SCM Exam 1 Book material
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- 3 reasons to study supply chain
- -every org must make a product or service that someone values -Most orgs function as part of a larger SC -Orgs must carefully manage their operations and SC in order to prosper and survive
- Operations function
- the collection of people, tech, and systems within an org that has primary responsibility for providing the product or service
- Supply Chain
- Consists of all parties involved, directly or indirectly, in the procurement of a product or raw material
- Operations management
- the planning, scheduling and control of the activities that transform inputs into finished goods
- upstream
- describe earlier parts of a supply chain
- downstream
- describe later parts of a sc
- First- Tier Supplier
- a supplier that provides products or services directly to a particular firm
- second- tier supplier
- a supplier that provides products or services to a firm's first-tier supplier
- Supply- Chain Operations Reference (SCOR) model
- a framework developed and supported by the supply-chain council that seeks to provide standard descriptions of the processes, relationships, and metrics that define supply chain management
- E- Commerce
- use of IT solutions to automate business transactions
- Structural elements
- tangible resources ex:buildings, equipment, etc
- Infrastructural elements
- the people, policies, decision rules and org structure choices
- Strategies
- mechanisms by which businesses coordinate their decisions
- Mission Statement
- statement that explains why an org exists
- Business Strategy
- Strategy that identifies the firm's targeted customers and sets time frames and performance objectives for the business
- Core Competencies
- capabilities that serve as a source of competitive advantage for a firm over its rivals
- Functional Strategy
- translates a business strategy into specific actions for the functional areas such as marketing, human resources, and finance. -Should align with overall business strategy and with each other
- Operations and supply chain strategy
- a functional strategy that indicates how structural and infrastructural elements within the operations and supply chain areas will be acquired and developed to support the overall business strategy
- Three primary objectives of op and supply chain strategy
- 1. help managers choose the right mix of structural and infrastructural elements 2. ensure that the firm;s structural and infrastrutural choices are strategically aligned 3. Support the development of core competencies in a firm's operations and supply chain
- FOUR PERFORMANCE DIMENSIONS of Operations and Supply chain activity
- quality time flexibility cost
- Quality
- characteristic of a product or service that bear on its ability to satisfy stated or implied needs
- Performance quality
- addressing whether the product was made or the service performed to specifications
- Reliability quality
- whether a product will work for a long time without failing
- delivery speed
- refers to how quickly the sc function can fulfill a need, once identified
- Delivery reliability
- the ability to deliver products when promised
- delivery window
- defined as the acceptable time anne in which delivery can be made
- flexibility
- how quickly op and Sc can respond to the unique needs of different customers
- Mix flexibility
- ability to produce a wide range of products
- Changeover Flexibility
- The ability to provide a new product with minimal delay
- Volume Flexibility
- ability to produce whatever volume the customers need
- Costs
- Labor, material, engineering, quality related (failure costs, appraisal costs, prevention costs.)
- Trade-offs
- decisions to emphasize some dimensions of the expense of others
- Order Winners
- performance dimensions that differentiate a company's products from its competitors. provide superior levels of performance dimensions
- Order Qualifiers
- Product traits that must be met at a certain level for the product to be considered by the customer
- Four Stages of Alignment of BS and SC
- 1. internally neutral -management seeks only to minimize any negative potential in the SC areas 2. Externallyy neutral -industry practice is followed, based on the fact that what works for competitors works. No effort to link the SC with overall BS 3.Internally Supportive -SC areas participate in the strategic debate. Recognize the need for alignment 4. Externally supportive -SC areas do more than just support Business Strategy- BS actively seeks to exploit the core competencies found with these areas.
- Forecast
- an estimate of the future level of some variables
- demand forecast
- determining how much of their product will be demanded
- supply forecast
- provide information on the number of current producers, suppliers, projected supply levels, and technological and political trends that might effect supply
- Price forecast
- forecast prices for key materials and services they purchase.
- Laws of Forecasting
- 1. Forecasts are almost always wrong (but still useful) 2. Forecasts near term tend to be more accurate 3. Forecasts for groups of products tend to be more accurate. 4. Forecasts are no substitute for calculated values
- Quantitative Forecasting Model
- Use measurable, historical data to generate forecast -time series -variable caused by time = moving average, WMA, exponential smoothing, linear regression -casual models - variable caused by something other than time Ex: drought relief, hurricane relief = linear regression, multiple regression
- Qualitative Forecasting Techniques
- techniques based on intuition or informed opinion -used when data is scarce Ex: Market surveys, delphi method, life-cyle, build-up
- Delphi Method
- experts work individually to develop forecasts, then they share with the group and then modify their forecasts until a consensus is reached.
