Chapter 4 02 11 2014 Matching Supply and Demand Customer facing of performance Stock outs percentage items in stock number of out of stocks perfect order Fill rate percentage of your order that you feel complete when you receive the order duvet and shams example Identify the Lead Time Gap Identify lead time Recognize customer order cycle Determine the lead time gap Lead time how long it takes to complete the process to get the product from the producer to the consumer Lead time gap difference between how long a customer is willing to wait and when it will be ready o Lead time and order cycle time Lead Time Gap Concept o Time it takes to procure make and deliver the finished product to a customer is often longer than the time the customer is prepared to wait o Lead Time Gap SC lead time customer s order cycle time procurement manufacturing Supply chain lead time and delivery of order Customer s order cycle time prepared to wait on order time that the customer is o Only way to close the lead time gap is to attempt to forecast the market s requirement and carry just in case inventory o A reduction in the gap can be achieved by shortening the SC lead time pipeline time while simultaneously trying to gain earlier warning of requirements through improved visibility Planning Horizon and Uncertainty Harder to forecast over longer time periods Over a longer planning horizon there is more uncertainty uncertainty causes forecast error o As time increases there is a larger potential error in your forecast ability Rule of forecasting 1 All forecasts have some margin or error o magnitude of error that is the issue o the further our you forecast the more error o reduce the time horizon that you forecast Why Forecast Without credible and accurate forecasts planning processes and supply chains fail SC live by forecasts Fill rate is an assessment of how well you can forecast demand Demand Penetration Point and Inventory Different models of supply chains how demand or forecast driven they are Bottom forecast walking into a store and coke s sitting on the shelf waiting for you to buy right there in front of you o Build to stock supply chain interact with customer at retail moment demand it o Have product available at retail point when customers o Configure to order configure it to your specifications Customer doesn t want to wait too long but you give them a small number of options to order from and then you can configure their order faster Example sofas Based off of real demand Don t have as much forecasting because the customers tell us what they want o Build to order SC distribution center level They manufacture it when you order it Don t build it until it is ordered by customer Have to have materials on hand Finite amount of options that you have available to you Example Dell customized computers o Engineer to order order You don t even get the materials until they decide to Less inventory to hold on hand increase the likelihood you complete the customers demand because you are making what they want increases the amount of time customers are willing to wait Example building a home Top demand Identify types of demand forecasting methods 2 categories o Qualitative forecasting Judgemental Market research o Quantitative Statistical analysis Casual Time series Chapter 4 continued 02 11 2014 Lesson 3 Continued Qualitative More subjective and not mathematically triggered Judgmental pull in info from executives Market Research survey focus groups Quantitative need expertise Causal factors that drive sales o What is effecting sales o Water bottles the hotter it is the more you sell sell more on the weekend etc o Advantages o Disadvantages Time Series core belief that what happened in the past is reflective of what will happen in the future o Advantage don t need much data just the sales data o Look at worksheet with Forecasting methods Unaided subjective Judgmental subjective objective Segmentation objective causal used factors that would drive what sales would be Causal objective Causal used factors that would drive what sales would be Extrapolation objective naive Times Series Methods Only use data Moving Average The simple moving average forecast is the mean of the demand for the past n periods This is expressed as o N number of periods used to calculate forecast o Sum up the number of weeks and then divide by that number Trend and seasonality then you need a different model Reactive or not reactive o Reactive know what happened last week and this week Weighted Moving Average Weighted mean of the demand for the past n periods All the numbers have a moving weight Weight structure is expressed starting with the most recent period Exponential Smoothing Next period s forecast equals the current periods forecast adjusted by a fraction of the difference between the current periods actual demand and its forecast o Use alpha a percentage o Forecast last week forecast this week alpha last weeks sales last weeks forecast o Reacts to the forecast 02 11 2014 Review EXAM Walmart True false 40 questions 5 pts need calculator provides a equation sheet o inventory terms calculation Located their stores in smaller outskirts of cities Putting stores within a couple days from distribution centers o Makes a shorter length of haul Economies of scope diversification taking cost structure and applying it to a lot more things o On campus only have one class so going to have meetings go to the library etc Economies of scale using a cost structure for one thing doing more of the same thing Slide Example of CA through SCM Walmart