Supply Chain - All Exams/Final Comprehension
Terms in this set (192)
The time from when an order is placed until it is actually received and ready for use/sale
If lead time increases...
uncertainty starts to be added to our supply chain
Longer planning horizons
Causes more or greater uncertainty
What is one of the biggest problems within the supply chain?
Easier to predict what is needed...
Tomorrow versus what you will need in the future
Logistics Lead Time Gap
Includes procurement (purchasing process), manufacturing, and delivery
Logistics Lead Time = Long wait time
Customer's Order Cycle = short wait time
Deciding what demand will be, must be credible and accurate or could affect execution process
3 Types of Forecasts
Level of Demand, Trend, Seasonality
Level of Demand (Type of Forecast)
Average amount that it would SKU
Trend (Type of Forecast)
How fast sales are growing or declining over time
Seasonality (Type of Forecast)
Depends on the time of year/seasons of product
Noise and Seasonality
Sometimes even if a product is a seasonal item, too much noise in the system can make the results inaccurate even with historical data
Demand points around the level that you can't explain (more noise in the data = harder to predict)
Offer a discount price/display in the window, downfall is that it can show a trend where there isn't one
Promotion that encourages the purchaser buying more than they actually would at a normal price (rate of consumption is the same but the rate of buying is different, also must change demand forecast)
Asking subject matter experts their opinion
EX: Campaign experts who will win campaign elections
What type of data is this?
Delphi Method (Qualitative)
Ask experts that are from all different backgrounds for an estimation/prediction on product demand, discuss estimates together, explain because of different information, then adjust forecast based on a group estimate... **
The ability to judge the size of the market/demand for product before it is introduced into society to purchase
Judgmental Type Research (Qualitative)
Market Research (Qualitative)
Make estimates with regression **
** AKA: Policy Capturing or Judgment Capturing
EX: Taking a poll
Two Classifications of Quantitative Data
Causal and Time Series
Predict the sales of a product based on another set of factors, demand is influenced by one or more independent variables, more accurate method, used more in long run forecasting
Time Series (Quantitative)
Simple to use, only use sales history in that particular time, as what happened in the past the same as to what happened in the future, time series works really well in short term and used more in short run forecasting
Problems with Causal Methods
Must forecast values in order to be accurate
EX: Temperature drives sales for water bottles which can be difficult
Simplest time series forecasting model to use, just take the average of the last two periods of demand for forecast
fewer periods = more responsive
more periods = more stable
Weighted Moving Average
Allows you to move periods, weight closer periods more heavily
Percentage of the total between two periods
Only estimates the level, 1. Need last periods forecast, 2. And last periods forecast error. High Alpha = less periods, more reactive. Low Alpha = lots of periods, more stable
Less periods, more reactive
Lots of periods, more stable
Difference between the actual demand and the forecast demand, affect sales and ROA, forecast error is negative if too high, forecast error is positive if too low, measure on a period by period basis
Forecast Error NEGATIVE
If too high
Forecast Error POSITIVE
If too low
Are we forecasting too high or too low?
Bias (We want unbiased forecast)
Don't pay attention to the bias, but how far off we are in regards to the direction
Measure of Bias
Running Sum of Forecast Error (RSFE) and Mean Forecast Error (MFE)
Running Sum of Forecast Error (RSFE)
Add all the sums up,
Negative # is OVER forecasting
Positive # is UNDER forecasting
Mean Forecast Error (MFE)
Running sums of forecast / number of observations
This tells you on average if you are high or too low.
