45 terms

Chapter 6


Terms in this set (...)

Benefits of Integrated Operations Planning
-Facilitates more effective planning with shorter cycle times.
-Offers capability to consider the extended supply chain and make appropriate trade-offs to achieve optimal performance.
-More effective and responsive planning allows a more level assignment of resources for existing sourcing, production, storage, and transportation capacity.
-Greater integration with financial plans.
-Increased inclusion of strategic initiatives and activities.
-Improved simulation and modeling of alternatives.
-Easier translation between aggregate and detailed planning levels.
Annual Business Planning
Strategic planning starts the process - 3-5 year horizon

Integrated Operations Planning - Deliver the plan!
Monitor, control, adjust for actual variance from plan
Supply Chain Planning
Three Drivers of Effective Supply Chain Planning
1.) Supply Chain Visibility
2.)Exception management to respond to disruptions and minimize/prevent potential problems
3.) Enables identification of trade-offs that can increase functional costs, but lower total system costs
-Stay focused on the customer!
Common software applications for most planning environments include:
Demand planning
Production planning
Logistics planning
Inventory deployment
Sourcing software applications
These applications can be sourced from the following options
-Custom developed for the organization
-Packaged solutions contained in a larger supply chain management system
-Modules within an ERP system
Demand Planning
Demand management system is the information technology component of the sales and operations planning (S&OP) process

Demand management develops the forecasts used by other supply chain processes to anticipate sales levels

Forecasts are then used to determine production and inventory requirements

Must maintain forecast data consistency across multiple products and warehouse facilities
Demand management processes must integrate
Historical forecasts
Promotional plans
Pricing changes
New product introductions
Demand Planning - Potential Issues / Watch-Outs
Forecasting in many companies is typically a "best fit line" using history
The problem is that you can be driving down the
road by looking in the rear view mirror. The future
might be significantly different than the past.
May low ball the forecast numbers because if actual
sales exceed their forecast, they can look like hero's
in the organization.

May inflate the forecast numbers to essentially
create "2 sets of books", the real forecast and the
inflated forecast to ensure that Logistics plans for
plenty of inventory
Production Planning
Production planning uses requirements from demand management to develop a realistic supply plan

Must integrate with manufacturing (and 3rd party) resources and constraints

-Requirements plan defines what items are needed and when

-Effective planning creates a time-sequenced plan
Production planning systems match
the requirements plan with the production constraints, i.e. Advanced Planning & Scheduling (APS)

-Limitations can include material, facility, equipment and labor availability
Basic planning formula
Begin Inventory + Production - Demand = Ending inventory
Logistics planning integrates overall
movement demand, vehicle availability, and relevant movement cost into a decision support system that seeks to minimize overall freight expense

-Analysis suggests ways freight can be shifted among carriers or consolidated to lower expenses
Logistics Planning & Inventory Deployment
Overcomes these problems resulting from individual perspectives

Limited economies of scale
Limited information sharing
Excessive transportation expense
Period demand equation
Forecasts+Customer orders + promotions
Perod logistics requirements equation
Period demand - inventory-on-hand - Planned receipts
Forecast is the specific definition of what is projected to be sold, when and where

Forecasting is a critical capability

Many logistics and supply chain activities must be completed in anticipation of a sale

Forecasting approaches to achieve:
-enhanced service or reduced inventory

Improve forecast accuracy
Forecast at a higher level of aggregation
Forecasting Requirements
Matches product requirements of customers with capacity of enterprise/supply chain.
Forecasts must be more timely and accurate to align
Customer demands for higher service levels and more product variations with
A management focus to reduce supply chain assets
Logistics Forecasts are Necessary To...
Support collaborative planning
-Collaborative forecasts help avoid inventory
excesses and out-of-stock situations
Drive requirements planning to determine
-Inventory projections
-Replenishment requirements
-Production requirements
Improve resource management through cost trade-offs of strategies such as
-Extra production capacity
-Extra storage capacity
Forecast for time T
(Base damnd X Seasonal X Trend X Cyclic X Promotion) + irregular
Base Demand
is long-term average demand after other components are removed
Seasonal Component
is annual recurring upward or downward movement in demand
e.g. Toy demand before Christmas
Trend Component
is long-range shift in periodic sales
Positive, negative or neutral
Cyclic Component
is periodic shifts in demand lasting more than a year
e.g. Housing demand follows business economic cycle
Promotional Component
is demand swings initiated by a firm's marketing activities
Advertising, deals, or promotions
Irregular Component
includes random or unpredictable quantities that do not fit other components
Forecast Challenges
Demand Variability
-Distribution (retail stores) gains and losses
-Competitive Activity
-Economy (private labels)
Scale of Information from Marketing & Sales
Promotions - Increased Complexity
Supply Issues
Forecast Process
-A meaningful forecast process requires integrated and consistent combination of components

