Supply chain management
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| What is supply chain management | Managing the flow of information, materials and service from raw material suppliers through factories and warehouses to the end customer. |
| Reverse flows | Goods, quality defect products or obsolete products Information, customer feedback Packaging material, outer cartons Transportation equipment, cages, pallets or containers |
| What are Commodities? | Raw materials or primary agricultural products that can be bought and sold. They are typically uniform in quality and can be traded in bulk on markets. Here are some examples |
| Customer demand driven products | Customised products, tailor-made clothes, customised tools |
| For what stands Supply Chain Operations reference model (SCOR) | Plan, source, make, deliver return |
| There are entire categories of companies that ere service providers to other players in the supply chain. These perform services in areas as: | Transportation Warehousing Finance Market research New product design Information, communication and technology |
| Supply chain reacts to changes in their environment | Customer demand Product Supply Exchange rates Temperature |
| Plan process: | Balance demand and supply |
| Source process: | Selecting suppliers |
| Make process: | Setting up manufacturing |
| Deliver Process: | Order management, logistics |
| Return process: | Post-delivery customer support |
| A simple supply chain consists of? | Supplier, your company and customer |
| An extended supply chain consists of | Supplier's supplier, supplier, your company, customer and the customers customer |
| When out of stock is higher you should; | Increase inventory |
| When the same level of service occurs you should; | Keep inventory the same |
| When out of stock is lower you should | Decrease inventory |
| Name two important cycle stock concepts: | 1. average cycle stock holding; 2.Average cycle stock investment |
| Average cycle stock holding; | The average cycle stock held during a particular timeframe. |
| Inventory | The quantity of goods that is available on hand or in stock. |
| Name 7 different types of inventory | 1. Cycle or replenishment stock 2. Safety stock 3. In transit stock 4. Seasonal stock 5. Promotional stock 6. Speculative stock 7. Dead or obsolete stock |
| There are 3 main formats of inventory: | Raw material, work in progress and finished goods |
| Give an example for the following reason of holding inventory: Stabilise manufacturing: | To meet the increased demand in summer, the manufacturer produces ice cream throughout the year and maintains a stockpile in frozen storage. By doing so, they can ensure they have sufficient inventory to fulfill customer orders during the peak season without needing to ramp up production dramatically or risk shortages. T |
| 6 reasons for holding inventory | 1. protects against uncertainty 2. cost reduction 3. protects against quality defects 4. stabilise manufacturing 5. anticipation stock 6. balancing supply and demand |
| Give an example for the following reason of holding inventory: balancing supply and demand | A grocery distributor maintains inventory levels of perishable goods like fruits and vegetables based on seasonal demand patterns. This helps them to balance supply with expected customer purchases, minimizing waste and ensuring availability. |
| In transit stock: | This stock is in the process of being transported to a stocking or delivery point. |
| Speculative stock: | Held to protect against price increase or periods of limited availability |
| Cycle or replenishment stock: | The inventory necessary to meet the normal daily demand |
| Dead or obsolete stock: | Is no longer usable or saleable in the market |
| Seasonal stock: | This stock is built up in advance to meet increased sales volumes during a particular time of the year. |
| Safety stock: | This stock buffers against forecast error and the supplier’s unreliability |
| Promotional stock: | This stock feeds into marketing campaigns and advertising. |
| Give an example for the following reason of holding inventory: Protects against Uncertainty: | Example: A computer manufacturer maintains a buffer stock of key components such as microprocessors and memory chips. This ensures they can continue production even if there are unexpected delays or shortages from suppliers. |
| Give an example for the following reason of holding inventory: anticipation stock | A retail clothing store stocks up on winter coats and boots in anticipation of the colder season. By holding this inventory ahead of time, they are prepared to meet increased customer demand as temperatures drop. |
| Give an example for the following reason of holding inventory: protects against quality defects | A pharmaceutical company holds inventory of raw materials and finished products for quality control testing. This allows them to identify and rectify any defects before products are shipped to customers, ensuring high standards of quality. |
