Supply Chain Management Chapter 5

Supply Chain Management First appearance – Financial Times Importance - → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain 1982 Peter Drucker – last frontier Supply Chain problems can cause ≤ 11% drop in stock price Customer perception of company

SCOR Reference:

Supply Chain All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

Supply Chain “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.” APICS Dictionary, 10th ed.

Supply Chain Management Synchronization of activities required to achieve maximum competitive benefits Synchronization of activities required to achieve maximum competitive benefits Coordination, cooperation, and communication Coordination, cooperation, and communication Rapid flow of information Rapid flow of information Vertical integration Vertical integration

Supply Chain Uncertainty Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability Inventory is a form of insurance Inventory is a form of insurance Distorted information is one of the main causes of uncertainty Bullwhip effect Distorted information is one of the main causes of uncertainty Bullwhip effect

Information in the Supply Chain Centralized coordination of information flows Centralized coordination of information flows Integration of transportation, distribution, ordering, and production Integration of transportation, distribution, ordering, and production Direct access to domestic and global transportation and distribution channels Direct access to domestic and global transportation and distribution channels Locating and tracking the movement of every item in the supply chain - RFID Locating and tracking the movement of every item in the supply chain - RFID

Information in the Supply Chain Consolidation of purchasing from all suppliers Consolidation of purchasing from all suppliers Intercompany and intracompany information access Intercompany and intracompany information access Electronic Data Interchange Electronic Data Interchange Data acquisition at the point of origin and point of sale Data acquisition at the point of origin and point of sale Instantaneous updating of inventory levels Instantaneous updating of inventory levels Visibility Visibility

Electronic Business Replacement of physical processes with electronic ones Replacement of physical processes with electronic ones Cost and price reductions Cost and price reductions Reduction or elimination of intermediaries Reduction or elimination of intermediaries Shortening transaction times for ordering and delivery Shortening transaction times for ordering and delivery Wider presence and increased visibility Wider presence and increased visibility In Theory:

Electronic Business Greater choices and more information for customers Greater choices and more information for customers Improved service Improved service Collection and analysis of customer data and preferences Collection and analysis of customer data and preferences Virtual companies with lower prices Virtual companies with lower prices Leveling the playing field for smaller companies Leveling the playing field for smaller companies Gain global access to markets & customers Gain global access to markets & customers

Electronic Data Interchange Computer-to-computer exchange of business documents in a standard format Computer-to-computer exchange of business documents in a standard format Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

Bar Codes Computer readable codes attached to items flowing through the supply chain Computer readable codes attached to items flowing through the supply chain Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans

IT Issues Increased benefits and sophistication come with increased costs Increased benefits and sophistication come with increased costs Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient Security problems are very real – camera phones, cell phones, thumb drives Security problems are very real – camera phones, cell phones, thumb drives Collaboration and trust are important elements that may be new to business relationships Collaboration and trust are important elements that may be new to business relationships

Suppliers Purchased materials account for about half of manufacturing costs Purchased materials account for about half of manufacturing costs Materials, parts, and service must be delivered on time, of high quality, and low cost Materials, parts, and service must be delivered on time, of high quality, and low cost Suppliers should be integrated into their customers’ supply chains Suppliers should be integrated into their customers’ supply chains Partnerships should be established Partnerships should be established On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work? On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work?

Sourcing Relationship between customers and suppliers focuses on collaboration and cooperation Relationship between customers and suppliers focuses on collaboration and cooperation Outsourcing has become a long-term strategic decision Outsourcing has become a long-term strategic decision Organizations focus on core competencies Organizations focus on core competencies Single-sourcing is increasingly a part of supplier relations Single-sourcing is increasingly a part of supplier relations How does single source differ from sole source?