Faulty communications are costly for supply chains
-Seek to reduce forecast inconsistency across
multiple members of the supply chain

Efforts to perfect a single component do not overcome need for other components

Process design should consider strengths and weaknesses of each individual component
-Design for optimal performance of the overall
integrated system
Evaluating Applicability of Forecasting Techniques
Evaluate technique both quantitatively & qualitatively for:
Forecast time horizon
Value of forecasting to business strategy
Data availability
Type of data pattern
Experience of the forecaster
Qualitative forecast techniques
relies on expert opinion and special information
Costly and time-consuming
Ideal for situations with little historical data or when much managerial judgment are required
Developed using surveys, panels and consensus meetings
Time series forecast techniques
focuses entirely on historical patterns and pattern changes to generate forecasts
"The past is a good predictor of the future"
e.g., moving averages, exponential smoothing, extended smoothing, and adaptive smoothing
Causal forecast techniques
uses specific information to develop relationships between lead events and forecasted activity
e.g., simple or multiple regression
Forecast Techniques
Moving average -- weighted average previous period sales
Exponential smoothing -- WEIGHTED MOVING AVERAGE using smoothing constraints
Regression -- Time period as the independent variable
Time series -- Other independent variables such as price, promotion plans
Multivariate -- Complex statistical techniques
Forecasting Accuracy
-Improving accuracy of forecasts requires error measurement followed by analysis
-Choice of method for error measurement

Simple average error can hide problems as positive errors are offset by negative ones
Mean Absolute Deviation (MAD) evaluates absolute error by ignoring the sign of the error
Mean Absolute Percentage Error (MAPE) is mean MAD divided by mean demand
Sales & operations planning is an integrated combination of
-Organizational processes
-Personal responsibility and accountability
-Information systems (financial, marketing and supply chain planning)

Using this S&OP combination, the operations and sales groups must overcome conflicts to develop consensus and then execute their collaborative plans
Finance also plays a key role in dollarizing the impact of decisions
Making S&OP Work in an Organization Requires Senior Leadership Involvement
Functional leadership from all key operating areas must be committed to the S&OP process and be responsible for achieving success
Supply Chain Planning, Sales & Marketing, Manufacturing, Finance
Tie manager's compensation to successful S&OP performance
Include regular involvement and accountability at the general management level
Tradeoff decisions may negatively impact a functional area
8 Keys to Successful S&OP Implementation
Executing the process every month
Process ownership and clarity of roles and responsibilities
Organizational commitment to achieving high forecast accuracy (senior management commitment & performance objectives)
Focus should be on the next 3 to 12 months (not short-term)
One plan that integrates the actions of the entire organization
Senior management decision making (bottom-up / top-down)
Measuring end-to-end supply chain performance
S&OP forecast versus operating plan or budget
Collaborative Planning, Forecasting and Replenishment
CFPR is a business model that takes a holistic approach to supply chain management and combines the intelligence of multiple trading partners in planning and fulfilling customer demand by using common metrics, language and firm agreements to improve efficiency for all participants.

CFPR links sales and marketing best practices - category management, supply chain planning and execution processes to increase availability while reducing inventory, merchandizing, transportation, and logistics costs.

Developed to reduce unplanned and uncoordinated events that distort the smooth flow of product throughout the supply chain (reduces bullwhip effect)
Strategy & Planning:
establishes the ground rules for the collaborative relationship
Business goals
Scope of collaboration and assignment of roles
Checkpoints / milestones
Escalation procedures
Demand & Supply Management
: consists of sales forecasting, order planning/forecasting, inventory positions, and transit lead times.
consists of order generation, and order fulfillment.
exception management and performance assessment.
Exception management is actively monitoring planning and operations for out of bound conditions
Performance assessment is evaluating the achievement of business goals to uncover trends or develop alternative strategies.
CPFR Process Steps
1.)Develop a joint business plan
2.)Create a joint calendar to determine product flow
3.)Create a common sales forecast based on shared knowledge of each trading partner's plan
-Share common forecast between retailer and
-Use an iterative process to share the forecast and
requirements plan
4.)Use the common sales forecast to develop
-Production plan
-Replenishment plan
-Shipment plan
Benefits of CFPR - Five Major Categories
Improved Customer Service Through Better Forecasting Techniques
Lower Inventories for Higher Profits
Improved ROI on Technology Investment
Improved Relationships Between Trading Partners
Cost Reduction