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SCM Exam 3
Terms in this set (134)
T/F: The forecast of demand forms the basis for all strategic and planning decisions in a supply chain
T/F: For pull processes, a manager must forecast what customer demand will be in order to plan the level of available capacity and inventory
T/F: Leaders in many supply chains have started moving toward collaborative forecasting to improve their ability to match supply and demand
T/F: Mature products with stable demand are usually the most difficult to forecast
T/F: Aggregative forecasts are usually more accurate than disaggregate forecasts, as they tend to have a smaller standard deviation of error relative to the mean
T/F: Collaborative forecasting based on sales to the end customer can help enterprises further up the supply chain reduce forecast error
T/F: Causal forecasting methods find a correlation between demand and environmental factors and use estimates of what environmental factors will be to forecast future demand
T/F: The random component is the part of the forecast that deviates from the systematic part
T/F: the moving average forecast method is used when demand has an observable trend or seasonality
T/F: Long-term forecasts have a smaller standard deviation of error relative to the mean than short-term forecasts
What form the basis of all supply chain planning?
In determining a forecast for both push and pull processes, what is the first step a manager must take?
forecast the customer demand
5 Forecast Truisms
1.Forecasts are always inaccurate and should thus include both the expected value of the forecast and a measure of forecast error
2.Long-term forecasts are usually less accurate than short-term forecasts
3.Aggregate forecasts are usually more accurate than disaggregate forecasts
4.In general, the farther up the supply chain a company is, the greater is the distortion of information it receives
5.Forecasts for DEPENDENT demand items are more accurate than forecasts for INDEPENDENT demand items.
What is a dependent demand item?
one that is a part or component of an end product
Because forecasts are always inaccurate what 2 things should they include?
expected value of the forecast and measure of forecast error
Greater aggregation =
more accurate forecast
Factors that influence future demand
-Lead time of product replenishment
-Planned advertising or marketing efforts
-Planned price discounts or price increases
-State of the economy
-Actions that competitors have taken
-Stage in Product Life Cycle à growth, level, decline?
4 types of forecasting methods
Qualitative, time series, causal, simulation
Type of forecasting: used when little or no data is available or forecasting far out into the future
Type of forecasting: Delphi method, market research, historical life-cycle analogy
Type of forecasting: subjective; rely on judgement
Type of forecasting: use historical demand to make a forecast
Type of forecasting: best with stable demand
Type of forecasting: Static and adaptive models
Type of forecasting: relationship between demand and some other factor
Type of forecasting: imitate consumer choices that give rise to demand
Type of forecasting: may combine time series and causal methods
observed demand =
systematic component + random component
measures the expect value of demand
What 3 things make up the systematic component?
Level, Trend, Seasonality
current deseasonlized demand
the rate of growth or decline in demand
predictable cyclic or seasonal fluctuations
the part of forecast that deviates from the systematic part
different between the forecast and actual demand
3 possible formulas for the systematic component
S = Level X trend X seasonal factor
S = Level + Trend + Seasonal Factor
S = (level + trend) X seasonal factor
multiplicative formula for systematic component
S = level X trend X seasonal factor
additive factor for systematic component
S = Level + Trend + Seasonal Factor
Mixed factor for systematic component
S = (Level + Trend) X seasonal factor
What is the goal of any forecasting method?
predict the systematic component of demand and estimate the random component
5 points in a basic approach to demand forecasting
- understand the objective of forecasting
- integrate demand planning and forecasting throughout the supply chain
- identify the major factors that influence the demand forecast
- forecast at the appropriate level of aggregation
- establish performance and error measures for the forecast
What is deseasonalized demand?
what demand would have been in the absence of seasonal fluctuations
number of periods after which the seasonal cycle repeats
What is adaptive forecasting?
the estimates of level, trend, and seasonality are updated after each demand observation
What is the advantage of adaptive forecasting?
estimates incorporate all new data that are observed
4 steps in adaptive forecasting
initialize, forecast, estimate error, and modify estimates
method used when demand has no trend or seasonality
moving average or simple exponential smoothing
How is the moving average computed?
add the latest observation and drop the oldest one
mean absolute deviation
mean squared error
mean absolute percentage error
appropriate when the demand is assumed to have a level and trend in the systematic component of demand but no seasonality
Holt's model or double exponential smoothing
Used when the systematic components has a level, trend, and seasonal factor
winter's model or triple exponential smoothing
the influencing of demand to match planned supply; dynamic pricing
use of real time updates to help firms respond quickly to changes in the marketplace
3 keys to forecasting in practice
•Collaborate in building forecasts
•Share only the data that truly provide value
•Be sure to distinguish between demand and sales
Why is forecasting important for push processes?
a manager must plan the level of activity, be it production, transportation, or any other planned activity
provides support in helping select the right forecasting model for the given demand pattern
process by which a company determines levels of capacity, production, subcontracting, inventory, stockouts, and pricing over a specified time horizon
What is the goal of aggregate planning?
satisfy demand while maximizing profit
Aggregate planning solves problems at what level?
an aggregate product level rather than a SKU level
What is the time frame for aggregate planning?
Aggregate planning answers what question?
How should a firm best utilize the facilities it currently has?