Distribution The actual movement of products and materials between locations The actual movement of products and materials between locations Handling of materials and products at receiving docks, storing products, packaging, and shipping Handling of materials and products at receiving docks, storing products, packaging, and shipping Often called logistics Often called logistics Driving force today is speed Driving force today is speed Particularly important for Internet dot-coms Particularly important for Internet dot-coms

Distribution Centers and Warehousing DCs are some of the largest business facilities in the United States DCs are some of the largest business facilities in the United States Trend is for more frequent orders in smaller quantities Trend is for more frequent orders in smaller quantities Flow-through facilities and automated material handling Flow-through facilities and automated material handling Final assembly and product configuration (postponement) may be done at the DC Final assembly and product configuration (postponement) may be done at the DC

Warehouse Management Systems Highly automated systems Highly automated systems A good system will control item slotting, pick lists, packing, and shipping A good system will control item slotting, pick lists, packing, and shipping Most newer systems include transportation management (load management/configuration), order management, yard management, labor management, warehouse optimization Most newer systems include transportation management (load management/configuration), order management, yard management, labor management, warehouse optimization

Vendor-Managed Inventory Not a new concept – same process used by bread deliveries to stores for decades Not a new concept – same process used by bread deliveries to stores for decades Reduces need for warehousing Reduces need for warehousing Increased speed, reduced errors, and improved service Increased speed, reduced errors, and improved service Onus is on the supplier to keep the shelves full or assembly lines running Onus is on the supplier to keep the shelves full or assembly lines running variation of JIT variation of JIT Proctor&Gamble - Wal-Mart Proctor&Gamble - Wal-Mart DLA – moving from a manager of supplies to a manager of suppliers DLA – moving from a manager of supplies to a manager of suppliers Direct Vendor Deliveries – loss of visibility Direct Vendor Deliveries – loss of visibility

Collaborative Distribution and Outsourcing Collaborative planning, forecasting, and replenishment (CPFR) started by Nabisco Collaborative planning, forecasting, and replenishment (CPFR) started by Nabisco Allows suppliers to know what is really needed and when Allows suppliers to know what is really needed and when Electronic-based exchange of data and information Electronic-based exchange of data and information Significant decrease in inventory levels and more efficient logistics - maybe not! Significant decrease in inventory levels and more efficient logistics - maybe not! Companies work together for benefit of all of the supply chain Companies work together for benefit of all of the supply chain

Transportation Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

Railroads 150,000 miles in US 150,000 miles in US Low cost, high-volume Low cost, high-volume Improving flexibility Improving flexibility intermodal service intermodal service double stacking double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal

Most used mode in US -75% of total freight (not total weight) Most used mode in US -75% of total freight (not total weight) Flexible, small loads Flexible, small loads Consolidation, Internet load match sites Consolidation, Internet load match sites Single sourcing reduces number of trucking firms serving a company Single sourcing reduces number of trucking firms serving a company Truck load (TL) vs. Less Than Truck Load (LTL) Truck load (TL) vs. Less Than Truck Load (LTL) Trucking

Air Rapidly growing segment of transportation industry Rapidly growing segment of transportation industry Lightweight, small items Lightweight, small items Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) Major airlines and US Postal Service, UPS, FedEx, DHL Major airlines and US Postal Service, UPS, FedEx, DHL

Package Carriers FedEx, UPS, US Postal Service, DHL FedEx, UPS, US Postal Service, DHL Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW Use several modes of transportation Use several modes of transportation Expensive - relative!! Expensive - relative!! Fast and reliable - relative!! Fast and reliable - relative!! Innovative use of technologies in some cases Innovative use of technologies in some cases Online tracking – some better than others Online tracking – some better than others

Intermodal Combination of several modes of transportation Combination of several modes of transportation Most common are truck/rail/truck and truck/water/rail/truck Most common are truck/rail/truck and truck/water/rail/truck Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping ~2% of all US cargo via intermodal ~2% of all US cargo via intermodal

Water One of oldest means of transport One of oldest means of transport Low-cost, high-volume, slow (relative) Low-cost, high-volume, slow (relative) Security - sheer volume - millions of containers annually Security - sheer volume - millions of containers annually Bulky, heavy and/or large items Bulky, heavy and/or large items Standardized shipping containers improve service Standardized shipping containers improve service The most common form of international shipping The most common form of international shipping

Pipelines Primarily for oil & refined oil products Primarily for oil & refined oil products Slurry lines carry coal or kaolin Slurry lines carry coal or kaolin High initial capital investment High initial capital investment Low operating costs Low operating costs Can cross difficult terrain Can cross difficult terrain

Global Supply Chain Free trade & global opportunities Free trade & global opportunities Nations form trading groups Nations form trading groups No tariffs or duties No tariffs or duties Freely transport goods across borders Freely transport goods across borders Security!! Security!!

