supply chain ch1-4
9/5
General Info:
Don’t need to buy textbook (can look online for older version)
6 hw assignments (usually have a week to finish)
Can copy definitions or notes from slides
3 non-cumulative tests (after every 4 ch) & 50 Q
Intro:
Strategic perspective set by C-office (ceos, etc) → long term perspective how they’ll move company forward
Is long term
Tactical: day to day actions company takes → then push ideas down to employees
Is short term
Need to execute tactical to get strategic
Ch 1
What’s supply chain?
Any org offering product or services a supply chain
Products & services created from materials, equipment, labor, time, money, other resources
Producing & delivering requires suppliers, manufacturers, & customers (all of which make up a supply chain)
Suppliers supply raw materials to other parts of supply chain
Often materials are raw
manufacturers are guts of supply chain bc they collect all materials from diff companies worldwide
Can be very simple or complex
Ex: simple supply chain: mcdonalds cook line (process making burger in store and giving customer food)
Complex supply chain: mcdonalds get potatoes from farm & meat suppliers & where condiments come from
Exist in orgs that’re
Large or small
Public or private
For-profit or not-for-profit
Supply chain Facilitated through use of logistics → Ex: steve job figured out economics of using planes to get consumers products by holidays → what made apple overtake nokia or blackberry
Simplified supply chain-candy bar ex:
Supply chain disruption: (candy bar ex)
Unexpected shortage of cocoa beans → won’t impacts customer immediately (bc wholesale will still have candy bars on hold)
Manufacturer impacted 1st
Leads to excess inventory of other supplies
Be forced to stop production and tell companies to stop sending other suppliers (ex: sugar)
Ex: during covid, ppl hoarded supplies (ex: toilet paper, paper towels), bc they knew supply chain disrupted (limited materials available)
9/9
Supply chain flow (important for test)
Product & services flow: Product and service flow from point of origin to point of consumption → flowing down supply chain
Information flow: Information flows back & forth
Ex: requirements, orders, confirmations, shipping notice, invoice, etc
Most important entity is consumer bc they give feedback on product (recommendations, improvements, etc)
Payment flow: where money is originated
Only place where revenue is produced in supply chain is point of consumption
Money goes back up supply chain bc they are advancing funds on intuition that customers will pay for their products
Returns flows: reverse logistics
Ex: when u get phone, and it works for 2 days, so you exchange it or they refurbish it → take item back into supply chain & do something with it
Relationships between links in supply chain
Every link in the supply chain is both a customer of their supplier & a supplier to their customer
Example: supply chain of boiling egg
Water for boiling
Pan or pot
Farm the chicken hatch egg (regulatory) → inspectors check to ensure chickens are healthy
Regulations across supply chain are very important
Electricity → pipeline for gas,
Carton packaging
Transportation of eggs
Example of fresh produce supply chain:
- each note/link in supply chain may be separate independent firm
supply chain management: (exact definition of test)
Coordination of the network of otherwise independent trading partners who create a desired product or service, and then move it through supply chain to customers & when and where the customer wants it
Proximity to customer is extremely important → covid showed how customers wanted products as close as possible
Supply chain management is way business gets done → it's the execution process of all businesses
Supply chain Based on 2 ideas:
Cumulative effort of many orgs
Many orgs focus on what's happening within their own 4 walls
Ppl used to use Silo effect: let me just worry abt what's going on with my org → is the wrong way to thing
Ex: nike wants to make these new sneakers but can’t do it bc they never talked to suppliers (abt supply of rubber)
Value of supply chain management
Supply chain management creates value
Through collaboration & trust
Value creation is managing all these trading partners so they can collab in an efficient, effective & cost-conscious way
Goals of supply chain management (on exam)
Want increased customer satisfaction
Getting products & services that customers want to them, when & where they want hem, at the lowest possible cost
If customer satisfied they'll buy product and you'll be able to retain them over long period of years
Reducing inventory and operating costs
Achieving #1 (above) while keeping your inventory and cost as low as possible
the 2 main reasons that companies implement supply chain management are to:(On test)
Achieve cost saving
Better coordinate resources
Supply chains in service industry
Service firms offer intangible products that can't be physically be touched
Ex: consulting firms are selling brain power, knowledge they learned
Or you must go to class in college to learn the info from professor
Customer must go to get the service done
On exam: Many services require Facilitating goods, which are tangible elements used along w/ the service provided
Ex: going to fancy restaurant you expect, nice atmosphere → nice table,chair, cutlery, (restaurant is service industry → not product)
Example: Add slide pic of table
SCOR model
Each trading partner must plan, source, make, and deliver
Scor model-Plan:
Planning establishes parameters of how supply chain will operate
Companies need strategy (involves c-suite level)
Includes determining marketing and distribution channels
Understanding how much of a product to make
Timing of marketing
Inventory policies of a company
Replenishment policies: how soon should you replenish when inventory starts to go down fro sales
Whens production policies for making things
Sourcing:
Where you find the products you need
Identifying suppliers to deliver product to customers
Identify reliable suppliers → suppliers you can count on
Building solid relationships
Make:
What do we make? How its made?
