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Supply Chain Management for Engineers - INDE073

Supply Chain Management

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Supply Chain Management for Engineers - INDE073

  1. 1. Forecasting and Forecasting and Supply-Chain Supply-Chain Mohammad Tawfik Mohammad Tawfik
  2. 2. Zeco Cafe Zeco Cafe
  3. 3. What is the supply chain of Zeco Cafe?
  4. 4. Zeco may focus on a much simpler chain!
  5. 5. Zeco Supply Chain ● Buy components from supplier ● Mix and serve drinks ● Collect money and complaints ● Pay suppliers for more supplies ● Inform suppliers about complaints ● Get answers about complaints and inform customer.
  6. 6. Three Flows
  7. 7. Kpakpakpa®
  8. 8. Or is it five flows?
  9. 9. Brandalyzer®
  10. 10. What risk does Zeco have? ● He might not find customers! ● Supplies may be spoiled ● Money may be stolen :(
  11. 11. Zeco Risk ● Zeco transfers the risk to the customer by adding an extra charge on the bill ● Zeco transfers risk to the supplier by buying on credit
  12. 12. Customer and supplier risks ● Customer risks having to pay without being satisfied! ● Not to mention the risk of food poisoning!!! ● The suppliers risk not being paid or losing their reputation by working with Zeco.
  13. 13. Values Transfer ● Zeco adds value to the coffee and tee by: – Mixing and serving – Food business – Maintaining the cafe in acceptable conditions to attract customers – Entertainment Business
  14. 14. Note the close relation between supply chain supply chain and value chain value chain!
  15. 15. Without adding value, no business will exist for Zeco or anyone else for that matter
  16. 16. What is Supply-Chain Management?
  17. 17. Definition ● The management of upstream upstream and downstream downstream value-added flows of materials, final goods, and related information among suppliers, company, resellers, and final consumers. WikiPedia
  18. 18. Or maybe ...
  19. 19. Primary Targets Primary Targets Secondary Targets Secondary Targets
  20. 20. Primary and secondary targets are assigned according to how scholars scholars of SCM pay attention to them However, you can easily argue that they are both important important for any successful business
  21. 21. Supply-Chain Strategies Supply-Chain Strategies
  22. 22. Top 3 Strategies ● Improve Distribution Network ● Monitor Cash Flow ● Establish Information Conduits (channels) Darren Woollard
  23. 23. … or 5 Strategies ● Improve your distribution network ● Devise a distribution strategy ● Monitor cash flows ● Establish information conduits ● Track your inventory Track your inventory Zoe Meeken
  24. 24. We may add ... ● Monitor and improve your suppliers’ network suppliers’ network!
  25. 25. Inventory Management Inventory Management
  26. 26. Back to Zeco :)
  27. 27. What inventory does Zeco have?
  28. 28. The most important question that YOU need to answer is: WHY do I need inventory? WHY do I need inventory?
  29. 29. The motive for inventory: ● Transaction motive Transaction motive: Economies of scale is achieved when the number of set-ups are reduced or the number of transactions are minimized. Donglei Du
  30. 30. Imagine having to buy sugar 10 times a day each for 1 kg!
  31. 31. The motive for inventory: ● Precautionary motive Precautionary motive: hedge against uncertainty, including demand uncertainty, supply uncertainty Donglei Du
  32. 32. What if you get to buy sugar, and your supplier is out of it!!!
  33. 33. Or worse … Customer have to wait until you purchase the sugar each time a cup of coffee is ordered!!!
  34. 34. The motive for inventory: ● Speculative motive Speculative motive: hedge against price increases in materials or labour Donglei Du
  35. 35. Imagine having to say: “Sorry sir, but the coffee price have changed because the sugar price went up an hour ago”
  36. 36. What is the purpose of inventory management?
  37. 37. Purpose of Inventory Management ● The objective of inventory is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable inventory costs within reasonable bounds bounds. Donglei Du
  38. 38. Purpose of Inventory Management ● Level of customer service: – (1) in-stock rate ”Yes sir, coming right-away” ”Yes sir, coming right-away” – (2) number of back orders ”Sorry sir, you need to wait until we buy the sugar” ”Sorry sir, you need to wait until we buy the sugar” – (3) inventory turnover rate: the ratio of average cost of goods sold to average inventory investment ”Since we use sugar all the time, let’s build a sugar factory” ”Since we use sugar all the time, let’s build a sugar factory” Donglei Du
  39. 39. Purpose of Inventory Management ● Inventory cost: cost cost of ordering ordering and carrying carrying trade-off Donglei Du
  40. 40. How to improve inventory management? TradeGecko®
  41. 41. Fine tune your inventory forecasting Fine tune your inventory forecasting methods methods
  42. 42. Keep the holidays in mind...all the holidays
  43. 43. Re-evaluate lead times Re-evaluate lead times
  44. 44. Choose your supply chain partners Choose your supply chain partners carefully carefully
  45. 45. Find a local consultant
  46. 46. Do your research Do your research
  47. 47. Move to the cloud Move to the cloud
