Logistics & Supply Chain Management PDF

Logistics & Supply chain (is mix boek, ppts en nota’s dus ja beke wirwar bwahahaha) (bijna volledig int Engels naast beke uitleg bij formules en oefeningen) Introduction Operations management Operations management is the management of systems or processe...

Logistics & Supply chain (is mix boek, ppts en nota’s dus ja beke wirwar bwahahaha) (bijna volledig int Engels naast beke uitleg bij formules en oefeningen) Introduction Operations management Operations management is the management of systems or processes that create goods and/or provide services. Sustainability: Using resources in ways that do not harm ecological systems that support human existence. Every aspect of aa business affects or is affected by operations. Many service jobs are closely related to operations - Financial services (stock market analyst, broker, investment banker, and loan officer) - Marketing services. (market analyst, marketing researcher, advertising manager, and product manager) - Accounting services. (corporate accountant, public accountant, and budget analyst) - Information services. (Corporate intelligence, library services, management information systems design services). Previously: Learning theory that can be directly applied to achieving results. Now: Applying your skills to tackle everyday challenges. dus nu minder theorie en meer praktijk Goods or services? Goods are physical items that include raw materials, parts, subassemblies, and final products: (Automobile. Computer. Oven. Shampoo.) Services are activities that provide some combination of time, location, form, or psychological value: Air travel. Education. Haircut. Legal counsel) - While these are rough definitions, products are in reality neither pure a good nor a service. 1  = uren arbeid = hoe consistent is het resultaat Supply chain Supply chain is a sequence of organizations, their facilities, functions, and activities that are involved in producing and delivering a product or service. - Retailer → consumer/customer is the only B2C relation in this chain, all the rest are B2B. - While most B2B companies are unknown to the consumer, for the most part this isn’t that big of a deal for them (mainly product dependent). There’re still those who still do marketing to promote their products, you just don’t but their products non-directly (Nutella advertises their products but you buy them from Colruyt) Supply chain management In the past, businesses did little to manage the supply chain beyond their own operations and immediate suppliers, which led to numerous problems: SCM = The strategic coordination of the supply chain for the purpose of integrating supply and demand management. = Zorgen dat de juiste producten op het juiste moment op de juiste plek zijn door goed gecoördineerd samen te werken - Oscillating inventory levels. Frequent fluctuations in inventory amounts due to demand changes, forecasting errors, or supply chain issues. - Inventory stock-outs. Running out of stock, preventing fulfillment of customer orders or production needs. - Late deliveries. - Quality problems. 2  Supply chain in 2024 Covid broke supply chains, but how? - Supply: During lockdowns, factories and suppliers halted or slowed low supply operations as workers stayed home. This caused supply shortages for weeks or months. Lagging recovery: Once the lockdowns eased: workers returned to stabilize production, but catching up with demand took time. - Delivery: Mix off multiple problems: workers stayed home, border & lockdown late delivery restrictions which caused delays. On the other hand, there’s also the surge of e-commerce which overwhelmed delivery networks, and such caused a bigger problem - Demand: the demand was also product-dependent, toilet paper and such had (sometimes) high demand a spike in demand, off which factories couldn’t keep up. Covid redesigned SCM: All of this has caused a shift in the way that businesses thought about SCM, they were searching for alternatives so they could act better for future crisis. There was a shift from linear supply chain to more integrated networks. More focused on environmental and sustainability goals. Race is on for digital enablement and automation - Risk of indispensable parts of the global supply chain. Anything with electronics needs a microchip, the problem is that 90% of the production comes from Taiwan. A shift towards integrated networking, has caused a shortening of supply chains This approach fosters stronger relationships and collaboration, enhances resilience, improves food security, and lowers carbon emissions which all is equally appealing to both businesses and consumers. ≠ reducing the number of steps or players. But rather integrating them within a single entity. Nike consolidates its supply chain by operating as a manufacturer, distributor, and retailer. By selling products directly through its own stores or online platforms, which eliminates the need for multiple intermediaries, and allows them to retain more profits and exercise greater control over the entire process, enhancing their market position. Elements of supply chain management Central to this is taking customer demand and translating it into corresponding activities at each level of the supply chain. 3  Predicting the quantity and timing of customer Forecasting demand Capacity management Matching supply and demand Meeting demand requirements while managing the Inventory costs of holding inventory Evaluating potential suppliers, supporting the needs Purchasing of operations on purchased goods and services Deciding how to best move information and Logistics materials Enterprise resource Creation of a software/platform, that benefits the planning customer Difference between logistics and supply chains? Is supply chain management the “new” logistics? Is logistics = SCM? NO! Logistics is the movement, storage and flow of goods, services and information within overall supply chain SCM = logistics + manufacturing - Activities: transportation, warehousing, packaging and more – that move and position inventory. - This terminology has been around for way longer than SCM (which is relatively new), but is a key activity within SCM The transformation process The creation of goods or services involves transforming inputs like capital, labor, and information into outputs through processes such as storing, transporting, or repairing. Organizations measure and compare results against standards (feedback) to ensure desired outcomes and make corrections if needed (control). - Feedback = Measurements taken at various points in the transformation process. - Control = The comparison of feedback against previously established standards to determine if corrective action is needed. 4 Decision-making process Most operations decisions involve many alternatives that can have quite different impacts on costs or profits. Typical operations decisions include: - What: What resources are needed, and in what amounts? - When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? - Where: Where will the work be done? - How: How will the product or service be designed? How will the work be done? How will resources be allocated? - Who: Who will do the work? A decision-making approach that aims to identify the best possible solution, often leveraging mathematical models: - Supported by advanced computational techniques. - Frequently integrates with qualitative methods for a holistic perspective. - Includes analyzing trade-offs and conducting sensitivity analyses to assess the impact of changes in variables and assumptions. Keys to Successfully Using a Model - What is its purpose? Clearly define the problem the model addresses and its role in achieving specific goals. - How is it used to generate results? Understand the inputs, methods, and processes that produce the model's outputs. - How are the results interpreted and used? Analyze outputs in context and apply them to guide decisions, incorporating expert judgment where necessary. - What are the model’s assumptions and limitations? Identify key assumptions, recognize constraints, and account for uncertainties in decision- making. Understanding models Benefits - Generally easier to use and less expensive than dealing with the real system. - Increase understanding of the problem. - Enable managers to analyse what-if questions. Limitations - Quantitative information may be emphasized at the expense of qualitative information. - Models may be incorrectly applied and the results misinterpreted. - The use of models does not guarantee good decisions. 5 Hard Skills are technical, measurable, and often task- or job-specific abilities. They are typically learned through formal education, training, or work experience and are easy to test and evaluate. - Examples: Programming languages (e.g., Python or Java) Data analysis Accounting Foreign languages Soft Skills are personal, interpersonal, and social abilities that relate to how you interact with others, communicate, and organize yourself. They are harder to measure but crucial for success in most workplaces. - Examples: Communication Teamwork Problem-solving Adaptability You should be a data-driven decision-maker. In the past, decisions were often made based on "gut feelings," meaning they were driven by intuition rather than clear reasoning or evidence. As a result, even CEOs themselves sometimes couldn’t fully explain why they made certain decisions, as those choices were often made without well-defined or logical justification. Sustainability Using resources in ways that do not harm ecological systems that support human existence. - Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making. Sustainability: kijken niet alleen naar milieu en economie maar ook naar sociale criteria - All areas of business will be affected: Waste management. Outsourcing: Hiring of external companies or individuals to perform tasks, services, or functions that are typically done within an organization. - “Green initiatives”: refer to efforts, strategies, and programs aimed at reducing environmental impact and promoting sustainability. 