COMM 441 Exam Note

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University of British Columbia
COMM 441
Genevieve Farrell

Supply to Inventory: The cube-per-order index is the ratio of a product’s avg required cubic footage for storage to the average number of The characteristics are: Close relationship with a few suppliers and transport carriers; Information is shared between daily orders on which the item is requested. The products with the lowest index value are located nearest the buyers and suppliers; Frequent production/purchase and transport of goods in small quantities; Minimum inventory outbound dock. – By popularity, cube, CPO levels; Uncertainties are to be eliminated wherever possible throughout the supply channel Order handling for increased handling efficiency - Product sequencing on picker list; Picker zoning and the “bucket Requirements planning - A formal, mechanical method of scheduling whereby the timing of purchases or supplies is brigade”; Order splitting; Multiple order picking per picking pass determined by offsetting the requirements in the master production schedule. Stock Arrangement - On-the-square layout; Angular pallet placement •Why requirements become lumpy for the materials manager Stock locator-identification methods – Fixed locator-identification; random locator-identification; zone location •Setting master schedule: through derived demand patterns, bill of materials explosion; forecasting; orders on hand Nature of Location Analysis MRP Example Manufacturing (plants & warehouses) - driven by economics. transportation, inventory carrying, labor, and taxes are Purchase order minimums - Vendors can set order minimum quantities to avoid the high cost of handling small traded off against each other to find good locations. orders. This will usually force some inventory into the system. Retail - driven by revenue. Traffic flow and resulting revenue are 1st location factors  cost Part period cost balancing - The economically best order quantities can be set by balancing the cost of processing an Service - driven by service factors. Response time, accessibility, and availability are key order with the cost of carrying the inventory associated with ordering more than what is immediately needed. Agglomeration - suppliers, manufacturers, and customers group together, transportation costs are high. Part-Period - Find the average inventory in each week. Average inventory is (beginning inventory  ending COG Method inventory)/2, where beginning inventory is scheduled receipts  quantity on hand. Ending inventory is beginning Method appraisal - A continuous location method; Locates based on transportation costs alone inventory – requirements. The COG method involves - Determining the volumes by source and destination point, the transpo costs based on Kanban – Lead-times are predictable – short, suppliers are near the site of operations; Order quantities are small $/unit/mi.; Overlaying a grid to determine the coordinates of source and/or destination pts; Finding the weighted because setup or procurement costs are kept low; Few vendors are used - high expectations of vendors, high level of center of gravity for the graph cooperation; Classic ROP inventory control is used - determine ROP quantities, timing of buys Vi= volume flowing from (to) point I; Ri= transportation rate to ship Vifrom (to) point i ;iXiY = coordinate points for Factors KANBAN/JIT Supply to inventory point I; X,Y = coordinate points for facility to be located Inventory Liability. As little as possible Asset. Safety Stock protection Solution procedure for exact COG - Solve for COG; Using find d ie-solve for VR X VR Y Lot Sizes Immediate needs only. Minimum replenishment Formulas. Cost of inventory, set up using exact formulation; Use revised to find revised i ; Repeat steps 3 X   i i i i,Y   i i i i Set ups Make insignificant. Low priority. Max output gd through 5 until there is no change in; Calculate total costs using final  ii i  iVi i Queues Eliminate. Small queues can identify problems Necessary. Match operator skills and machines coordinates Vendors Work as a team – take cares of the customers Multiple sources – compete with each other Multiple Location Methods – More complex, involves inbound/outbound transportation, storage and handling; production/purchase costs; inventory carrying costs; facility fixed costs Quality 100% Some scrap – formulas Multiple COG - Formulated as basic COG model; Can search for the best locations for a selected number of sites; Equip. Main. Constant and effective Required – queues offset Fixed costs and inventory consolidation effects are handled outside of the model. Lead times Short – simplifies mktg, purchasing, Longer the better. Agents want more time A multiple COG procedure - Rank demand points from highest to lowest volume; Use the M largest as initial facility manufacturing locations and assign remaining demand centers to these locations; Compute the COG of the M locations; Reassign all Workers Mgmt by consensus Management decides demand centers to the M COGs on the basis of proximity; Recompute the COGs and repeat the demand center Bullwhip Effect Reasons for the effect assignments, stopping this iterative process when there is no further change in the assignments or COGs. Examples: Internal - Demand shifts; Product/service changes; Late deliveries; Incomplete shipments Location of most facility where transportation cost (not inv cost) is the driving factor in location External - Supply shortages; Engineering changes; New product/service introductions; Product/service promotions; Mixed Integer Programming - commercially used; long running time; high memory requirement; handle fixed costs Information errors well; linear programming good Remedies - Centralize demand forecasting; Improve forecasting accuracy; Reduce lead-time uncertainties Guided Linear Programming – Inventory and warehouse fixed costs as per-unit costs; linear programming problem is throughout the channel; Smooth response to change solved; revised demand; recomputed