- Life Cycle analogy method
- used when the product or service is new -based on the life cycle of products.
- Build- up forecast
- individuals with specific market experience estimate the demand with the market segment
- Randomness
- Within the context of forecasting, unpredictable movement from one time period to the next
- Trend
- Long-term movement up or down in a time series associated with certain times of the year.
- *LAST PERIOD METHOD
- Simplest time series model -take demand from last period F(t+1) = Dt so if period 1 demand is 60, period 2 forecast is 60
- *MOVING AVERAGE MODEL
- Derive a forecast by taking an average of a set of recent demands. Ex: Three period moving average Forecast for 4 = (D1 + D2 + D3)/3
- -smoothing models
- another name for moving average models -refers to the fact that using averages to generate forecasts results in forecasts that are less susceptible to random demand fluctuations
- *WEIGHTED MOVING AVERAGE
- Actual weights applied to past observations are allowed to differ Ex: two period weighted moving average Forecast - n ( most recent demand) + (1-n)(2nd most recent demand)
- * EXPONENTIAL SMOOTHING MODEL
- The forecast for the new period is calculated as the weighted average of the current periods actual value and forecast. F t+1 = aDt + (1-a) Ft Ft+1 = next period forecast Ft = forecast of period t Dt = actual value for period t a = smoothing constant used to weight Dt and Ft
- *LAST YEAR METHOD
- very simple method -use last year's data and increases/ decreases based upon management discretion -susceptible to Forecast Law 1
- Sales and Operations Planning
- a business process that helps firms plan and coordinate operations and supply chain decisions -4 to 12 months out -indicates how the org will use its tactical capacity resources to meet expected demand -strikes a balnce between the various needs and constraints of the supply chain partners -serves as a coordinating mech for the various partners -expresses the business's plans in terms that everyone can understand
- Strategic Planning
- planning that takes place at the highest level of the firm -addressing needs that might not arise for years -"Bricks and mortar" and major process choice decisions -planning done at a very high level (quarterly or yearly) -high risk
- Tactical Planning
- Planning that covers a shorter period, usually four months to a year out, although the planning horizon may be longer in industries with very long lead times -workforce, inventory, subcontracting, and logistics -"aggregated" month to month -Moderate Risk
- Detailed Planning and Control
- Coverts time periods ranging from weeks to just a few hours -limited ability to adjust capacity -day to day, hour to hour -Lowest risk
- Top-down planning
- 1.Develop the aggregate sales forecast and planning values 2. Translate the sales forecast into resource requirements 3. Generate alternative production plans
- Bottum-Up planning
- an used when the product mix is unstable and resource requirements vary greatly across time. -different products and determining demand of all of them and their requirements are done individually
- Planning Values
- Values that decision makers use to translate the sales forecast into resource requirements and to determine the feasibility and costs of alternative sales and operations plans.
- Level production plan
- production held constant and inventory is used to absorb differences in demand and production -best for when changing levels of production is impossible or costly ex: oil production
- Chase Production plan
- production is changed in each period to match the sales forecast in each time period. -best when holding costs are extremely low
- Mixed Production Plan
- vary both production and inventory levels in an effort to develop the most effective plan
- Rolling Plan Horizon
- -requiring the firm to update the sales + operations plan on a monthly or quarterly basis -Gives firms the ability to fine tune the S&OP as new info becomes available
- Yield Management
- approach commonly used by services with highly perishable "products," in which prices are regularly adjusted to maximize total profit.
- Tiered Workforce
- strategy used to vary workforce levels, where additional full-time or part-time employees are hired during peak demand periods, while a smaller, permanent staff is minted year-round
- Off loading
- Strategy for reducing and smoothing out workforce requirements by having the customers perform part of the work themselves
- Optimization models
- class of mathematical models used when the user seeks to optimize some objective function subject to some constraints
- Objective function
- a quantitative function that an optimization model seeks to optimize
- constraints
- quantifiable conditions that place limitations on the set of possible solutions. The solution to an optimization model is acceptable only if it does not break any constraints
- Inventory
- "those stocks or items used to support production (raw materials and work-in-process items), supporting activities, and customer service.
