Lecture 2 - Planning, Forecasting Processes, Inventory & Capacity

Question 1

Define supply chain and operations planning and control systems

Answer 1

processes and tools used to help manage the flow of materials and goods throughout the supply chain

Question 2

Why are supply chain and operations planning and control systems important.

include overall point

Answer 2

• help ensure customer satisfaction
  –> demand is hard to predict, so use forecasts to ensure products delivered on time/in full

*ensure operational efficiency
–> supply is difficult to change, so must plan
–> helps reduce costs

Overall: used to balance supply with demand

Question 3

Define planning

Answer 3

allocating, deploying or consuming resources to meet projected/actual demand over a long time period

Question 4

Define scheduling

Answer 4

allocating specific resources to specific activities over a short time period

Question 5

Define control

Answer 5

ensuring plans and schedules are met, and action is taken when problems arise

Question 6

Effective planning and control systems should…

–> and how this can be done

3 points

Answer 6

Customers
- meet demand that satisfies customers and generates repeat orders
- can do this through competitive lead times or accuracy/reliability in delivery
- need to be responsive (= timely + reliable + flexible), and reactive (to changes in environment)

Resources
- use operational resources efficiently
–> most effective in a stable operation
- can do this through providing reliable and timely information for operations planners

Information
- highlight where resource, capacity and inventory issues may arise
- can be done through providing reliable information for suppliers and logistic partners to plan
(both upstream and downstream)

Question 7

Define forecasting

Answer 7

predicting change, in terms of future events or conditions

Question 8

Key points about forecasting

Answer 8

*aggregate is more accurate than it is detailed
–> focus on broader groups and the big picture

• longer term less accurate

Question 9

Why forecast in operations planning

Answer 9

• provide info on demand level
  –> justifies decision to stay/enter/leave a market
• determines long term capacity needs
  –> supply/distribution base, facilities/infrastructure
• can decide how to use flex resources
  –> recruit/shed labour
  –> increase/decrease office capacity
• enable efficiency in response to short term changes
  –> scheduling materials, inventory planning

Question 10

Two quantitative forecasting techniques

Answer 10

*casual models

*time series

Question 11

what is casual models as a forecasting technique

some common uses in business

Answer 11

• attempts to understand the cause-and-effect relationships between the different factors (explanatory variables) that influence what you’re trying to predict (dependent variable)
• a statistical model is built that captures the relationships between the explanatory and the dependent variable

–> understand the forces driving demand, for example

USES
- corporate planning in large companies
- market research, consultancies

Question 12

what is time series as a forecasting technique

Uses

Answer 12

extrapolating to the future, using historical data and patterns

USES
- retail sector to ensure on shelf availability
- fast moving consumer goods markets, so can make predictions

Question 13

Seven qualitative forecasting techniques

Answer 13

• economic indicators
• market research
• historical analogy
• group forecasting
• delphi methods
• sales force composite

*scenario writing

Question 14

what is delphi method as a forecasting technique

Answer 14

• anonymously survey a panel of experts multiple times, systematically summarising the responses after each round to help them refine their forecasts and converge on a consensus.

Question 15

what is scenario writing as a forecasting technique

Answer 15

explore a number of different possible future scenarios, considering the likelihood of each occurring, to prepare for a range of potential outcomes

• considers the response of competition, suppliers and customers to the scenarios aswell

Question 16

what is sales force composite as a forecasting technique

Answer 16

• collect individual forecasts from the sales-force employees in different regions, combining them into a single overall forecast.
  –> utilises their expertise and experience
• more short term, and potential for bias

Question 17

what is group forecasting as a forecasting technique

Answer 17

use the knowledge and experience of a group of experts with different perspectives (sales, marketing, finance) to discuss and collectively develop a forecast.

Question 18

what is historical analogy as a forecasting technique

Answer 18

• link the product with an analogous (similar) product from the past, or in a different market
• generate forecasts based on the historical pattern of this product’s demand

Question 19

what is market research as a forecasting technique

Answer 19

• extracting information from a sample of target market to infer opinions and preferences of the wider population
• must consider: sample size/type and methods used for data collection and analysis

Question 20

what is economic indicators as a forecasting technique

Answer 20

• Analyse trends in economic data (unemployment rate, interest rates, consumer confidence)
• to predict how they might influence future demand for your product or service.
• future economic performance

Question 21

steps to take to ensure successful forecasting

Answer 21

• measure and track forecasting errors
  –> e.g. errors consistently made in one direction imply bias, important to track over time

*reviewing forecasting methods after using it, is vital for long term success

Question 22

describe the steps of forecasting after models/techniques are used

Answer 22

*combine data from these models/techniques with information on policies, risks and context

• this is used to inform decision making

*then these decisions are embedded into the planning process

Question 23

define inventory

what forms can it come in

Answer 23

items, goods, materials, or resources that a company holds

Forms
- raw materials
- work in progress (WIP)
- finished goods
- intermediaries (third party) with spares and supplies

Question 24

define inventory management

Answer 24

the control of the ordering, storing and using of items, resources and products

Question 25

why hold inventory

Answer 25

• enable quick levels of response and fosters agility in decision making
• economies of scale
• lower unit cost with higher volumes
  –> purchasing, production, transportation
• provide abuffer (buffer inventory)
• protection against uncertainty in supply, demand or price
  –> transit inventory (inventory on hand while being transported from supplier)
  –> decoupling inventories (buffer between sequential steps in production process)
  –> anticipation inventory (buffer for seasonal spikes in demand)
  –> risk hedging inventory (buffer against price hikes or supply shortages)
• cycle inventory
• inventory required for minimum day-to-day production requirements

Question 26

costs of inventory

Answer 26

*scale can result in hundreds of thousands of items in stock

• storage costs
  –> facilities, utilities
• handling costs
  –> labour, equipment, packaging
• money tied up in stock
  –> least liquid
• shrinkage costs
• loss of inventory due to e.g. theft, damage
• transportation costs
• risk of stock becoming obselete
• opportunity costs
  –> may limit finance available to invest or develop new product line

Question 27

key questions regarding inventory in supply chain planning

Answer 27

*when to replenish inventory?

• how much to order?

Question 28

define capacity

Answer 28

• the maximum output or throughput achievable by an operating system over a period of time

also
- limitation of an organisational system to turn inputs into outputs

–> must be planned ahead of need

Question 29

define design/rated capacity

Answer 29

• highest output rate than can be achieved with the resources available, under ideal conditions
  –> (infrastructure, product mix, supply network, product specifications)

Question 30

define effective capacity

Answer 30

• the current conditions of the here and now, the typical operating conditions, resources and constraints
• realistic achievement under normal conditions

Question 31

describe how supply chain management is hierarchical

• include key point

Answer 31

Strategic planning - overall direction for supply chain
* long term (executives and senior leaders)
e.g.
- demand forecasting
- long term capacity

Tactical Planning - translates strategic plan into concrete actions (mid-level management)
* medium term
e.g.
- production planning
- inventory management
- materials requirements planning (MRP)

Operational Planning - day to day operations and short term adjustments
* short term (operational personnel)
e.g
- scheduling
- monitoring and control of production processes

• information flows up and down
  –> information from the top cascades down
  –> all levels must be aligned for success

Question 32

REVISION QUESTION: Why is supply chain and operation planning done hierarchically

Answer 32

• management complexity through breaking down into manageable levels of detail
  –> increase efficiency

*those with necessary expertise and scope make decisions
–> increase effectiveness of decisions

*allows for cohesion and alignment throughout the firm