BA 331 Study Guide Exam 2 Ch 4 Creating the Responsive Supply Chain Order fulfillment decisions Key is being able to respond quickly but in a volatile market Order Cycle- time from recognition of inventory need until product is available for use or resale Decision Rules: What should we produce/purchase? Determines the inventory BOH & Forecast for Next Period How much should we produce/purchase? Determines the Service Level Policy & Prod. Quantities and lead Times Where should we position the product? Anticipatory order fulfillment= push, prior method used Demand is supported by deploying inventory in anticipation of projected sales levels and locations 1. Anticipatory Forecast 2. Order 3. Inventory Development 4. Actual Demand 5. Inventory replenishment or reclamation. Then back to # 3 Order Point systems answer the question how much to order Economic Order Quantity- tells you how much inventory you should order in anticipation of demand Economic Order Quantity Model Balances fixed order cost against carrying cost to determine least-cost order frequency to determine optimum order quantity Manufacturers use production set up cost instead of order cost Ignores Variance Na´ve Sawtooth inventory model Na´ve because it also ignores variance Conventional approach to fulfilling orders ROP= Reorder point= Lead time * Derived demand Problems occur when demand is not stable or there is a derived or dependent demand The more variability the more extra inventory companies end up with EOQ inv model with variance- accounts for variance with safety stock= LT *DD+SS Safety stock- safeguard against demand or variations in lead time Reducing setup costs drive lower total cost at lower order quantity leading to a shorter cycle stock shifting the order set up costs curve to the left Lean fulfillment- All about raising efficiency Product Focus Reduce uncertainty by managing demand and order cycle time VARIANCE 1. Collaborative Plan 2. Order 3. Small Inv Deployment 4. Actual Demand 5. Flexible, Rapid Response. Then back to 3 Originated with Toyota after WW2 Reducing cycle stock- less inventory, supply variance Reducing safety stock ? less demand variance Key to achieving high efficiency Diapers example going on sell and demand variance Agile Order fulfillment- all about EFFECTIVNESS Customer Focus Used where there is a less predictable environment with a high variable demand Eliminates uncertainty by postponing form and/or time and place utility until order is received and then RAPID RESPOND when order is received 1. Collaborative Plan 2. Capacity 3. Flexible, Rapid Response 4. Actual Demand Shift from a product forced push to a customer focused pull Must be able to communicate with all players in the supply chain Most of the time a supply chain will be a hybrid of both agile and lean Decoupling point- point that customer order penetrates in the supply chain process Lean- plan and optimize- Long LT and predictable Ex. Most chem and product manufacturers Kanban- continuous replenishment- Short LT Predictable Ex. Diapers and chickfila holding tray at UC Hybrid- decouple through postponement- Long LT and unpredictable Ex. Kroger waiting to put names on birthday cakes Agile- Quick response- Short LT and Unpredictable Einstein Pizza bagel Functional Products follow lean. Innovative follow agile Ch5- STRATEGIC LEAD TIME MANAGEMENT -Linked back to response-based supply chains in CH. 4 Managers must know what makes up their lead times and then manage each of those stages (visibility of demand and information) Time Based competitions- TIME =MONEY Regardless of lean or agile the key is speed New ?Great Divide? Lean vs. Agile Characteristics: Shortening product life cycles- less time available to develop new prod. Ex. DVD has a shorter life cycle then the VCR Customers? drive for reduced inventories- firms focusing on reducing inventory to release additional capital Volatile markets= uncertainty = high forecast error- driven by globalization and increasing competition Product Life Cycle (PLC) 1. Introductory Stage- Agile- bought by EARLY ADOPTERS 2. Growth Stage- Agile- bought by EARLY MAJORITY 3. Maturity Stage- Lean- bought by LATE MAJORITY 4. Decline Stage- Lean- bought by LAGGARDS Marketing mix will differ over these stages Order-to delivery cycle- Customer perceived elapsed time from order to delivery Stages- 1. Order preparation and transmittal 2. Order received and entered into system 3. Order processing 4. Order picked/produced 5. Order shipped 6. Customer Receiving Responsiveness- speed is the only thing important Reliability- speed is also important but it?s also the CONSISTENCY of that speed Cash to Cash Cycle- time it