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Forecasting and Information Technology

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Title: Forecasting and Information Technology


1
Bus 301 Supply Chain Management
  • Forecasting and Information Technology

2
Internal Supply Chain Management (ISCM)
  • Strategic planning (First Half)
  • Manufacturing (Part I)
  • Inventory Strategies (Part II)
  • Forecasting (Part III)
  • Information Technology (Part IV)

3
Basic Steps in Forecasting
  • Problem definition
  • Gathering information
  • Preliminary (exploratory) analysis
  • Selecting and fitting models
  • Using and evaluating forecasting model

4
What Are Some Lessons Learned?
  • _________________________________
  • _________________________________
  • _________________________________
  • _________________________________
  • _________________________________
  • _________________________________
  • _________________________________
  • _________________________________

5
What goes wrong?
6
One of the Keys To Successful Forecasting is
Collaboration
  • This Semester Where Have You Seen The Importance
    of Collaboration?

7
What Can Prevent Collaboration in a Supply
Chain?
  • Incentive Obstacles
  • Information Processing Obstacles
  • Operational Obstacles
  • Pricing Obstacles
  • Behavioral Obstacles

8
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

9
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

10
Planning Horizon
  • Aggregate planning (AP)
  • Intermediate-range capacity planning, usually
    covering 2 to 18 months.

11
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

12
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
13
Planning Sequence
14
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

15
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.

16
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.

17
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).

18
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.

19
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)

20
  • we can now focus on the last of the elements of
    the ISCM Process


Information Technology MRP I an II ERP
Systems
21
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

22
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

23
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24
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

25
Master Scheduling Process
26
Master Schedule
27
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.

28
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.

29
MRP Secondary Reports
  • Performance-control reports
  • Planning reports
  • Exception reports

30
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

31
MRP II
  • Expanded MRP with an emphasis placed on
    integration
  • Financial planning
  • Marketing
  • Engineering
  • Purchasing
  • Manufacturing

32
ERP Introduction
  • Legacy MRP
  • MRP II
  • Development of ERP
  • Umbrella System
  • Centralized, Shared Database
  • Automate Business Process rapidly
  • Rapid growth

33
A Hypothetical ERP Transaction
  • Ordering
  • Availability
  • Manufacturing
  • Order Tracking

34
Implementing ERP
  • Single Integrator vs Best of Breed Integration
  • Requirements for Success
  • Why ERP Implementations fail?____________________
    __________________________________________________
    __________________________________________________
    __________________________________________________
    __________________________________________________
    __________________________________________________

35
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

36
Big picture
ERP
Enterprise Resource Planning Systems
Planning
Time
ERP system
Transactions
Money
Material
37
ERP in more detail
ERP
The ERP database surrounded by example activities
supported by ERP software modules.
38
ERP Software Applications
  • Accounting and Finance
  • Customer Relationship Management
  • Human Resource Management
  • Manufacturing
  • Supplier Relationship Management
  • Supply Chain Management

39
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

40
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
  •  
  • 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

41
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?

42
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?

43
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.
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