SCM Flashcards
Supply chain management
Define and explain the major uses of BOM and routing files/sheet.
Define low level codes and briefly describe the use of low level codes.
BOM definition:
a listing of all the subassemblies, intermediates, parts, and raw materials that go into making the parent
assembly showing the quantities of each required to make an assembly.
BOM Major uses:
Product definition - components needed.
Planning - regarding MPS.
Manufacturing - a list (MRP).
Routing files/sheet definition:
A routing is the path that work follows from work center to work center as it is completed.
Routing files/sheet Major uses (MRP):
Operations required to make the product and sequence.
Brief description of each operation.
Equipment/tools for each operation.
Setup-, run- and leadtimes for each operation.
Low-level code definition:
A number that identifies the lowest level in any bill of material at which a particular component appears. Net requirements for a given component are not calculated until all the gross requirements have been calculated down to that level.
Use of low level codes:
Low level codes are used to determine when a part is eligible for netting and exploding. In this way, each part is nettet and exploded only once.
Explain the Manufacturing planning and control system focusing on the Production Plan.
Define and explain forecasting in relation to MPC.
The MPC system is a closed-loop information system. There are five major levels, which includes the planning functions of Strategic business plan (BUS), production planning (PPL), master production scheduling (MPS), material requirements planning (MRP). Once the planning has been accepted, the execution begins, these functions include production activity control and purchasing (PAC).
Each level varies in purpose, time span and level of detail.
PPL is concerned with:
- The quantities of each product group, that must be produced in each period.
- The desired inventory levels.
- The resources of equipment, labor and material needed in each period.
- The availability of the resources needed.
BUS is used as the objectives and sat the direction for PPL.
BUS (business plan, financial plan, marketing and capacity) is an input to the PPL.
At the PPL level, the level of detail is not high. The PPL is concerned with implementing the BUS, working with product families group. The planning horizon is 6-18 months and reviewed each month or quarter. Under PPL the resources needed to meet market demand is determined and compared with the available resources (Resource plan).
The output is Aggregate production plan by product group and the desired inventory level.
Definition of forecasting: FC is a projection of past information and or experience into expectation of demand in the future. There are two FC methods, qualitative and quantitative.
Qualitative methods is based on opinions or experience (personal insight, market survey, historical analogy and Delphi method) this method is best for BUS.
Quantitative methods is based on data. These data can either be extrinsic or intrinsic. Extensic is based on external indicators and intrinsic is based on historical data.
- Extrinsic techniques is often used at the PPL level, as it is based on external indicators which relate to the demand for a company’s products.
- Intrinsic techniques is often used at the MPS level, as the data usually recorded in the company, where historical data values of demand is used to forecast future demand, trying to projecting past patterns into the future.
OBS! remember: Simple average, moving average and exponential smoothing.
Simple average =Using the average demand for the past to determine the future demand.
Moving Average = take the average demand for the last 3 or 6 periods and use it to determine the forecast for the next period.
Exponential smoothing: Where the data is assign more weight using the letter alpha:
New Forecast = alpha * lates demand + (1 - alpha) * previous forecast
OBS!! : This technique catches trends faster than other techniques –> Lates demand = actual sales.
OBS!! We do not forecast at PAC level ;)
Explain the Manufacturing planning and control system focusing at the MPS first, then MRP.
Define and explain forecasting in relation to MPC
The MPC system is a closed-loop information system. There are five major levels, which includes the planning functions of Strategic business plan (BUS), production planning (PPL), master production scheduling (MPS), material requirements planning (MRP). Once the planning has been accepted, the execution begins, these functions include production activity control and purchasing (PAC).
Each level varies in purpose, time span and level of detail.
MPS is a plan for the production of individual end items
The MPS strives to form a detailed plan that fulfils the following objectives:
Achieve desired customer service levels
Make the most efficient use of resources
Maintain a desirable level of inventory
The MPS in operations management must balance the demand identified by sales and marketing with the availability of resources.
The MRP system
Describe and explain the 5 main inventory costs, and the KPI’s: Inventory turns and Inventory Days of supply.
Define Capacity, Load and then explain capacity in relation to the MPC.
The five main inventory costs
1. Item costs
* Landed cost, COGS
- for purchased parts: price paid for item (includes purschased price and any other direct cost associated with getting the item into plant) - LANDED PRICE (LP)
- for manufactured parts: includes direct material, direct labor, and factory overhead. COGS
- Carrying costs - the cost of holding inventory
- Cost of capital: money invested in inventory =tied up - lost opportunity
- Storage costs: rent of warehouse, heat, light, equipment, workers
- Risk, such as obsolence, pilfrage. loss of value, damage, stolen goods, short shelf life
Calculation: carrying cost = cost of capital(%) +Storage cost(%)+Risk cost(%)
-> total % *annual inventory= carrying cost
- Order costs: The cost of placing an order (either with factory or supplier) - the cost of placing one order does not depend upon the quantity ordered.
these are all the cost associated with Cost of purchase order and Cost of production order
- Setup and teardown cost
- Purchase order cost
- Lost capacity cost
- Production cost - Stockout costs: if company runs out of stock and there is demand for product then there is stockout:
costs associated with the stockout:
-missing proft from lost sales.
