SCM 2160 - Midterm 2 Flashcards
What is a forecast?
A prediction of future events used for planning purposes
Based on historical data
What is a time series pattern?
Repeated observations of demand for a product/service in order of appearance
What is a horizontal time series pattern?
Fluctuation of data around a constant mean (average demand, is relatively consistent)
What is a trend time series pattern?
Systematic increase or decrease in the mean over time. Looking at a long time (not just day to day, the long run trend)
What is a seasonal time series pattern?
Repeatable pattern of increases or decrease in demand, depending on time of day, week, month, season
What is a cyclical time series pattern?
Less predictable, gradual increases in demand over long periods of time (years / decades)
What is a random time series pattern?
Un-forecastable variation in demand
What are examples of inputs to use in forecasting?
History of past demand
Notes explaining past demand
Past forecasts
Customer research
Planned promotions
Inputs from partners via CPFR
What does CPFR stand for?
Collaborative Planning, Forecasting & Replenishment
What does CPFR do?
Generate a shared forecast,
independent forecasts are generated and compared, they are adjusted until the forecasts approach consensus
What can CPFR help avoid?
It can reduce the bullwhip effect
Avoid stock outs
You can feel more certain that you can satisfy demand (retailer)
What are four popular time series methods?
Naive
Simple moving average
Weighted moving average
Exponential smoothing
What is the naive forecast method?
Only appropriate for short term forecasts
Sensitive to random variation
Ft+1 = Dt
Forecast for future period = actual demand in most recent period (t)
What is the simple moving average forecast method?
Forecast for the next period equals the average demand for n most recent periods
This smooths out random variation
How many periods do you have to wait before starting a simple moving average
Since this formula takes the average of previous periods, you need at least two previous periods to take the average of before you can start forecasting with it.
What is a weighted moving average?
The forecast for the next period equals the average demand for n most recent periods. Each observation of demand can have its own weight, with the sum = 1
The weights represent the varying amounts of influence of past demand on the forecast
How many periods do you have to wait before starting a simple moving average?
You need 3 periods of information, assigning each of those 3 different weights
What is exponential smoothing forecast method?
A weighted moving average assigning different levels of weight to recent data compared to older historical data
This requires only three data points:
- last periods forecast
- last periods demand
- smoothing parameter
What does a low ‘a’ value mean for the exponential smoothing forecast?
What does a high a value mean?
low value = more smoothing
high value = more responsive to changes
How many periods do you have to wait before starting a exponential smoothing forecast?
One period before you can start
What is forecast error?
The difference between predicted demand and actual demand
What are the four different methods to measure forecast error?
Cumulative sum of forecast errors (CFE)
Mean squared error (MSE)
Mean absolute deviation (MAD)
Mean absolute percentage deviation
What is the cumulative sum of forecast errors (CFE)
Assess total error in forecasts overtime
Calculates the error for each forecast then sum
What does it mean when CFE is really negative?
forecasts are consistently higher than demand
What does it mean when CFE is highly positive?
That the forecast is consistently lower than demand
What is the mean squared error?
Indicates on average how close forecast is to demand
Magnifies large errors
What is the mean absolute deviation?
Simple measure of magnitude of error, does not reveal directional bias
What is mean absolute percentage error?
Contextualizes magnitude of error relative to demand
What is the definition of inventory?
A stock of items including materials, orders, information, and people that flow through or are used in a process to satisfy customer demand
What does Little’s Law tell you?
That throughput time increases with work in progress
What are inventory holding costs?
Variable costs of keeping items in inventory, a per unit cost
What are ordering costs?
The costs associated with the act of placing an order. Fixed cost per order, regardless of the number of units ordered
Example: staffing costs for receiving
What is safety stock?
Inventory that is held to protect against uncertainty in demand, lead time, processing time, quality and supply
What is decoupling?
Inventory that accommodates different rates of production in a system
What is pipeline inventory?
Inventory moving from point to point in the system
(including materials on their way from suppliers)
What is anticipation inventory?
Inventory used to manage predictable variation in demand
What is cycle inventory?
The portion of your total inventory that varies based on the size of an order or production batch
How do you calculate total annual cost?
Average cycle inventory x holding cost + number of orders per year x cost per order (setup cost)
What is economic order quantity (EOQ)?
it is the value of Q that gives you the lowest total annual inventory costs
What are independent demand?
Demand, which is influenced by market conditions and is not related to inventory decisions for other items in stock.
What is continuous review?
The system automatically orders new inventory when it reaches a set reorder point. The order sizes is consistent (time between the orders changes)
What is periodic review?
Inventory review happens at fixed time intervals, the order size is determined by current inventory
What is the protection interval?
The time interval for which inventory must be planned when each new order is placed
What are the benefits of continuous review?
Can reduce holding and ordering costs by tailoring the reorder point
Fixed order sizes may support quantity discounts
Requires less safety stock
What are the benefits of periodic review?
Supports standardization of deliveries scheduling of inventory assessments
Opportunities to combine orders for multiple products from same supplier
Does not require computerized inventory management system
How long is a long term plan (in years)
2-10 years
How long is a medium term plan?
6-18 months
How long is a short term plan?
Weekly / daily
What is a level strategy?
Constant production rate
Use of overtime and under time, no hiring or firing
Demand variability dealt by inventory, back orders, overtime, under time, subcontracting
Good workforce stability
What is a chase strategy?
Production chases demand
You are hiring and firing workers often to keep inline with demand
Good for minimizing inventory, bad for employee morale
What is material requirements planning (MRP)?
A computerized information system developed to help manage dependent demand inventory and schedule replenishment orders
What is dependent demand?
The quantity required is a function of the demand for other items produced or held in inventory
What is dependent demand based on?
Parents and components
Break down a bike in terms of parents and components
The is a parent, the wheel is a component, the spokes on the wheel are sub components
What is a bill of materials?
A record of all the parent component relationships for a particular item derived from engineering and process designs
What is a end item?
The final product sold to the customer
What is a intermediate item?
An item with at least one parent and at least one component
Example: A lamp shade
What are subassemblies?
An intermediate item assembled from more than one component
What is a purchased item?
A item with one or more parents, but no components because it comes from a supplier
Example: Lightbulb
What are part commonality?
The degree to which a component has more than one parent
What is inventory record?
Contains information about lot size policies, lead time, and different elements of time phased data
What are gross requirements?
Total requirements for a component derived from all of its parent production plans, as well as demand for replacement parts
What are scheduled receipts?
orders that have been placed by have not been received
What is a fixed order quantity?
Same order quantity is placed each time an order is issued
What is a periodic order quantity (POQ)?
Orders issued at pre determined intervals
What is lot for lot L4L?
Lot size ordered covered gross requirements for a single week
What are remnants?
When you hold onto some inventory longer than you want to, but it creates a buffer