6  Competitiveness, strategy and productivity Why do some businesses fail? A. Neglecting operations strategy. 2de plaats B. Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats. C. Too much emphasis on short-term financial performance at the expense of R&D. D. Too much emphasis on product and service design and not enough on process design and improvement. E. Neglecting investments in capital and human resources. F. Failing to establish good internal communications and cooperation. G. Failing to consider customer wants and needs based on historical and other data. 1ste plaats Competitiveness How effectively a business meets the needs of customers relative to others that offer similar goods or services. - Combination of price, delivery time and differentiation. Organizations compete through some combination of their marketing and operations functions. Where the bar of such is getting higher - Product and service design. - Cost. - Location. - Quality. - Quick response. - Flexibility. - Inventory management. - Supply chain management. - Service. - Managers and workers. Apple: The company replaced its former manager(s) with a new one(s) focused on a differentiation strategy. The new leader(s) aims to set Apple apart with unique features, innovation, and an emphasis on design and user experience, strengthening the brand's competitive edge. 7 Strategy Hierarchical Structure: 1. Mission: The organization’s core purpose and long-term vision, guiding all decisions and actions. 2. Goals: Specific, measurable objectives that align with the mission and define success. 3. Organizational (= business) Strategies: High-level plans created by top management to achieve long-term goals, focusing on growth and competitive positioning. 4. Functional Strategies: Department-specific plans (e.g., marketing, finance) that support organizational strategies. 5. Tactics: Short-term actions that implement functional strategies and address immediate challenges. (the “how to” part of the process) 6. Operations: Day-to-day activities ensuring efficiency and service delivery. Interconnectedness: Each level is connected, with decisions flowing from top to bottom, ensuring alignment and efficient execution across the organization. Mission Mission is the reason for an organization’s existence. - Mission statement states its purpose and answers the question: “What business are we in?” is not important for the consumer; it is only important for stakeholders such as employees to know. However, because they are so widely used in marketing, we (the consumers) also come to know them. These statements are important internally, but they are also quite vague, but will send out a direction to the goals of the business - Examples to help people and businesses throughout the world to realize their full potential → Microsoft To inspire and nurture the human spirit – one cup and one neighbourhood at a time → Starbucks. 8 Goals The mission statement serves as the basis for business goals. - Provide detail and the scope of the mission. - Serve as the basis for business strategies. - quite vague, but will send out a direction to the goals of the business Strategies A plan/roadmap for achieving business goals. - Three basic business strategies: Low cost. Responsiveness. (ability to react quickly and effectively to changes in its internal or external environment) Differentiation from competitors. (is the most expensive of the 3, also harder to exceed than the other 2) Sometimes, organizations aim to combine these strategies. - Risk of no focus and not achieving advantage in any category. - Look at competitor competencies to match and exceed. Match-and-exceed strategy: You do similar things as the competition, but you do them better (faster delivery, better service…). Example(s) - Bol.com: In the beginning, the only alternative was "brick-and-mortar shops" (buying in-store only). It created a competitive market on their site (lowest price ranks first when you search for something) (low cost) Fast delivery times (Responsiveness). The differentiation at Bol.com (everything is available in one place, making it easier for the customer, great service). Business strategies are broad plans that guide the entire organization in achieving long-term goals and competitive advantage. They align with the company’s mission and vision, addressing market positioning, growth, and resource allocation to ensure overall success. Functional strategies focus on specific areas like marketing, finance, or operations, supporting the business strategy. Each functional area develops strategies to optimize performance and contribute to the organization's broader goals, ensuring alignment and efficient execution. Tactics and operations (zie hierarchal structure) 9 Strategy formulation Core Competencies: Identifying the organization's key strengths and areas of expertise. Environmental Scanning: Analyzing both internal and external factors that affect the organization. - Strengths: Internal factors that provide an advantage (positive aspects). - Weaknesses: Internal factors that may hinder success (negative aspects). - Opportunities: External factors that could benefit the organization (positive aspects). - Threats: External factors that pose risks (negative aspects). Alternative Model: Michael Porter’s Five Forces Model: - New Competition: Assessing the threat of new entrants into the market. - Substitute Products/Services: Evaluating the risk of alternatives replacing the organization’s offerings. - Power of Customers: Understanding how much influence customers have over prices and quality. - Power of Suppliers: Analyzing how supplier power affects pricing and availability. - Intensity of Competition: Examining the overall level of competition within the industry. Successful strategy formulation also involves considering: - Order Qualifiers: These are the basic characteristics or standards that customers expect from a product or service. While they don’t necessarily differentiate the product, they are essential for it to be considered for purchase. - Order Winners: These are the unique features or qualities that make a product or service stand out from the competition. Order winners are what persuade customers to choose one product over others, such as better quality, innovation, or customer service. Understanding both helps businesses ensure their offerings meet customer expectations and stand out in the market. But Qualifiers should be prioritized, then winners. 10 Operations strategies Relates to products/services, methods, resources, quality, cost and lead times. To be truly effective, it is important to link it to business strategy. Four types of traditional strategies of businesses: - Cost minimization - Product differentiation - Quality-based strategies - Time-based strategies Previously, the focus on marketing and financial strategies alone which now are seen as less competitive because these approaches were more reactive and often not comprehensive enough to sustain a long-term competitive advantage. - The strategies stated above are more directly tied to creating long-term value, better positioning against competitors, and offering unique products or services, which are critical for maintaining a competitive advantage in the market. Alternative strategies 1. sustainability strategy leads to an elevating sustainability to the level of organizational governance. Goals and strategies that meet present stakeholder needs without compromising future stakeholder needs Categorized in three areas: ▪ Economic goals. ▪ Environmental goals. ▪ Social goals. 2. Quality-Based Strategies: Strategy that focuses on quality in all phases of an organization. Pursuit of such a strategy is rooted in a number of factors: ▪ Trying to overcome a poor-quality reputation. ▪ Desire to maintain a quality image. ▪ A desire to catch up with the competition. ▪ A part of a cost reduction strategy. Quality-based can be a constituency (achterban) of the differentiation strategy 3. Time-Based Strategies Strategies that focus on the reduction of time needed to accomplish tasks. ▪ It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved 11 Agile operations is a strategic approach that emphasizes the use of flexibility to adapt and prosper in an environment of change. Is in this day and age more of a must so it doesn’t create a competitive advantage, but it is rather a minimal requirement. Involves the blending of several core competencies: - Cost. - Quality. - Reliability. - Flexibility. Reducing the time needed to perform work = Productivity Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input. Productivity measures are useful for: - Tracking performance over time. - Judging the performance of an entire business or industry. Improving long-term productivity, including through the adoption of new technologies such as AI, will be key to long- term growth and competitiveness. Output 𝐏𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐭𝐯𝐢𝐭𝐲 = Input Output output Output 𝐏𝐚𝐫𝐭𝐢𝐚𝐥 𝐦𝐞𝐚𝐬𝐮𝐫𝐞𝐬 = ; ; single Input labor Capital - Wordt dagelijks gebruikt met reden als redenering waarom iets goed was, maar kan misleidend zijn doordat het een verkeerd beeld kan geven (zie Audi) output output output 𝐦𝐮𝐥𝐭𝐢𝐟𝐚𝐜𝐭𝐨𝐫 𝐦𝐞𝐚𝐬𝐮𝐫𝐞𝐬 ; ; Multiple Inputs Labor + machine Labor + capital + energy goods or services produced 𝐭𝐨𝐭𝐚𝐥 𝐦𝐞𝐚𝐬𝐮𝐫𝐞 = all inputs to produce them - Waarom soms een ; tussen de formules? Aantoning daje meerdere dingen kan gebruiken om tegenover uw output de productiviteit te meten, maar komen niet tot hetzelfde uitkomst 12 Service sector productivity Service productivity is more challenging to measure and manage than manufacturing productivity due to its reliance on intellectual activities and variability. Fields like medicine, consulting, legal services, and customer service are examples where improvements are harder to achieve. As services grow in the economy, addressing these challenges is crucial. A useful measure related to productivity is process yield. - Where products are involved. Ratio of output of good product to the quantity of raw material input. - Where services are involved, process yield measurement is often dependent on the particular process: Ratio of cars rented to cars available for a given day. Ratio of student acceptances to the total number of students approved for admission. Productivity factors A common misconception is that workers are the main determinant of productivity. Generally, other factors that affect productivity are methods, capital, quality, management and…technology: Drones, GPS devices, Smartphones, 3D printers... 