Negative # is OVER forecasting
Positive # is UNDER forecasting
Mean Absolute Percent Error (MAPE)
The average percent that the forecast is off, most popular measure
Standard Deviation of the forecast error
Can measure forecast error
Sales and Operations Planning (S&OP)
Simple but effective, management process that is made to coordinate supply and demand, ensure alignment of company strategies and financial goals, (Internal Supply Management Strategy)
Delphi Method Variables for Estimation
1. Last quarters earning per share
2. Previous quarter's earnings per share
3. Change in earnings per share
4. Change in sales
5. Change in profitability
2. Demand Review
3. Supply Review
5. Executive Review
GOAL: A monthly forecast to act upon
Looking only at demand, what is going to happen? Unconstrained View and Rolling View
What can be produced, constraint -- demand > supply
Make recommendations to the executive team, demand > supply = need to make decisions on how to allocate inventory, demand < supply (making more than people are buying) how do we shape demand with promotions or move more product out into the retailers stores
Review recommendations, bring in financial goals and company strategies -- make overall decision
Benefits of Companies S&OP
companies discipline (if companies discipline continues every metric increases
complete order fill rate, gross margin, customer retention
Collaborative Planning, Forecasting, and Replenishment (CPFR)
Information can substitute inventory, CPFR is way to bring retailers and suppliers together
Know about stores, future stores, shoppers, changes in assortments
Knows about new products, product line decisions, distribution expansion, changes in price/promotion
Logistics vs. Supply Chain
Logistics is a function within supply chain, logistics involves anything stored
Total Cost of Ownership Model (9 Elements)
- Acquisition Cost
- Transportation Cost
- Management/Administrative Cost
- Maintenance Cost
- Operating Cost
- Inventory Cost
- Technical Support Cost
- Training Cost
- Disposal Cost
Companies only focus on "big costs" which hurts them in the long run
Total cost of production. Why are more people paying more attention to total cost now? -- Competition = an agility, harder to respond as fast to a changing market
expected service level or the percent of time in stock
How easy it is for a shopper to be able to investigate product, component of customer service concerns how the policies, organizational structure and culture of a company affect customer service
Act of buying or purchasing a product, component of customer service includes common metrics of customer service such as percentage of items in stock, percentage of time is in stock, fill rate, lead time, etc.
Handling the product after purchase (i.e. returning product if damaged and working with customer service, etc.)
Percent of time in stock, percent of items that are in stock, item fill rate (this measures percent of time in stock, percent of items in stock)
Item Fill Rate
shows you what percentage of demand is fulfilled from on half inventory -- how many sales is our company really losing
amount received in a single location - amount sold in a single location
Phantom (ghost) Inventory
More inventory than there actually is
Item that customer makes a special trip to the store for (if the store doesn't have item, store loses profit on not just that one special item, but on the whole basket of items customer decided not to buy because special item was not there)
Item customer was not planning on purchasing, but it was there and customer randomly buys it
Cost of Stock-Out
Some people might switch items because special item wasn't at the store (some people might not), some customers may never come back to that certain retailer if special/specific item is not there
= Actual Outcome (probability that the outcome will occur) *
Estimated number of stockouts, retail shelf space is very expensive because of the opportunity cost
Bell Curve, only need two parameters to estimate the bell curve (mean, standard deviation), can help set target service level
Estimated by the variance
Optimal Service/Customer Level
Take the cost of not having enough per unit / sum of having too much + cost of not having enough
Return on Assets = Profit / Assets *
want lots of profits with few assets
Increase Fill Rate
increase profit, increase ROA
Transportation vs. ROA
Increase transportation costs, decrease ROA *
longer lead time, reduce inventory
less lead time, increase on profit
Assets (more assets, this means that ROA increases), DC's allow me to spread costs out on a large amount of stores and shortens the lead time which allows a better in stock level with less inventory) *
Inbound transportation costs goes up, outbound transportation costs go down
3rd Party Logistics
Reduce assets, but increases variable costs
Gross Margin Return on Inventory Investment (GMROI)
= profit / inventory. Return on the assets before the SKU. *
GMROI > Inventory = return is greater on investments. GMROI < Inventory = return is less than on investments
Unit Sales or COGS / Inventory. Calculate turns in aggregate, high turns don't necessarily mean good.