Global Supply Chain Problems National and regional differences National and regional differences Customs, business practices, and regulations Customs, business practices, and regulations Foreign markets are not homogeneous Foreign markets are not homogeneous Quality can be a major issue Quality can be a major issue

Security ~ 10+ million containers annually Customs-Trade Partnership Against Terrorism (C- TPAT) Port Security – SAFE Ports Act; Scanning of all Containers Cost - $2 billion closing of major port 66% of all goods into US comes through 20 major ports 44% through LA/Long Beach Cost of attack on major port estimated at $20 Billion

Chapter 7 Forecasting

Forecasting Survey How far into the future do you typically project when trying to forecast the health of your industry?  less than 4 months3%  4-6 months12%  7-12 months28%  > 12 months57% Fortune Council survey, Nov 2005

Indices to forecast health of industry Consumer price index 51% Consumer Confidence index44% Durable goods orders20% Gross Domestic Product35% Manufacturing and trade inventories and sales27% Price of oil/barrel34% Strength of US $46% Unemployment rate53% Interest rates/fed funds59% Fortune Council survey, Nov 2005

Forecasting Importance Improving customer demand forecasting and sharing the information downstream will allow more efficient scheduling and inventory management Boeing, 1997: $2.6 billion write down due to “raw material shortages, internal and supplier parts shortages” Wall Street Journal, Oct 23, 1987

Forecasting Importance “Second Quarter sales at US Surgical Corporation decline 25%, resulting in a $22 mil loss…attributed to larger than anticipated inventories on shelves of hospitals.” US Surgical Quarterly, Jul 1993 “IBM sells out new Aetna PC; shortage may cost millions in potential revenue.” Wall Street Journal, Oct 7, 1994

Principles of Forecasting Forecasts are usually wrong every forecast should include an estimate of error Forecasts are more accurate for families or groups Forecasts are more accurate for nearer periods.

Important Factors to Improve Forecasting Record Data in the same terms as needed in the forecast – production data for production forecasts; time periods Record circumstances related to the data Record the demand separately for different customer groups

Forecast Techniques Extrinsic Techniques – projections based on indicators that relate to products – examples Intrinsic – historical data used to forecast (most common)

Forecasting Forecasting errors can increase the total cost of ownership for a product - inventory carrying costs - obsolete inventory - lack of sufficient inventory - quality of products due to accepting marginal products to prevent stockout

Forecasting Essential for smooth operations of business organizations Estimates of the occurrence, timing, or magnitude of uncertain future events Costs of forecasting: excess labor; excess materials; expediting costs; lost revenues

Forecasting Predicting future events Predicting future events Usually demand behavior over a time frame Usually demand behavior over a time frame Qualitative methods Qualitative methods Based on subjective methods Based on subjective methods Quantitative methods Quantitative methods Based on mathematical formulas Based on mathematical formulas

Strategic Role of Forecasting Focus on supply chain management Focus on supply chain management Short term role of product demand Short term role of product demand Long term role of new products, processes, and technologies Long term role of new products, processes, and technologies Focus on Total Quality Management Focus on Total Quality Management Satisfy customer demand Satisfy customer demand Uninterrupted product flow with no defective items Uninterrupted product flow with no defective items Necessary for strategic planning Necessary for strategic planning

Strategic Role of Forecasting Focus on supply chain management Focus on supply chain management Short term role of product demand Short term role of product demand Long term role of new products, processes, and technologies Long term role of new products, processes, and technologies Focus on Total Quality Management Focus on Total Quality Management Satisfy customer demand Satisfy customer demand Uninterrupted product flow with no defective items Uninterrupted product flow with no defective items Necessary for strategic planning Necessary for strategic planning

Trumpet of Doom As forecast horizon increases, so does the forecasting error (i.e., accuracy decreases) – shorten horizon by shortening of cycles or flow times Law of Large Numbers – as volume increases, relative variability decreases – forecasting error is smaller: goal – forecast at aggregate levels; collaborate; standardize parts Volume and activity increase at end of reporting periods – Krispy Kreme

