SPRING 2014
Customers
Demand
Sales
Two Retailers
What must be forecast
•Customer demand
•Retailer orders
•Distributors orders
Distributor
•Manufacturer orders
Manufacturer
Two Materials Suppliers
Was Is The Bull-whip Effect?
Units Per
Period
Supply cannot meet initial
projected demand, resulting
in real shortages
2
1 True End Customer
3
Demand
Channel
Fill and
Phantom
Demand
2
True end customer demand
1
Channel
Orders
5
3
Channel partners overorder in an attempt to meet
demand and stock their
shelves
4
As supply catches up with
demand, orders are
canceled or returned
Over-Supply
Real
Shortage
5
Supply
Returns/
Cancellations
Launch
Date
4
6
6
End of
Life
Production planning are not
aligned with real demand;
therefore, production
continues
As demand declines, all
parties attempt to drain
inventory to prevent writedown
 Uncontrollable
external events.
 Controllable internal events.
 The success of any company depends on both
types of events.
 Forecasting applies to the external events while
decision making applies to internal events and
planning is what integrates both.
 As
you experienced, there usually is a lead
time between the awareness of an impending
event and the actual occurrence of that
event.
 The lead time can be months, days or hours.
 The lead time provides room for planning and
decision making.
 Forecasting is an essential and vital aid in
effective and efficient planning.
EVALUATING THE FORECASTING
ACTIVITY
• Decision Effectiveness
• Accuracy
• variance
• Speed
• Motivational Implications
• Feedback/ Self-fulfilling Prophecy
• Goal Signalling
•__________________________
•__________________________
Forecasts are Frequently Politically Modified
Activity
Developing
consistent data
Improved techniques
Improved communication
with users
% Respondents
Scoring Important
83%
66%
35%
Collaborative Planning Forecasting and Replenishment (CPFR)
is proving to be very successful in the retail supply chains.
CPFR reduces information distortion and thus reduces supply
chain waste.
—Supply-Demand
—Supply-Demand Alignment—
Mismatch—
Channel Orders
Channel Orders
True End
Consumer Demand
Units
True End Consumer
Demand
Units
Supply
Launch date
supply
Time
Launch date
Time
Benefits are likely to increase as companies
achieve greater degrees of supply chain integration
Drivers of Supply Chain Evolution
• Shorter product life-cycles
• Product proliferation and mass customization
• Reduced product costs
• Competition
• Increased customer demands
• Need to survive in the age of the virtual enterprise
3rd Party Enterprise
Capacity
Configuration
Material
Pricing
Enterprise
Integrated Production
Demand/Supply
Planning
Distribution
ATP
CTP
Demand
Transportation
Capacity
Configuration
Material
Capacity
Configuration
Material
Pricing
ATP
CTP
Integrated Production
Demand/Supply
Planning
Distribution
Demand
Transportation
3PL
Enterprise
Pricing
Capacity
Configuration
Material
Industry
Pricing
ATP
CTP
Integrated Production
Demand/Supply
Planning
Distribution
Demand
Transportation
Internet-Enabled
Collaborative Planning
Capacity
Configuration
Material
Most are here
Pricing
Organization
Process
Function
ATP
CTP
Integrated
Demand/Supply
Planning
Production
Distribution
Distribution
Transportation
Capacity
Configuration
Material
Pricing
ATP
CTP
Integrated
Demand/Supply
Planning
Production
Distribution
Distribution
Transportation
Capacity
Configuration
Material
Pricing
ATP
CTP
Integrated
Demand/Supply
Planning
Integrated Supply /
Demand Planning
Capacity
Configuration
Material
Process Planning
Functional Planning
Pricing
Transportation
Integrated
Demand/Supply
Planning
Production
Distribution
Demand
Transactional
Information Sharing
Production
Distribution
Distribution
Transportation
Collaborative
ATP
Integrated Production
Demand/Supply
Planning
Distribution
CTP
Demand
Transportation
Bullwhip
Effect
Pareto’s Law
Curse of Utilization Recency Effect
Curse of Variability Satisfaction=
Fat Head Effect
Perception –
Hockey Stick Effect Expectation
Hard to Play Catch- Trumpet of Doom
up Ball
Winner’s Curse
Internal
Supply Chain
Processes
(ISCM)
Interphase Process
Interphase Process
Upstream
Processes
(SRM)
Downstream
Processes
(CRM)
Transaction Management Processes
Adapted from Chopra and Meindl, Supply Chain Management, 2nd Ed., 2004,
Pearson Prentice Hall
 Strategic
planning
 Manufacturing (focus)
 Demand planning (focus)
 Supply planning
 Order fulfillment
 Forecasting (focus)
 Inventory Strategies (focus)
 Quality Management
 Reminder-Core

Competencies
Integrated knowledge sets within an organization
that distinguish it from its competitors and
deliver value to customers.
 Sustained
competitive advantage is
achieved if the factor(s):
Have value.
 Are rare and unavailable to competitors.
 Are difficult to imitate.
 Are organized for synergy.

