Chapters 1 - 3 of Supply Chain Management

Supply Chain

Supply Chain

includes the raw material and parts of a product that distributed through a chain for manufacturing and sales

Structure of Supply Chain

Suppliers, Manufacturers, to Customers

Products and Services are created by

1. materials

2. equipment

3. labor

4. time

5. money

6. resources

Three Links in Supply Chain

the three links in supply chain are

1. Suppliers

2. Manufacturers

3. Customers

every link in the supply chain is

Both a customer of the suppliers and a supplier to their customers

Supply Chain Flow

Tiers in Supply Chain

Tier 1 is direct, the lower the tier number, the more indirect it becomes

Supply Chain Management

• the coordination of the network of otherwise independent trading partners who are creating a desired product or service, and then moving it through the supply chain out to customers

• represents the active management of all supply chain activities to maximize customer value and achieve a sustainable competitive advantage.

Goals of Supply Chain

Increase Customer Service while simultaneously Reducing Inventory and Operating Expenses

Services in Supply Chain

• Facilitating Goods are necessary

SCOR (Supply Chain Operations Reference)

• a process reference model as the standard diagnostic tool for supply chain management

• helps businesses evaluate and perfect supply chain management for reliability, consistency, and efficiency.

Four Major Components in SCOR

1. Performance

2. Processes

3. Practices

4. People

5 SCOR Performance Attributes

1. Reliability

2. Responsiveness

3. Agility

4. Cost

5. Asset Mangement

What do each trading partner have to do>

1. Plan

2. Source

3. Make

4. Deliver (Return)

Planning

• establishes the parameters within which the supply chain will operate.

• Companies need a strategy when it comes to managing the resources necessary to address how a product or services. Resources = Capacity, people, and money

• Planning Includes: Marketing and Distribution Channels

Sourcing

• the process of identifying the suppliers that provide the materials and services needed for the supply chain to deliver the final product

Making

the series of operations performed to convert raw materials and components into finished products

A finished product has to be

1. Tested

2. Packaged

3. Scheduled

Quality Management

1. Quality Levels

2. Production Output

3. Worker Productivity

Delivering

this is known as logistics phase; oversees the planning and execution of the forward flow of goods and related information to meet customer requirements

Return

this is known as the reverse logistics. the part of supply chain management that deals with moving goods back to the point of origin

Enabling

facilitates a company’s ability to manage the supply chain and spread throughout every stage.

Foundations of Supply Chain Management

1. Operations Management: managing internal resources

2. Supply Chain Management: managing all of the supplies and suppliers that are needed to run the business

3. Logistics Management: managing all the movement and storage of products and materials within the supply chain.

4. Integration: managing all of the enabling systems

Elements of Operations Management

1. Forecasting & Demand Planning

2. Planning Systems

3. Inventory Managment

4. Manufacturing / Process Management

Forecasting & Demand Planning

forecasting the demand of a product or service so it can be delivered efficiently and satisfy customer needs

Planning Systems

the process of tools used to manage a company’s resources

Inventory Management

techniques used to plan and control the desired levels of items needed to support production

Manufacturing / Process Management

using LEAN Manufacturing to improve the flow of materials / waste. using Six Sigma to improve quality compliance

Elements of Supply Management

1. Purchasing

2. Strategic Planning

3. Supplier Relationship Management

Elements of Logistics Management

1. Warehousing

2. Distribution

3. Transportation

4. International Trade Management

5. Customer Relationship Management

6. Service Response Logistics

Integration Elements

1. Enabling Systems

2. Supply Chain Risk and Security Management

3. Performance Measurement

4. Project Management

Supply Chain Capability Models

1. Efficient Model (Supply Push)

2. Responsive Model (Demand Pull)

Efficient Model (supply push)

produce

• a large amount of product

• ASAP

• lowest possible cost

Supply Push Business Model

Make to Stock

Responsive Model (Demand Pull)

configured to be

1. fast and flexible

2. respond quickly to dynamic market demand

Demand Pull Business

Make to Order

Demand Driven Supply Chain

Demand drives all the remaining supply chain activities

Supply - Driven Supply Chain

Supply Drives all the remaining supply chain activities

Examples of Supply - Driven Supply Chain

• crude oil

• natural gas

• bananas

• steel, copper, aluminum

two essential building blocks for supply chain planning activities

1. forecasting

2. demand planning

Forecasting

an estimate of future demand of products and is developed through data analysis and judgement