13 Improving productivity 1. Develop productivity measures for all operations. 2. Determine critical (bottleneck) operations. 3. Develop methods for productivity improvements. 4. Establish reasonable goals for improvements. 5. Make it clear that management supports and encourages productivity improvement. 6. Measure and publicize improvements. Don’t confuse productivity with efficiency: Efficiency is about getting the most out of a fixed set of resources, while productivity is about the effective use of overall resources Inventory management Inventory (= stock/store of goods) Inventory is a vital part of a business, it’s necessary for operations but its main drawback is the large costs that are connected to it. That’s why there should be a mix of low inventory costs and customer satisfaction (being able to buy a product directly without any time setbacks like waiting for it to be produced) Inventories serve several important functions: - To meet anticipated customer demand: Known as anticipation stocks. - To smooth production requirements: Seasonal inventories allow for stable production levels throughout the year, regardless of fluctuating demand. With seasonal inventories you build up your inventory so you can react to fluctuating demand - To decouple operations: Inventory can act as a buffer to separate different stages of production and mitigate disruptions (or bottlenecks). Example: if a key worker is unavailable or a machine breaks down, the stock acts as a fallback to ensure continued operations until normal production resumes. - To protect against stock-outs: Safety stocks are kept addressing unexpected surges in demand or delays in supply. - To take advantage of quantity discounts: Buying in economic lot sizes helps reduce unit costs. 14  - To hedge against price increases: Stocking up before expected price hikes can save costs. - To permit operations: Pipeline inventories exist due to the time required for production and distribution processes (so raw materials, in-process and finished goods). This supports continuous flow Little’s law: The average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system. - useful for understanding and optimizing the balance between demand, flow time, and inventory in systems ranging from manufacturing to service operations. It helps businesses ensure that their processes run smoothly while avoiding unnecessary costs or delays. Types of inventories - Raw materials and purchased parts. - Work-in-process (WIP) – partially completed parts. - Finished-goods inventories (manufacturing firms) or merchandise (retail stores). - Tools and supplies. - Maintenance and repairs (MRO) inventory. - Goods-in-transit to warehouses, distributors, or customers (pipeline inventory). Independent-demand items: items ready to be sold / used Dependent-demand items: components used to assemble the product 15 Inventory costs Purchase Cost is the amount paid to a vendor or supplier to buy the inventory. It can include shipping cost. Purchase cost is typically the largest of all inventory costs. Holding (Carrying) Costs refers to the expenses of storing inventory, including interest, insurance, taxes, depreciation, spoilage, theft, breakage, tracking, picking, and warehousing (e.g., rent, utilities, labor). They also account for the opportunity cost of tying up funds in inventory instead of other investments. Only the variable portion of these costs is relevant. So can be stated as equally a percentage or a value (in € / $) (shit van den boek beke te uitgebreid) Ordering Costs are the expenses incurred when placing and receiving inventory orders. These include determining quantity needs, preparing invoices, inspecting goods for quality and quantity, and moving items to storage. Ordering costs are typically fixed per order, regardless of order size. Setup Costs are similar to ordering costs, but these are specific to manufacturing environments. Setup costs are incurred when preparing machinery or equipment for production. This includes labor, time, and materials needed to prepare equipment for a new batch or production run. Shortage Costs occur when demand exceeds available inventory. These include the opportunity cost of lost sales, customer dissatisfaction, backorder costs, late charges, and lost production or downtime for internal use items. These costs can be significant and are often hard to measure, sometimes requiring subjective estimation. Inventory management Performance measures: - Inventory turnover rate: Ratio of annual cost of goods sold to average inventory investment. How many times a year the inventory is sold. The higher the ratio, the better as it implies more efficient use of the inventories. The desirable number of turns depends on the industry and the profit margins. - Days of inventory in hand - Customer satisfaction Number and quantity of backorders, customer complaints 16 To be effective management must have: 1. A system to keep track of inventory on hand and on order. 2. A reliable forecast of demand. 3. Knowledge of lead time and lead time variability. 4. Reasonable estimates of holding costs, ordering costs, and shortage costs. 5. A classification system for inventory items. Periodic system: Physical count of items in inventory made at periodic, fixed intervals. Perpetual (continuous) system: System that keeps track of removals from inventory continuously, thus monitoring current level of inventory for each item. Classification system The A-B-C analysis / approach classifies inventory based on annual value, allocating control efforts accordingly. Typically, items are grouped into three categories: A (very important), B (moderately important), and C (least important) (could also be done into more categories but not here). - A items: 10-20% of inventory but 60-70% of the value, these require close control and frequent reordering. High-value products like electronics or machinery parts. - B items: 50% of items, 15-25% of value. Managed periodic reviews. Mid-range items like office supplies or clothing. - C items: 35% of items, 5-10% of value. Require minimal control and are ordered in bulk. Low-cost items like pens, paper, or basic tools. This approach ensures that high-value items receive more attention, while low-value items are managed with less effort, so in other words more important = more value. 17 Economic order quantity model (EOQ) The EOQ model identify the optimal order quantity by minimizing the sum of certain annual costs that vary with order size and order frequency. It creates an order size that is neither too large nor too small (which balances the stock/inventory and demand) - Gebruik als volledige waarde, dus telkens afronden The inventory cycle Total cost 𝑄 𝐷 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 (𝑇𝐶 ) = 𝑐𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 + 𝑜𝑟𝑑𝑒𝑟𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 = 𝐻+ 𝑆 2 𝑄 Q = Order quantity in units. H = Holding (carrying) cost per unit. D = Demand. 18 S = Ordering cost per order. With both graphs together you get a U-shaped curve for total cost so there’s an absolute minimum (EOQ) which is reached when carrying and ordering costs are equal (so where both curves cross each other) 2𝐷𝑆 𝑄0 = √ 𝐻 𝑄0 - Length of optimal order cycle = 𝐷 - EOQ is regarded as an approximate quantity, if the quantity differs from the actual EOQ then the total costs will not increase a lot, meaning that there’s a EOQ “zone” where the business is operating at a somewhat optimal level Basic EOQ model The basic EOQ model is used to identify a fixed order size that will minimize total annual costs of holding and ordering inventory, because of its simplicity we have to make assumptions out of it which are out of scope (not included within the model) - Only one product is involved. - Annual demand requirements are known. - Demand is spread evenly throughout the year. - Lead time does not vary. - Each order is received in a single delivery. - There are no quantity discounts. There’s a need of more advanced models 19  Reorder point (ROP) When the quantity on hand of an item drops to predetermined amount, the item is reordered. Which is based on determinants such as. - The rate of demand (based on a forecast). - The lead time. - The extent of demand and/or lead time variability. - The degree of stockout risk acceptable to management. Objective: to place an order when the amount of inventory on hand is sufficient to satisfy demand during the time it takes to receive that order. There are 2 points, under certainty and uncertainty Reorder point: under certainty Reorder point: under Uncertainty If demand and lead time are both constant, When variability is present in demand or lead time, the ROP is uncertainty creates the possibility that demand will be greater than available supply. To reduce the likelihood 𝐑𝐎𝐏 = 𝐝 ∗ 𝐋𝐓 of a stockout, it becomes necessary to carry safety d = Demand rate (units per period) stock. LT = lead time (in same time as d) - Stock that is held in excess of expected demand due to variable demand and/or lead time. Assumption is that the lead time would be constant (no uncertainty) so whenever we talk about an uncertainty it’s going to be mainly the demand The maximum here would be seen as the “worst case” since any more will lead to a stockout 20 Safety stock The amount of such will determine the risk of a stockout, more safety stock = decrease stockout risk which will improve the customer service level, which is the probability that demand will not exceed supply during lead time. - Service level = 100% - stockout risk On the other hand, carrying safety stocks costs a lot which you have to compare to the stockout risk at that amount, which is also dependent on what’s acceptable for the company and stakeholders alike. The amount of safety stock that is appropriate for a given situation depends upon: - The average demand rate and average lead time. - Demand variability. - The desired service level. Reorder point: under uncertainty 𝑅𝑂𝑃 = 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑑𝑒𝑚𝑎𝑛𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒 + 𝑧𝜎𝑑𝐿𝑇 𝑅𝑂𝑃 = 𝑑̅ ∗ 𝐿𝑇 + 𝑧𝜎𝑑 √𝐿𝑇 z = Number of standard deviations. (policy variable dependent on the company) 𝑑̅ = Average demand. 