Global Supply Chain Exam 2

🔹 Chapter 6: Resource Planning Systems

🌐 Overview

Resource planning determines how much capacity (people, machines, materials) a firm needs to meet demand while minimizing the mismatch between supply and demand.

/

Goal: Balance production capacity with market demand to prevent shortages (stockouts) or excess inventory.

🔸 1. Operations Planning Levels

🔸 2. Aggregate Production Planning (APP)

Definition: Translates annual business plan & demand forecasts into a high-level production plan for a product family.

Basic Strategies:

1. Chase Strategy:

   • Adjusts workforce to meet demand (hire/layoff).

   • Inventory constant.

   • Used in make-to-order environments.

   • Problem: Skilled labor shortages.

2. Level Strategy:

   • Output constant, inventory varies with demand.

   • Used in make-to-stock environments.

3. Mixed Strategy:

   • Combines workforce stability with overtime, subcontracting, or part-time labor.

   • Often used by firms producing multiple products.

🔸 3. Master Production Schedule (MPS)

Definition: Breaks down the APP into specific quantities and due dates of finished goods.

• Horizon shorter than APP.

• System Nervousness: Small changes at higher levels cause large fluctuations below.

• Time Fences:

  • Firmed Segment: Frozen for managerial control.

  • Tentative Segment: Flexible future periods.

Available-to-Promise (ATP):
= MPS quantity – (Confirmed Customer Orders before next MPS)
Used to allocate available finished goods to new orders.

🔸 4. Bill of Materials (BOM)

Definition: Hierarchical listing of all components, assemblies, and parts needed to produce a final product.

• Level 0: Finished product (independent demand).

• Level 1, 2, 3: Components and subassemblies (dependent demand).

• Indented BOM: Shows parent-child structure.

• Super BOM: Used when product mix proportions are uncertain.

🔸 5. Material Requirements Planning (MRP)

Purpose: Translates MPS into time-phased requirements for components and materials.

Inputs:

• Master Production Schedule

• Bill of Materials

• Inventory Status

Outputs:

• Planned order releases (when to order/produce).

Terminology:

• Parent – item creating demand for lower-level components.

• Components – parts demanded by parent.

• Net Requirement = Gross requirement – On-hand inventory – Scheduled receipts.

• Pegging: Traces which parent items cause demand for a component.

• Lot size (Q): Order quantity determined by lot-sizing technique.

🔸 6. Capacity Planning

Goal: Match production capacity with planned production.

• RRP (Resource Requirement Planning): Long-term, checks facility & labor capability.

• RCCP (Rough-Cut Capacity Planning): Mid-range, checks feasibility of MPS.

• CRP (Capacity Requirement Planning): Short-term, evaluates MRP feasibility.

Strategies:

• Lead: Add capacity ahead of demand.

• Lag: Add capacity after demand increase.

• Match: Add incrementally with demand changes.

🔸 7. ERP Systems

ERP (Enterprise Resource Planning): Integrates all business processes into one platform with shared database.

Advantages:

• Real-time visibility across departments.

• Reduces redundant data entry.

• Improves decision-making speed.

Disadvantages:

• High cost & long implementation.

• Requires business process changes.

• Complex to maintain.

ERP Implementation Approaches:

• Best-of-Breed: Pick best app for each function (risk = poor integration).

• Single Integrator: One vendor for all modules (simpler integration).

🔹 Chapter 7: Inventory Management

🌐 Overview

Inventory: Goods or materials held for later use or sale.

Primary Functions:

• Buffer against uncertainty.

• Decouple processes (avoid delays).

• Balance holding cost vs. stockout risk.

🔸 1. Types of Inventory

🔸 2. Costs of Inventory

Inventory Turnover Ratio:

Turnover=Cost of Goods SoldAverage Inventory\text{Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}Turnover=Average InventoryCost of Goods Sold​

Higher = better (faster sales, less holding).

🔸 3. ABC Classification

• A Items: ~20% of items, ~80% of value → tight control.

• B Items: ~40% of items, ~15% of value → moderate control.

• C Items: ~40% of items, ~5% of value → simple control, minimal effort.

Used for cycle counting and management focus.

