Lecture 2 - Planning, Forecasting Processes, Inventory & Capacity Flashcards
Define supply chain and operations planning and control systems
processes and tools used to help manage the flow of materials and goods throughout the supply chain
Why are supply chain and operations planning and control systems important.
include overall point
- 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
Define planning
allocating, deploying or consuming resources to meet projected/actual demand over a long time period
Define scheduling
allocating specific resources to specific activities over a short time period
Define control
ensuring plans and schedules are met, and action is taken when problems arise
Effective planning and control systems should…
–> and how this can be done
3 points
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)
Define forecasting
predicting change, in terms of future events or conditions
Key points about forecasting
*aggregate is more accurate than it is detailed
–> focus on broader groups and the big picture
- longer term less accurate
Why forecast in operations planning
- 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
Two quantitative forecasting techniques
*casual models
*time series
what is casual models as a forecasting technique
some common uses in business
- 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
what is time series as a forecasting technique
Uses
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
Seven qualitative forecasting techniques
- economic indicators
- market research
- historical analogy
- group forecasting
- delphi methods
- sales force composite
*scenario writing
what is delphi method as a forecasting technique
- 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.
what is scenario writing as a forecasting technique
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
what is sales force composite as a forecasting technique
- 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
what is group forecasting as a forecasting technique
use the knowledge and experience of a group of experts with different perspectives (sales, marketing, finance) to discuss and collectively develop a forecast.
what is historical analogy as a forecasting technique
- 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
what is market research as a forecasting technique
- 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
what is economic indicators as a forecasting technique
- 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
steps to take to ensure successful forecasting
- 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
describe the steps of forecasting after models/techniques are used
*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
define inventory
what forms can it come in
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
define inventory management
the control of the ordering, storing and using of items, resources and products
why hold inventory
- 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
costs of inventory
*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
key questions regarding inventory in supply chain planning
*when to replenish inventory?
- how much to order?
define capacity
- 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
define design/rated capacity
- highest output rate than can be achieved with the resources available, under ideal conditions
–> (infrastructure, product mix, supply network, product specifications)
define effective capacity
- the current conditions of the here and now, the typical operating conditions, resources and constraints
- realistic achievement under normal conditions
describe how supply chain management is hierarchical
- include key point
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
REVISION QUESTION: Why is supply chain and operation planning done hierarchically
- 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