Process to ensure its high quality product, packaged, tested, & scheduled for delivery
Measure productivity
Deliver:
Aka logistics phase
Necessary to get products out to customers where they are and there they're needed
Meet customer requirements
Ex: filling orders, selecting carriers to carry products
9/12
Return:
Returns against poor
Aka reverse logistics
Critical part of supply chain bc if we couldn't return effective products to correct errors in quality issues
enable
Where sophisticated tech (AI, machine learning, python) used to enable all other parts of supply chain
Ex: GPS system: used effectively so drivers delivering products can take most efficient route
If there's traffic then gps can help save time so delivery is sent on time
With AI, can create metric of what they’re looking for in suppliers and analyze all data sent in → shorten vetting process & due diligence from months to min
Performance measures important bc tell how well your org is doing in relation to others
Ex: ask to loan $1000 → need to document things (written contract), need paper agreement
If in breach of contract (didn't pay on nov 1st), there's cure period (ex: 30 days to replace)
Origins & evolution of supply chain management
1950’s &1960’s
Goes back to 1950’s when the discipline was limited to materials management & logistics (of moving materials)
Goal was to produce manufacturing at lowest possible cost and as fast as possible
Were internally focused → silo effect
1970s & 1980’s → emergence of new computer technology used in business
Material requirements planning: time phase method of determine what materials and when needed to support production plan
Using computer technology
Manufacturing resource planning: large manufacturer linked together materials needed with production
Ex: what workforce needed, plant needed
1990’s & 2000’s → connected to new concepts & methodologies
Collaborative planning, forecasting and replenishment
Collab planning: Planning goals, strategies for yr
Forecasting: ex: nike will make more of a new sneaker (bc competitor)
Replenishment: if ppl rly love product, they’ll buy off shelves, so need to know how soon you'll be sending new inventory forward
Need to know how much time it'll take to bring forward, what to do not to have excess inventory
Sales & operations planning
Sales are prima donna of company (revenue producing)
Often misalignment with product/operations department
Tell sales how much they can literally produce with assets they hv
Just in time
Something coming to u just when u need it
Based on elimination of waste → aka lean
Continuous improvement: idea that whatever you do, always working to do it better
Ex: didn’t work during pandemic bc ppl weren’t there
Total quality management
Idea that all members of org take ownership of quality of product
2010’s & beyond → core competencies (something u do better than anyone else)
Companies started to say we need to do what we do best → what you don’t do well you should outsource it
Old paradigm: buy up customers, short term company performance (doesn’t always work)
New paradigm: outsourcing, help solidify company
Ex: apple locked down supplier of foxconn and implemented business strategy that gave them competitive advantage → 1st mover advantage
Strategic partnership: companies remain separate, but there's material benefit from working together
Ex: apple and foxconn
Corporate social responsibility: companies have responsibility to society
Ex: Nelson Mandala was put in jail, ppl started going to Coca-cola (and other major companies) saying we’ll tell public we don’t like your product unless you put pressure on government to release him
Ex: RWJ invested in community bc employees were not living in new brunswick area (unsafe) so contract for new building include building new road
Supply chain industry
Risk and opportunity management
Supply chain management is abt all activities company must do when bringing product to company
Operations management elements
Forecasting & demand planning
Demand is looking at perception of how much customer will buy of the product
Planning system: system to manage
Inventory management: managing every single item that goes into making something
Process management:
using lean looking at that particular vertical to see how can you eliminate waste
Six sigma: (philosophy) goal is to eliminate defects & drive them to 0 (reduce variability) → externally & internally
Supply management
Purchasing management: aka procurement: responsible to finding things that give best value (not too expensive, but not too cheap)
Strategic sourcing: identifying companies that can provide product materials I need to make products to sell to consumer
Supplier relationship management: process to manage all relationships with suppliers
Logistics
Warehousing:
Transportation
Distribution
Internal trade management: need to translate documents that have regulations
Customer relationship management: someone tasked with managing relationship with companies they work with
Service response logistics
Integration elements:
Enabling system: aka microsoft office suite, 99% use ERP
Sup chain risk & security management:
Performance management: how can we improve
Project management: how to run projects
2 supply chain capability models (on exam)
Efficient model
Ex: toothpaste and detergent → everyday products, can be different brand but same chemicals make up product
Add info from slides
Maximize output eitha min input level at lowest possible cost
Maximum efficiency → economies of scale (when you produce more, cost per unit goes down)
If overhead is constant, then per unit cost goes down as you produce more
Responsive model
Proximity to customer
Responsive to customer
Ex: fast fashion (H&M, Zara) chasing what demand is in styles, don't use plants in 100% capacity (80%), so when demand shifts they can shift what they’re making
Is more flexible and fast to respond quickly to dynamic market demand
Push business model
95-99% companies use it
Somebody standing behind model and pushing it forward
Ex: making sneakers in advance
Benefit is Product is available immediately when they need it
Manufacturers hv better plan for utilization of resources
They can take advantage of economies of sale
Disadvantages:
Can build up high inventory (ex: made lots of sneakers but now ppl aren’t wearing them)
Highly dependent on accurate forecasting
Forecasting errors can lead to inventory shortages or excesses
Pull business order
Ex: boeing aircraft only make airplanes once order has been put down
All products are highly customizable
Advantages:
High level of customer service
Not really dependant on forecasting
Very low inventories
Disadvantages
Customers want order asap (every order is rush order)
Manufacturing issues
No ability to take advantage of economies of scale
9/16
Supply chain planning diagram:
Supply chain management challenge → maintaining balance between supply & demand
Benefits of SCM:
Improved customer service
Increased revenue
Lower costs
Better asset utilization
Adds customer value / retain customers
Minimize delays / shorter lead times
Elimination of rush (unplanned) activities
Reduced uncertainty throughout the supply chain
Lower inventory levels throughout the supply chain
Ability to effectively respond to disruptions and conflicts
SCM delivers value for both internal & external stakeholders
Whats next for SCM
Companies must adapt to emerging technology & strategies as supply chains emerge
Companies will continue to be concerned with ongoing trends in:
AI helping business speed up certain performances
Ex: companies can do due diligence on companies they want to work with, prior they used to manually analyze (take months), now can take a day to analyze several companies
Internet of things:
Ex: alexa, smart device are collecting data on you
Blockchain
Technology (emerged 10 yrs ago) to secure documents and secure confidence in transactions (documents secure but also accessible)
Ppl worried about private transactions: when buying house documents only kept between buyer and seller, but if having issues, then nobody else can assess documents
Logistics labor shortages:
There's lots of shortages in labor today
Ex: labor, transportation
Warehouse operations labor shortages:
They're using autonomous mobile robots in warehouses
Supply chain risk management:
Views risk as a threat to be minimized and concerned with identifying vulnerabilities & avoiding disruptions
How did the pandemic affect the supply chain? (know slide for exam)
Ch 2- forecasting & demand planning
Business decisions are made from facts (not feelings)
Forecasting: forecast is developed through data analysis and judgment
How many of this should we make for our product
Demand planning: combines statistical forecasting techniques and judgment to construct demand estimates for products & services
Key terms (on exam)
demand : the need for a particular product or component.