🔸 4. EOQ Model (Economic Order Quantity)

Purpose: Minimize total cost = order cost + holding cost.

Formula:

EOQ=2DSHEOQ = \sqrt{\frac{2DS}{H}}EOQ=H2DS​​

Where:

• DDD = annual demand

• SSS = setup/order cost per order

• HHH = annual holding cost per unit

Assumptions:
Constant demand, lead time, cost; no stockouts; instantaneous replenishment.

🔸 5. Quantity Discount Model

• Allows for price breaks at higher quantities.

• Goal: Balance lower unit cost with higher holding cost.

• Optimal order often occurs at a price break or feasible EOQ.

🔸 6. EMQ / EPQ Model (Economic Manufacturing Quantity)

• Applies when items are produced internally (not all at once).

• Inventory builds up gradually during production.

• Used when production and consumption occur simultaneously.

🔸 7. Reorder Point (ROP)

Determines when to order.

ROP=(d×L)+SSROP = (d \times L) + SSROP=(d×L)+SS

Where:

• ddd = demand rate

• LLL = lead time

• SSSSSS = safety stock

If uncertain:

ROP=dL+Z×σdLTROP = dL + Z \times \sigma_{dLT}ROP=dL+Z×σdLT​

Where ZZZ = service level factor (e.g., 1.65 for 95%).

🔸 8. Inventory Review Systems

• Continuous (Q): Monitor constantly; order when inventory hits ROP.

• Periodic (P): Review at fixed intervals; order enough to reach target level.

  • Requires more safety stock.

🔸 9. RFID & Big Data

• RFID Tags + Readers: Automate counting, tracking, replenishment.

• Big Data Integration: Real-time analytics on stock movement and demand prediction.

🔹 Chapter 8: Process Management – Lean & Six Sigma

🌐 Overview

Lean and Six Sigma are process improvement philosophies within supply chain management.

Lean = Efficiency (speed)
Six Sigma = Effectiveness (quality)

🔸 1. Lean Production / Toyota Production System

Lean Production: Eliminate waste (“muda”) and enhance customer value.

Key Concepts:

• Muda: Any non-value activity.

• Kanban: Visual signal to trigger production (“pull” system).

• Poka-Yoke: Error-proofing.

• Kaizen: Continuous improvement.

• Yokoten: Sharing best practices.

🔸 2. Elements of Lean

• Waste Elimination: Overproduction, waiting, transport, excess inventory, motion, overprocessing, defects.

• 5S: Sort, Set in order, Shine, Standardize, Sustain.

• Lean Layouts: U-shaped work cells, visual control.

• Small Batch Production: Uses kanban to create pull system.

• Supplier Relationships: Frequent deliveries, nearby facilities.

Kanban Formula:

n=D×T×(1+S)Cn = \frac{D \times T \times (1+S)}{C}n=CD×T×(1+S)​

Where:

• DDD = demand rate

• TTT = cycle time

• SSS = safety stock %

• CCC = container capacity

🔸 3. Lean & Environment

“Green Lean” reduces waste, energy, and environmental impact through efficiency.

🔸 4. Six Sigma Overview

Goal: 3.4 defects per million opportunities (99.99966% good).

Focus: Reduce variation and defects using data-based decision making.

Key Metric:

DPMO=DefectsOpportunities×Units×1,000,000DPMO = \frac{\text{Defects}}{\text{Opportunities} \times \text{Units}} \times 1{,}000{,}000DPMO=Opportunities×UnitsDefects​×1,000,000

Sigma Level: Measures how many standard deviations fit between mean and defect limit.

🔸 5. DMAIC Method

1. Define: Identify problem/project.

2. Measure: Collect data, understand process.

3. Analyze: Identify root causes.

4. Improve: Implement and test solutions.

5. Control: Sustain improvements.

🔸 6. Key Quality Philosophies

🔸 7. Tools of Six Sigma

🔸 8. Statistical Process Control (SPC)

Purpose: Detect shifts or variability in a process.

🔸 9. Acceptance Sampling

Used for supplier quality control.

• Producer’s Risk (Type I): Rejecting good shipment.

• Consumer’s Risk (Type II): Accepting bad shipment.

📊 Quantitative Summary (for Excel Practice)