond in opposite ways to changes in the number of orders or size of individual orders

economic order quality

most cost effective amount to purchase at a time

order a fixed amount each time reordering takes place

limitation- assumes consumer demand is constant

fixed order quantity EOQ model

inventory is reordered when the amount on hand reaches the reorder point. The reorder point quantity depends on the time it takes to get the new order and on the demand for the item during this lead time

JIT or just in time

an operating concept based on delivering materials in exact amounts and at the precise times that organizations need them—thus minimizing inventory costs.

facts about JIT

• Designed to manage lead times and eliminate waste

• Ideally, product should arrive exactly when an organization needs it, with no tolerance for late or early deliveries

• High priority on short, consistent lead times but reliability is also important

4 major elements of JIT concept

zero inventories

short, consistent lead times

small, frequent replenishment quantities

high quality (zero defects)

Materials requirement planning (MRP)

designed to translate a master production schedule into time-phased net inventory requirements and the planned coverage of such requirements for each component item needed to implement this schedule

 Begins by determining how much end products (independent demand items) customers desire and when they are needed

Timing and component needs based on end-product demand are disaggregated

what planning has similar objectives to just in time

Materials requirement planning

MRP

materials requirement planning

advantages to MRP

Attempt to maintain reasonable safety stock levels and to minimize or eliminate inventories whenever possible.

Can identify process problems and potential supply chain disruptions long before they occur and take the necessary corrective actions.

Production schedules are based on actual demand as well as on forecasts of independent demand items.

They coordinate materials ordering across multiple points in an organization’s logistics network

disadvantages to MRP

• Application is computer intensive, and making changes is sometimes difficult once the system is in operation.

• Both ordering and transportation costs might rise as an organization reduces inventory levels and possibly moves toward a more coordinated system of ordering product in smaller amounts to arrive when the organization needs it.

• Not usually as sensitive to short-term fluctuations in demand as are order point approaches (although they are not as inventory intensive, either).

• Frequently become quite complex and sometimes do not work exactly as intended.

VMI

Vendor management inventory

DRP

distribution requirements planning

distribution requirements planning

• systems accomplish for outbound shipments what MRP accomplishes for inbound shipments.

• Determines replenishment schedules between a firm’s manufacturing facilities and its distribution centers.

• Usually coupled with MRP systems to manage the flow and timing of both inbound materials and outbound finished goods.

• Underlying rationale is to more accurately forecast demand and the share that information for use in developing production schedules

Vendor management inventory

manages inventories OUTSIDE a firm’s logistics network, specifically inventories held in its customer’s distribution centers.

How does VMI work

1. The supplier and its customer agree on which products are to be managed using VMI in the customer’s distribution centers.

2. An agreement is made on reorder points and economic order quantities for each of these products.

3. As these products are shipped from the customer’s distribution center, the customer notifies the supplier, by SKU, of the volumes shipped on a real- time basis.

4. The supplier monitors on-hand inventories in the customer’s distribution center, and when the on-hand inventory reaches the agreed-upon reorder point, the supplier creates an order for replenishment, notifies the customer’s distribution center of the quantity and time of arrival, and ships the order to replenish the distribution center.

advantages to VMI

The knowledge gained by the supplier of real-time inventory levels of its products at its customer locations allows the shipper more time to react to sudden swings in demand to assure that stockouts do not occur.

disadvantages to VMI

Suppliers’ uses of VMI to push excess inventory to a customer distribution center at the end of the month in order to meet monthly sales quotas, resulting in the customer holding extra inventory, adding costs to its operations.

inventory classification techniques

Multiple product lines and inventory control require organizations to focus on more important inventory items and use more sophisticated and effective approaches to inventory management

ABC classification technique

assigns inventory items to one of three groups according to the relative impact or value of the items that make up the group. the first group of items are considered to be the most important, the next group of items lesser importance, and the next group of items least important.

Quadrant model classification technique

finished goods inventories using value and risk to the firm as the criteria. Value is measured as the value contribution to profit; risk is the negative impact of not having the product available when it is needed

distinctives

o   high safety stocks

o   more than one stocking location

o   produce to inventory