The demand could come from various sources, such as a customer order, a forecast, the manufacturing of another product, etc
Independent demand:
is the finished product
Ex: bicycle
Dependent demand:
Dependant on other items to complete it
unfinished item
Ex: seat, pedals, handels (for bike)
Forecast: an estimate of future demands
Forecasting is business function that estimates future demand for products so they be purchased or manufactured in appropriate quantities in advance of need
Process of mathematically predicting future demand
Also uses historical data to determine future of data
Simple terms: forecasting is is the attempt to predict future outcomes based on past events and management insight
The role of forecasting:
Accounting & finance use forecasts as basis for budgeting and cost control
Manage everything so you don’t have cost overrun
Marketing relies on forests bc they have to make decisions about key market planning & personal compensation
Ex: Hv to know what will offset clothing discounts
Production used to pick suppliers, determine capacity requirements ???
Forecasting horizon
Short term: forecasting less than 3 months
Mainly used for tactical decisions
Medium term: 3 months to 2 yrs
Used to develop strategy over 6-18 months
Long term: greater than 2 yrs
What trends is the economy turning?
Used to detect general trends and identify major turning points
Forecasting is generally wrong → however is an indicator and can help plan
Forecasting serves as a benchmark
Forecasting considerations
Stastcially speaking forecast will be incorrect → (but although incorrect) its still useful
Is basis for most “downstream” supply chain planning so critical to be as accurate as possible
Good forecasting = benefit a company by facilitating more effective planning,reducing inventories, costs, and stockouts & improving customer service
Bad forecasting = root cause of creating just the opposite. A familiar adage applies to forecasting:“garbage in = garbage out.”
If a forecast is terrible, everything else (i.e., the supply plan) based on that forecast will also be wrong.
Forecasting error: on exam
Goal of forecasting & demand planning process is to minimize forecast error
Factors influencing demand must be considered when forecasting
Ex: market changes, seasonality (ex: seasonal shops or hotel industry), competitive activity, pricing, changing consumer preferences
Doppler effect: the closer you are to an event, the easier it is for you to predict what it is
Ex: if standing on subway platform, the further away it is, the sound is loopy and can’t hear, but the closer the subway comes to me the waves less loopy, but sound more compressed → is very loud
Ex: sleeping on train platform, the closer the train is, the more likely you can hear it
Forecasting process:
The simpler, the model, the accurate it is
Forecasting technique:
Qualitative forecasting: based on opinion & intuition
Generally used when data is limited, unavailable, or irrelevant
Ex: best used for new product, new market segment
Quantitative forecasting: is mathematical, more statistical based
Time series
Cause and effect
9/19 (missed class) fill in notes (read slides)
Qualitative forecasting:
Personal insight: forecast is based on insight of most knowledge, experienced person
Advantage: Is fastest & cheapest forecasting technique
Disadvantage: relies on 1 persons insight or judgment,
That person can have prejudice
Jury of personal opinion: ppl who know the most about the product & the marketplace would likely form a jury to discuss & determine forecast
Advantages: component enriches decisions, and companies don’t have to spend time & resources collecting data by survey
Disadvantages: bias & groupthink
Delphi method: collected so that ppl aren’t influenced by another
Advantages: reduces group think & enriches decisions
Disadvantages: bias & time & resources confidential info can be lost to external experts (best for long term)
Historical analogy: judgemental forecasting technique based on identifying a store's history comparable to the present situation
Advantages:
Significant amt of info that can be used initial to create forecast
Is inexpensive
Disadvantages:
May not find historical comparison advantage
Ineffective bc not everything will be identical
Customer survey: directly approach consumer & get feedback
Advantages:
Primary source
Simple to get & understand
No bias or value judgment
Disadvantages:
Poor questions = unreliable info & customers might not answer & time consuming and costly due to large population
Trend variations in quantitative forecasting:
Trend variations are observable patterns where sales increase if liked and decrease if not liked
Common trend types in quantitative forecasting:
Linear
S-curve
Asymptotic
Exponential
How do random variations affect sales:
Random variations are caused by unexpected occurrences and can lead to short-term changes in sales
Example of random variation in sales: spike in sales of wood to repair a house damage during a storm
Seasonal variations in quantitative forecasting:
seasonal variations: repeating patterns of demand
Example: such as snow shovel sales in winter
Characterizations of cyclical variation in sales:
Cyclical variations: wave-like patterns that last longer than 1 year and can extend over multiple years
Cyclical variations can include business cycles & growth in GDP
Cyclical vs seasonal variation:
Cyclical variations last longer than 1 year while season variations are repeating patterns within a year
Time series forecasting:
Time series forecasting: collect & study past data to make future predictions. Future demand depends on paar demand
Models:
Time series–Naive: Sets the demand for the next period the same as the demand in the last period
Advantages:
Works w/ mature products and with stable demand
Very easy to determine
Disadvantages:
Only for mature mature products (newer products = no)
Variation → inventory issues
Simple moving average:
Simple moving average: Calculated average of historical demand during a specified number of the most recent periods to generate forecast
(amt of months in formula depends on whats asked → not set to be 4 months)
Advantages:
Best for short term
Smoothes out random variations
Disadvantages:
Fails to identity trends season effects
Will create shortages if demand increases & excess when demand decreases bc lags behind demand
Weighted moving average:
Is similar to moving average but not all periods are valued and weighted equally
Advantages:
More accurate than simple moving average if demand changing
Allows unequal weighing of prior periods
Disadvantages:
Better than simple moving but lags somewhat behind demand
More inconvenient and costly than exponential smoothing
Exponential smoothing:
Better than weighted moving average
Requires: last periods actual demand, previous period’s forecast, and a smoothing factor
Advantage
More responsive to trends
Disadvantage
Log behind trends, especially upward trend, since smoothing factor need to be greater than 1.0 to approach an accurate forecast
Linear trend forecasting:
Best fit-line across demand data for entire time series
Used as basis for future FC by extending the line past the existing data and out into the future while maintaining the slope of the line
Cause and effect forecasting simple linear regression:
Model relationship between single independent and dependent variable (demand) by using a linear equation
Relationship = straight line
Example: more money spent → higher demand if company invests more in ads, it might increase forecast & vice versa
Cause and effect forecasting multiple linear regression:
2 or more x and y (demand) values by fitting a linear equation
Examples:
demand might depend on ads & selling price of the product
if ads increase price lowered → demand goes up
If ads increase and price increase —> demand impact is unnoticeable
Fundamentals of forecasting (on exam)
Forecast is inaccurate but how wrong is the forecast?