-loss of furture sales
-loss of goodwill
-loss of reputation.
rescheduling of operations
-sending out emergency orders, paying for special transportation
-using alternative and more expensive suppliers. - capacity-associated cost
- Level versus Chase capacity production strategies.
- hiring, training, firing, extra shifts etc.
we can think as this is our cost to scale the supply chain inventory (scalability cost)
Kpi’s - inventory turns
- inventory is often a very large portion of the asset portion of the balance sheet 20%-60% of total asset is not uncommon
formula:
inventory turns = annual COGS/average inventory value
- A common measure of effectiveness of many production systems and a measure of how effectively inventories are being used is the inventory turns ratio
-Cost of goods sold (COGS), the total sale in cost prices, NOT sales prices.
- average inventory, also in cost prices - inventory days of supply
- A Common measure of how effectively inventories are being used is days of supply:
Days of supply(invenotry days of supply) = inventory on hand / average daily usage
- This is a measure of how many days of inventory is available at any point of time
- could be calculated for RM or FG or….e.g. IDOS_RM or IDOS_FG
OBS! it is reciprocal values
if i know my turns i also know my DOS and vice versa example 6 turns = 365/6= DOS ->
DOS = 365/DOS = 6 turns
Explain the difference between aggregate inventory management and item inventory management.
Describe the different types of inventories and different functions of inventories
First of all: The obj. of inventory management:
Maximize customer service: What type of inventory is required - all else equals, the fastest SC wins. The closer to minimum inventory = more risk of not fulfilling customers satisfaction. Finding the balance. KEY = where do we place the inventory =structure SC = leadtime
Low-cost plant operation: understanding where we need quentaties
Minimize total inventory investment
Aggregated inventory: Planning flow and types of inventory on a strategic level.
Looking at supply and demand (Risk)
Which functions of inventory.
Obj. of inventory and cost associated with inventory
This is where we are looking at the capability. Low detail and long-medium planning.
Item inventory management:
Managing inventories at item no level. How to control individual item, how much to order and when to order. Higher detail and shorter term planning - making decisions for each item.
The basic purpose of inventories is to decouple supply and demand (buffer)
Different types of inventory:
Raw materials : not yet entered into production process
Work-in-process:
Finished goods
More?
Functions of inventory:
Anticipation: anticipation of future demand - such as seasonality or promotional
Safetystock: buffer against disruptions incl. qulality problems, Lt fluctuations, equipment or supply problems.
Lot-size : (MRP comes in hand): replenishment occurs in lots that are in excess of immediate demand
Transportation inventory (Pipeline inventory) : exist because of the time needed to move goods from one location to another
Decoupling Inventory: Inventory held between operations to allow independence
Maintenance, Repair and Overhaul Inventory:
- Often determined from preventive maintenance schedules
- Buffer stocks often held for critical components
- Often located in stocking areas separate from production inventory
Explain the ABC cassification process, purpose and use in Supply Chain Management.
Briefly describe and explain lot size decision rules for variable and fixed order quantities
The ABC classification is based on the Pareto principles and can be used as guidance to classify significant items that need closer control and monitoring based on their value and usage. It makes it possible to apply different degrees of control to the individual classification of items.
According to the Pareto:
- Class A items are those 20% af the items that account for about 80% of the dollar usage.
- Class B items are those 30% that account for 15% of the dollar usage.
- Class C items are those 50% that account for 5% of the dollar usage.
In SCM, the ABC classification can be used as guidance when managing inventory, as class A items need careful control and frequently monitoring due to the high usage value, while class B items need less effort devoted to their control. Class C items with lowest usage value, do not need to be controlled as rigorously.
Steps in Making an ABC analysis:
1. Establish the item characteristics that influence the result of inventory management, this could be usually annual dollar usage, but could also be done using router criteria such as scarcity of material, replenishment lead times, quality etc.
2. Classify items into groups based on the established criteria.
3. Apply a degree of control in proportion to the importance of the group.
Lot size decision rules for variable order quantities:
- Lot-for-lot: Order exactly what is needed, changes as requirements change. Create no unused inventory. Most often used with rare items.
- P-O-S: Order enough to cover a demand over a certain period of time. The question is for how many periods should be covered? The order quantity will not be the same every time, it depends no the demand.
- Min-max system: Order when you go below the minimum. order up to the max The quantity ordered is the difference between the actual quantity available at the time of order and the maximum quantity. ex max q = 500, min q = 200 then the OQ = 300.