  48. 48. Lets talk about forecasting ...
  49. 49. Forecasting in Business Forecasting in Business
  50. 50. What is forecasting? ● Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed. Wikipedia
  51. 51. Why Forecasting?
  52. 52. Predicting the future! What will we need tomorrow? What will we need tomorrow? What will the customer need next year? What will the customer need next year? What will the prices be next month? What will the prices be next month?
  53. 53. Inventory requirements What should I store? What should I store? How much should I store? How much should I store?
  54. 54. Financial requirements How much cash should I keep? How much cash should I keep? Should I keep that much cash? Should I keep that much cash? How liquid is that asset? How liquid is that asset?
  55. 55. Shipping requirements If I need it NOW, when should I order it? If I need it NOW, when should I order it? If the customer orders NOW, when should they get it? If the customer orders NOW, when should they get it? How much does that matter? How much does that matter?
  56. 56. Market expectations Are prices expected to change? Are prices expected to change? Is demand expected to change? Is demand expected to change?
  57. 57. Human resources requirements Should I hire? Should I hire? Should I fire? Should I fire?
  58. 58. A good forecast must be ...
  59. 59. Meaningful
  60. 60. Reliable
  61. 61. Accurate
  62. 62. Timely
  63. 63. How?
  64. 64. Data, Data, Data!
  65. 65. Naive forecasting
  66. 66. “Yesterday we used 7 kg of sugar, let’s buy 7 for today!”
  67. 67. Judgmental forecasting
  68. 68. “It seems that we use more sugar everyday, lets buy more today”
  69. 69. Crowd wisdom
  70. 70. “How did you do in that issue when you faced it?”
  71. 71. Weighted averages
  72. 72. Time regression
  73. 73. We will get back to that when we talk about regression
  74. 74. Steps of forecasting
  75. 75. Determine purpose
  76. 76. Establish time horizon
  77. 77. Select technique
  78. 78. Obtain data
  79. 79. Forecast!
  80. 80. Follow up
  81. 81. Some Analytics Some Analytics
  82. 82. Donglei Du Constant consumption rate Constant delivery rate Reorder Quantity Order Size
  83. 83. How much should the order quantity be? ● The larger the order quantity, the larger the total holding cost (ch *Average Stock) ● The smaller the order quantity, the larger the order cost (co *Number of orders)
  84. 84. Where does holding cost come from? ● Lost investment opportunity ● Storage rental and/or maintenance ● Storage security ● Material degradation due to storage
  85. 85. Where does operation cost come from? ● Time lost in procurement ● Paper-work per operation ● Risk associated with financial transactions ● Risk of not being able to obtain the material (delay and having to look for another supplier)
  86. 86. Total Cost Annual HoldingCost= Q 2 ch AnnualOrderingCost= D Q co TotalCost=Tc = Q 2 ch+ D Q co D = Total quantity per time cycle Donglei Du
  87. 87. Differentiate ... ● You get the optimum ordering quantity to be: Qoptimum = √2 Dco ch
  88. 88. The above was all Deterministic Deterministic!
  89. 89. Deterministic!!! ● What if the consumption/demand is not constant? ● What if the delivery time is not constant?
  90. 90. Data, Data, Data Data, Data, Data
  91. 91. Static Static Problems ● You collect the data, and evaluate the average! ● How much do we consume per month? ● How long does it take the supplier to deliver? ● This way is simple and effective on the short term and when you do not have much data
  92. 92. Quasi-Static Quasi-Static Problem ● Data is accumulating … ● What matters more: how much did we consume last year or last month? ● Should I completely ignore last year? ● How about two months ago? ● Here weighted averaging comes handy
  93. 93. Trends ... ● Is your business expanding or contracting? ● How fast?
  94. 94. Which is better? ● On the short term, average, or even just what happened yesterday, may be good ● On the long term, trends and seasonality mater more!
  95. 95. My YouTube Channel
  96. 96. References References
  97. 97. References ● “What does a Supply Chain Engineer do?”, StepStone, ● “Supply Chain Engineer job description template”, Hiring Resources, ngineer/ ● “What is supply chain management (SCM)?”, TechTarget® ● “Supply chain management”, WikiPedia, ● “The three flows of supply chain”, Nifemi Aluko,
  98. 98. References ● “Consumer Behaviour, Brand Management, Marketing and Psychology”, Brandalyzer, ● “Top 3 Strategies To Improve The Supply Chain Performance In Your Business”, Darren Woolard, ce-in-business/ ● “5 Ways to Increase Supply Chain Performance”, Zoe Meeken, mance/ ● “7 Tips for Effective Inventory Management in Global Supply Chain”, TradeGecko, global-supply-chain
  99. 99. References ● “Supply Chain Management: Inventory Management”, Donglei Du ● “Business-Plan Forecasting”, Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck ● “Excel Sales Forecasting For Dummies”, Conrad Carlberg ● “Sales Forecasting: A Practical Guide”, Mark Blessington ● “Sales and Operations Planning The How-To Handbook”, Thomas F. Wallace and Robert A Stahl ● “Introduction to Financial Forecasting in Investment Analysis”, John Guerard