chapter 2 supply chain operations planning sourcing

Cycle Inventory• On-hand inventory to meet forecasted customer demand• More efficient to make few large orders instead of many small orders• Actual customer demand usually continuous sma

Supply Chain Operations:

Planning & Sourcing

Chapter 2

Chapter 2: Learning Objectives

• Gain a conceptual appreciation of the business activities that drive supply chain operations

• Exercise a high-level understanding of activities involved in supply chain planning and sourcing

• Understand basic concepts of demand forecasting and inventory management

• Begin to assess how well these activities operate within your own organization

Supply Chain Operations

01

SUPPLY CHAIN OPERATIONSSupply Chain Operations

PLAN

• Demand Forecasting• Product Pricing• Inventory

Mgmt.

SOURCE

• Procurement• Credit &

Collections

MAKE

• Product Design• Production

Scheduling• Facility

Management

DELIVER

• Order Management• Delivery

Scheduling• Process Returns

19

• Companies perform operations in one or more of these four activity categories

• Sales and Operations Planning (S&OP) coordinates these operations

• This chapter looks at Plan and Source activities

NOTE: this simplified SCOR model treats returns as a sub-category of the Deliver category

FEATURES OF SCOR MODEL

• Process standardization: Provides a

common language and framework for supply chain operations.

• Process benchmarking: Helps organizations

compare their performance against peers or industry standards.

• Process improvement: Offers best practices

and analytical tools to help organizations identify areas of improvement.

BENEFITS OF SCOR MODEL

• Improved supply chain visibility and understanding.• Better alignment of business functions and processes.• Identification of gaps in current operations.

• Benchmarking capabilities against industry standards.• Standardized metrics for better performance tracking• Enhanced collaboration among stakeholders.

CHALLENGES OF IMPLEMENTING

SCOR

• Requires significant effort and time.• Need for trained professionals to guide the implementation.• Organizational resistance can be a barrier.

• Continual updates needed to stay relevant with industry changes.

FOUR FORECASTING VARIABLES

VARIABLES

1.Demandoverall market demand for product

2.Supplyamount of product available

FOUR FORECASTING METHODS

METHODS

1.QualitativeRelies on a person’s intuition or opinions

2.CausalAssumes demand is strongly related to certain

factors

3.Time SeriesBased on historical demand patterns

4.SimulationCombines causal and time series methods

forecast demand, plan to keep extra production capacity in reserve to use as needed

up extra inventory as needed to meet forecasted future demand

Product Pricing (Plan)

02

Companies with this flexibility can scale up production during peak periods when there's high demand and scale down during off-peak periods when demand is low.

2 Inventory Carrying Cost:High Inventory Cost: When the cost of

holding unsold inventory is high, companies are motivated to sell as much of their inventory as quickly as possible This could be due to products being perishable, becoming obsolete quickly, or high storage costs

Low Inventory Cost: When it's relatively

inexpensive to maintain unsold inventory, there's less urgency to quickly move products out the door

RELATIONSHIP OF COST STRUCTURE TO PRICING

RELATIONSHIP OF COST STRUCTURE TO PRICINGProduct Promotions

3 EFFECTS OF PRODUCT PROMOTIONS:

• Growth in market size• Growth in market share• Forward buying

PEAKperiods if company can quickly vary size of workforce and production capacity

SLOWperiods if company cannot quickly vary workforce and production

Is it best to do product promotions inPEAK

periods to increase revenue, or in SLOW

periods to cover cost?

Inventory Management

(Plan)

03

COMPARE 3 INVENTORY TYPES

Cycle Inventory

• On-hand inventory to meet forecasted customer demand• More efficient to make few large orders instead of many small orders• Actual customer demand usually continuous small purchases

• Companies attempt to balance usage with ordering cost and carrying cost

ReorderAmount

On-hand

Time

Economic Order Quantity (EOQ)

EOQ = 2 x Annual Usage x Ordering Cost

Annual Holding Cost as % of Unit Cost x Unit Cost

1 Midwest Precision Control Corporation is trying to decide between two alternate Order Plans for its inventory of a certain item Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually Under Plan 1st, Midwest would use a teletype for ordering; order costs would be Rs 40 per order Inventory holding costs (carrying cost) would be Rs 100 per unit per annum Under Plan 2nd order costs would be Rs 30 per order And holding costs would 20% and unit Cost is Rs 480 Find out EOQ and Total Inventory Cost than decide which Plan would result in the lowest total inventory cost?

2 ABC Ltd uses EOQ logic to determine the order quantity for its various components and is planning its orders The Annual consumption is 80,000 units, Cost to place one order is Rs 1,200, Cost per unit is Rs 50 and carrying cost is 6% of Unit cost Find EOQ, No of order per year,

Ordering Cost and Carrying Cost and Total Cost of Inventory.3 Demand for the Child Cycle at Best Buy is 500 units per month Best Buy incurs a fixed order placement, transportation, and receiving cost of Rs 4,000 each time an order is placed Each cycle costs Rs 500 and the retailer has a holding cost of 20 percent Evaluate the number of computers that the store manager should order in each replenishment lot?