More “granular” the forecast, the less accurate
An annual forecast for product family is likely more accurate than weekly forecast for an individual with the family
Easier to forecast recent things than later out
Simipler forecast better than complex
→ higher danger in complex and hide critical assumptions while simple is easy to understand
Correct forecast does not prove your forecast method is correct
If don't use data regularly, trust it less
More experience → notice patterns & see where it went wrong
All trends end. Many forecasts will affect the pattern so variables will change
Can't eliminate bias
Tech is not the solution to better forecasting but sound methodology
**forecasting is blend of art & science using quantitative and qualitative methods*
Social media on forecasting:
Evaluate health of a brand
Improve brand prediction
Address a crisis
Recall bad stuff
Research the competition
Forecast error:
Measure the size and type of forecast error
Tracks forecast accuracy
Difference between actual demand and forecast → demand error = absolute value
MAD: fill in from slides
Measure size of forecast error in units
MAP: fill in from slides
Measure size of forecast error in percent
Forecast bias:
is a consistent deviation from the mean in one direction, either high or low
bias exists when the demand is consistently over or under Forecast → A good forecast is not biased
if the sum of the forecast error is not zero → there is bias in the forecast
A negative result → actual demand was consistently less than the forecast
A positive result → actual demand was greater than forecast demand
Bullwhip effect (on exam) → fill in from slides
Because customer demand is not perfectly stable, businesses must adequately forecast demand to position inventory and other resources.
Forecasts are based on statistics and are rarely 100% accurate. Therefore, companies often carry an inventory buffer called safety stock
Bullwhip affect: In the absence of any other information or visibility, individual supply chain participants second-guess what is happening with ordering patterns and potentially over-reacting,
How to alleviate bullwhip effect:
Collaboration:
Sharing information through electronic data interchange (EDI), point of sale (POS) data, and web-based systems can facilitate collaboration.
Syncronizng the supply chain:
Supply chain participants coordinate planning and inventory management to minimize the need for reactionary corrections
Reducing inventory:
Through the use of just-in-time (JIT), vendor-managed inventory (VMI), and quick response (QR), all of which will be discussed later in this course
Bullwhip effect can be sginfigantly reduced if the participantswork together to get closer to customers through collaborative planning, forecasting, and replenishment (CPFR).
collaborative planning, forecasting, and replenishment (CPFR):
CPFR requires a fundamental change in how buyers and sellers work together.
real value of CPFR comes from the sharing of forecasts among firms rather than firms relying on sophisticated algorithms and forecasting models to estimate demand
Supply chain agility:
Supply chain agility: orgs ability to quickly & efficiently respond to changes in demand or supply without sacrificing quality or cost
9/23
Ch 3-supply chain planning (spend time)
Supply chain planning: responsible for determining how to satisfy requirements created by demand plan
Objective is to balance supply and demand to realize company's financial and service objectives
Combo of all process used in supply chain
Central guiding principle is used standardized and simple approach to supply chain
Is top down
supply chain planing-levels & horizons
Long range: planning for things like construction of facilities and major equipment purchase
Included in aggregate production plan:
Ex: exec level→ ford motor company wants to grow market share by 5% over 1-3 yrs (strategic)
Intermediate range: shows quantity and timing of end products you need
Master production schedule → connected to time
Ex: Mid-level → Ford Motor Company wants to make 1,000 F-150 pickup trucks/week for the next 3-18 months.
Short range: is abt the materials you need
Material requirement planning
Ex: Planner, 1st line Supervisor → 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.
Planning tasks and horizon:
business planning:
Everything must be signed off & agreed to by top execs
Business planning:
Provides company directive and directions for next 2 years (to 10 yrs)
Business plan is abt profitability
Usually used to set production plan or aggregate production plan
Aggregate production plan (APP):
APP: Hierarchical planning process that translates annual business plans, marketing plans, and demand forecasts into a production plan for a Product Family in a plant or facility.
Product family: toyota makes a corolla and lexus (different levels of luxury) but if mechanic you’d find common car parts that were similar → use product family bc don’t have a lot of variability at plants drives down cost and creates efficiency
Planning horizon of APP is at least 1 year**** (on exam)
Aggregate planning-purpose & goals:
Purpose is to establish production rates that'll satisfy manager requirements by lowering or maintaining or raising inventories while attempting to keep workforce relatively stable
Is not easy to keep inventory lower .