Periods of Supply
How many days you would last if supply got cut off. Non-Linear relationship between periods of supply and turns. Days of Supply = (Average Inventory / COGS) (365)
Economies of Scope
Keep stores close and spread out costs, reduces transportation/inventory/labor costs (spread costs out over more stores)
Management of inventory flow to inventory storage, so that the total costs are minimized and customer service standards achieved
Supply Chain/Logistics is about
Supply Chain Management
Integrating business process between different functions in a firm and with suppliers
Economies of Scale
Increasing the volume, ability to decrease the total cost
Process Improvement and Redesign
Concerned without changing the order of activities
Set of Activities
Inputs, controls, outputs (forecasts), and mechanisms all go into process
Outsourcing of Logistics Activity
= 3PL -- Third Party Logistics Company: cost and asset, refers to a firm that supplies logistics and possibly other supply chain services
cost -- tradeoff for the risk, assets -- higher ROA, better financial performance, risks -- loss of competency over time
4 R's of Supply Chain Competition
Want to create competitive advantage through Supply Chain: responsiveness, reliability, resilience, relationships
Ability to change logistics and supply CM's activates quickly
Ability to exercise consistency on an activity or process and maintain a target level of performance *
reliable suppliers are less costly to the customer
measurement of reliability: standard deviation = measurement of uncertainty
Being able to deal with unexpected disturbances in the SCM
Being able to manage connections, interactions, communication, and maintain trust between customers and suppliers in the SCM
Expected number of units that are on hand just before the replenishment is received and available for sale (just in case demand increases, lead time is off, disaster strikes, etc.) *
this is inventory that is NOT EXPECTED TO SELL
Inventory Holding Cost
Space, risk, service, and capital
Investment within inventory on hand (the value of inventory on hand)
Which of the following is a theme throughout the course?
How logistics and supply chain management can be used to create a competitive advantage
The objective of Walmart's early network design strategy was to:
Locate stores close to a Distribution Center
Economies of scale is defined as a reduction in ________ when volumes are increased.
average cost per unit
Process redesign is concerned with improving performance but does so by changing ______.
the order of activities
The management of the flow and storage of inventory, such that total costs are minimized and customer service targets are achieved is referred to as:
Suppose a company orders 10 pallets of bottled water, 14 oz. per bottle, and $0.05 per bottle. There are 2,000 bottles per pallet. Suppose they use a truckload carrier and it costs a flat rate of $1,000 for the transportation. So the purchase cost is $0.05 per bottle X 2,000 bottles per pallet X 10 pallets = $1,000. So the purchase cost plus the transportation cost is $2,000, hence, the total cost per bottle is $2,000 / 20,000 bottles = $0.10 per bottle. In this example, the company only ordered 10 pallets but a truck load has a capacity of about 20 pallets of bottled water. Instead, suppose they ordered 20 pallets of bottled water, the transportation cost will be the same but the purchase cost will now be $0.05 per bottle X 2,000 bottles per pallet X 20 pallets = $2,000. Hence the purchase cost plus the transportation cost is $3,000, so the total cost per bottle is $3,000 / 40,000 bottles ˜ $0.08 per bottle (rounded up from $0.075 per bottle). This demonstrates which of the following concepts?
Economies of Scale
Process improvement is concerned with increasing the speed of the process, reducing the cost of the process, or increasing the reliability of the process, without changing ____________.
The order of activities.
Safety stock is _____________________.
the expected number of units on hand just before a replenishment is received and available for use or sale
Relationship in the 4 R's of supply chain competition is defined as being able to
manage the connections, the interactions, and communication, and maintain trust
Which of the following products would you expect to require the most safety stock?
Product A: Standard Deviation of Sales = 30, Standard Deviation of Lead Time = 30
Product B: Standard Deviation of Sales = 25, Standard Deviation of Lead Time = 15
Product C: Standard Deviation of Sales = 20, Standard Deviation of Lead Time = 20
Product D: Standard Deviation of Sales = 20, Standard Deviation of Lead Time = 25
Responsiveness in the 4 R's of supply chain competition is defined as being able to _________________.
change logistics and supply chain management activities quickly
A company operates 365 days a year. Annual inventory turns is 12. How many days of supply does that represent?
Average inventory last year was $160,000 and turns were 7. What was cost of goods sold last year?
A distribution center has 110,000 pounds of grain and the forecast is 1,000 pounds of grain per day. What is the estimate of the days of supply?
The inventory holding cost factor is 20% and the average inventory next year is expected to be $130,000. What is the expected inventory holding cost?
The _____________ component of customer service concerns how the policies, organizational structure, and culture of a company affect customer service.
_____________ is the idea that there are many other costs than just the acquisition cost that should be accounted for in a purchase.
