Better for midterm Flashcards
Steps of the network planning process
- Network design
- Inventory positioning
- Resource allocation
Network design
o Number, location, and sizes of manufacturing plants, warehouses,
o Assignment of retailer outlets to warehouses
o Other major decisions with a planning horizon of a few years
Inventory positioning
o Identify where to stock the different products
o Decisions related to inventory management
Resource allocation
o Where to produce? Should each plant specialize in a few products or should be flexible?
o What should be the sourcing strategy?
o How much capacity should each plant have?
What is the trade-off of a decision?
It is a situational decision that involves diminishing or losing one quality, quantity, or property of a set or design in return for gains in other aspects.
Inventory carrying costs (Centralization vs. Decentralization)
Lower Higher
Transportation costs (Centralization vs. Decentralization)
Higher Lower
Facilities costs (Centralization vs. Decentralization)
Lower Higher
Information costs (Centralization vs. Decentralization)
Lower Higher
Delivery time (Centralization vs. Decentralization)
Longer Shorter
Product availability (Centralization vs. Decentralization)
Higher Lower
Flexibility (volume, mix, product) (Centralization vs. Decentralization)
Higher Lower
Network design can be solved in 2 ways:
Mathematical optimization techniques
Simulation models
Items are aggregated into product groups based on:
Distribution pattern
Product type
Distribution pattern
all products picked up at the same source and destined for the same customers are aggregated together
Product type
in many cases, different products are variations in product models or style, or differ only in the type of packaging
Transportation rates
They can be associated with internal or external fleet
Two modes of transportation
Truckload (TL)
Less than truckload (LTL)
LTL carriers divide the rates in three types of freight rates
o Class
o Exception
o Commodity
LTL cost function is
not linear with distance
We can estimate the distance using
o Straight-line distances
o Street network
Warehouse costs include three main components
Handling costs
Fixed costs
Storage costs
Handling costs
labor and utility costs, proportional to the annual flow through the warehouse
Fixed costs
all cost components that are not proportional to the amount of material flow
Storage costs
they represent inventory holding costs, which are proportional to the average inventory
The total space required is considered
3 times the space required for the products
Locations of warehouses must satisfy a variety of conditions
o Geographical and infrastructure conditions
o Natural resources and labor availability
o Local industry and tax regulations
o Public interest
Network design is a strategic decision
3-5 years
Inventory positioning is related to
o Identify where to stock the different products
o Decisions related to inventory management
High-variability-low-volume products should be positioned in
a central warehouse to benefit-risk pooling effect
Low-variability-high-volume products should be positioned in
a decentral warehouse to reduce transportation costs
Low-variability-low-volume
does not have a unique solution
Depending on the objective of the planning process, the output can focus on the following:
Sourcing strategies
Supply chain master plan
Sourcing strategies
where should each product be produced during the planning horizon?
Supply chain master plan
what are the production quantities, shipment size, and storage requirements by product, location, and time period
Business enterprises have increasingly invested in and focused attention on their supply chains and their management because of
Fierce competition
Products with shorter life cycle
High expectations of customers
Global optimization is
the process of finding the best systemwide strategy
Building redundancy
If one portion fails (e.g. fire at a warehouse), the demand can still be satisfied
Supply chain management issues span a large spectrum of a firm’s activities
Strategic level
Tactical level
Operational level
Forecasting means
predicting future demand
Demand varies from period to period for four reasons:
o Trend
o Seasonality
o Random variation
o Cycle
Forecasts have four major characteristics (or principles)
o Forecasts are usually wrong errors are inevitable
o Forecasts should include an estimate of error since forecasts are usually wrong, we need to know “how much”
o Forecasts are more accurate for product types
o Forecasts are more accurate for the near term this is important for long lead time items lead time reduction will improve forecast accuracy
Three principles of data collection to get good data
o Record data in the same terms as needed for the forecast
o Record the circumstances related to the data
o Record the demand separately for different customer group
Forecasting methods
o Qualitative
o Quantitative
Forecasting methods can be based on
o Extrinsic factors
o Intrinsic factors
Qualitative technique
- They are based on judgments, intuitions, and opinions they are subjective
Quantitative techniques
- They are projections based on historical data (from inside or outside the organization)
Extrinsic techniques
- They are based on external (extrinsic) indicators
- They are based on the theory that the demand for a type of product is correlated to activity in another field of economic/leading indicators
- It is difficult to find an indicator that correlates with the demand
- They are suitable for the demand of the types of products, not for individual items
Intrinsic techniques
- They use internal (intrinsic) historical data
- Suitable for individual items
Seasonal index
indicates the degree of seasonal variation for a product
Forecast error can occur in two ways
o Bias
o Random variation
Bias
It exists when the cumulative actual demand differs from the cumulative forecast forecast average demand was wrong
It is a systematic error actual demand is consistently above or below the forecast demand
When bias exists, the forecast should be evaluated and changed to improve accuracy
Random variation
Demand varies randomly
To measure the forecast error there are several ways, the most common is the
mean absolute deviation (MAD)
MAD is used to determine
o average forecast error
o Monitor the quality of the forecast through the tracking signal
Algebraic sum of forecast errors = Cumulative Deviation
What is the pooling effect?
Risk pooling in the supply chain is defined as a risk management tool that reduces demand variability by putting all business supply chains in one flow. In the risk pooling supply chain, an organization has several stores in different locations. The organization has one central warehouse which keeps goods on behalf of all the stores. The other way of putting it is having all the eggs in one basket instead of having a warehouse in each location.
Average inventory formula
Internal feet costs calculation
TL carriers subdivide the country into
zones, and they provide clients with zone-to-zone table costs. TL cost structure is not symmetric it might be more expensive to ship from zone A to zone B than from zone B to zone A
Formula of new forecast
