Global Supply Chain of BioPharma, Inc.

In 2013, Phillip (Phil) Landgraf faced several glaring problems in the financial performance of his company, BioPharma, Inc. The firm had experienced a steep decline in profits and high costs at its plants in Germany and Japan. Landgraf, the company’s president for world­wide operations, knew that demand for the company’s products was stable across

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The Sourcing Decision at Forever Young in Global Supply Chains

In 2011, telephone users numbered more than 4.6 billion worldwide. Until 2010, Nokia was the market leader with 29 percent of total market share, and it is still the leader in emerging economies such as China and India. Apple recently took first place in terms of revenue. In 2010, 1.6 billion cell phones were

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The Role of Forecasting in a Supply Chain

Demand forecasts form the basis of all supply chain planning. Consider the push/pull view of the supply chain discussed in Chapter 1. All push processes in the supply chain are performed in anticipation of customer demand, whereas all pull processes are performed in response to cus­tomer demand. For push processes, a manager must plan

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Characteristics of Forecasts in a Supply Chain

Companies and supply chain managers should be aware of the following characteristics of forecasts. Forecasts are always inaccurate and should thus include both the expected value of the forecast and a measure of forecast error. To understand the importance of forecast error, consider two car dealers. One of them expects sales to range between

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Components of a Forecast and Forecasting Methods in a Supply Chain

Yogi Berra, the former New York Yankees catcher who is famous for his malapropisms, once said, “It’s tough to make predictions, especially about the future.” One may be tempted to treat demand forecasting as magic or art and leave everything to chance. What a firm knows about its customers’ past behavior, however, sheds light

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Basic Approach to Demand Forecasting in a Supply Chain

The following five points are important for an organization to forecast effectively: Understand the objective of forecasting. Integrate demand planning and forecasting throughout the supply chain. Identify the major factors that influence the demand forecast. Forecast at the appropriate level of aggregation. Establish performance and error measures for the forecast. 1. Understand the Objective

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Time-Series Forecasting Methods in a Supply Chain

The goal of any forecasting method is to predict the systematic component of demand and esti­mate the random component. In its most general form, the systematic component of demand data contains a level, a trend, and a seasonal factor. The equation for calculating the systematic com­ponent may take a variety of forms: Multiplicative: Systematic

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Measures of Forecast Error in a Supply Chain

As mentioned earlier, every instance of demand has a random component. A good forecasting method should capture the systematic component of demand but not the random component. The random component manifests itself in the form of a forecast error. Forecast errors contain valu­able information and must be analyzed carefully for two reasons: Managers use

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Selecting the Best Smoothing Constant in a Supply Chain

When using exponential smoothing, the value of the smoothing constant chosen has a direct impact on the sensitivity of the forecast to recent data. If a manager has a good sense of the underlying demand pattern, it is best to use a smoothing constant that is no larger than 0.2. In general, it is

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Forecasting Demand at Tahoe Salt in a Supply Chain

Recall the Tahoe Salt example earlier in the chapter with the historical sell-through demand from its retailers, shown in Table 7-1. The demand data are also shown in column B of Figure 7-7 (see associated spreadsheet Chapter 7-Tahoe-salt). Tahoe Salt is currently negotiating contracts with suppliers for the four quarters between the second quarter

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The Role of IT in Forecasting in a Supply Chain

There is a natural role for IT in forecasting, given the large amount of data involved, the fre­quency with which forecasting is performed, and the importance of getting the highest quality results possible. A good forecasting package provides forecasts across a wide range of products that are updated in real time by incorporating any

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Forecasting in a Supply Chain in Practice

Collaborate in building forecasts. Collaboration with one’s supply chain partners can often create a much more accurate forecast. It takes an investment of time and effort to build the relationships with one’s partners to begin sharing information and creating collaborative forecasts. However, the supply chain benefits of collaboration are often an order of magnitude

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Demand forecasting of Specialty Packaging Corporation in Supply Chain

Julie Williams had a lot on her mind when she left the conference room at Specialty Packaging Corporation (SPC). Her divisional manager had informed her that she would be assigned to a team consisting of SPC’s marketing vice president and staff members from their key customers. The goal of this team was to improve

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The Role of Aggregate Planning in a Supply Chain

Imagine a world in which manufacturing, transportation, warehousing, and even information capacity are all limitless and free. Imagine lead times of zero, allowing goods to be produced and delivered instantaneously. In this world, there would be no need to plan in anticipation of demand, because whenever a customer demands a product, the demand would

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The Aggregate Planning Problem in a Supply Chain

The objective of the aggregate plan is to satisfy demand in a way that maximizes profit for the firm. We can state the aggregate planning problem formally as follows: Given the demand forecast for each period in the planning horizon, determine the produc­tion level, inventory level, capacity level (internal and outsourced), and any backlogs

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Aggregate Planning Strategies in a Supply Chain

The aggregate planner must make trade-offs among capacity, inventory, and backlog costs. An aggregate plan that increases one of these costs typically results in reduction of the other two. In this sense, the costs represent a trade-off: To lower inventory cost, a planner must increase capac­ity cost or delay delivery to the customer. Thus,

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Aggregate Planning at Red Tomato Tools in a Supply Chain

We illustrate aggregate planning methodologies using Red Tomato Tools. Red Tomato’s products are sold through retailers in the United States. Red Tomato’s operations consist of the assembly of purchased parts into a multipurpose gardening tool. Because of the limited equipment and space required for its assembly operations, Red Tomato’s capacity is determined mainly by

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Aggregate Planning Using Linear Programming in a Supply Chain

As we discussed earlier, the goal of aggregate planning is to maximize profit while meeting demand. Every company, in its effort to meet customer demand, faces certain constraints, such as the capacity of its facilities or a supplier’s ability to deliver a component. A highly effective tool for a company to use when it

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Aggregate Planning in Excel in a Supply Chain

Next we discuss how to generate the aggregate plan for Red Tomato in Table 8-4 using Excel. We first do so by building a simple spreadsheet that allows what-if analysis and then build a more sophisticated model that allows optimization using linear programming. 1. Building a Basic Aggregate Planning Spreadsheet The aggregate planner must

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Building a Rough Master Production Schedule in a Supply Chain

From an aggregate plan, a planner must disaggregate the available information and build a rough master production schedule (MPS) that identifies the batches produced in each period at the level of each product family. We return to the Red Tomato example to illustrate a simple approach to disaggregate an aggregate plan. Although this approach

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