Time Frame Time Frame Short-range, medium- range, long-range Short-range, medium- range, long-range Demand Behavior Demand Behavior Trends, cycles, seasonal patterns, random Trends, cycles, seasonal patterns, random Components of Forecasting Demand

Time Frame Short-range to medium-range Short-range to medium-range Daily, weekly monthly forecasts of sales data Daily, weekly monthly forecasts of sales data Up to 2 years into the future Up to 2 years into the future Long-range Long-range Strategic planning of goals, products, markets Strategic planning of goals, products, markets Planning beyond 2 years into the future Planning beyond 2 years into the future

Demand Behavior Trend Trend gradual, long-term up or down movement gradual, long-term up or down movement Cycle Cycle up & down movement repeating over long time frame up & down movement repeating over long time frame Seasonal pattern Seasonal pattern periodic oscillation in demand which repeats periodic oscillation in demand which repeats Random movements follow no pattern Random movements follow no pattern

Forms of Forecast Movement Time (a) Trend Time (d) Trend with seasonal pattern Time (c) Seasonal pattern Time (b) Cycle Demand Demand Demand Demand Random movement Figure 8.1

Forecasting Methods Time series Time series Regression or causal modeling Regression or causal modeling Qualitative methods Qualitative methods Management judgment, expertise, opinion Management judgment, expertise, opinion Use management, marketing, purchasing, engineering Use management, marketing, purchasing, engineering Delphi method Delphi method Solicit forecasts from experts Solicit forecasts from experts

Time Series Methods Statistical methods using historical data Statistical methods using historical data Moving average Moving average Exponential smoothing Exponential smoothing Linear trend line Linear trend line Assume patterns will repeat Assume patterns will repeat Naive forecasts Naive forecasts Forecast = data from last period Forecast = data from last period

Moving Average Average several periods of data Average several periods of data Dampen, smooth out changes Dampen, smooth out changes Use when demand is stable with no trend or seasonal pattern Use when demand is stable with no trend or seasonal pattern Sum of Demand In n Periods n

Simple Moving Average Jan120 Feb90 Mar100 Apr75 May110 June50 July75 Aug130 Sept110 Oct90 ORDERS MONTHPER MONTH

Jan120 Feb90 Mar100 Apr75 May110 June50 July75 Aug130 Sept110 Oct90 ORDERS MONTHPER MONTH MA nov = 3 = = 110 orders for Nov Simple Moving Average D aug +D sep +D oct

Jan120– Feb90 – Mar100 – Apr May June July Aug Sept Oct Nov –110.0 ORDERSTHREE-MONTH MONTHPER MONTHMOVING AVERAGE Simple Moving Average

Jan120– Feb90 – Mar100 – Apr May June July Aug Sept Oct Nov –110.0 ORDERSTHREE-MONTH MONTHPER MONTHMOVING AVERAGE MA 5 = 5 i = 1  DiDiDiDi 5 = = 91 orders for Nov Simple Moving Average

Jan120– – Feb90 – – Mar100 – – Apr – May – June July Aug Sept Oct Nov – ORDERSTHREE-MONTHFIVE-MONTH MONTHPER MONTHMOVING AVERAGEMOVING AVERAGE

Weighted Moving Average Adjusts moving average method to more closely reflect data fluctuations Adjusts moving average method to more closely reflect data fluctuations

Weighted Moving Average WMA n = i = 1  Wi DiWi DiWi DiWi Di where W i = the weight for period i, between 0 and 100 percent  W i = 1.00 Adjusts moving average method to more closely reflect data fluctuations Adjusts moving average method to more closely reflect data fluctuations

Weighted Moving Average Example MONTH WEIGHT DATA August 17%130 September 33%110 October 50%90

Weighted Moving Average Example MONTH WEIGHT DATA August 17%130 September 33%110 October 50%90 November forecast WMA 3 = 3 i = 1  Wi DiWi DiWi DiWi Di = (0.50)(90) + (0.33)(110) + (0.17)(130) = orders 3 Month = month = 91

Averaging method Averaging method Weights most recent data more strongly Weights most recent data more strongly Reacts more to recent changes Reacts more to recent changes Widely used, accurate method Widely used, accurate method Exponential Smoothing