Goals:
Minimize costs
labor
Inventory
Plant and Equipment
Subcontractor (i.e., 3rd parties)
Meet demand
Use capacity efficiently
Meet inventory policy
APP strategies:
Demand adjustments
Influence demand (customers/consumers): so that it aligns with available production capacity
Walmart usually opens big store but often drives local businesses out → (they buy in bulk and drive prices down)
stores will limit hours bc they don’t have enough staff to satisfy customers
Often influence through advertising, promotional plans (match capacity to demand side), pricing (lowering pricing, depending on competitors price)
Backordering: when someone comes into store to buy something that's not in store they’ll put your name down and offer to call u as soon as its in stock
Accept demand greater than supply capabilities
Counter-seasonal: product mixing
Example: Go into home depot they'll sell you combo of lawn mower and grass cutter → to get rid of old inventory (but what’s considered “old” depends on location of store)
Supply adjustments (always abt production):
Change inventory levels
Increase inventories → to build stock in advance of demand to use available capacity → aka front loading
Decrease inventories: temporarily reduce below normal safety stock
Change capacity
Change production output through idle time or overtime
To meet demand side, they’ll work longer hours or in manufacturing will bring another shift
Vary workforce by hiring or layoff
Will sometimes layoff ppl during off-season with intent to rehire when busy season returns
Sales & operations planning :
Sales vs operations goals are not always aligned
Operations viewed as cost centers in business
Sales is profit generating (prima-donna)
Planning allows management time to to achieve competitive advantage continually by integrating customer focused marketing plans for new & existing products***
Plan looked at every single month
Alignment is very important
Know for exam:
If capacity and demand are nearly equal → emphasis will be placed on meeting demand
If capacity exceeds demand → firm will choose promotion & advertising to increase demand
If capacity less than demand → firm might consider subcontracting work from 3rd party
Monthly S & OP cycle:
Master production scheduling
Reps what company plans to produce, express in specific product configurations, quantities, and dates
Is a statement of production (not a statement of demand)
Must consider the forecast, production plans, backlog, availability of materials & capacity, and management goals & policies
Ex: if materials coming out of ukraine must know might be backlogged
Takes 3-18 moths (medium range)
aggregate production plan (critical)
Master production schedule and rough cut schedule plan (go through on own/on hw/exam)
Master production scheduling (MPS)
represents what the company plans to produce, expressed in specific product configurations, quantities, and dates
plan that drives the business.
a detailed disaggregation of the aggregate production plan (APP).
a set of planning numbers that provide the major input for material requirements planning
Ex: in service industry MPS may be represented by the appointment book where capacity (skilled labor & professional service) is balanced against demand
Is a statement of production and not a statement of demand
Time fencing
Firmed time period: from current date to several weeks into the future
Established outer time of up from immediate time period to point out when changes can’t be made automatically by planning system system
Ex: somebody writing paper and always saying i'll never get it done but they have all the info needed to do so
Planned time period: end of the Firmed Time Period to the end of the planning horizon.
The planning system is free to create or make changes to planned orders in this time period based on the data and planning logic determined by the company
Basic production strategies:
Level production strategy:
Leveled: straight line → maintains constant production rate & allows inventory & backlog to vary according to fluctuating demand
Chase production strategy
“Chase” → whatever the orders are we’ll chase them and try to fill whatever the orders
If demand too low don’t need as much workers so layoff
Adjusts production rate and capacity to match demand
Hybrid production strategy
Sets 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.
Level production strategy : 3rd bullet critical
Constant production regardless of demand
The company allows finished goods inventory and backlogs to fluctuate up and down to meet demand
Used when the skill level, training required, or the cost of hiring and terminating people is high
Chase production
Production set to match demand Exactly
Finished goods inventory remains constant → with no backlogs
But production costs fluctuate up and down bc you layoff ppl but the startup cost-up costs are high
Works well for make to order items
Used when the skill level, training required, or the cost of hiring and terminating people is high
Hybrid production strategy:
Production is set to match demand as closely as possible
Uses options like varying production rate, building & temporarily holding inventory, working overtime to achieve the demand plan
Might hire 3rd party when ppl get sick of overtime
9/26
Know top 2 info/facts abt each plan
Material requirements plan: add pic
Is computer based management tool that calculates the exact quantities, needs dates & planned order releases for all the parts & materials required to manufacturer finished products
Only focused on materials
Advantages:
On time availity for right materials
Facilitates lower inventory levels
Helps optimize use of production resources and lower costs
Helps plan how many ppl and production
Disadvantages:
Ignores capacity —> focuses on what’s needed & when regardless of capacity (somebody else must figure out those resources)
Loss of visibility for products with Bill of materials (BOM) & items used in multiple finished products
Works well for make to stock orders but not as well for make to order or engineer to order products
MRP requires:
Finished product production schedule
Bill of materials data
Item master data
Inventory status
Any planned or scheduled receipts for any components & materials needed
bill of materials (BOM):
Document that lists all of raw materials, compliments parts and assemblies make up ifnal product
Assemblies are things u need to put other raw materials together
Single level: display of components that are directly used in a parent item together w/the quantity required for each component. Shows only the relationship 1 level down
Parent item:
Multilevel: display of all components direct or indirectly used in a parent item together with the quantity required for each component (ex: the planning factor)
If a component is a subassembly, blend, intermediate, etc → all its components and all their components will also be exhibited, down to purchased parts and raw materials
Single level BOM:
Table on top is the finished product, and what's below is components needed to make finished product (are dependent demand items),
Independent demand: external demand for an item unrelated to the demand for other items → Ex: finished product
dependent demand: internal demand for items that are assembled or combined to make up the final product → ex: component parts
Planning Factor is quantity amt of all items needed to make finished product
Multilevel BOM: insert pic
Terms used in MRP memorize them (copy from slides)
Gross requirement: A time-phased requirement before netting out on-hand inventory and lead-time
Net Requirement: The unsatisfied item requirement for a specific period.