- Cycle Stock
- Components or products that are received in bulk by a downstream partner, gradually used up, and then replenished again in bulk by the upstream partner
- Safety Stock
- Extra inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time.
- Anticipatory Inventory
- Inventory that is held in anticipation of customer demand
- Hedge Inventory
- form of inventory buildup to buffer against some event that may not happen. -involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair the companies strategy
- Transportation inventory
- inventory that is moving from one link in supply chain to the other "in the pipeline"
- Smoothing Inventory
- used to smooth out differences between upstream production and downstream demand
- Inventory Drivers
- business conditions that force companies to hold inventory 1. uncertainty in supply or demand 2. Mismatch between downstream partner's demand and most efficient production or shipment volumes for upstream partners 3. Mismatch between downstream demand levels and upstream production capacity. 4. Mismatch between timing of customer demand and supply chain lead times
- Independent demand inventory
- inventory items with demand levels that are beyond a company's complete control -determined by customers
- Dependent demand inventory
- inventory whose demand levels are tied directly to the company's planned production -can be predicted with great accuracy Ex: a company knows that a manufacture is producing 500 tables five weeks from now, a manager can quickly calculate n=how many legs it will need.
- Periodic Review System
- An inventory system used to manage independent demand inventory -inventory for an item is checked at regular intervals and restocked to some predetermined level. Q = order quantity to bring level back up R= restocking level I = inventory level at time of review Q = R - I
- Continuous Review System
- An inventory system used to manage independent demand inventory -the inventory level for an item is constantly monitored and when the reorder point is reached, and order is released
- Total Cost
- TC = QH/2 + DS/Q average inventory level times the per unit holding cost # of times we order per year times ordering cost
- EOQ
- order quantity that minimizes annual holding and ordering cost for an item QH/2 = DS/Q Q= sqrt (2DS/H) = EOQ
- Quantity Discounts
- Must calculate EOQ and then TC, also find the TC if there is a discount -determine which one is cheaper
- Planning and Control
- set of tactical and executive level business activities that includes master scheduling, material reqs, and some form of production BEGINS WHERE S & OP ends
- Master Scheduling
- determines when specific products will be made, when specific customer orders will be filled, and what products/ capacities are still available to meet new demand records track several key pieces of information: -forecasted demand -Booked Orders -Projected inventory -production quantities - units still available to meet customer needs.
- Material Requirements Plan (MRP)
- Calculates the timing and quantities of material orders needed to support the master schedule
- Production Activity Control ( PAC)
- Assures that in-house manufacturing takes place according to plan ; also helps manufacturing managers identify potential problems and take corrective actions.
- Vendor Order Management
- Assures the materials ordered from supply chain partners are received when needed; also helps purchasing managers identify potential problems.
- Booked order
- represent confirmed demand for product
- Forecasted Demand
- in the context of the master schedule, the company's best estimate of the demand in any period.
- Master Production Schedule
- The amount of product that will be finished and available for sale at the beginning of each week. The master production schedule drives more detailed planning activities, such as material requirements planning
- ***Projected Ending Inventory
- simply our best estimate of what inventory levels will look like at the end of each week based on current info Ending inventory = BI + Master production Schedule quantity available - Maximum between (forecasted demand, orders booked already)
- Available to Promise (ATP)
- a field in the mater schedule record that indicates the number of units that are available each week, given those that have already been promised to customers
- Planning Horizon
- The amount of time the mater schedule record or MRP record extends into the longer future
- Rough-cut capacity planning
- A capacity planning technique that uses the master production schedule to monitor key resource requirements.
- Material Requirements Planning
- A planning process that translates the master production schedule into planned orders for the actual parts and components needed to produce the master schedule items. Based on three related concepts -the bill of materials -backward scheduling -explosion of the bill of materials
- Bill of Materials
- a listing of all the raw materials, parts, subassemblies, and assemblies and their quantities that are needed to produce one unit of product.
- Product Structure Tree
- A record or graphical rendering that shows how the components of the BOM are put together to make the level 0 item.
- Distribution Requirements planning (DRP)
- time-phased planning approach similar to MRP that uses planned orders at the point of demand (warehouse, customer, etc.) to determine forecasted demand at the source level (often a plant). one of many ways in which supply chain partners can synchronize their planning efforts at the master schedule level.