F t +1 =  D t + (1 -  )F t where F t +1 =forecast for next period D t =actual demand for present period F t =previously determined forecast for present period  =weighting factor, smoothing constant Averaging method Averaging method Weights most recent data more strongly Weights most recent data more strongly Reacts more to recent changes Reacts more to recent changes Widely used, accurate method Widely used, accurate method Exponential Smoothing

Forecast for Next Period Forecast = (weighting factor)x(actual demand for period)+(1-weighting factor)x(previously determined forecast for present period) 0 >  <= 1 Lesser reaction to recent demand Greater reaction to recent demand

Seasonal Adjustments Repetitive increase/ decrease in demand Repetitive increase/ decrease in demand Use seasonal factor to adjust forecast Use seasonal factor to adjust forecast

Seasonal Adjustments Repetitive increase/ decrease in demand Repetitive increase/ decrease in demand Use seasonal factor to adjust forecast Use seasonal factor to adjust forecast Seasonal factor = S i = DiDiDDDiDiDD = demand for period/sum of demand

Seasonal Adjustment Total DEMAND (1000’S PER QUARTER) YEAR1234Total

Seasonal Adjustment Total DEMAND (1000’S PER QUARTER) YEAR1234Total S 1 = = = 0.28 D1D1DDD1D1DD S 2 = = = 0.20 D2D2DDD2D2DD S 4 = = = 0.37 D4D4DDD4D4DD S 3 = = = 0.15 D3D3DDD3D3DD

Seasonal Adjustment Total DEMAND (1000’S PER QUARTER) YEAR1234Total S i

Seasonal Adjustment Total DEMAND (1000’S PER QUARTER) YEAR1234Total S i Forecast for 2002 using simple 3 year moving ave Forecast for 1st qtr 2002

Forecast Accuracy Find a method which minimizes error Find a method which minimizes error Error = Actual - Forecast Error = Actual - Forecast Mean Absolute Deviation (MAD) Mean Absolute Deviation (MAD)

Mean Absolute Deviation (MAD) where t = the period number t = the period number D t = demand in period t D t = demand in period t F t = the forecast for period t F t = the forecast for period t n = the total number of periods n = the total number of periods  = the absolute value  D t - F t  n MAD =

Forecast Control Reasons for out-of-control forecasts Reasons for out-of-control forecasts Change in trend Change in trend Appearance of cycle Appearance of cycle Weather changes Weather changes Promotions Promotions Competition Competition Politics Politics

Forecasting Long Term – location, capacity, new product design Short Term – production, inventory control, labor levels, cost controls

Chapter 9/12 Capacity and Aggregate Planning

Disney’s Forecasting vs distribution Excellent forecasting and planning models - results in multiple ticket plans for Florida residents Warehousing & Distribution - 3 days to process receipt; 3 days dock to stock; 3 days to pick order

Aggregate Planning The process of planning the quantity and timing of output over the intermediate range (3-18 months) by adjusting production rate, employment, inventory Master Production Schedule: formalizes the production plan and translates it into specific end item requirements over the short to intermediate horizon

Capacity Planning The process of determining the amount of capacity required to produce in the future. May be at the aggregate or product line level Master Production Schedule - anticipated build schedule Time horizon must exceed lead times for materials

Capacity Planning Look at lead times, queue times, set up times, run times, wait times, move times Resource availability Material and capacity - should be in synch driven by dispatch list - listing of manufacturing orders in priority sequence - ties to layout planning load profiles - capacity of each section

Capacity Planning Rough Cut Capacity Planning - process of converting the master production schedule into requirements for key resources capacity requirements plan - time- phased display of present and future capacity required on all resources based on planned and released orders

Capacity Planning Capacity Requirements Planning (CRP) - process of determining in detail the amount of labor and machine resources required to meet production plan RCCP may indicate sufficient capacity but the CRP may indicate insufficient capacity during specific time periods

Theory of Constraints Every system has a bottle neck capacity of the system is constrained by the capacity of the bottle neck increasing capacity at other than bottle neck operations does not increase the overall capacity of the system inertia of change can create new bottle necks