| Although all types of stocks are important, ...... and ...... are those types that are most looked after in inventory management. | Although all types of stocks are important, cycle stock and safety stock are those types that are most looked after in inventory management. |
| Give an example for the following reason of holding inventory: cost reduction | Example: A construction company purchases cement and steel in bulk when prices are low and stores them in a warehouse. By doing so, they reduce material costs for upcoming projects, thus improving their profit margins. |
| Quantitative or statistical forecasting = | Compromises statistical models that can have a casual nature (EXAMPLE more ice cream with hot weather) or that can be based on time series of historical date. |
| Average cycle stockholding is: | The average cycle stock held during a particular timeframe. |
| Formula Average cycle stock holding= | Typical quantity of the orders/2 |
| Formula Average cycle stock investment= | Average cycle stockholding X products cost |
| Goals of safety stocks; | Guard against stock-outs due to: Unplanned production and delivery delays Unplanned demand |
| Formula: Safety stock= (a) + (b) | A; safety stock supply b; safety stock demand |
| Formula safety stock supply= | Average demand x supplier uncertainty |
| Formula safety stock demand = | Standard deviation of demand x service level factor x square root (lead time LT + supply uncertainty SU) |
| You can reduce cycle stock by ordering more often. However there are 4 ways in which you can positively influence your safety stock position. | 1. Reduce lead-time 2. Reduce supplier uncertainty 3. Reduce forecast error 4. Reduce service level |
| Lead time" refers to | He amount of time between initiating a process and its completion. It specifically indicates the delay between placing an order and receiving the goods or services ordered. |
| By compressing supplier ............, reducing it from 4 days to one day, less safety stock is needed to safeguard supply. The same applies for the reduction of supplier ............. As suppliers become more reliable (ideally reducing their lead-time variability to zero), a considerably lower safety stock can be held. | By compressing supplier lead-times, reducing it from 4 days to one day, less safety stock is needed to safeguard supply. The same applies for the reduction of supplier uncertainty. As suppliers become more reliable (ideally reducing their lead-time variability to zero), a considerably lower safety stock can be held. |
| By reducing ..........., demand uncertainty can be reduced and thus less safety stock will be needed. Lastly, the reduction of service levels will ........ improve your safety stock position. | By reducing forecast error, demand uncertainty can be reduced and thus less safety stock will be needed. Lastly, the reduction of service levels will positively improve your safety stock position. |
| Demand can be segregated into various categories | - Level of demand = can be classified as high or low - Frequency of demand = over a certain period of time 2 patterns slow and fast demand - Patterns of demand = demand here can be described as stable, trend or seasonal - Product life cycle positioning= there are 5 phases in a product life cycle. In each of these phases, demand can take a different form and therefore could have an effect on planning and inventory management - Product classification = product segmentation, rather than spending the same amount of time for planning and managing every single stock keeping Unit (SKU), it is wise to segment the product portfolio into various product categories depending on their percentage turnover. |
| 5 stages of Product life cycle positioning; | 1. Launch: 2. The emerging phase: Depending on the growth rate of demand, the methods and techniques required to maintain the momentum of the launch will be chosen. 3. Established: phase of the product life cycle, demand increases and decreases are rill likely to occur but they will be less sudden and heavy in magnitude. 4. Decline: now the angle of decline of demand needs close monitoring in order to ensure that inventory levels are sufficient in order to meet ongoing demand. 5. Withdrawals: demand is likely to approach zero and the product needs a good phaseout strategy in inventory control to minimise the risk of obsolescence. (= het verdwijnen/ disappearance) |
| As what can the Launch stage be described as; | Often requires building up stock prior to the launch date. At this moment of time demand is most uncertain. |
| Aw what can the emerging phase be described? | The demand building on the launch of the product. |
| Aw what can the established phase be described? | Phase of the product life cycle, demand increases and decreases are rill likely to occur but they will be less sudden and heavy in magnitude. |