3 Demand for the Child Cycle at Best Buy is 500 units per month Best Buy incurs a fixed order placement, transportation, and receiving cost of Rs 4,000 each time an order is placed Each cycle costs Rs 500 and the retailer has a holding cost of 20 percent Evaluate the number of computers that the store manager should order in each replenishment lot?

2 ABC Ltd uses EOQ logic to determine the order quantity for its various components and is planning its orders The Annual consumption is 80,000 units, Cost to place one order is Rs 1,200, Cost per unit is Rs 50 and carrying cost is 6% of Unit cost Find EOQ, No of order per year, Ordering Cost and Carrying Cost and Total Cost of Inventory.

1 Midwest Precision Control Corporation is trying to decide between two alternate Order Plans for its inventory of a certain item Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually Under Plan 1st, Midwest would use a teletype for ordering; order costs would be Rs 40 per order Inventory holding costs (carrying cost) would be Rs 100 per unit per annum Under Plan 2nd order costs would be Rs 30 per order And holding costs would 20% and unit Cost is Rs 480 Find out EOQ and Total Inventory Cost than decide which Plan would result in the lowest total inventory cost?

Safety Stock Inventory

• Safety stock is buffer to account for uncertainty – fixed cost

• Four ways to reduce safety stock:1 Reduce demand uncertainty (better forecasts)

2 Reduce order lead times3 Reduce order lead variability4 Reduce product availability uncertainty

TimeSafety stock buffer increases on-hand inventory

Amount

On-hand

Reorder

Five Procurement Activities

1 Purchasing – routine issuing of purchase orders for needed products

Direct or strategic materials for making company productIndirect or maintenance, repair and operations (MRO)

1 Consumption Management – monitor product usage2 Vendor Selection – identify appropriate suppliers3 Contract Negotiation – define products, prices, and service level

agreements (SLAs)

4 Contract Management – track supplier performance and adherence to

contract terms and SLAs

KPI overview

Goals & strategy

TABLE OF CONTENT

1 CYCLE INVENTORY – amount of inventory

needed to satisfy demand in periods between replenishment

2 SAFETY INVENTORY – buffer against uncertainty in demand and order lead times

3 SEASONAL INVENTORY – built up in

anticipation of expected increases of demand at certain times of year

THREE KINDS OF INVENTORY

1

2

3

KEY ACTION ITEMS

Key action 1 Create detailed procedures process performanceMonitor and review

Measure theeffectiveness of

processes

Key action 2 Use data analyticsto gain insights Develop strategies to reduce waste Stay up to date with new technologies and trends

Key action 3 solutions for automationInvest in technology

Establish control of spend and reduce

overhead

Foster an environment of

collaboration

Key action 4 Focus on continuous improvement

Ensure proper management of

resources

Research best practices

from outside

New Instagram followers

Average reading time on our posts

We publish our content in different languages for more

reach

5M 23S3 LANGUAGES

Midwest Precision Control Corporation is trying to decide between two alternate Order Plans for its inventory of a certain item Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually Under Plan 1st, Midwest would use a teletype for ordering; order costs would be Rs 40 per order Inventory holding costs (carrying cost) would be Rs 100 per unit per annum Under Plan 2nd order costs would be Rs 30 per order And holding costs would 20% and unit Cost is Rs 480 Find out EOQ and Total Inventory Cost than decide which Plan would result in the lowest total inventory cost?

ROADMAP INFOGRAPHIC

InitiativeObjectiveJan Feb Mar Apr May JunJul Aug Sep Oct Nov Dec

Understanding Analyze and understand the needs of your target audience

Conduct research

Research existing products in the industry and analyze how successful they are

Brainstorm ideas

Generate ideas based on user feedback and research findingsDevelop a

prototype Create a basic version of the product to show investors

Test for usability

Put the prototype through rigorous testing processes to ensure that it meets user requirements

Analyze feedback Analyze feedback

MARKET SIZE OVERVIEW

$100M$20M

$5M

Outer circle

Include the total size of the market, which represents the entire potential customer base for the product or service

Middle circle

Identify the target market based on demographics, geography, or specific needs, which may be a subset of the total market

Inner circle

Indicate the current market size, which represents the portion of the target market that the company has successfully captured

SOCIAL MEDIA STATS

Worldwide reach

Most users platforms

Follow the link in the graph to modify its data and then paste the new

one here For more info, click here

Users worldwide

Average time spent

Number of platforms

used

xx billion

Country 1 users

Country 2 users

xxx billion

xxx billion

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