Demand Planning

the process of forecasting the demand for a product or service so it can be produced and delivered more efficiently and to the satisfaction of customers

Two Different Demands

1. Independent Demand: Demand for a finished good

2. Dependent Demand: Demand for a component

Forecasting Horizon

1. Short Term: less than three months; mainly used for tactical decisions like purchasing and production schedule

2. Medium Term: three months to two years

3. Long Term: greater than 2 years

Considerations of Forecasting

1. it is inaccurate

2. basis for most “downstream” supply chain planning decisions

Two Forecasting Techniques

1. Qualitative: based on opinion

2. Quantitative: based on math and data

Qualitative

• used when there is data is limited, unavailable, or not currently relevant

• best for long range forecasts

• depends on skill

five qualitative techniques

1. personal insight

2. jury of executive opinion

3. Delphi Method

4. Historical Analogy

5. Customer Survey

Personal Insight

the forecast is based on the insight of the most experienced, most knowledgeable, or most senior person available.

Jury of Executive Opinion

people who know the most about the product and the marketplace would form a management panel to discuss and determine the forecast.

Delphi Method

collecting opinions and feedback from experts anonymously

Historical Analogy

based on the identifying a sales history that is comparable to a present situation, such as the sales history of a similar product

Customer Survey

customers are directly approached and asked to give their opinion about a particular product

Quantitative Forecasting Techniques

TIME SERIES

1. Naive Forecasting

2. Simple Moving Average

3. Weighted Moving Average

4. Exponential Smoothing

5. Linear Trend

CAUSE AND EFFECT

1. Simple Regression

2. Multiple Regression

Time Series

to collect and study the past data of a given time series in order to generate probable future values for the series

Naive Forecasting

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

Simple Moving Average Forecasting

gets the average of sales.

Weighted Moving Average

gets the average of sales but not al time periods are valued similarly.

Formula for Weighted Moving Average

(M1 x W1)+(M2 x W2)+(M3 x W3)+(M4 x W4)+(M5 x W5)+(M6 x W6)

Exponential Smoothing

more sophisticated version of weighted moving average that includes

1. actual demand

2. last periods forecast

3. smoothing factor (between 0 and 1)

Formula for Exponential Smoothing

(Actual x Smoothing) + (Forecast ( 1 - Smoothing )

Linear Trend Forecasting

imposes a best fit line across demand data of an entire time series

Cause and Effect Forecasting

assumes there are one or more factors that predict future demand

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

Fundamentals of Forecasting

1. Your Forecast is most likely wrong

2. the more “granular” the forecast, the less accurate it is

3. it is easier to forecast next month more accurately than it is to forecast next year

4. Simple Forecast Methods Trumps Complex Ones

5. A correct forecast does not prove your forecast method is

   correct

6. If you don’t use the data regularly, trust it less when forecasting

7. All trends will eventually end

8. Forecasts are Bias

9. Technology is not a solution for better forecasting

10. Forecasting is an art and science

Optimal Demand Planning Requires

• comprehensive modeling capabilities

• the flexibility to shift methods as product life cycles progress and market conditions change

Forecast Error Value and Percentage

1. Forecast Error Value: A - F

2. Forecast Error % : (A-F) / A x 100

MAD (Mean Absolute Deviation)

size of the forecast error in units

MAPE: Mean Absolute Percent Error

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

Measures of Forecasting Accuracy (MSE)

magnifies the errors by squaring each

one before adding them up and dividing by the number of forecast

periods.