fixed costs and inventory Vendor Managed Inventory Location by Simulation - Can include more variables than typical algorithmic methods; Cost representations can be The supplier usually owns the inventory at the customer’s location; The supplier manages the inventory planning precise so problem can be more accurately described than with most algorithmic methods; Mathematical shipment sizes and delivery frequency; The buyer provides point of sale information to the supplier; The buyer pays optimization usually is not guaranteed, although heuristics can be included to guide solution process toward for the merchandise at the time of sale; The buyer dictates the level of stock availability required. satisfactory solutions; Data requirements can be extensive; Has limited use in practice Purchasing - Securing the products, raw materials, and services needed by production, distribution, and service Commercial Models for Location organizations at the right time, the right price, the right place, the right quality, and in the right quantity. Activities of purchasing Features - Includes most relevant location costs; Constrains to specified capacity and customer service levels; Selects and qualifies suppliers; Rates supplier performance; Negotiates contracts; Compares price, quality, service; Replicates the cost of specified designs; Handles multiple locations over multiple echelons; Handles multiple product categories; Searches for the best network design Sources goods; Times purchases; Sets terms of sale; Evaluates the value received; Measures inbound quality if not a The Network Planning Process responsibility of quality control; Predicts price, service, demand changes; Specifies received good’s form The Planning Problem - Configure the facilities of the supply chain from source points to customers; consider all Criteria for selecting suppliers major logistical costs, namely transportation, inventory, and facility; Consider practical restrictions, such as capacity Past or anticipated relations – Honesty, Financial viability, Reciprocity and customer service; Position the analysis toward top management, strategic concerns Measured performance – Price, Responsiveness to change or requests, On-time delivery, Product or service backup, Tools for Analysis Meeting quality goals Ad hoc techniques - Chart/Compass/Ruler methods; Spreadsheets; Simulation models - Many general-purpose Single vendors - Allows economies of scale; Consistent with the just-in-time philosophy; Builds loyalty, trust; May be models are available; Heuristic models - Used in conjunction with optimization models; Optimization models - only source for unique product or service Integer programming is popular, but usually not used alone; AI/Expert system models - No known models Multiple vendors - Encourages price competition; Diffuses risk; disturb supplier relations, reduce loyalty & Conducting the Network Analysis responsiveness, and variations in product quality & service Key questions - How many facilities? Where should they be located? What size should they be? Auditing customer Finding suppliers - Personal contacts; Trade publications; Web sites, catalogs, and directories; Advertisements and service levels; Benchmarking the current design; Improving on the benchmark; Seeking good designs - Intuitive solicitations choices; COG searching; Practical considerations; Maximum opportunity design; Implementable design Qualifying suppliers - Previous experiences and formal rating schemes; Word of mouth; Samples of product; Channel Simulators Reputation; Site visits and demonstrations What they do - Replicate over time the flow of product through a supply channel on an order-by-order basis; Answer Timing of Purchases time-related questions of an operating nature, e.g., inventory levels Speculative buying - Buying more than the foreseeable requirements at current prices in the hope of reselling later Typical Data Items - Products in the product line; Locations of customers, warehouses, and plants; Demand for each at higher prices. Some of the purchased quantities may be used in production and some simply resold. Generally a customer by location and product; Transportation rates; Transit times; Warehousing costs (fixed, storage, and financial activity, not a materials management one. handling); Purchase/production costs; Shipment sizes by product; Inventory levels by location, by product, and Forward buying - Buying in quantities exceeding current requirements, but not beyond foreseeable needs; takes control policies; Shipment profiles; Order processing cost; Capital cost; Customer service goals; Available and advantage of favorable prices in an unstable market, or takes advantage of volume transportation rates; Reduces potential facilities with capacities; Distribution patterns for current product flows risk of inadequate delivery Logistics/Supply Chain Organization Hand-to-mouth buying – Buy for immediate needs such as MRP; do it when prices are dropping; improve cash flow Objectives - Defines responsibility, accountability, and authority–essentials for good management; Collects people by temporarily reducing exp. of carrying inventory together in a meaningful way to achieve the goals of supply management; Sets initial conditions so that proper cost Quantity Discounts - Inclusive Price Breaks TC  p D DS IC Qi tradeoffs can be realized; Facilitates the implementation of plans as well as the planning process; Aids admin Check to see if Q for the discounted price is feasible. i i Q i i2 Activity Fragmentation in the Supply Chain - Noninclusive price breaks - Price discount only applies to the items beyond the price break quantity. Average price Reasons for fragmentation - Lack of understanding of key cost tradeoffs; Traditions and conventions; Other areas continues to drop with increasing purchase quantities. * considered to be more important to the firm than logistics; Organization structure can be in an evolutionary state Deal buying – d=unit price incr
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