Forecasting and Information Technology

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Bus 301 Supply Chain Management

• Forecasting and Information Technology

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Internal Supply Chain Management (ISCM)

• Strategic planning (First Half)
• Manufacturing (Part I)
• Inventory Strategies (Part II)
• Forecasting (Part III)
• Information Technology (Part IV)

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Basic Steps in Forecasting

• Problem definition
• Gathering information
• Preliminary (exploratory) analysis
• Selecting and fitting models
• Using and evaluating forecasting model

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What Are Some Lessons Learned?

• _________________________________
• _________________________________
• _________________________________
• _________________________________
• _________________________________
• _________________________________
• _________________________________
• _________________________________

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What goes wrong?
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One of the Keys To Successful Forecasting is
Collaboration

• This Semester Where Have You Seen The Importance
  of Collaboration?

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What Can Prevent Collaboration in a Supply
Chain?

• Incentive Obstacles
• Information Processing Obstacles
• Operational Obstacles
• Pricing Obstacles
• Behavioral Obstacles

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Lack of Collaboration on Supply Chain Performance
Causes..

• Manufacturing cost (increases)
• Inventory cost (increases)
• Replenishment lead time (increases)
• Transportation cost (increases)
• Labor cost for shipping and receiving (increases)
• Level of product availability (decreases)
• Relationships across the supply chain (worsens)
• Profitability (decreases)
• The bullwhip effect reduces supply chain
  profitability by making it more expensive to
  provide a given level of product availability

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Achieving Collaboration in Practice

• Quantify the bullwhip effect
• Get top management commitment for coordination
• Devote resources to coordination
• Focus on communication with other stages
• Try to achieve coordination in the entire supply
  chain network
• Use technology to improve connectivity in the
  supply chain
• Share the benefits of coordination equitably

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Planning Horizon

• Aggregate planning (AP)
• Intermediate-range capacity planning, usually
  covering 2 to 18 months.

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Overview of Planning Levels

• Long-range plans
• Product Design
• Process Design
• Network Design
• Long term capacity
• Layout
• Intermediate plans (General levels)
• Employment
• Output

• Inventories
• Outsourcing
• Backorders
• Short-range plans (Detailed plans)
• Machine loading
• Job assignments
• Order quantities
• Production lot size
• Job sequencing

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Hierarchical Forecasting in the Supply Chain
Macro variables
e.g. growth
Consumer demand
Business
demand
Aggregate
Competitors'
Company demand
demand
Distribution Centres Retailers
Product
Product
Product
Class A
Class B
Class C
1
2
3
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Planning Sequence
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Categories of Forecasting Methods

• Qualitative - little on no quantitative
  information is available, but sufficient
  qualitative knowledge is available
• Quantitative - sufficient quantitative
  information is available
• Time series
• Explanatory
• Unpredictable little or no information can be
  drawn from

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Qualitative Forecasting

• Base mainly on judgment and accumulated
  knowledge.
• Knowledge management and specially trained people
  are critical.
• Used in medium to long-range planning situations
  such as formulating strategy, new product and
  technology development, capital expenditure,
  mergers etc.

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Quantitative Forecasting

• Necessary conditions
• Historical information must be available.
• Information must be in numerical form.
• Assumption of continuity.
• Quantitative forecasts can take on different
  forms from intuitive ad hoc methods to simple,
  inexpensive, formal methods all the way to very
  sophisticated methods such as neural networks.

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Explanatory Versus Time Series Forecasting

• All quantitative forecasting methods utilize
  either an explanatory model or a time series
  model.
• Explanatory models assume that the variable being
  forecasted exhibits an explanatory relationship
  with one or more independent variables.
• For example
• Sales f (price, advertisement spending, sales
  force budget, competition prices, ad spending and
  sales force budget, error).

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Explanatory Versus Time Series Forecasting

• The purpose of the explanatory model is to
  discover the nature of the relationship and to
  use it forecasts future value of the variable of
  interest.
• In the time series model, the system is treated
  as a black box. No attempt is made to discover
  the factors that affect any relationships.
• One treats the system as a black box if the
  underlying relationships are difficult to measure
  or if one just want to forecast and is not
  concerned as to why it happens.