Forecast Bias

∑ Forecast Error = ∑ Actual Demand – ∑ Forecast Demand

Running Sum of Forecast Errors

RSFE = ∑ et

Where: et = forecast error for period t

Tracking Signal

Running Sum of Forecast Errors / Mean Absolute Deviation

Bullwhip Effect

occurs when small fluctuations in retail demand cause fluctuations in wholesale, distributor and manufacturer demand, resulting in inefficiency and disorganization throughout the supply chain.

How Can the Bullwhip Effect be Alleviated?

1. Collaboration

2. Synchronizing the supply chain

3. Reducing Inventory

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

Supply Chain Planning

• the function within SCM that is responsible for determining how best to satisfy the requirements created by a Demand Plan

• its objective is to Balance Supply Chain and Demand that benefits the company financially and objectively

Supply Chain Hierarchy

Supply Chain Levels and Horizons

1. Long Range: involves planning actions for construction, major equipment purchase

2. Intermediate Range: shows the quantity and timing of end items to be produced in 3- 18 months

3. Short Range: detailed planning process of components and parts in 1 - 3 months

Planning Responsibilities and Tasks

Business Planning

provides the companies direction and business goals for the next one to five years.

Whats in a Business Plan

1. Executive Summary

2. Business Description

3. Market Analysis

4. Products and Services

5. Marketing Plan

6. Logistics and Operations Plan

7. Financial Plan

Aggregate Production Plan (APP)

a planning process that translate annual business plans, marketing plans, and demand forecasts into a production plan for a product family in a plant or facility.

Steps to Develop the Aggregate Production Plan

1. Determine the demand for each period

2. Determine the capacity

3. Identify any constraints

4. Determine the direct labor and material costs and indirect manufacturing costs

5. identify and develop strategies and contingency plans

6. agree on plan

Aggregate Planning - Purpose and Goals

• establish production rates that will achieve goals by maintaining, raising, lowering inventories, while keeping workforce relatively stable

Aggregate Production Planning (APP) Strategies

DEMAND ADJUSTMENTS

1. Influencing Demand

2. Backordering

3. Counter Seasonal Product Mixing

SUPPLY ADJUSTMENTS

1. change inventory levels

2. change capacity

Sales & Operations Planning (S&OP)

A process to develop tactical plans that provides management the ability to strategically direct the business to achieve a competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain

If capacity and demand are…

Monthly S&OP Cycle

Master Production Scheduling (MPS)

• represents what the company plans to produce expressed.

• it is a statement of production and not a statement of demand

• MPS planning horizon is typically 3 to 18 months

Available to Promise (ATP)

• A calculation to provide a response to customer order inquiries, based on product availability

• It represents the uncommitted portion of a company’s projected available

  inventory to support customer order promising

Time Fencing

1. Firmed Time Period: from current date out several weeks into future

2. Planned Time Period: the end of the firmed time period to the end of the planning horizon

Basic Production Strategies

1. Level Production Strategy

2. Chase Production Strategy

3. Hybrid Production Strategy

Level Production Strategy

• Maintains a constant production rate and allows inventory and backlog to vary according to fluctuating demand

• works well with make to stock items

Chase Production Strategy

• Adjusts the production rate and capacity to exactly match demand

• works well with make to order (mto) items

Hybrid Production Strategy

Sets a baseline production rate based on a stable core workforce, and then uses other short-term means, such as overtime, subcontracting and part-time labor to manage short- term fluctuations in demand.

Material Requirements Planning (MRP)

A computer-based materials management tool that calculates the exact quantities, need dates, and planned order releases for all the component parts and materials required to manufacture a product.

MRP requires

1. Finished Master Production Schedule

2. Bill of Materials

3. Item master data for each component

4. Inventory status of components / materials

5. planned or scheduled receipts for any of the components and materials needed

Bill of Material (BOM)

An inclusive list of all raw materials, component parts, and sub-assemblies making up the final product (finished good)