𝜎𝑑 = Standard deviation of demand. LT = Lead time. 21  Voor de Z – score moet je een van de 2 dingen doen Ofwel de dichte pakken zelf is het onder (zoals hier (0.8997), maar dan moet wel extreem dicht bij zijn zodat het verschil zo klein mogelijk is Zo niet pak je de eerste boven (maar op examen gaat het niet veel uitschelen, heeft em gezegd laatste sessie) Fixed-Order-Interval Model Some circumstances do not lend themselves to continuous monitoring of inventory levels, only periodic checks. Alternative to EOQ/ROP approach = fixed-quantity model. - Fixed-quantity models, orders are triggered by a quantity (ROP). - Fixed-interval models, orders are triggered by a time. Used when orders must be placed at fixed time intervals. ( Q = 𝑑̅ (𝑂𝐼 + 𝐿𝑇) + 𝑧𝜎𝑑 √𝑂𝐼 + 𝐿𝑇 – 𝑨 OI = Order interval (length of time between orders). A = Amount on hand at reorder time. 22 Operations strategy Operations strategy is narrower in scope, dealing primarily with the operations aspect of the organization. Operations strategy relates to products, processes, methods, operating resources, quality, costs, lead times, and scheduling. So it’s the approach, consistent with the organization strategy, that is used to guide the operations function. Aggregate Planning and Master Scheduling Aggregate planning Aggregate planning is an intermediate-range capacity planning, typically covering 2 to 12 months, and up to 18 months in some cases. It is useful for organizations with seasonal or fluctuating demand by creating a production plan that effectively utilizes resources with the expected demand (link with operational strategy). Planners decide on output rates, employment, inventory, back orders, and subcontracting, focusing on grouped product categories rather than individual items. Aggregate planning isn’t only based on the business strategy, a good strategy will guide you effectively but it’s better to create alternatives for fluctuations and uncertainty Capacity should be equivalent to demand, too much = very costly, not enough = stockout Why group similar products/services? 1. Improved Budgeting: Aggregated categories are financially aligned, making financial planning more efficient and consistent with operational goals. 2. Supply Chain Synchronization: Grouping enables better coordination across the supply chain, optimizing inventory levels, production schedules, and distribution to reduce costs and improve flow. 3. Resource Efficiency: It aids in maximizing equipment utilization, streamlining labor management, and avoiding underutilization 4. Customer Satisfaction: smoother operations and fewer bottlenecks maintain product availability, enhancing customer satisfaction. 23  Dealing with variation Most organizations use rolling 3-, 6-, 9-, and 12- month forecasts: - Forecasts are updated periodically - rather than relying on a once-a-year forecast, which allows planners to consider any changes in either expected demand or expected supply and to develop revised plans. This helps with the fact that there’s only one strategy with each time period. Strategies to counter variation - Maintain Excess Capacity: Ensure additional capacity is available to handle unexpected surges in demand without making it too costly. This could involve reserving production capability, maintaining standby equipment… - Flexibility in Operations: Develop adaptable strategies to respond quickly to changes in market conditions, customer requirements, or resource availability. Such as: Use of Temporary Workforce: Employ temporary or contract workers to scale workforce levels as needed, enabling businesses to meet short-term demand fluctuations without long-term labor commitments. ▪ Flexible capacity: the workgroups are small enough so there’s the ability to add a temporary workforce to this Overtime Utilization: Implement overtime work selectively to address peak demand periods, ensuring orders are fulfilled without disrupting the production schedule significantly. - Delay Capacity Commitments: wait as long as possible before committing to a certain supply capacity until more reliable demand data is available. This strategy minimizes the risks of underutilization or overextension of resources. Prioritize Known Demands: Schedule products or services with predictable demand first to ensure stability in operations and meet customer expectations. Defer Uncertain Demand Scheduling: Wait to schedule products or services with uncertain demand until forecasts improve, allowing for more informed and accurate planning. Aggregate planning inputs Aggregate planning outputs All of the collected data of the company (rood = Total cost of a plan. belangrijk) Projected levels: - Inventory. Resources: Workforce/production rates and Facilities - Output. and equipment. - Employment. Demand forecast. - Subcontracting. Policies. - Backordering. Workforce changes. Subcontracting. Overtime. Inventory levels/changes. Back orders. - the costs of these as well (hiring / firing too) 24 Aggregate planning strategies Aggregate planning strategies can pertain to demand, capacity, or both. Demand strategies are intended to alter demand so that it matches capacity(proactive). - Some of the possibilities or Demand options include pricing, promotions, using back orders (delaying order filling), and creating new demand. This is tied to the marketing of a business Capacity strategies involve altering capacity, so it matches demand. Mixed strategies involve both of these approaches (reactive) 1. Level capacity strategy: - Maintaining a steady rate / constant of output over the planning horizon while meeting variations in demand by a combination of: (also best to use when inventory and backlog costs are relatively low) Inventories, overtime, part-time workers, subcontracting, and back orders. - Advantage: stable and expected output rates and workforce levels - Disadvantages: Greater inventory costs. Increased overtime and idle time. Resource utilizations that vary over time. 2. Chase demand strategy: - Matching capacity to demand; the planned output for any period would be equal to the expected demand for that period. (great for whenever inventory are high and changing capacity costs are low) - Advantages: Investment in inventory is low. Labor utilization is kept high. - Disadvantages: The cost of adjusting output rates and/or workforce levels. Aggregate planning in services The resulting plan for services is a time-phased projection of service staff requirements. Aggregate planning in manufacturing and services is similar, but there are some key differences: - Demand for service can be difficult to predict. - Capacity availability can be difficult to predict. - Labor flexibility can be an advantage in services. Examples: - Hospitals: Use aggregate planning to allocate funds, staff, and supplies based on patient load forecasts, including bed capacity, medications, and personnel needs. 25 - Airlines: Aggregate planning accounts for factors like planes, flight and ground personnel, routes, and seat allocation across fare classes to maximize profit. - Restaurants: Focus on smoothing service rates, determining workforce size, and matching demand to fixed kitchen and seating capacity, adjusting staffing based on time and day. - Other Services: In industries like finance, hospitality, and recreation, aggregate planning manages demand and labor needs, ensuring capacity to handle peak times while utilizing labor effectively during off-peak periods. Voor de duidelijkheid - beginning = de inventory vorige periode (hier 0 omdat gegeven) - ending = beginning – verschil tussen forecast en output - als beginning > ending dan heb je een backlog - $6000 = 300 ∗ $20 - inventory $50 = beginning + ending / 2 → 0 + 100 / 2 26 Disaggregating the aggregate planning Master production schedule (MPS) - The result of disaggregating an aggregate planning. - Shows quantity and timing of specific end items for a scheduled horizon. - Scheduled horizon often covers six to eight weeks ahead. - Contains important information for marketing and production. - Provides senior management with the ability to determine whether the business plan and its strategic objectives will be achieved. Uncommitted inventory is called available-to-promise (ATP) inventory. - is the portion of inventory that is available to fulfill new customer orders, after accounting for stock already reserved for existing orders. It represents the uncommitted inventory that can be promised to customers. Knowledge about this inventory enabled marketing to make realistic promises to customers about deliveries of new orders MPS is one of the primary outputs of the master scheduling process: - after development = tentative MPS (klad versie), once validated = live MPS Rough cut capacity planning (RCCP) is a tool used in the validation process: - Approximate balancing of capacity and demand to test the feasibility of a master schedule. - Involves checking the capacities of production and warehouse facilities, labour, and vendors to ensure no gross deficiencies exist that will render the MPS unworkable. Example: 27  Voor de duidelijkheid: - Als forecast < orders, dan doe je inventory – orders - Als forecast > orders, dan doe je inventory – forecast - MPS doen als het nodig is, hier dus idd omdat je anders stockout hebt, maar je kan ook hebben (zie oefeningen) dat het een wekelijkse gebeurtenis is (gegeven dus), dan volg je dat gwn (zelf is der geen stockout) - MPS = operations omdat dat is uw periodieke