Total Cost of Ownership
The ___________ component of customer service includes common metrics of customer service such as percentage of items in stock, percentage of time an item is in stock, fill rate, lead time, et cetera.
Assume an item is in stock for 2 weeks but out of stock on the third week. We could use this information to calculate __________________.
the percentage of time in stock (PTIS)
A store perpetual inventory is greater than zero for 45 days of the 100 days checked for a particular item in a category.
The percentage of time in stock is 45%
______________ is when a retailer thinks there is more inventory than there actually is.
A store perpetual inventory is greater than zero for 40 of the 100 SKUs in a category.
The percentage of items in stock is 40%.
Assume an item has a demand of 1 per day and a demand of 6 every 5th day. However, the item is out of stock every 5th day. What would be the item fill rate (IFR).
A store's perpetual inventory is greater than zero for 60 of the 100 SKUs in a category. The percentage of items in stock is ______?
The percentage of items in stock is 60%.
Imagine a customer is looking for a giant specialty candy bar in a store but it is not on the shelf. Suppose that the retail margin on the candy bar is $5 and that 27% of the customers forgo having the candy bar but the other 73% switch to another brand. Suppose that the margin the retailer makes on this brand is also $5 per unit. Then the cost of a stockout per unit of lost sale to the retailer is ____.
Imagine you are a small format grocer and that on average you sell 30 apples per day. Some days you sell more and some days you sell less, but on average you sell 30. In fact, you have been doing this for a while and have calculated the probability of selling different quantities of apples, reproduced in the table of discrete probabilities below.
Quantity Sold Probability
You have decided to stock fewer apples and instead stock more pears. You decided to stock 30 apples each day. About how many sales of apples do you expect to lose each day as a result of this decision to stock more pears?
You can estimate the mean by taking the ________________.
You only need two parameters to define a normal distribution; the mean and_____________.
the standard deviation
Having more distribution centers __________ the lead time from the store faces.
One of the effects of adding distribution centers is reducing store lead time and inventory. If store inventory is reduced, the ROA will _______.
One of the direct effects of an increase in transportation cost is to reduce _____.
By spending more money on transportation, one can most likely
1. Increase the lead time
2. Decrease the lead time
3. Increase the variability of lead time
4. Decrease the variability of lead time
Decrease the lead time (2) and Decrease the variability of lead time (4)
The % of demand fulfilled from on hand inventory is called _____.
The direct effect of a (an) __________ in the number of distribution centers is to increase assets which ___________ ROA.
Inventory turns is _________divided by____________.
unit sales, inventory
Unit sales divided by inventory is called ____________.
Which of the following metrics tells you how many periods it will take to sell through your inventory on hand?
Periods of Supply
The lead time gap is defined as the difference between ________________________.
The logistics lead time and the customer's order cycle.
One of the fundamental challenges faced by supply chain managers is the gap created when the customer's order cycle is ___________ than the total lead time.
Logistics lead time is the time ________________.
from when an order is placed until it's actually received and ready for use or sale.
Forecast error is expected to decrease ___________________.
as the planning horizon decreases
Which component of demand represents the degree to which the data is increasing or decreasing over time?
When there is too much noise in the data, the only component of demand that can be estimated is the_______ of demand.
Which of the following is an example of noise in demand data?
An unexplained decrease in sales of bottled water on the hottest day of the year.
Which of the following would not normally be used when making decisions about future product demand (not available in the market)?
Market research is a _________ kind of forecasting method.
Two major classifications of quantitative forecasting methods are _______ and ________ models.
casual, time series
The Delphi method is a(n) ______ method of forecasting.
Which is NOT a disadvantage of causal models relative to time series models?
causal models require input from multiple forecasters
As the number of periods included in a moving average forecast model _______, the forecast becomes ___________ responsive.
A __________ alpha in exponential smoothing is like having a moving average with very few periods. A ____ alpha in exponential smoothing is having lots of periods in a moving average.
As the number of periods included in a moving average forecast model _______, the forecast becomes ________________ stable.
As alpha is increased in an exponential smoothing model, the forecast becomes more ______.
One of the simplest time series models used for forecasting is ____________.
Assume the two SKUs have the same MAPE. However, SKU A has a higher standard deviation of forecast error than SKU B. All other things being equal, we would carry ______ safety stock for SKU A.
