SCM 301 1st Edition Lecture 3Outline of Last Lecture 1. What is Supply Chain2. Supply Chain Management3. Importance of Supply Chain Management4. Causes of Bullwhip Effect5. Origins of Supply Chain Management6. Current Trends in Supply Chain ManagementOutline of Current Lecture 1. Supplier Evaluation2. Strong Supplier partnerships3. Vendor Managed Inventories4. Third party logistics (3PL)5. Centralized purchasing vs. decentralized6. Demand forecasting7. Independent Demand: How a firm can manage it8. Forecasting Techniques9. Components of Demand10. Cyclical Component11. Random Component12. Qualitative Methods13. Quantitative Forecasting Methods14. Other Forecasting Methods15. Simple Moving Average FormulaCurrent LectureCh 2 Purchasing and supplyI. Supplier evaluationa. Weighted –Criteria Evaluation systemb. Select key dimensions of performance acceptable to customer and supplier.c. Monitor and collect performance datad. Assign weights to the dimensions (must add to 1)e. Evaluate performance measures between 0 and 100f. Multiply dimension rating by weight and sum of overall scoreThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.g. Classify vendors based on overall scoreh. Audit and perform ongoing certification reviewII. Strong Supplier partnershipsa. Building trustb. Shared vision and objectivesc. Personal relationshipsd. Mutual benefits and needse. Change managementf. Commitment and top management supportg. Information sharing and lines of communicationh. Performance metricsi. Evaluate suppliersii. Total cost of ownershipiii. Multi-criteria approach is besti. Challengesi. Power in the chainii. Mass customizationiii. Satisfying customer expectationsiv. Sharing info and maintaining confidentialityv. Investment in assetsIII. Vendor Managed Inventoriesa. VMI: suppliers manage buyer inventories and reduce inventory carrying and stockout costs.b. Ex. WalmartIV. Third party logistics (3PL)a. External supplier that performs logistics functionsb. May include transportation, warehousing, distribution, related financial servicesc. lead logistics provider (4PL)V. Centralized purchasing vs. decentralizeda. Centralized: purchasing department located at the firm’s corporate office makes all the purchasing decisions.b. individual, local purchasing departments, such as plant level, make their own purchasingdecisions.c. Hybrid purchasing organization:i. Dec-cent: large multiunit organization, decentralized corporate and centralized business unitii. Cent-Decent: large org with centralized control, centralized national contracts at corporate level and decentralized terms specific to business unit.CH 3I. Demand forecastinga. Estimate of future demandb. Underlying basis of all business decisionsi. Production, inventory, personnel, facilities, etc.c. Minimize forecast errorII. Independent Demand: How a firm can manage ita. Pricing strategies and advertising influences demandb. Adjusting capacity is a passive role to respondIII. Forecasting Techniquesa. Qualitative (Judgmental) – based on opinion and intuition. Generally used when data arelimited, unavailable, or not currently relevant.b. Quantitative – uses mathematical models and historical data. Historical data is used to predict future demand.c. Time Series Analysis (most frequently used)d. Causal Relationshipse. Simulation IV. Components of Demanda. Average – average demand for a period of timeb. Trend – increasing or decreasingc. Cyclical variations – wavelike movements that are longer than a year, usually due to the business cycled. Seasonal element – peaks and valleys that repeat over a consistent intervale. Random variation – due to unexpected or unpredictable eventsV. Cyclical Componenta. Repeating up & down movementsb. Due to interactions of factors influencing economyc. Usually 2-10 years duration VI. Random Componenta. Erratic, unsystematic, unpredictable ‘residual’ fluctuationsb. Due to random variation or unforeseen eventsi. Union strikeii. Tornadoc. Short duration & nonrepeating VII. Qualitative Methodsa. Jury of Executive Opinionb. Historical Analogyc. Consumer surveyd. Delphi methodi. Choose the experts to participate through questionnaire.e. Sales force compositeVIII. Quantitative Forecasting Methodsa. Time series modelsi. Predict the future based on past dataii. Naïve forecast: estimate of next period equal to demand of past periodb. Casual models i. Linear regressionIX. Other Forecasting Methodsa. Simple Moving Averageb. Weighted Moving Averagec. Exponential SmoothingX. Simple Moving Average Formulaa. Assumes average is good estimator of future