| Aw what can the decline phase be described? | Now the angle of decline of demand needs close monitoring in order to ensure that inventory levels are sufficient in order to meet ongoing demand. |
| As what can the withdrawals fase be described as? | Demand is likely to approach zero and the product needs a good phaseout strategy in inventory control to minimise the risk of obsolescence. (= het verdwijnen/ disappearance) |
| Product classification = | Product segmentation, rather than spending the same amount of time for planning and managing every single stock keeping Unit (SKU), it is wise to segment the product portfolio into various product categories depending on their percentage turnover. |
| Means of reducing uncertainty of the future. There are 2 distinct classes of forecasting methods: | 1. Qualitative forecasting 2. Quantitative or statistical forecasting |
| Qualitative forecasting = | Includes the simple process of guessing future demand, making hunches based on intuition and using your experience. This includes judgement and common sense reasoning when establishing future demand. |
| Two important cycle stock concepts: | 1. Average cycle stockholding 2. Average cycle stock investment |
| Time Series Method | Is a statistical forecasting method based on the assumption that historical patterns of demand are a good indicator for future demand. This assumption also called assumption of continuity. |
| Explain Demand Planning Improvements | Excess inventory can result in high costs associated with holding this extra stock and will increase the risk of obsolescence. In order to balance the cost-service trade-off, demand planning aims at improving forecast accuracy and reducing forecast error. |
| ........ (FA) in the supply chain is typically measured using the Mean Absolute ......... (MAPE) | Forecast accuracy (FA) in the supply chain is typically measured using the Mean Absolute Percent Forecast (MAPE) |
| Formulas Demand Planning Improvements | Error(%) = (actual forecast – forecast) / actual FA(%) = (1- error(%)) |
| Supply Planning= | Means deciding when and how much to order: Deciding when to order: order cycle management Deciding how much to order: calculating economic order quantity |
| Min-max policy = | Stock planner tries to keep inventory between a min and a max stock level. |
| Order cycle management has two approaches to timing of orders: | Continuous review (fixed order quantity) Periodic review (fixed order cycle) |
| Deciding how much to order; | Trade-off between inventory holding costs and ordering costs |
| How much should a company order? Calculate Economic Order Quantity (EOQ) | Formula: EOQ=square root 2CR/PF C= ordering costs per order R= annual demand in units PF=holding cost per unit per year |
| Sales and Operations Planning Can be understood as a concept of ............... planning. ..... and ..... need to be aligned. It is a process of constantly realigning decisions in ...., ......, ...... and ..... planning areas with the aim to synchronise with the strategic financial plans | Sales and Operations Planning Can be understood as a concept of integrated business planning. Demand and supply need to be aligned. It is a process of constantly realigning decisions in sales, marketing, demand and supply planning areas with the aim to synchronise with the strategic financial plans |
| Steps Sales and Operations Planning consists of 3 fases; | Pre-S&OP S&OP Post-S&OP |
| Pre-S&OP; | Step1. demand planning step 2. supply & resource planning step 3. financial integration |
| S&OP; | Step 4. S&OP meeting |
| Post-S&OP; | Step 5. Authorisation & execution |
| Summarize S&OP | S&OP is a set of business meetings and processes that enable the company to respond effectively to demand and supply variability. The outcome of the S&OP process is a reconciled plan that maximises financial and strategic opportunities and overall business profitability. The process aims to take place on a monthly basis and typically looks at a mid to long-term planning horizon of four weeks to two years on a rolling forward basis. |
| Guiding Principles for successful S&OP implementation | 1. Stakeholder commitment – it is important that stakeholders across the business are engaged and educated to understand the whole process. 2. One set of numbers – all the different numbers of sales, marketing etc. in one set of numbers. 3. Accountability and decision making – as the size of the organization increases so does the complexity of decision making. It is crucial to define in detail during the design phase what will be the participants role and responsibility in each meeting. 4. Alignment of business objectives – effective S&OP solutions have to align to KPIs that drive the best result for a company as a whole. 5. Appropriate time horizon – when things gowrong, the temptation is to micro-manage the crisis rather than to plan for the future. Moving the conversation into the future will help managers to reach best for business solutions, and therefore do less fire fighting on a daily basis. 6. Understanding the benefits of S&OP – a sound S&OP process recognises imperfections on a regular basis and re-optimise plans across the supply chain. Also customers should benefit from better customer service and more efficient response. |