takes from pay for raw material to cash received for product Longer it is the less responsive it will be Pipeline management- total time it takes to deliver product to customer Value Added Time (VAT)- % of the total cycle time that a product is actually worked on Provides FORM that customers want to consume it PLACE utility- having it available where someone wants to consume it TIME utility- having it available when someone want to consume it Non-value added time (NVAT)- % of total cycle time that a product may spend waiting, being moved, or being inspected or counted GOAL- reduce the length of the pipeline and/or speed up the flow through the pipeline, or better visibility in the demand. Asks the question. Does this activity add value for the customer or does it add cost? Supply Chain Mapping Everything on the horizontal axis is VALUE ADDED time Everything off the horizontal axis is time sitting somewhere else Throughput efficiency calculation (TPE)= Value added time/Total end to end Pipeline time * 100 Ramp up Time- time it would take for the system to respond to an increase in Demand Drain Time- time it would take to drain the system of inventory Lead Time Gap- supply chain lead time minus customer?s required order cycle time Time it takes to procure, make and deliver the finished product to the customer is often longer than the time the customer is prepared to wait for it Supply chain lead time- procurement, manufacturing, and delivery Customer?s order cycle time- the length of time that the customer is prepared to wait Reducing the gap is achieved by: Shortening the end to end pipeline, process integration, cross functional integration (keeping everyone informed in the SC) Improving visibility of demand Forecasting- created by lack of visibility in demand and masks the real demand Decoupling Point- where the customer demand triggers an operational response Demand penetration point ? point the customer order penetrates in the supply chain process, more about the information Farther it penetrates up the supply chain the faster you will be able to respond EX. Kroger sending information to supplier when an item is scanned at the register Velocity and visibility drive responsiveness and Require: Having a system in place to share information Building a relationship with SC partners so that they are willing to actually share information Chapter 6 SYNCHRONOUS SUPPLY CHAIN SUBSTITUTE INFORMATION FOR INVENTORY WITH IT The Need to develop responsive and fast systems in order to take advantage of time-based competition Through IT and relationships Supply chain collaboration is achieved through shared information Using the COLLABORATIVE PROCESS allows information to be communicated to all parties much faster Benefits created by being much more responsive to changes in demand Supply Chain Information flows: Coordination/Planning flows- planning what going to do, happen at high levels to plan what going to do in the future Weeks/Months in advance, aggregate data of demand and capacity, and balances the load and capacities of different resources over time Operating flows- actually getting the job done, getting the information to do that Hours/days in advance, individual jobs and tasks, specific tools and capabilities, specific tasks to specific tools at specific times Supply Chain Information Systems- Biggest hurdle with synchronizing Enterprise Resource planning (ERP) ? gives you the system capabilities to talk to all the different parts of your organization, share all the data from different places in one consistent, standardized data warehouse EX. Material resource planning with GM Advanced PLANNING and Scheduling- (APS)- assist with planning and scheduling Supply Chain Execution Software (SCE)- uses software to execute the plan Radio Frequency Identification Control- helps coordinate the supply chain Channel structures- have to get the right relationships in place to enable us to share the right information Synchronizing essentially- combines information systems capabilities and appropriate relationships to reduce order cycle times for the delivery of the right product to satisfy demand Improved IT results in- electronic date interchange (EDI), bar coding, electronic point of sale (EPOS), and laser scanners and (ERP) Enterprise Resource Planning systems Demand penetration point- demand is captured in as close to real time as possible and as close to the final customer as possible Vender Managed Inventory (VMI)- supplier takes responsibility for replenishment of the customer?s inventory within specified time period Ex. Coke guy replacing coke in Kroger
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