Gross requirement for the period - current on-hand inventory.
Projected Available Inventory: projected closing inventory at end of a Period.
Beginning inventory - gross requirements + Scheduled receipts + planned receipts from planned order releases.
Planned Order Release: A specific order for a particular item and quantity to be released to the shop or the supplier.
Firmed Planned Order: A planned order that can be frozen in quantity and time so that the MRP computer logic cannot automatically change when conditions change.
Established by the Planner or Supply Chain Manager to prevent system nervousness. This can aid planners working with MRP systems in responding to material and capacity problems by firming up selected planned orders.
Scheduled Receipt: A committed order awaiting delivery for a specific period.
Lead Time: The time it takes to process and prepare material, produce the product, and transport it to the customer.
Time bucket: Unit of time/period used in MRP
ex: days, weeks, month
Parent: Item generating demand for lower-level components.
Components: parts demanded by a parent
Planning Factor: The number/quantity of each component or material needed to produce a single unit of the parent item
MRP Explosion: The process of converting a parent item’s planned order releases into component gross requirements
Pegging: Relates the gross requirements for a component part to the planned order releases of the parent item to identify the source(s) of the item’s gross requirements.
Pegging can be thought of as active where-used information.
Lot Size: order size for MRP logic
Safety Stock: a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply.
Over-planning supply versus demand can be used to create safety stock.
Capacity planning:
Max amt of work an org can complete in a given period
Determines production capacity needed by an org to prudence goods or services its customers require
Orgs must balance production plan with capacity
Ex: mcdonalds must know how much burgers their customer requires so the supplier knows how many buns per month is needed
Capacity planning tools
Resource requirement planning: long range capacity planning tool used to check whether aggregate resources are capable of satisfying aggregate productions plan
Aggregate resources: labor and manpower
Rough cut capacity planning: medium range planning module used to check feasibility of meeting master production schedule
Can u meets dates, quantities needed
Capacity requirement planning: short range capacity planning module used to check feasibility of materials requirement plan
Distribution requirements planning:
Is time phased finished goods inventory replenishment plan in a distribution center
Time phased: time schedule to inventory destruction centers/warehouses
Process of determining how and where to deploy the finished goods inventory that's produced
Enterprise requirement planning systems (ERP) ***(on exam)
Organized plan to move product out where and when the customer wants it
ERP: information system connecting an orgs functional areas and operations via a common software infrastructure and database
ERP software application and providers:
Major ERP applications include:
Accounting and Finance
Customer Relationship Management
Human Resource Management
Manufacturing
Supplier Relationship Management
Supply Chain Management
The three major ERP providers are: (based on ranking)
SAP
Oracle
Microsort
Configuration of ERP systems:
ERP provides a conduit for supply chain members to share info so that scarce resources can fully utilized to meet demand while minimizing supply chain inventories
Implementing ERP systems:
Best of breed:
Like going to a restaurant a la carte → you can choose whatever you like
Like cherry picking what you want
Single integrator service
Is a package deal → like microsoft office where everythings included like getting excel, powerpoint, word
Common implementation problems:
Lack of top management commitment
Lack of adequate training
Lack of proper training
Lack of communication
Incompatible system environment
Advantages:
Visibility
See things across supply chain much more clearly
Helps standardize manufacturing processes
Measures performance and communicates via standardized method
Disadvantages
Substantial time & capital investment
Completiy to run & implement
Firms may adapt processes just to meet ERP system requirements
Data management & analytics
Data management: provides the foundation for data analytics
Collecting, storing, organizing, and securing data, ensuring that data is accurate, complete, and accessible
Data analytics: helps you get ahead of the market
the process of analyzing, exploring, and transforming data to find patterns and trends that can provide insights and help decision-making
It can also help organizations and systems act based on automated analytics in real time
Supply chain digital transformation:
starts with aligning all processes and data on one platform, automating key processes, and using technologies such as artificial intelligence to collect and analyze massive amounts of data to identify, predict, and prevent problems
Ex: Align all of processes & data into 1 platform
Ch 4-inventory management
Inventory is an asset (balance sheet-tells whats owned by company)
Maintaining adequate finished product important so you can satisfy customer orders immediately → just in time
Materials (raw materials, etc) also part of inventory → must maintain adequate to support manufacturing functions
Failure to manage inventory causes: Increased effect on cost
Inventory: quantities of goods and materials that’re held in stock
Inventory as liability:
Having too much inventory can be significant liability
Having too much inventory ties up capital → cash sitting around isn’t being invested
More inventory company holds = more space is needed → space costs money
Company has to pay for security insurance, tax, etc
During pandemic there was less security & loss of products
Inventory can become liability if unusable
***categories of inventory (can list 4 for exam):
Raw materials
Work in process
Finished goods
MRO
Raw materials:
Purchased items or extracted materials converted via manufacturing process into components & products
Every companies has product that starts w some raw material, part or starting material
Buy from supplier & hv delivered just in time
Potential strike of dock workers → if this happens will expect shortage of items on shelf so company might try to get ahead and order more raw materials to negate effect
If there's scarcity in some area that may send prices up company might try to buy up before that
Work in process:
Work that's not complete yet
Due to range of potential stages of completion and materials in WIP may be in state of contiguous transformation → many companies view this stage as a black hole
This stage can cause lots of money loss
Ex: Companies can stones order too much inventory that sits around & never used
Finished goods:
These are finished goods
Make to order: little to no finished goods inventory is maintained
Make to stock: significant amts of inventory of finished goods inventory can be maintained
Maintenance, repair, & operating (MRO):
Needed for manufacturing but not end up as part of finished products
Ex: brooms & mops: if manufacturing must have broom to sweep shop floor
Other example is oil u need to oil gears in capital equipment so when something happens you have product to run materials again
Can facilitate admin
Coffee in break room considered MRO bc helps ppl carry out roles & responsibilities
Inventory in service inventory:
Service inventory: activities carried out in advance of customers arrival
There’s no tangible inventory only items used to carry out service
Facilitating the service provided
Ex: go to restaurant you’re there for food, but also expecting tangible items of cutlery, table,
Functions of inventory-why hold inventory :
To meet customer demand (cycle stock)
Cycle stock: when you go to retail & buy shampoo → somebody else buys right after
To buffer against uncertainty in demand or supply (safety stock)
There's always some additional stock → aka safety stock
To decompile supply from demand (strategic stock)
Buffer against supply
Ex: dock worker go on strike so order more supply
Separating supply from demand → decouple = separate
Ex: decoupling train car that’re attached
Strategic decisions made at senior level
To decouple dependencies in supply chain (strategic stock)
Separating operations in process
Inventory management
Function of planning & controlling inventories
Goal of inventory management is to help company be more profitable by lowering cost of goods sold and increasing sales
Ex: can be hiring more ppl in production & laying off IT jobs bc not needed as much anymore → focus on areas they want to bulk up
To achieve stated goal balance:
Reducing amt of inventory held in stock while….