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Explanatory Versus Time Series Forecasting

• The forecasts for the future values of a variable
  is based on the past values of the variable. The
  basic idea is to discover a pattern in the
  historical data series and to extrapolate that
  pattern into the future.
• An example
• Sales t1 f (Sales t, Sales t-1, Sales t-2,.,
  error)

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• we can now focus on the last of the elements of
  the ISCM Process

Information Technology MRP I an II ERP
Systems
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MRP I

• Depends on demand schedule to drive process.
• Goals are
• Ensure availability of materials
• Maintain lowest possible inventory levels
• Plan schedules for manufacturing, delivery and
  purchase activity

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Just an Idea of MRP Components

• Master production schedule
• Bill of materials file
• Inventory status files
• MRP Program
• Outputs/Reports
• Quantity of what and when ordered
• Expedite Issues
• Cancel unneeded product

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Master Schedule

• The disaggregating the aggregate plan results in
  the master schedule
• The master schedule indicates the quantity and
  delivery time for a product or product group but
  not the planned production
• The master schedule is then put through a
  rough-cut capacity planning to ensure the
  feasibility of the schedule

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Master Scheduling Process
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Master Schedule
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Bill-of-Materials

• Bill of materials One of the three primary
  inputs of MRP a listing of all of the raw
  materials, parts, subassemblies, and assemblies
  needed to produce one unit of a product.

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MRP Outputs

• Planned orders - schedule indicating the amount
  and timing of future orders.
• Order releases - Authorization for the execution
  of planned orders.
• Changes - revisions of due dates or order
  quantities, or cancellations of orders.

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MRP Secondary Reports

• Performance-control reports
• Planning reports
• Exception reports

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Strengths/Limitations

• Strength
• Reasonable inventory levels
• ID process problems
• Based on actual demand and forecasts
• Coordinate material ordering
• Suitable for batch process

• Limitations
• Computer intensive
• Ordering and transportation cost will probably
  rise
• Not sensitive to short term fluctuations in
  demand
• Are rather costly and complex

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MRP II

• Expanded MRP with an emphasis placed on
  integration
• Financial planning
• Marketing
• Engineering
• Purchasing
• Manufacturing

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ERP Introduction

• Legacy MRP
• MRP II
• Development of ERP
• Umbrella System
• Centralized, Shared Database
• Automate Business Process rapidly
• Rapid growth

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A Hypothetical ERP Transaction

• Ordering
• Availability
• Manufacturing
• Order Tracking

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Implementing ERP

• Single Integrator vs Best of Breed Integration
• Requirements for Success
• Why ERP Implementations fail?____________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________
  __________________________________________________

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Essence of ERP systems
ERP

• Record day-to-day transactions associated with
  running a business
• E.g., customer order, raw material purchase,
  vendor payment, customer shipment, customer
  payment, new hires, new equipment
• Provide near real-time access to information in a
  consistent manner throughout the organization

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Big picture
ERP
Enterprise Resource Planning Systems
Planning
Time
ERP system
Transactions
Money
Material
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ERP in more detail
ERP
The ERP database surrounded by example activities
supported by ERP software modules.
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ERP Software Applications

• Accounting and Finance
• Customer Relationship Management
• Human Resource Management
• Manufacturing
• Supplier Relationship Management
• Supply Chain Management

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ERP implementation is risky!
ERP

• More Examples of Trouble
• - Ballpark figures for large multinational 4
  years
• 500 million to implement
• - 5 billion pharmaceutical company filed for
  bankruptcy primary cause - failed ERP
  implementation crippled the business (APICS The
  Performance Advantage)
• As many as 70 of implementations fail to
  meetobjectives --- Why the challenge?
• - Affects almost entire organization processes
  people (collaboration)
• - Customization

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Lets Quickly Talk _at_ Building A Business Case

• A Business Case is a document which outlines the
  justification for the start-up of a project. It
  includes
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• 1) A description of the business problem (or
  opportunity) which exists in the business
• 2) A listing of the available options for
  delivering a solution to resolve the problem
• 3) The benefits and costs associated with each
  solution option4) A recommended solution option
  for approval. Source Method123

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THE ERP Decision ..

• You are all members of the same company which is
  currently struggling with many issues surrounding
  the integrity, duplication and overall quality of
  the data in the company. Lack of good data (and
  poor decisions based on it) have led to losing
  market share, declining sales, poor overall
  customer satisfaction and less than expected
  profits. The President has decided that the firm
  needs to consider an ERP system. What do you
  think?

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Here Is Where We sTArt

• What Does Finance Think? Yes or No
  Why?Manufacturing? Yes or No Why?Supply
  Chain? Yes or No Why?Marketing? Yes or
  No Why?Customer Relations? Yes or No Why?
• Human Resources? Yes or No Why?
• Based on researchand the position that you were
  assignedanswer the question?

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From Your Position In Discussion..

• A.6 --Based on your research as well as our
  discussions you need to give me your opinion as
  to whether we could/should begin to develop a
  business case for the purchase and implementation
  of an ERP system.
• Due Tuesday, e-mailed by December 3 by 600 PM
  The usual 2 -3 pages based on the reality of the
  situation not merely research on the websites to
  ERP companies.