Katherine PentonSCM 3301 1nd EditionExam #2 Study Guide Lectures: 10-18Lecture 101. Qualitative Forecasting Techniques- Qualitative Forecastingo Based on opinion & intuition.- Quantitative Forecastingo Using mathematical models & historical data2. Components of a Time Series- Components of a TIME SERIESo Trend Variationso Cyclical Variationso Seasonal Variationso Random VariationNOTE: real-world dada incorporates and unpredictable combination of all of the above making forecasting difficult3. Exponential Smoothing- Exponential Smoothing Forecasto a = 0 All previous data is weighted evenlyo a => Determines how heavily recent data is weighedo a = 1 The most recent data point is weighted exclusively Naïve ApproachFormula: Ft+1=Ft+a (At- Ft)Note: Error= (At-Ft)Lecture 11 & 12 4. Positive and Negative bias and their impact on operationsPositive Bias: Forecast is lower than Demand => Stock-outsNegative Bias: Forecast is higher than Demand => Inventory5. Naïve ForecastUsing the naïve forecast, the estimate for the next period is equal to the actual demand for the immediate past period:Ft+1=AtWhere Ft+1= forecast for period t+1At= actual demand for period t.6. Weighted moving average- 2 PeriodFt=0.5(At-1+0.3(At-2))Assuming weights are (0.5,0.3)7. Calculate MAD or MEAN squared error for a particular forecastMean absolute deviation (MAD)- a MAD of 0 indicates the forecast exactly predicted demandEX: [e] for all periods added together and divided by the total amount of periods (10) Mean squared error (MSE)EX: e^2 values for all periods added together and divided by the total amount of periods [10]8. Forecasting and what we want to accomplishForecasts are always wrong. The only question is "how wrong is it?" The goal is to get it accurate enough that it doesn't hurt the business too much when it is within its normal variation. That can usually be accomplished either through better forecasting methods or changes to the business to make it less sensitive to a bad forecast. 2. Correct forecastsare not proof that the forecast method is correct.9. CPFR [2 questions on the exam]CPFR-collaborative planning, forecasting, and replenishment is “a set of business processes that entitles in a supply chain can use for collaboration on a number of retailer/manufacturer functions towards overall efficiency in the supply chain.”The objective of CPFR is to optimize the supply chain by improving demand forecast accuracy, delivering the right product at the right time to the right location, reducing inventories across the supply chain, avoiding stock-outs and improving customer service.Lecture 1310. Production Strategies - Chase Production Strategyo Adjusting capacity to match demando Inventory remains constant- Level Production Strategyo Adjusting inventory to react to demando Capacity remains constant- Mixed Production Strategyo Workforce remains constanto Capacity is adjusted in other ways Overtime, additional shifts, subcontracting, and contract workers11. Relationship between the two roads on Strategy Chart12. System Nervousness- Schedule Time Fence (System Nervousness)- Nervousness: Small change upper level (MPS) leads to a large change lower level (MRP)13. Time FenceTime Fence: Separates Planning Horizon into Firm and Tentative Segments14. MRP- What are we trying to accomplish?Material Requirements Planning (MRP)Software-based production planning and inventory management system used for computing dependent demand and timing requirements.Lecture 1515. ERP- (2 questions on Exam)- Common Mistakes, What are we trying to accomplish?Common Mistakes in ERP System Implementation- Lack of top management commitment- Lack of adequate resources- Lack of proper training- Viewing the implementation as only a technological challenge- Giving consultants total control of an implementationWhat do you expect to accomplish?ERP selection processes frequently involve committees of people who come from all levels of the organization and also cross many functional borders. If the incumbent ERP system has been in place for quite a while, most people on the selection committee will have little knowledge of what type of ERP functionality is available. The RFP can serve to fill in many informational blanks not only about specific vendor solutions, but also the state of the ERP product market wide.16. Types of Inventory- Raw Materials- Work in Process (WIP)- Finished Goods- Maintenance, Repair, and Operating Supplies (MRO)- Primary Functions of Inventoryo Buffer demand fluctuationso Decouple processes to protect capacityLecture 1617. ABC Costing/ Inventory ManagementABC inventory control system- is a useful technique for determining which inventories should be counted more frequently and managed more closelyA-items: o Given the highest priority approximately 20% of the items make up 80% of the total usageo Since they are the highest annual dollar usage they should be monitored more frequently an may have higher safety stock levels to guard against stock-outso An A-item may become a C-item within months or even weekso Based on annual inventory dollar usage, falling within the un-shaded diagonal region B-Items:o Fall somewhere between the A-items and C-itemso The B-item make up roughly 40% of the items and account for about 15% of the total annual usageo The B and C-items should match when comparing the two ABC analyses, otherwise the company is stocking the wrong itemsC-items:o C-items have the lowest priority and are typically the most numerouso Make up the remaining 40% of the items, making up about 5% of the total annual dollar usage of inventoryo The C-items would be counted less frequently, and stock-outs may be allowedto save inventory space and carrying cost18. EOQ-(2 questions on Exam)EOQ Model Variables- Annual Demand- Purchase Price- Ordering Costs- Holding Costs- Order QuantityEOQ Goal: Minimize total annual costs whiles allowing the organization to continuously serve customers19. Model of EOQ- key variables- Demand is known and constant- Delivery time is known and constant- Replenishment is instantaneous- Price is constant- Holding cost is known and constant- Order cost is known and constant- Stock-outs are not allowed20. Inventory Turnover Ratio- Inventory Turnover: Represents the number of times the value of the inventory is replenished during each accounting cycleInventory Turnover Ratio: Cost of Revenue Average Inventory21. ABC