- EOQ: Assumes demand is uniform. Orders a quantity that attempts to balance the cost of ordering with the cost of carrying. EOQ is “the optimal quantity” that minimize the annual carrying and ordering cost .
- POQ: Sets an economic time interval between orders. Assumes demand is not uniform. Order enough to satisfy future demand for a given period of time. It use the EOQ formula to calculate an economic time between orders, the result of POQ is not quantity but the number of periods that are to be covered.
Which one to use depend on ….
Fixed order quantities (Q-Qmin system):
Order a fixed quantity when you go below the minimum. Order the same amount each time, it may be based on EOQ or based on agreed Colli/crate/pallet size with a supplier. If the minimum order quantity is defined, then we can order in multiplum’s of that agreed quantity. It is easy to understand but does not minimize costs and may lead to excess inventory during low demand or stockout during high demand period.
Explain key characteristics of the order point system and of the Periodic Review System
Explain theory behind the formula: Safety stock = σ * Safety factor.
Order point system (Q-Qmin system) is when you order a fixed quantity (Q) when the it is below the minimum. The same amount is ordered each time (may be based on EOQ)
Periodic Review System: Order enough to cover a demand over a certain period of time(dynamic Q). The quantity is depend on the demand.
Safety stock:
Service level is directly related to the number of standard deviations provided as safety stock which is called safety safety factor. The service level
is the percentage of order cycles without a stockout.
To find the safety stock the services level must be found and the safety factor shall be multiply with standard deviation.
Explain the purpose of safety stock on Raw Material Inventory and further explain the theory behind the formula: Safety stock = σ * Safety Factor.
Safety stock:
Service level is directly related to the number of standard deviations provided as safety stock which is called safety safety factor. The service level
is the percentage of order cycles without a stockout.
To find the safety stock the services level must be found and the safety factor shall be multiply with standard deviation.
Briefly describe a logical supply chain map and the information usually collected and shown.
Briefly describe a GEO map and the information usually collected and shown.
Explain the purpoes of, & differences between, these 2 maps and highlight key SC KPI’s
A logical supply chain map is a process relationship map visually represents the flow of material, information and money within a supply chain from the initial raw material suppliers to the end customers.
Information collected and shown in a logical map:
- Supplier information for each tiers as locations, types of RM, quantities and Lead times.
- Manufacturing information (Focal firm): Production cycle times, Manufacturing total throughput time and processes.
- Warehouse locations and capacities
- Distribution information: modes and transportation used e.g. truck, rail, sea or air and lead time and transportations cost.
- Financial: COGS + Landed cost, Inventory levels and turnover rates. Sales volumes and demand patterns, expected sales etc.
- Customer locations/demographics
GEO MAP is a node relationship map visually represents the three flow in a geographical context and can be used to show where we source material from, in which quantities and how it is being transported.
Information collected and shown in a geo map:
- Suppliers: locations, Type of RM, Volume, frequency.
- Manufacturers: Locations of production and assembly facilities.
- Warehouse/DC: Storage locations
- Customers locations
- Distribution routes and mode.
- Different Lead time elements
- Volumes and Capacities: Quantities of goods transported and storage capacities at each node.
- Financial: Demand patterns and expected sales. Lead time, inventory levels + turnover, COGS + Landed cost etc.
The purpose of logical map is to descale the complexity of a supply chain focusing on the relationships and flows between different entities without considering the geographic locations. It can be used to identify potential bottlenecks or inefficiencies. A good logical map provides a high-level overview which can be used in strategic planning and link corporate strategy to supply chain strategy.
A GEO map focus on geographic locations and physical movement.
Differences, a logical map emphasize data like time elements (lead time), in-depth information on the three flows where GEO maps emphasize location coordinates, transit times, distances and transportation modes.
Usage: Logical maps are used for strategic planning and process optimization and GEO maps are used for logistical planning, route optimization and risk management.
KPI: Lead time, Order fulfillment rate, Inventory Turnover, Transportation costs, On-Time Delivery rate, Order Accuracy etc.
Explain the purpose of supply chain mapping in general and define and characterize the SC KPI’s: Lead time, TCO (LC), COGS, Inventory turns, IDOS etc.
Further explain the use of Market Boundaries to establish transportation distances for optimal customer service.
Describe the characteristics of a normal distribution and its relation to safety stock.
Explain the process of calculating safety stock and its relation to service levels. Further provide an example of calculating a service level.
Define the objective of Forecasting and explain the various forecasting techniques.
Explain the use of extrinsic and intrinsic FC techniques and relate it to the MPC.
Define capacity long term and short term and explain the use of RP, RCCP and CRP in relation to the MPC.
Further explain the ifferences between; Load, Demonstrated Capacity, Required Capacity and Rated Capacity.