Concepts
Quality
Goods and services that are reliable,
dependable, or psychologically satisfying to
customers.
Efficiency
The amount of input needed to produce a given
output. Less input required lowers cost and
waste.
Responsiveness to Actions taken to respond to customer needs.
customers
Firms can react quickly and correctly to
customer needs as they arise.
 The
strategies and decision-making processes required
to manage manufacturing systems and processes to
create goods and/or services that facilitate customer
needs in terms of quality, cost, availability and
features.
 Manufacturing
strategy has to be congruent with the
firms competitive strategy in terms of optimally
allocating resources to meet customer-driven goals
given the firms competitive environment and it’s core
competencies
 Profit
 Logistics
4%
Cost
 Marketing
Cost
 Manufacturing
21%
27%
Cost 48%



The merits of MOVING PRODUCTION
FACILITIES TO FOREIGN COUNTRIES
REPLACING WORKERS WITH ROBOTS AND
OTHER MACHINERY
PROTECTING AMERICAN MANUFACTURERS
through quotas and other restrictions of free trade
 To
regain its competitive edge, U.S. industry
has implemented many changes, including:





A CUSTOMER FOCUS
COST SAVINGS THROUGH SITE SELECTION
TOTAL QUALITY MANAGEMENT using ISO 9000
and ISO 14000 standards
NEW MANUFACTURING TECHNIQUES
Reliance on the INTERNET to unite companies

The Operations/Manufacturing decision-making processes are
generally classified into the following three categories:
 Business processes that provide strategic
direction
 Business processes that determine operating
structure
 Business processes that execute the operating
structure
 Operations
strategy- aligning operations within the firm
 Supply chain strategy- aligning operations with customer
expectations and supplier processes (as a 3-5 year goal)
 Quality management and statistical process control
 Project management process
 The
product-service bundle design process
 Transformation process design process
 Building and improving global supply chains- the
capacity and location decision making process
 Facility layout design process
 Job design process
 Demand
forecasting processes
 Aggregate sales and operations planning processes
 Supply chain coordination- master scheduling and
inventory management processes
 Detailed scheduling and operation control processes
(lean, JIT, TOC, MRP)
Traditionally, based on the corporate business strategy,
each function formed it’s own strategy and these
functional strategies were then integrated to support
the overall business strategy.
 The state of strategy formulation currently is focused
on supporting the transformation process from a cross
functional and supply chain perspective and are more
process focused e.g. product generation strategy,
order fulfillment strategy.

 The
whole idea behind supply chain management
has its roots in manufacturing strategy
formulation.
 It
is at the manufacturing strategy level that the
functional boundaries first started disappearing
and a process orientation began to develop
Organizational Strategies
Alternative Organizational Approaches
Functional
F
I
N
A
N
C
E
M
A
N
U
F
A
C
T
U
R
E
Process Focused
M
A
R
K
E
T
I
N
G
Functions drive the business
Develop Product
Generate Demand
Fulfill Demand
Processes drive supply chain
integration
Pull
Systems
Push Systems
Combining A Push/Pull
 Supply
chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
 Pull: execution is initiated in response to a
customer order (reactive)
 Push: execution is initiated in anticipation of
customer orders (speculative)
 Push/pull boundary separates push processes
from pull processes
Procurement,
Manufacturing and
Customer Order
Cycle
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
Customer
Order Arrives
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design
 The
degree of standardization and the
volume of output influences the way
manufacturing is organized. Output can
vary from high volume, highly standardized
to low volume, highly customized
 Technology has slowly been blurring the
boundaries between these above extremes.
 Make Your Dell Computer to Order?
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design
Make
or Outsource
Available capacity
Expertise
Quality considerations
Nature of demand
Costs
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design
Product
Life Cycle
Time-to-Market
Pressures
Design, Production and
Introduction Time
Product Introduction
Window
Customer Needs
Productivity (time,
material etc.)
Growth
and Profit
Competition
Alternative to
Downsizing
Environmental
Factors
Regulations &
Legal
Considerations
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design
 Capacity
refers to the upper limit on the load
an operating unit can handle.
 Basic questions:



What kind of capacity is needed?
How much is needed?
When is it needed?
 The
key decision here is the type of product
or service being offered. Virtually all
decisions regarding capacity, facilities,
location etc. depend on the product.
Demand, rate of technology, competitive
factors etc. affect frequency of capacity
decisions.
 Impacts
the ability to meet future demand
 Affects operating costs
 Major determinant of initial cost
 Long-term commitment of resources that
are irreversible
 Key to competitiveness (barriers to entry)
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design

What Should A Firm Consider in the Layout of A
Facility? Why?
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
Capacity
Planning
Demand
Forecasting
Forecasting
Product
Product
Service
Design
Design
Technological
Changes
Process
Selection
Facilities
Location
Facility
Layout
Job
Design
 Location
decisions have long term
implications and impact investment
requirements, operational issues such as
transportation costs, availability of labor,
supplies of raw material, loss of competitive
advantage, and market strategy.
 Location options include expanding existing
facilities, adding new locations, moving to
new locations or doing nothing
 Regional

Location of Raw Materials






Factors:
Necessity
Perishability
Transportation cost
Location of Markets
Labor Factors
Climate, Taxes, Energy Costs etc.
 Community
Factors
 Tax incentives
 Quality of life
 Cost and availability of utilities
 Environmental regulations
 Cost of being a “responsible citizen”
 Site Related Factors
What so we need to consider?
 Step
1: Location:________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
 Step 2: Facilities Layout: _________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 _______________________________________
 Use
on story
 Use vertical capacity
 Minimize aisle space
 Use product flow
 Use efficient material handling
 Use appropriate storage plan
 ______________________________________
 ______________________________________
 ______________________________________
 ______________________________________
Customer facing metrics:___________________
________________________________________
________________________________________
________________________________________
Internal Metrics: _________________________
________________________________________
________________________________________
________________________________________
________________________________________
 Part
I : Briefly discuss (and tell why ie..what
factors)) you would use to select the
warehouse layout and design.
 Part
II: Please describe at least 3 different
measures of efficiency that could be utilized
to gauge the design of your newly created
warehouse-customer facing and internal.
As usual, due Tuesday Before Class at 6:00PM
via E-mail.
 Inventory
Strategies
 Demand Management
 Information Technologies (ERP)