If the RSFE or MFE is positive, then on average the forecasts are too ______.
In order to manage the forecast accuracy, companies must:
I. Measure forecast error
II. Monitor forecast error
III. Make forecast adjustments based forecast error
I., II., III.
Calculating the __________ means taking the running sum of the forecast errors and dividing it by the number of observations or the number of forecasts.
mean forecast error
Which forecast error metric is used in the traditional calculation of safety stock in automated systems?
standard deviation of forecast error
Forecast ____________ describes whether we are on average forecasting too high or low.
Which forecast error metric is commonly used because it can be easily used for comparability of forecast errors across different product lines?
mean absolute percent error (MAPE)
A CPFR program allows a producer to determine replenishment quantities in concert with a retailer and thereby remove redundant inventory and improve customer service. This activity likely ______________.
mitigates the bullwhip effect
___________ is a concept that encourages and facilitates collaborative processes between members of a supply chain.
According to the textbook, CPFR is an extension of which inventory management strategy?
vendor managed inventory (VMI)
By taking a proactive demand management approach, how does Dell regulate demand for products?
through pricing actions
A key output of a S&OP process is a ______________ forecast.
According to the textbook, what is the appropriate order for the steps of a S&OP process?
"Generate aggregate demand forecast"
"Modify forecast with demand intelligence"
"Create a consensus forecast"
"Create 'rough cut' capacity plan"
"Execute at individual item (SKU) level against demand"
Transportation is a key part of retailers' strategies to ________________________________.
Bridge the physical and digital environments
The long tail of demand refers to an increased _____________________________.
Number of SKUs
At the economy level, the price of transportation is ______________. At the carrier level, it is __________________.
In the U.S., which is largest in terms of ton miles moved?
Why might starting an LTL carrier be even more difficult than starting a TL carrier?
The capital investment required is much greater.
In the U.S., which mode represents the largest total spend?
Which country is the world's second largest exporter of merchandise?
What has happened to the percentage of the population employed in manufacturing since the 1940s?
It has dramatically decreased
Which type of firm is an intermediary between an ocean carrier and a shipper?
What can be used to determine the classification in which a product fits?
If a buyer has a choice between carriers who offer the same price, which inventory-related costs should be considered? (Check all that apply).
In-transit inventory coats, Cycle stock costs, Safety stock costs
To estimate average in-transit inventory, the transit time (days) should be multiplied by the ________________________________.
Daily demand rate
If the cost of capital for a firm increases, what do you expects happens to the in-transit inventory carrying cost?
in-transit inventory carrying cost increases
How does the in-transit carrying cost % typically relate to the inventory carrying cost % when the inventory is stored in a warehouse?
In-transit carrying cost % is typically lower than the warehouse inventory carrying cost %.
If using less-than-truckload transportation, which aspects of total cost are affected?
cycle stock cost, safety stock cost, in-transit inventory cost, transit cost
If using truckload transportation, which aspects of total cost are affected?
Annual transit cost is a function of which two items?
annual demand and the transit rate
If using less-than-truckload transportation and the transit rate increases, what do you expect should happen to the company's order quantity?
the order quantity should decrease
If using truckload transportation and the transit rate increases, what do you expect should happen to the company's order quantity?
The order quantity should stay the same.
What are primary motivations for choosing to do business globally?
The company wants to produce globally to sell domestically.
The company wants to sell their products in global markets.
Which primary motivation typically happens first for a U.S. company?
The company wants to produce globally to sell domestically.
Which are reasons why a product, like jeans, might be produced in multiple countries?
Agreements between countries (e.g., free trade agreements), Labor specialization
Which of the following is a factor in how much tariff a firm must pay when importing a product, such as men's pants?
From which country the product was imported
Which of the following can be a big problem for U.S. companies when doing business in India and China?
Time zone differences
Which capability is even more important when doing business globally?
Which factor to business strategy is usually more important in China than in the U.S.?
Which are reasons why doing business in China may be challenging? (Check all that apply)
How carriers are used may be different,
Relationships with the government are different, Relationships between business partners are different.
Which is an innovative example of postponement?
How does postponement likely affect forecast accuracy?
It increases forecast accuracy.
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