| Customer Service Improvements through S&OP 1. From S&OP principles to ...... 2. From improved forecast to 3. From improved reconciliation of | 1. improved forecast 2. improved reconciliation of demand and supply. 3. demand and supply to improved customer service |
| Reasons Why S&OP Implementations Fail | 1. People 2. Process 3. Strategy 4. Performance |
| Elaborate why S&OP implementations fail | First, It is essential to obtain executive-level people sponsorship. It will fail if there is no topdown support for the agreed plan. Next, cross-functional teams need to be created consisting of marketing, sales, planning and finance team members Although the formal meeting structure is extremely important, effective S&OP involves more than holding monthly meetings. The project is also about producing real-time supply and demand visibility and making sure that business intelligence can be added continuously. Also important to compare all planning scenarios on their profitability and strategic customer impact. Lastly, if you don’t measure, you can’t improve. The risk of failure deals with the inability of an organisation to show, share and adjust their performance measures and metrics. All people involved in the S&OP process need to share the same vision and need to be measured along the same line. This will foster an environment of continuous improvement and business growth. |
| Steps of S&OP principles | Strategic planning, demand planning and sales and operations planning are considered long term planning activities. They interlink with the medium term capacity planning and materials requirement planning. The short-term activities centre on the daily operations in planning: scheduling, materials operational call offs and adjustments to production plans. |
| In chapter 1 of the ‘Guide to Supply Chain Management’ book, the authors describe what a supply chain starts. Why does product supply starts the supply chain in a supermarket? | Because most of these products are sourced, produced and shipped in advance |
| We can consider ECR as a strategy aimed at eliminating inefficiencies and excessive costs within the supply chain and thus delivering better value to consumers. Ultimate goal is to create a consumer driven supply chain. Chapter one of the book ‘Guide to Supply Chain Management’ mentions three flows to describe a supply chain. To which flow does ECR belong? Explain your answer by giving an example | Information flow. For instance bar code scanning at the cash register provides the organization point of sale information and/or inventory replenishment incentives |
| The company is not satisfied with the current supplier base and issues a Request For Information to explore other supply opportunities. To which pre-order step in the purchasing process does this step belong? Relate this to the case at hand and explain your answer. | This belongs to the tendering step. Suppliers are invited to submit general information that may help them to qualify for a potential tender. In this case they should profile their customer base, success cases, prices won, certificates, references, etc. |
| It seems that there are limited suppliers available for the necessary components. Which tactical sourcing activity, mentioned in chapter 3 of the book “Guide to Supply Chain Management” can be used in conjunction with pre- and post-order steps? Explain your answer using the case information | Market research could be used as a tactical sourcing tool. This is essential to establish what’s happening in the supplier market or concerning a particular commodity. Since there are only limited suppliers this would be advisable |
| In chapter 4 of the book “Guide to Supply Chain Management” 5 different methods are explained. The manufacturing manager of Mobile screen Ltd. advises management to change the production method from line manufacturing to project manufacturing. Is this a good advice? Explain your answer | No, project manufacturing is a one off manufacturing process that meets very specific customer requirements. The integrated circuit board may be different for another customer but will be delivered as one type/model in big quantities to a certain customer |
| In the case description the Bill of Materials (BOM) is mentioned. To what process does Mobile screen Ltd. needs the BOM in order to plan production? | The Materials Requirements process. |
| Tendering = | Making a list of |
| Tactical Sourcing= | Market research Commodity analysis Forecasting requirements Supplier performance analysis and benchmarking Price and cost analysis |
| 3 flows of SCM= | Information, services and materials |