productie - ATP = marketing omdat dat is de hoeveelheid van het product dat nog overschiet dat de consument om het geven moment kan aanvragen - Schiet er nog inventory over als je MPS doet? Dan ze gwn samendoen en dan uw orders / forecast ervan aftrekken (soms wat raar op zen slides aangetoond) Dus bv voor oef 1: 𝐴𝑇𝑃 𝑤𝑒𝑒𝑘 1 = (30 + 20) − (5 + 3 + 2) - ALTIJD een negatieve ATP vermijden, dit kan je door de ATP van een voorgaande week te verminderen zodat de negatieve 0 wordt (zoals oef 4) Material requirements planning Material requirements planning (MRP) material requirements planning (MRP): A methodology that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. Master Schedule: Quantity and completion time of an end item. It is designed to answer three questions: - What is needed? - How much is needed? - When is it needed? Very comparable to MPS, main difference is that MPS is towards end level items (finished goods) while MRP is towards lower-level items (of which should align with the MPS) 28 MRP inputs An MRP system has three major sources of information: a master schedule, a bill-of-materials file (BOM), and an inventory records file 1. Master schedule (master production schedule): States which end items are to be produced, when these are needed, and in what quantities. Managers like to plan far enough into the future, so they have reasonable estimates of upcoming demands for the near term. The master schedule should cover a period that is at least equivalent to the cumulative lead time necessary to produce the end items. - The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of the final assembly 2. Bill of materials (BOM) contains a listing of all of the assemblies, subassemblies, parts, part costs, and raw materials needed to produce one unit of a finished product. Thus, each finished product has its own bill of materials. The nature of this aspect of a bill of materials is clear when you consider a product structure tree, which provides a visual depiction of the subassemblies and components needed to assemble a product. - Illustrating how the BOM is used to determine the quantities of each of the ingredients needed to obtain a desired number of items. It’s a complicated process: - Timing: When must the components be ordered/made. - Net amounts: Components may be inventory on hand. - Accuracy: Errors at a level become magnified by the multiplication process. Low-level encoding: - All occurrences of a component appear at their lowest level. 29 The end item is shown at the top of the tree. Just beneath it are the subassemblies, or major components, that must be put together to make up the end item. Beneath each major component are the necessary lesser components. At each stage moving down the tree are the components (parts, materials) needed to make one unit of the next higher item in the tree. Voor de duidelijkheid De BOM is de totale hoeveelheid dat nodig is voor elk component om aantal X te maken - B = 20 omdat je 2 B’s nodig hebt voor één X (10*2 dus) - D = 60 omdat je 3 D’s nodig hebt voor één B, en dus met hierboven X = 3D * 2B of gwn 6, dus 60 voor 10X - E = 280, je hebt het in meerdere delen dus je splits gwn op dus: D = 4E ➔ B = 3D = 12E ➔ X = 2B = 24E B = E ➔ X = 2B = 2E C = 2E ➔ X = C = 2E 𝐁𝐎𝐌 (𝐄) = 24 + 2 + 2 = 28 (voor één X dus 280 voor 10X) On hand is gegeven dus boeie maar is belangrijk voor uw required, je moet hier dus een top down benadering doen want anders ga je alles door mekaar smijten - B is straight forward, gwn 20 – 4 en voila 16 - D moet je al beginnen oppassen. Je hebt in werkelijkheid (door required B) er 48 nodig (3 * 16), maar omdat je er al 8 in handen hebt heb je maar 40 nodig - E zijn er opnieuw meerdere stappen 40𝐷 = 160𝐸 16𝐵 = 16𝐸 0𝐶 = 0𝐸 (er is geen requirement hier je hebt genoeg inventory) 160 + 16 = 176 – on hand = 176 − 60 = 116 30  3. Inventory records Refer to stored information on the status of each item by time period, called time buckets. - Information includes: Quantities-on-hand. Quantities ordered. - Other details for each item such as: Supplier. Lead time. Lot size policy. Changes due to stock receipts and withdrawals. Canceled orders and similar events. MRP processing MRP processing takes the end item requirements specified by the master schedule and “explodes” them into time- phased requirements for assemblies, parts, and raw materials offset by lead times. Gross requirements: The total expected demand for an item or raw material during each time period without regard to the amount on hand. For end items, these quantities are shown in the master schedule; for components, these quantities are derived from the planned-order releases of their immediate “parents.” - derived from exploding the bill of materials, represent total demand without considering current inventory or incoming receipts Scheduled receipts: Open orders (orders that have been placed and are scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period). Projected on hand: the expected inventory at the start of each period, calculated as scheduled receipts plus the prior period's ending inventory. The ending inventory of one period becomes the starting inventory of the next. - Other formula in book: Planned receipts for previous period – Net requirements for previous period + scheduled receipts for current period Net requirements: The actual amount needed in each time period. Planned-order receipts: the quantities expected to arrive at the start of a period. With lot-for-lot ordering, they match net requirements; with lot-size ordering, they may exceed them. Any excess is added to the next period's available inventory for simplicity, though it would actually be available in the current period. 31 Planned-order releases: the amounts planned to be ordered in each period, equal to planned-order receipts adjusted for lead time. These drive gross requirements at the next production level. Once executed, they are moved to "scheduled receipts." MRP outputs Primary Reports: Production and inventory planning and control are part of primary reports. These reports normally include the following: - Planned orders: Schedule indicating the amount and timing of future orders. - Order releases: Authorizing the execution of planned orders. - Changes: Revisions of the dates or quantities, or the cancellation of orders. Secondary Reports: Performance control, planning, and exceptions belong to secondary reports - Performance-control reports: Evaluation of system operation, including deviations from plans and cost information. Missed deliveries and stockouts. Assessing cost performance. - Planning reports: Useful for assessing future material requirements. Purchase commitments. - Exception reports: Call attention to any major discrepancies. Late and overdue orders, excessive scrap rates, requirements for nonexistent parts. MRP in service Material goods that form a part of product–service package, or they may involve mainly service components: - Example: food catering service. - Estimating quantities of ingredients. - Estimating delivery times. Lot sizing Lot-for-lot (L4L) ordering: - The order or run size is set equal to the demand for that period. - Minimizes investment in inventory. - Results in variable order quantities. - A new setup is required for each run. 32 Economic Order Quantity Model (EOQ): - For independent-demand items, managers often use economic order sizes: The primary goal is to minimize the sum of ordering and holding costs. When demand is unstable or the planning horizon short, economic lot sizes are much more difficult to identify. Safety stock - Theoretically, MRP systems should not require safety stock. - Variability may necessitate the strategic use of safety stock. A bottleneck process or one with varying scrap rates may cause shortages in downstream operations. Shortages may occur if orders are late, or fabrication or assembly times are longer than expected. Example A firm that produces wood shutters and bookcases has received two orders for shutters: one for 100 shutters and one for 150 shutters. The 100-unit order is due for delivery at the start of week 4 of the current schedule, and the 150-unit order is due for delivery at the start of week 8. Each shutter consists of two frames and four slatted wood sections. The wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections in (that is, at the beginning of) week 1. Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of these conditions: 1) Master schedule 2) Product structure tree 33 3) MRP a) Lot-for-lot (L4L) Voor de duidelijkheid ig Gewoon de tekst volgen, (natuurlijk ist ier wa makkelijk ma bon), daarom gwn telkens die stappenplan doen en dan is der geen probleem. Enige dat hier wat speciaal is bij de laatste, er is een scheduled receipt van 70, omdat er geen voorgaande inventory ervan is wordt uw projected on hand gwn dat (blijft ezo voor de weken erna) en moet de planned order releases hierop aanpassen b) Lot size ordering (lot size of 320 units for frames and 70 units for wood sections.) Voor de duidelijkheid Nie veel tbh, enige is gewoon dat er hier gesproken wordt over een veelvoud van 320 & 70. Dus bij uw Frames heb je na eerste order een overschot die je overneemt bij de volgende, waar uw planned order release ook 320 is omdat uw net maar 180 is Bij wood sections ist een beetje anders, omdat je op voorhand zoals bij a) een scheduled hebt moet uw planned order hieraan aanpassen (anders wast 420 bij planned). Hierna opnieuw overschot en pas je uw planned opnieuw aan zodat planned order receipts > net requirements 34 MRP benefits Enables managers to easily: - Determine the quantities of each component for a given order size. - Know when to release orders for each component. - Be alerted when items need attention. Additional benefits: - Low levels of in-process inventories. - The ability to track material requirements. - The ability to evaluate capacity requirements. - A means of allocating production time. - The ability to easily determine inventory usage via back- flushing. MRP difficulties Consequence of inaccurate data: - Missing parts. - Ordering incorrect