Ensuring there's enough inventory to satisfy customer demand
So what's the right amount of inventory?
It depends on supply chain
depends on the supply chain strategy and set-up
the type of product(s), customers’ expectations, customer service objectives, product shelf life, etc
Inventory stock levels (add pic)
There are three levels of internal inventory that companies may hold to:
Meet customer demand
Buffer against uncertainty in demand and supply
Decouple supply from demand
Decouple dependencies in the supply chain
There may also be inventory held external to the company by downstream supply chain trading partners.
Cycle stock: regular inventory
Safety stock: smaller than cyle stock bc addressing fluctuations you can't predict
Strategic stock bc company only spend money periodically making decisions
External inventory: its materials that might be on ship coming to USA or inventory on truck
Also inventory held by wholesalers, retailers, etc
Cycle stock
Depeletes gradually & is replenished cycle
Ppl have different schedules for buying things
Ex: most injuries in august so hospital stocks up
Safety stock
Is bluffer stock against fluctuations in demand or supply
Strategic stock
Is hedge against currency fluctuations
Company uses:
Hedge currency fluctuations →
Protect against short term disruptive event in supply
Ex: hurricane season in florida
Aka seasonal stock, anticipation stock or build stock
Stock levels & replenishment (add pic/chart)
Top left = 100% in inventory ( day 1 & month 1)
In month 2 orders flying so must go into safety stock
Ex: When they reorder they have excess inventory bc sports team doing well so anticipate needing more inventory → guess is correct and they must backorder bc don’t have enough inventory → then they have stockout when they cant fill any order bc they don’t hv raw materials to make product
Obsolete inventory
Stock that's expired, damaged or no longer needed
Ex: floor models are considered used items bc they’ve been touched → shoes on display (everyone tries on) so they sell on discount
Will never be used or sold at total value
Write of as all or part of the outdated products value maybe lost → reducing company’s profit
Some companies donate this inventory to non-profit org and take tax benefit
MRO supplies
Not part of finished products but help facilitate manufacturing
Costs related to inventory
direct :
ex: cost of material that goes into product
Cost of labor to product product making
Indirect: work done is helping business indirectly
Exec that has nothing to do w production of product
Variable: the cost of utilities (light, energy)
Peak vs non-peak times in manufacturing
Fix costs: upfront, advanced costs to produce product & independent of unit volume produced
Aka sunk costs
*Carrying cost: costs for physically having inventory held on site
Space cost, insurance, etc
*Order cost: labor costs associated with placing & receiving order for inventory
costs you don’t think abt
Hidden costs of inventory:
Having too much inventory:
Having too much inventory ties up working capital
Only CFO & financial calculating
Underlying problems hidden rather than exposed
Ex: Manager knows delivery driver is always late so he keeps extra inventory to cover for driver lateness → struggle to tell him that he needs to fix issue instead of fixing root issue
Having too little inventory:
Loss of revenue
Production disruptions creating the need for expediting and additional costs.
Longer delivery replenishment lead times.
Reduced responsiveness
Inventory investment:
Absolute inventory value
Value of inventory at either its cost or market value
Generally found on balance sheet
Inventory turnover
# of times an inventory cycles or “turns over” during the year
The more turns the better
Exam 1:
50 questions (2 pts each)
On computer
Combo of short answer (definitions), fill in the blank (will give options), True/false (will test how well you know what you’re talking abt → read questions properly)
10/3
Inventory policies-set target inventory levels
When to review inventory? → To know how much is there
When to order inventory? → Date
How much inventory to order?
Periodic review system:
Inventory levels are reviewed at set frequency
At time of review if stock levels are below predetermined level, order for replenishment is placed
Periodically will look at inventory (on set date)
Advantages:
Reduces the time spent analyzing inventory.