- Capacity
- the capability of a worker, machine, work center, plant, or org to produce output PER TIME PERIOD
- Theoretical Capacity
- The maximum output capability, allowing for no adjustments for preventative maintenance, unplanned downtime, or the like
- Rated Capacity
- Long-term, expected output capability of a resource or system
- Lead capacity strategy
- capacity is added in anticipation of demand
- Lag capacity strategy
- a capacity strategy in which capacity is added only after demand has materialized
- Match Capacity Strategy
- A capacity strategy that strikes a balance between the lead and lag capacity strategies by avoiding periods of high under or over utilization
- Virtual Supply chain
- a collection of firms that typically exists for only a short period. More flexible than traditional supply chains but less efficient.
- TC
- Tc= FC + VC x X
- Indifference point
- The output level at which two capacity alternatives generate equal cost
- Decision tree
- visual tool that decision makers use to evaluate different capacity decisions
- Break Even Analysis
- BEP = FC/ (Revenue per unit of BA - VC )
- Theory of Constraints
- approach to visualizing and managing capacity that recognizes that nearly all products and services are created through a series of linked processes, and in every case, there is at least one process step that limits throughput for the entire chain
- Constraint
- step that limits throughput for an entire chain process
- TOC approach to impairing overall throughput to a process chain
- Identify constraint exploit constraint subordinate everything to the constraint Elevate constraint (increase capacity of restraint) Find new constraint and repeat steps
- Business Process
- A set of logically related tasks or activities performed to achieve a defined business outcome.
- Primary Process
- A process that addresses the main value-added activities of an org
- Support Process
- non value added activity but NOT NECESSARY
- Development process
- seeks to improve the performance of primary and support processes
- Mapping
- Process of developing graphic representations of the org relationships
- SCM definition***
- A Transformation process Inputs -labor -materials -capital -info -energy Outputs -MUST BE DEFINED FIRST
- Common Business Process
- New customer recruitment Customer order cycle Production Planning and Control
- Why study SC
- WHY DO ORGS EXIST to make a product to deliver a service valued by the customer Most orgs function as part of a larger SC Goals of Business -prosper and make profit -survive and perpetuate the business
- Supply Chain Definition and flows
- Can be viewed as a series of integrated enterprises which must share information and coordinate physical execution Source - raw material producer Make - manufacturing plant Deliver - distributor, retailer, customer
- Nodes
- Spacial point where goods stop are stored or processed
- Flow of ...
- products services cash info IF INFO DOES NOT FLOW, PRODUCTS DO NOT FLOW
- Links
- tie nodes together as modes of transportation
- SCOR (Supply chain operation reference) MODEL
- PLAN ------------------> source --> make --> deliver --> <--- return
- PLAN
- Balance Supply and Demand -establish communicate plans with entire SC -align with financial plan -manage SC performance
- MAKE
- Make-to-stock made-to-order Engineer-to-order production execution -select manufacturing process -schedule production activities
- SCM Metrics 8
- -show where we are in our progression toward a goal -CANT CORRECT WHAT YOU DONT MEASURE 1.Cost 2.Quality 3. Innovation / IT 4. Delivery Speed 5. Flexibility 6. After sales support 7. Predictability 8. Safety and Environment
- EFFICIENT VS RESPONSIVENESS
- SC efficiency - relates to cost Responsiveness ability of SC to -respond to wide range of demand -meet short lead times -handle wide product mix -respond to S and D uncertainty
- CORP STRATEGY
- -plan for success -3 to 5 years -long term goal
- Efficient Frontier
- max value a company can deliver at each cost with the best supplies LOWEST COST FOR A GIVEN LEVEL OF RESPONSIVENESS Higher efficiency = lower cost but lower responsiveness TECH INCREASES EFFICIENT FRONTIER Ex: Soup maker in seinfeld below efficient frontier - people waiting outside
- Supply Chain Drivers
- Activities that are required to keep the company going that incur major costs 1. Quality and Customer Value 2. Inventory 3. Facilites/ Capacity --- nodes 4. Transportation --- links 5. IS - gives both resp and efficiency
- Forecast types
- Demand Supply Pricing Mining of rare earth elements oil containers weather
- Capacity
- the upper limit or ceiling on the work load
- S & OP
- Determines what the rate of production is -translate demand into resource reqs TACTICAL OR PRODUCTION PLAN