numbers of items. - Failure to stay on schedule. - All of these contribute to: Inefficient use of resources. Missed delivery dates. Poor customer service. Exercise 1: Voor de duidelijkheid Opnieuw nie veel naast gwn dat als alles naast elkaar is het pak makkelijker wordt. Belangrijke natuurlijk is dat je uw onder componenten moet aanpassen aan de hogere (zie top handle 13122) en je goed moet nakijken of er Lot size / safety stock is 35 Exercise 3 (2 werd later pas gemaakt) Voor de duidelijkheid Eerste 2 nie moeilijk, enige tip dat ik kan geven is door de template op ufora te gebruiken en nie deze tabel. Niet alles staat hierin (netto requirements en planned order receipts zitten heir niet). F is nog een beetje een speciale: 2𝐷𝑆 2 ∗ 25 ∗ 100 𝐸𝑂𝑄 = √ =√ = 50 𝐻 2 - De 25 is de average demand van de 6 weken bij D & E (dus uw gross requirements) dus ((65 + 22 + 12 + 16 + 35) / 6) of 150 / 6 - De gross requirements van F is afhankelijk van de productie van D & E, en omdat lead time = 0 is gebeurd het op dezelfde moment. Bij periode 1: 65 = (35 + 15*2 (je hebt 2 F’s nodig voor één E)) 36  Forecasting Forecast Forecast is an estimate about the future value of a variable such as demand and resource availability. The better the estimate, the more informed decisions can be. - Short- to medium-range forecasts are especially helpful in planning day-to-day operations (operational / tactical level) - Long-range forecasts are especially important for decisions that will have long-term consequences for the business. (managerial level) There are two uses for forecasts. One is to help managers plan the system, and the other is to help them plan the use of the system. Planning the system generally involves long-range plans about: - Types of products and services to offer. - Facility and equipment levels. - Facility location. Planning the use of the system refers to short-range and intermediate-range planning, which involve tasks such as - Inventory management. - Workforce levels. - Purchasing. - Production. - Budgeting. - Scheduling. Who does forecasts? Successful forecasting often requires a skillful blending of science and intuition. Experience, judgment, and technical expertise all play a role in developing useful forecasts. A manager cannot simply delegate forecasting to models because unplanned occurrences can break the forecasts. Current techniques are quite varied where some work better than others, but no single technique works all the time (because of unplanned occurrences like change in demand, prices, rise of competition…), that’s why a manager should be ready to override forecasts - Is a mixture of hard and soft skills 37 Forecast features The primary goal of operations management is to match demand and supply. - Anticipated demand = actual customer orders + forecasts Expected level of demand: The level of demand may be a function of some structural variation such as trend or seasonal variation. Forecasts for groups of items tend to be more accurate than forecasts for individual items because forecasting errors among items in a group usually have a canceling effect. cancelling effect = individual errors compensate each other A properly prepared forecast should fulfill certain requirements: Timely: Usually, a certain amount of time is needed to respond to the information contained in a forecast. For example: capacity cannot be expanded overnight, nor can inventory levels be changed immediately. Hence, the forecasting horizon must cover the time necessary to implement possible changes. Accuracy: Related to the potential size of forecast error. This will enable users to plan and provide a basis for comparing alternative forecasts Expressed in meaningful units: dependent on the user needs Reliable: it should work consistently, but forecasting techniques generally assume that the same underlying causal system that existed in the past will continue to exist in the future. That’s why randomness will make a previous good into a bad forecast. - If the business ground is completely random then there’s no need of forecast Simple to understand and use: Users often lack confidence in forecasts based on sophisticated techniques, since they don’t understand it. Misuse is a consequence of such: easier ones are more comfortable to work around cost-effective: The benefits should outweigh the costs. But forecast are not perfect: Forecasts are not perfect: actual results usually differ from predicted values; the presence of randomness precludes a perfect forecast. Allowances should be made for forecast errors. - So there’s no forecast % of 100/0, there will always be some kind of randomness Forecast accuracy decreases as the time period covered by the forecast (the time horizon) increases. Generally speaking, short-range forecasts must contend with fewer uncertainties than longer range forecasts, so they tend to be more accurate. - Flexible businesses benefit from short-term forecasts compared to the less flexible competitors with LT forecasting. 38 Forecasting steps Here are the six basic steps in the forecasting process: 1. Determine the purpose: Define how the forecast will be used, when it is needed, the required detail, resource allocation, and accuracy level. 2. Establish a time horizon: Specify the time interval, keeping in mind that accuracy decreases with longer horizons. 3. Obtain and clean data: Gather relevant data, clean it to remove outliers or errors, and analyze it. 4. Select a technique: Choose an appropriate forecasting method. 5. Make the forecast: 6. Monitor errors: Evaluate forecast performance, adjust methods or assumptions as needed, and revise if necessary. Forecasting techniques Qualitative techniques incorporate soft information, such as human factors, personal opinions, and hunches, into the forecasting process elements which are often excluded in quantitative methods due to their subjective nature and difficulty in quantification. Quantitative techniques consist mainly of analyzing objective, or hard, data. They usually avoid personal biases that sometimes contaminate qualitative methods. There’re two types: - Time-series forecasts: use historical data with the assumption that the future will be like the past. - Associate models: One or more explanatory variables are used to predict the demand. - Other methods: Diffusion Models and Focus Forecasting In practice, either approach, or a combination of both approaches, might be used to develop a forecast. Time-series forecasts A time series is a time-ordered sequence of observations taken at regular intervals (e.g., hourly, daily, weekly, monthly, quarterly, annually). Note that forecasts based on sales will understate demand when demand exceeds sales, causing shortages (stockouts) to occur. Assume that future values of the time-series can be estimated from past values of the time-series 39 Trend: long-term upward or downward movement in the data. Population shifts, changing incomes, and cultural changes often account for such movements. Seasonality: short-term, fairly regular variations generally related to factors such as the calendar or time of day. Restaurants, supermarkets, and theaters experience weekly and even daily “seasonal” variations. - Seasonality is not only referred to the 4 seasons, but is mainly based on time- trends (every week, month) - People prefer to go the hospital on a Monday than during the weekend - Restaurants see more people at the start of the month Cycles: wavelike variations of more than one year’s duration. These are often related to a variety of economic, political, and even agricultural conditions. Irregular variation: caused by unusual circumstance, are not reflected typical behavior, and their inclusion in the series can distort the overall picture and should be identified and removed from the data. Random variations: residual variations that remain after all other behaviors have been accounted for. (the rest) Naive forecast: uses a single previous value of a time series as the basis of a forecast. The forecast for a time period is equal to the previous time period’s value. The naive approach can be used with: - Stable series: the last data point becomes the forecast for the next period. - Seasonal variations: the forecast for this season is equal to the value of the last season. - Trend: the forecast is equal to the last value of the series plus/minus the difference between the last two values. Averaging: Historical data typically contain a certain amount of random variation, or white noise. This randomness comes mainly from relatively unimportant factors, and it cannot be reliably predicted. Averaging techniques smooth fluctuations in a time series because the individual highs and lows in the data offset each other when they are combined into an average. Smaller variations tend to be random while larger variations are more likely to reflect “real” changes. Averaged date can represent step/gradual changes in the level of a series better: there’re 3 techniques on how averages are described: Moving average, Weighted moving average and Exponential smoothing. 40 - Moving average: forecast that uses a number of the most recent actual data values in generating a forecast. As new data become available, the forecast is updated by adding the newest value and dropping the oldest and then re- computing the average. The number of data points included in the average determines the model’s sensitivity. Fewer data points used → more responsive. More data points used → less responsive. - Weighted moving average: similar to a moving average, except that it typically assigns more weight to the most recent values in a time series. The choice of weights, w, is somewhat arbitrary and involves some trial and error. 