Less expensive to implement and operate than a Continuous Review System
Disadvantage
Difficult to determine what date is best for periodic reviewing
Can make inventory less accurate bc don’t hv good number
Don’t know exactly how much inventory is leaving overtime (bc not monitoring all the time)
There's greater risk of inventory falling well below reorder point
If something happens that causes more inventory to leave you’d be unaware bc review period is later out
More safety stock required
Continuous review system:
Inventory is continuously reviewed
As soon as inventory falls below par-determined level, replenishment order is automatically triggered
Ex: walmart designed so always aware of how much inventory and always reorders when below
Advantages:
Allows for real-time updates of inventory
Facilitates accurate accounting bc system can generate relate time of cost of goods sold (COGS)
Potentially requires less safety stock bc inventory constantly considered and replenishment actions taken more quickly
Disadvantages:
Is very costly bc requires automated system
Need to make sure everyone has most update version of software
When to order inventory:
Reorder point: lowest inventory level when a new order must be placed to avoid stockout
ROP is set at the level that it provides enough inventory so demand is covered during the lead time (L) needed to replenish inventory.
ROP = demand during lead time (DL)
Look at slide for math (slide 27)
reorder point without safety stock: add slide pic
Reorder with safety stock: add slide pic
How much to order:
Fixed time period system
Inventory checked in fixed periods against target inventory level
*if inventory is less than target level then quantity needed to bring inventory back up to target level is ordered
Ex: if hv 500 (target stock), and down to 100 stock → order 400 replenishment
Amt of inventory will vary from [period to period based on remaining inventory at time checked
Fixed order quantity system:
Continuous review system uses same order quantity from order to order
When inventory position drops to predetermined reorder point → predetermined fixed order quantity is placed
Fixed time period system: add slide info
order quantity is the difference between the on-hand stock On the review day and the predetermined target inventory level
Q = R – IP
Order Quantity = target inventory level - inventory position
order quantity in this system will differ from one order to another depending on the on-hand quantity on the day of the review
A target inventory level (R) is established
Inventory levels are checked/reviewed in fixed periods (T)
If (IP) < R → (Q) is ordered, and (R) is restored when each new order is received
Fixed order quantity system: 1st sentence from slide
If the review determines that an order should be placed, then the order for a pre-defined quantity for that item is placed
Economic order quantity model (EQQ)
Fixed order quantity model
Model is used to examine trade-off between what annual cost of holding inventory vs annual cost of placing many orders
Helps make decision if you should just hv lots of inventory or order as orders are placed
Where the sum of the annual order costs & the annual inventory carrying costs is minimized
Order cost: incurred each time an order is placed
carrying costs: costs that are incurred for holding inventory in storage
Inventory order costs & carrying costs (on exam)
Order costs: incurred everytime order is placed
Order prep costs
Order transportation costs
Order receipt processing costs
Material handling costs
Carrying costs: incurred for holding inventory
Cost of capital - specified by senior management
Taxes - on inventory held in warehouses
Insurance - based on estimated risk or loss over time and facility characteristics
Obsolescence - deterioration of product during storage and shelf-life
Storage - facility expense related to product holding rather than product Handling
Example EQQ add slide
Trying to determine what's cheaper: holding inventory or placing inventory orders
Check hw problem
Constraints on practical use of EQQ (know for exam)
limited Capital:
The model may generate an order quantity that the company doesn’t have sufficient available funds to purchase at one time.
Storage Capacity:
The model may generate an order quantity that the company does not have sufficient storage capacity to handle at one time.
Transportation:
The item being ordered and transported may require specialized or dedicated transportation, impacting the quantity per order.
Obsolescence:
The model may generate an order quantity that would create spoilage or obsolescence.
Production Lot Size:
The supplier may require the company to order an item in full production lot sizes.
Production locks up bc trying to take advantage of economies of scale
Unitization:
The supplier may require the company to order an item in full pack, case, or pallet configurations
Other types of inventory systems:
ABC system:
ABC system: classifies inventory based on degree of importance
Rather hv A than B grade & rather hv b than C grade
A items: given highest priority (80/20 rule)
20% total # of items & 80% total inventory cost
Ex: LV bags
B&C items: 80% total # of items & 20% total inventory cost
B items: need to pay more attention bc more expensive per unit → require more effort to purchase + make & may be more prone to obsolescence
C items: lowest value = lowest priority
Bin system:
Example: warehouses hv box 1 (all socks) → then once orders come all items are emptied and then moved to back → bin 2 becomes bin 1
What's in bin 1 is 1st bin that fills order, then empties → bin 2 is next
When the inventory in the first bin has been depleted, an order is placed to refill or replace the inventory
Base stock level system
Issue an order whenever a withdrawal is made from inventory
Replenishment order quantity = quantity withdrawn from inventory
Form of just in time
mostly used for costly items
Ex: planes
Single period item
inventory is only ordered for a one-time stocking
Ex: christmas trees: ppl don’t go back and order more trees → once sell out you don't order more
Inventory level controls:
Use linear barcodes
Barcodes:
Linear (1D): allows you to see 85 characters
Company buying product wants to know where product came from (where packaged, harvested, etc)
Allows supplier to type in electronically where it came from
Ex: important for foods bc contamination
2D barcodes: allows you to see 2000 characters
Allows more information
Allows you to see where its sourced from
Ex: blood diamonds → child labor
Barcode reader: allows you to read all barcodes
Radio frequency identification
Wand that automatically reads everything that comes in & leaves warehouse
Scan trucks coming in and out
Ex: scanners for IDS that’re used for college entrance
Mostly used only in warehouse bc easily hacked
does not require a direct line of sight to read a tag, and the information on the tag is updatable
RFID automates the supply chain:
Materials management
Manufacturing
Distribution center
Retail store
Measuring inventory performance:
Every unit/dollar of inventory that you can reduce drops right to the bottom line as pure savings
Common metrics for inventory:
Units: number of units available
Dollars: amount of dollars tied up in inventory
Weeks of Supply: (avg. on-hand inventory) / (avg. weekly usage)
Inventory Turns: COGS /avg. inventory value
.