Capacity Planning Establishes overall level of productive resources Establishes overall level of productive resources Affects lead time responsiveness, cost & competitiveness Affects lead time responsiveness, cost & competitiveness Determines when and how much to increase capacity Determines when and how much to increase capacity

Capacity Expansion Volume & certainty of anticipated demand Volume & certainty of anticipated demand Strategic objectives for growth Strategic objectives for growth Costs of expansion & operation Costs of expansion & operation Incremental or one-step expansion Incremental or one-step expansion

Capacity Expansion Strategies (a) Capacity lead strategy (b) Capacity lag strategy (c) Average capacity strategy (d) Incremental vs. one-step expansion Units Capacity Time Demand Units Capacity Time Demand Units Capacity Time Demand Units Incrementalexpansion Time Demand One-step expansion Figure 9.1

Lead Advantages anticipates demand first to market lure from competitors Disadvantages product problems product acceptability consumers unfamiliar with product R&D costs

Lag Advantages established demand for product less R&D growth market Follower strategy when to enter market - downside if too late in life cycle loss of customers to first to market Assumes customers lost to Lead strategy will return - Western Sizzlin’

Average Capacity Advantages level production stable work force excess capacity potential Chasing half the time market timing excess product

Aggregate Production Planning (APP) Matches market demand to company resources Matches market demand to company resources Plans production 6 months to 12 months in advance Plans production 6 months to 12 months in advance Expresses demand, resources, and capacity in general terms Expresses demand, resources, and capacity in general terms Develops a strategy for economically meeting demand Develops a strategy for economically meeting demand Establishes a company-wide game plan for allocating resources Establishes a company-wide game plan for allocating resources also called Sales and Operations Planning also called Sales and Operations Planning

Sales and Operations Planning (S&OP) Brings together all plans for business performed at least once a month

Adjusting Capacity to Meet Demand 1.Producing at a constant rate and using inventory to absorb fluctuations in demand (level production) 2.Hiring and firing workers to match demand (chase demand) 3.Maintaining resources for high demand levels 4.Increase or decrease working hours (overtime and undertime) 5.Subcontracting work to other firms 6.Using part-time workers 7.Providing the service or product at a later time period (backordering)

Strategy Details Level production - produce at constant rate & use inventory as needed to meet demand Level production - produce at constant rate & use inventory as needed to meet demand Chase demand - change workforce levels so that production matches demand Chase demand - change workforce levels so that production matches demand Maintaining resources for high demand levels - ensures high levels of customer service Maintaining resources for high demand levels - ensures high levels of customer service

Strategy Details Overtime & undertime - common when demand fluctuations are not extreme Overtime & undertime - common when demand fluctuations are not extreme Subcontracting - useful if supplier meets quality & time requirements Subcontracting - useful if supplier meets quality & time requirements Part-time workers - feasible for unskilled jobs or if labor pool exists Part-time workers - feasible for unskilled jobs or if labor pool exists Backordering - only works if customer is willing to wait for product/services Backordering - only works if customer is willing to wait for product/services

Level Production Production Demand Units Time Figure 9.4 (a)

Level Production Advantages stable work force no overtime or additional hiring costs Disadvantages inventory obsolescence carrying costs depends on real good forecasts

Chase Demand Figure 9.4 (b) ProductionDemandUnits Time

Chase Strategy Advantages less inventory less chance for obsolete merchandise Disadvantages Never a stable production level work force instability hiring/firing costs always a priority

Demand Management Shift demand into other periods Shift demand into other periods Incentives, sales promotions, advertising campaigns Incentives, sales promotions, advertising campaigns Offer product or services with countercyclical demand patterns Offer product or services with countercyclical demand patterns Partnering with suppliers to reduce information distortion along the supply chain Partnering with suppliers to reduce information distortion along the supply chain

Demand Distortion along the Supply Chain

Aggregate Planning for Services 1.Most services can’t be inventoried 2.Demand for services is difficult to predict 3.Capacity is also difficult to predict 4.Service capacity must be provided at the appropriate place and time 5.Labor is usually the most constraining resource for services

The Beer Game

Next Week No Class (10 Dec) – final exam to be posted by 29 Nov 3 December: Chapter 14 Reverse Logistics Chap 4