41  - Exponential smoothing: a sophisticated weighted averaging method that is still relatively easy to use and understand. Each new forecast is based on the previous forecast plus a percentage of the difference between that forecast and the actual value of the series at that point. Associative Forecasting techniques Associative techniques are based on the development of an equation that summarizes the effects of predictor variables. - Predictor variables – variables that can be used to predict values of the predicted variable. Home values may be related to such factors as home and property size, location, number of bedrooms or bathrooms. - Most well-known example: Simple Linear Regression. - More complex associative forecasting techniques. Simple Linear Regression Technique for fitting a line to a set of data points. Simple linear regression is the simplest form of regression that involves a linear relationship between two variables. - The goal of simple linear regression is to obtain an equation of a straight line that minimizes the sum of squared vertical deviations of data points from the line (= least squares line). A straight line is fitted to a set of sample points. 42 Assumptions - Variations around the least squares line are random. - Deviations around the average value (= least squares line) should be normally distributed. (50% over or under) - Predictions are made only within the range of observed values. Limitations - Non-linear relationship. - Data might be time-dependent. - Missing predictor variables. (we kijken enkel naar één variabele terwijl er een pak meer zijn) 1. Plot the data to see if a linear model seems reasonable. In this case, a linear model seems appropriate for the range of the data. 2. Check the correlation coefficient to confirm that it is not close to zero 𝑟 = −.966 This is a fairly high negative correlation: when unemployment increases, less new houses are sold. 3. Obtain the regression equation 𝑦 = 71.85 − 6.91𝑥 Note that the equation pertains only to unemployment levels in the range of 3.6 to 9.0, because sample observations covered only that range. Other forecasting methods Focus Forecasting: Use several forecasting methods, and the one that has the highest accuracy is used for forecasting. Diffusion Models: When new products or services are introduced, historical data are not generally available, so these models take into account: - Market potential. - Attention from mass/social media. - Word of mouth. 43 Forecast Accuracy and Control Forecast accuracy and control are crucial, yet the complexity of real-world variables makes precise predictions challenging. Random variation ensures some residual error, even with all factors considered. - It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs. Forecast error should be monitored and is the difference between the value that occurs and the value that was predicted for a given time period. - Error = Actual − Forecast: Forecast accuracy is a significant factor when deciding among forecasting alternatives. Accuracy is based on the historical error performance of a forecast. Three commonly used measures for summarizing historical errors are: - the mean absolute deviation (MAD), the average absolute error - the mean squared error (MSE), the average of squared errors (never really used in practice, you can’t really explain your basis of that number) - the mean absolute percent error (MAPE), the average absolute percent error. (will be most present in practice) 44 Which forecasting technique to use? Factors to consider: - Cost. - Accuracy. - Availability of historical data. - Availability of forecasting software. - Time needed to gather and analyze data for forecasting. - Forecast horizon. Supply chain integration Supplier chain integration Strategic coordination of business functions throughout the supply chain for the purpose of integrating supply and demand management. Supply chain integration is a managerial goal that occurs during decision making at different levels of the business, and each one of the decisions you take have to be applicable to the strategic, tactical and operational level. Supply chains are value chains that consist of two components: a supply and a demand component. - Supply chain integration is not the same as shortening the supply chain or vertical integration. - Key areas: supplier management, inventory management, production management and (reverse) logistics. Supplier management 1. Choosing suppliers Selecting a vendor is similar to making a major purchase, such as a car or stereo. Key factors include price, quality, supplier reputation, past experience, and post-sale service. Unlike individual consumers, companies often provide detailed specifications for materials or parts due to operational needs, though standard items are often purchased off the shelf. the main factors companies consider when choosing a vendor are: 45  2. Supplier audits & certification Periodic audits of suppliers are a means of keeping current on suppliers’ production (or service) capabilities, quality and delivery problems and resolutions, and suppliers’ performance on other criteria. If an audit reveals problem areas, a buyer can attempt to find a solution before more serious problems develop. Among the factors typically covered by a supplier audit are management style, quality assurance, materials management, procedures for corrective action, follow-up... - Supplier audits are also an important first step in supplier certification programs. Supplier certification is a detailed examination of the policies and capabilities of a supplier. The certification process verifies that a supplier meets or exceeds the requirements of a buyer. This is generally important in supplier relationships, but it is particularly important when buyers are seeking to establish a long-term relationship with suppliers. - Advantage: reducing or eliminating the need for inspection and testing of delivered goods. While issues may still arise, the risk is significantly lower 3. Supplier relationship management The type of relationship is often related to the length of a contract between buyers and sellers. Short-term contracts: Involve competitive bidding. Companies post specifications and potential suppliers bid on the contracts. Suppliers are kept at arm’s length, and the relationship is minimal, sometimes conducted through computerized interaction. Medium-term contracts: Often involve ongoing relationships. Long-term contracts: often evolve into partnerships, with buyers and sellers cooperating on various issues that tend to benefit both parties. Increasingly, business organizations are establishing long-term relationships with suppliers in certain situations that are based on strategic considerations. 4. Supplier partnerships Strategic partnering Occurs when two or more businesses that have complementary products/services that strategically benefit the others agree to join so that each may realize a strategic benefit. - A supplier may agree to hold inventory for a customer in exchange for the customer’s agreeing to a long-term commitment. - The customer’s inventory holding cost is reduced and the supplier is relieved of the costs that would be needed to continually find new customers. Collaborative planning, forecasting, and replenishment (CPFR) is a contractual agreement used to achieve supply chain integration by cooperative management of inventory in the supply chain by major supply chain partners. 46 Inventory management SCM and inventory management relate to the location of inventories in the supply chain, the speed at which inventory moves through the supply chain and dealing with the effect of demand variability on inventories. The location of inventories is an important factor for effective material flow through the chain and for order fulfillment. Often, trade-offs must be made. - Centralized inventories: generally resulting in lower overall inventory - Decentralized inventories: tend to have a higher overall inventory, since one location may be understocked, while another location is overstocked. With this it can make faster deliveries and generally achieve lower shipping costs. Inventory velocity is the rate at which material moves through a supply chain. The greater the velocity, the lower the inventory holding costs and the faster orders are filled, and goods are turned into cash. Bullwhip effect If not managed carefully, changes in customer demand can cause big swings in inventory. Small demand changes at the consumer level grow larger as they move through the supply chain. Actions like ordering in batches or reacting to shortages can make the problem worse, leading to even bigger fluctuations. This is called the bullwhip effect. - Each level within the supply chain needs a safety stock. With an increase in demand, the EOQ will increase with it, so more inventory and thus he will request more. This creates a similar reaction throughout the line which causes an increase in the safety stock which makes the fluctuations even more. - This is the same with a decrease in demand Amplifies inefficiencies in a supply chain as each step up the supply chain estimates demand more and more incorrectly. - forecast inaccuracies, overreaction to stockouts (customers often order more than they need after experiencing a shortage), order batching to save on ordering and transportation costs (e.g., full truckloads, economic lot sizes), L4L-sizing: you can choose yourself how much you ask (per 100L, per ton). But his becomes a problem whenever the demand is just a bit more than the threshold (demand is 125L but they have to buy 200L because the threshold is 100L) 47  A) Impact Increased costs (profitability): Suppliers will increase their production and inventory capacity, which increases costs associated with storing and maintaining (excess) inventory as well as transportation costs for rushing orders. Customer disappointment (satisfiability): Stock outs, delays in shipping and delivery and inconsistent availability of products lead to dissatisfied customers turning to competitors. Waste (sustainability): Overproduction and excessive inventory gets wasted if it becomes obsolete or spoils before you can sell. B) Solutions Safety stock: Used as a buffer against demand fluctuations but isn’t a complete solution. It provides sufficient inventory to fulfill orders until more products arrive from upwards the supply chain. Its rather a solution whenever a decrease in demand happens and a nuisance for an increase in demand - Very large cumulative inventory in the supply chain which is very costly - Disproportionally large in contrast to the stock out risk. Operations: - Forecasting: Reducing errors in demand prediction minimizes overstocking and understocking. - Order sizes: Smaller, more frequent orders reduce demand variability across the supply chain. - Lead times: Shorter lead times allow for faster response to actual demand changes, reducing the risk of overreaction. Business: - Communication: Shorter lead times allow for faster response to actual demand changes, reducing the risk of overreaction. - Transparency: Visibility across the supply chain reduces uncertainty and helps prevent overreactions. - Knowledge sharing: Equipping all parties with an understanding of supply chain dynamics can prevent actions that amplify variability. Keep in mind that the Bullwhip will always exist, anything has an effect on it. These aren’t complete solutions but are there to soften the bullwhip and to keep it as small as possible. Even then these “solutions” are equivalent to becoming more efficient so a supply chain that’s highly efficient will have a small bullwhip effect. 