| BOM= | The term "BOM supply chain" refers to the management and coordination of the Bill of Materials (BOM) within a supply chain context. |
| Five Types of Manufacturing Process | Project = a one-off manufacturing process that meets very specific customer requirements and that is too large to be moved once completed ( the bird’s nest Olympic stadium in Beijing) Job shop = also a one-off manufacturing process where the end product meets the unique order requirements of a customer. Job shop manufacturing is different from the project type as assembly usually takes place offsite. Once completed the luxurious yacht, is being delivered to the customer. Batch = also known as flow manufacturing, where similar items are provided on a repeat basis usually in large volumes. The process is divided into a chain of activities that take place after each other. Line = products are passed through the same sequence of operations from beginning to the end. Line manufacturing can be made to order, cars in assembly line at BMW or they can be made to stock, fridges or washing machines at siemens. |
| Ccording to Chapter 5 of the book Guide to deliver, there are three costs components associated with network trade-off between number of facilities and costs. What cost component does the fixed cost correspond to? Explain why this cost increases as the number of warehouse increases. | Fixed cost corresponds to facility costs. As the number of warehouse increases, facility related costs such as utilities (electricity, water), laborers/workers, rent, insurance also increase. |
| Based on Chapter 5, road transport can be split into two categories – primary and secondary transport. Using the case, describe how these two categories of road transport are illustrated. | Primary road transport – The replenishment stocks that are shipped by a factory in Asia are picked up by bigger trucks and are delivered to the warehouse. Secondary road transport – Small trucks and vans pick up from the distribution center the packages that will be delivered to the customers. Any will do: *Delivering core promise – assuring the customers that the merchandise are in-stock and that there is rapid delivery (OTIF) **Meeting and exceeding customer expectations – The seamless check-out, fast delivery, and rapid response to customers exceeded the expectation of customers. ***Service recovery – Amazon tried to capture the “lost” market share (or customers). They invested in improved customer service and technology for improved customer experience, in a hope to gain back these customers. |
| In Chapter 10 of the book Customer Service, there are 3 elements for delivering in relation to customer needs. Choose 1 and apply in the case study | Any will do: *Delivering core promise – assuring the customers that the merchandise are in-stock and that there is rapid delivery (OTIF) **Meeting and exceeding customer expectations – The seamless check-out, fast delivery, and rapid response to customers exceeded the expectation of customers. ***Service recovery – Amazon tried to capture the “lost” market share (or customers). They invested in improved customer service and technology for improved customer experience, in a hope to gain back these customers. |
| 3 elements for delivering in relation to customer needs | 1. delivering core promise 2. meeting and exceeding customer expectations 3. service recovery |
| There are 4 types of variabilities to improve customer experience service. Assume that Amazon is both a customer and fulfillment center of both large and small-scale suppliers. Explain how Capability variability is illustrated in the case. | Amazon has a very good website and Alexa technology, which allows it to know the profile of their customers. This can enable Amazon to predict the most selling goods, its quantity, etc., and thus they streamline the flow of products lines and the operation of its distribution/fulfillment center |
| 4 types of variability to improve customer experience service | Arrival When all order to be picked in a warehouse supplying finished goods to a customer arrive mostly Friday afternoon. This happens because the customer only processes the order on a weekly fixed timetable. This results in the warehouse being quiet during the normally cheaper labour hour hire times of the week (Monday to Friday) and then very busy during the normally more expensive labour hour hire times of the weekend. The cost efficiency is affected by this variability Request When a customer requests a differentiated service lead-time delivery; in other words, they might want the supplier to give them faster delivery options. This could be easy to execute, but for large organisations it will mean system changes, accounting changes, specialised assets and new staff training. Capability refers to the customers’ ability to carry out tasks needed to receive service. Effort Where the customer expends varying degrees of energy on tasks needed to receive service. |