Operational paramaters that must be identified in an aggregate plan over a specific time horizon
production rate, workforce, overtime, machine capacity level, subcontracting, backlog, inventory on hand
the number of units to be completed by unit time
the number of workers or units of labor capacity required
the amount of overtime production planned
the number of units of machine capacity needed for production
machine capacity level
the subcontracted capacity required over the planning horizon
demand not satisfied in the period in which it arises, but is carried over to future periods
the planned inventory carried over the various periods in the planning horizon
inventory on hand
What is the planning horizon?
the time period over which the aggregate plan is to product a solution
What is the first step of aggregate planning?
identifying a suitable aggregate unit of production
When selecting the aggregate unit and identifying capacity what should one focus on?
Fundamental trade-offs available to an aggregate planner
capacity, inventory, backlog/lost sales because of delay
aggregate planning strategy: using capacity as the lever
aggregate planning strategy: using utilization as a lever
aggregate planning strategy: using inventory as the lever
aggregate planning strategy: the production rate is synchronized with the demand rate by varying machine capacity or hiring and laying off employees as the demand rate changes
aggregate planning strategy: vary the work schedule while keeping a constant workforce
aggregate planning strategy: always making the same amount of inventory and just carrying it over
aggregate planning strategy: used when inventory holding costs are high and costs of changing capacity are low
aggregate planning strategy: used when inventory holding costs are high and capacity is relatively inexpensive
time flexibility strategy
finds the solution that creates the highest profit while satisfying the constraints that the company faces
inventory held to satisfy demand that is higher than forecast
capacity used to satisfy demand that is higher than forecast
Supply chain area in which information technology has been used the most
implementing aggregate planning in practice
1.Think beyond the enterprise to the entire supply chain
2.Make plans flexible because forecasts are always inaccurate
3.Rerun the aggregate plan as new data emerge
4.Use aggregate planning as capacity utilization increases
change in demand that can be forecasted
2 problems with variability in a supply chain
increase cost and decrease responsiveness
2 options when dealing with predictable variability
- manage supply using capacity, inventory, subcontracting, and backlogs
- manage demand using price discounts and promotions
When faced with predictable variability what is a company's goal?
to respond in a manner that balances supply with demand
A firm can vary the supply of a company by controlling what 2 factors?
production capacity and inventory
Ways to manage capacity
- time flexibility from workforce
- use of seasonal workforce
- use of dual facilities
- use of subcontracting
- designing product flexibility into the production processes
2 ways to manage inventory
common components across multiple products, build inventory of high demand or predictable demand products
With a promotion, what 3 factors result in increased demand?
market growth, stealing share, forward buying
an increase in consumption of the product occurs from either new or existing customers
customers substitute the firm's product for a competitor's product
customers move up forward purchases to the present
If a promotion primarily results in forward buying, it is best to use promotions how?
to reduce the seasonal peak by offering a price discount during low-demand periods
Implementing S&OP process
1.Coordinate planning across enterprises in the supply chain
2.Take predictable variability into account when making strategic decisions
3.Ensure that senior leadership owns the S&OP process
4.Ensure that the S&OP process modifies plans as the reality or forecasts change
5.S&OP is done within a company and CPFR is done across the SC
2 ways to manage demand
short-term price discounts; promotions
2 things that happen with a promotion that increase overall demand
market growth and stealing share
4 factors that influence timing of promotion
-Impact of promotion on demand
-Cost of holding inventory
-Cost of changing level of capacity
supply chain coordination improves if what happens?
all stages of the chain take actions that are aligned
Lack of coordination occurs when what happens?
objectives of different stages conflict, information moving between stages is delayed or distorted, lack of trust
What is the bullwhip effect?
fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers
lack of coordination increases what?
What 2 things decrease upon a lack of coordination?
product availability and profitability
What are incentive obstacles?
when incentives are offered to different stages that lead to opposite actions among the supply chain
What are information-processing obstacles?
when demand information is distorted as it moves between different stages of the supply chain
occur when placing and filling orders lead to an increase in variability
When pricing policies for a product lead to an increase in variability of order placed
problems in learning within organizations that contribute to information distortion
What is CPFR?
collaborative planning, forecasting, and replenishment
What is CRP?
continuous replenishment programs
What are VMIs?
Vendor Managed inventories
every day low pricing
the wholesaler or manufacturer replenishes a retailer regularly based on POS data
the manufacturer or supplier is responsible for all decisions regarding product inventories at the retailer
efficient consumer response
3 ways to improve operational performance
•Reducing replenishment lead time
•Reducing lot sizes
•Rationing based on past sales and sharing information to limit gaming
5 obstacles to coordination
incentive obstacle, information-processing obstacle, operational obstacle, pricing obstacle, behavioral obstacle
Aggregate planning is concerned with determining what?
the production level, inventory level, and capacity level
Aggregate planning should consider information from what 3 things?
upstream partners for constraints, downstream partners for forecasts, the enterprise
fundamental trade-offs available to an aggregate planner are between what 3 things?
capacity, inventory, backlog costs
The strategy where workforce is kept stable but the number of hours worked is varied over time in an effort to synchronize production with demand
What information does a master production schedule provide that an aggregate plan does not?
specific product family production information
advanced planning systems for aggregate planning rely heavily on what?
T/F: as forward buying becomes a smaller fraction of the demand increase from a promotion, it is less profitable to promote during the peak period
the lack of coordination within a supply chain results in what?
a decrease in level of product availability
improperly structured sales force incentives create what?
spikes in customer orders
in a continuous replenishment program, the wholesaler or manufacturer replenishes a retailer regularly based on what?
the POS of the retailer
In a VMI system, the _____ must share demand information with the _______
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