48 Logistics Logistics refers to the movement of materials, services, cash, and information in a supply chain. Materials include all of the physical items used in a production process. Logistics includes movement within a facility, overseeing incoming and outgoing shipments of goods and materials, and information flow throughout the supply chain 1. Movement withing a facility - From incoming vehicles to receiving. - From receiving to storage. - From storage to the point of use. - From one work center to the next or temporary storage. - From the last operator to final storage. - From storage to packaging/ shipping. - From shipping to outgoing vehicles. (nie vanbuiten kennen is gewoon pijlkes volgen ) 2. Incoming and outgoing shipments Overseeing the shipment of incoming and outgoing goods comes under the heading of traffic management. This function handles schedules and decisions on shipping method and times, taking into account: - Costs of shipping alternatives. - Government regulations. - Needs of the organization relative to quantities and timing. - External factors: shipping delays or disruptions. 3. Tracking goods Radio frequency identification (RFID) is a technology that uses radio waves to identify objects, such as goods in supply chains. This is done through an RFID tag that is attached to an object, which are similar to barcodes but are able to convey way more information and do not need a line-of-sight for reading. RFID has the ability to: - Read multiple tags simultaneously and automatically. - Increase supply chain visibility. - Improve inventory management. - Improve quality control. - Enhance relationships with suppliers and customers. 49  4. Third party logistics (3-PL) Third-party logistics (3-PL) is the term used to describe the outsourcing of logistics management. According to the website of the Council of Supply Chain Management Professionals, the legal definition of a 3PL is “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.” Companies are turning over warehousing and distribution to companies that specialize in these areas. Among the potential benefits of this are taking advantage of specialists’ knowledge, their well-developed information system, and their ability to obtain more favorable shipping rates, and enabling the company to focus more on its core business. Evaluating shipping alternatives Important component of supply chain integration and coordination. - Shipping costs. - Coordination of shipments with other activities. - Flexibility. - Speed. - Environmental issues. The SCOR (Supply Chain Operations Reference) model The SCOR® (Supply Chain Operations Reference) model provides steps that can be used to create an effective supply chain: Plan: Develop a strategy to manage resources for meeting customer demand, including metrics to monitor the supply chain. Source: Select and manage suppliers, establish delivery and verification systems, structure payments, and monitor supplier relationships with improvement metrics. Make: Design and oversee processes for producing goods or services, ensuring quality, output, and worker productivity. Deliver: Coordinate vendor shipments, develop warehouse networks, select carriers, manage invoicing, and enable effective communication across supply chain partners. Manage returns: Create a responsive and flexible network for receiving defective and excess products from customers. 50 Managing returns Reverse logistics: the process of physically transporting returned items. Products are returned to companies or third-party handlers for a variety of reasons and in a variety of conditions. - Defective products. - Recalled products. - Obsolete products. - Unsold products returned from retailers. - Parts replaced in the field. - Items for recycling. - Waste. Gatekeeping: - Oversees the acceptance of returned goods with the intent of reducing the cost of returns. - Enables organizations to control the rate of returns without negatively impacting customer service. Avoidance: - Finding ways to minimize the number of items returned. - Product design and quality assurance. - Data analytics on actual versus forecasted demand. JIT and Lean operations Push vs pull systems Push system is used when work is finished at a workstation, the output is pushed to the next station; or, in the case of the final operation, it is pushed on to final inventory. Work moves on as it is completed, without regard to the next station’s readiness for the work, which may cause a pile up that fall behind schedule. Pull system is where control of moving the work rests with the following operation: each workstation pulls the output from the preceding station as it is needed; output of the final operation is pulled by customer demand or the master schedule. Thus, work moves on in response to demand from the next stage in the process. - Not really appropriate for operations with large variations in volume, product mix, or product design will undermine the system. - Inventory will be low in most cases, but will work with a spread-out distribution 51 Lean operations A lean operation is a flexible system of operation that uses considerably fewer resources (i.e., activities, people, inventory, and floor space) than a traditional system. Moreover, lean systems tend to achieve greater productivity, lower costs, shorter cycle times, and higher quality than nonlean systems. - Minimal inventory. - Waste reduction. - Small lot sizes. (connected to inventory) - Shorter cycle times. - Higher quality. - Output tied to demand (pull system) just-intime (JIT) systems A highly coordinated processing system in which goods move through the system, and services are performed just as they are needed. Five principles embody the way lean systems function: 1. Identify customer values. 2. Focus on processes that create value. 3. Eliminate waste to create “flow”. 4. Produce only according to customer demand. 5. Strive for perfection. Objective of Lean systems The ultimate goal of lean is a balanced system. Which is one that achieves a smooth, rapid flow of materials and/or work through the system. The idea is to make the process time as short as possible by using resources in the best possible way. The degree to which the overall goal is achieved depends on how well certain supporting goals are achieved. Those goals are to: - Eliminate disruptions caused by poor quality, equipment breakdowns, changes to the schedule, and late deliveries. - Make the system flexible to handle a mix of products and to handle changes in the level of output while still maintaining balance and throughput speed. - Eliminate waste, especially excess inventory. Waste Waste represents unproductive resources; eliminating waste can free up resources and enhance production. Inventory is an idle resource, taking up space and adding cost to the system. It should be minimized as much as possible. In the lean philosophy, there are eight wastes (muda): - Excess inventory — Beyond minimal quantities, an idle resource takes up floor space and adds to cost Solution: a smooth flow of materials only when needed for production. 52  - Overproduction — Involves excessive use of manufacturing resources Solution: JIT manufacturing. - Waiting time — Requires space, adds no value Solution: preventive maintenance and improved communication - Unnecessary transporting — Increases handling, increases work-in-process inventory Solution: minimizing transportation distances - Processing waste — Makes unnecessary production steps, scrap Solution: process simplification - Inefficient work methods — Reduce productivity, increase scrap, increase work-in-process inventory Solution: ergonomics and workstation optimization. - Product defects — Require rework costs and possible lost sales due to customer dissatisfaction Solution: quality control practices and continuous improvement. - Underused people — Relates to mental and creative abilities, as well as physical abilities Solution: involvement of everyone The kaizen philosophy for eliminating waste is based on the following tenets: (geen idee dat we dees echt gaan moeten kennen maar waarschijnlijk niet) - Waste is the enemy, and to eliminate waste it is sometimes necessary to get “hands dirty.”. - Improvement should be done gradually and continuously; the goal is not big improvements done intermittently. - Everyone should be involved—top managers, middle managers, and workers. - Kaizen is built on a cheap strategy, and it does not require spending great sums on technology or consultants. - It can be applied anywhere. - It is supported by a visual system: a total transparency of procedures, processes, and values, making problems and wastes visible to all. - It focuses attention where value is created. - It is process oriented. - It stresses that the main effort of improvement should come from new thinking and a new work style. - The essence of organizational learning is to learn while doing