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OTM 300 Final Exam Questions And 100% Correct Answers
Sales and Operations Planning - ANSWER An organizational process for developing aplan to efficiently make supply meet demand. (Make Supply=Demand)
Long-Term Planning - ANSWER Facilities planning building new stuff, etc. Medium-Term Planning - ANSWER Sales and Operations Planning within existingfacilities, what do we have to do to meet demand. Need to track inventory at an appropriate level of detail Short-Term Planning - ANSWER Detailed Scheduling Decisions at each planning level (long, medium, and short-term). - ANSWER Constrainoptions at lower levels
Typical Approaches to Sales and Operations Planning - ANSWER -Chase Plan -Stable workforce with variable hours-Stable workforce with subcontracting -Level plan Chase plan - ANSWER Increase/decrease capacity to exactly meet demand each period.Cumulative production precisely follows cumulative demand. Advantage is meeting demand with low levels of inventory Stable workforce with variable hours - ANSWER Workforce is kept stable; output levelsvaried through overtime (or undertime - reduce everyone's hours, for example)
Stable workforce with subcontracting - ANSWER Workforce is kept stable and produces
at constant rate; output levels are varied through subcontracting to meet demand,rather than overtime
Level plan - ANSWER Produce same amount each period, from stable workforce Sales and Operations Planning Maturity Model developed by Gartner - ANSWER 1)Reacting
- Anticipating3) Collaborating
- Orchestrating Reacting - ANSWER Earliest stage in S&OP Maturity Model. More of a sales reviewmeeting, inconsistent, ineffective
Anticipating - ANSWER Second stage in S&OP Maturity Model. More formal, structuredprocess, match supply to demand; lack of balance (sales-dominated and not much coordination) Collaborating - ANSWER Third stage in S&OP Maturity Model. More proactive; work withsupply chain partners on planning
Orchestrating - ANSWER Last stage in S&OP Maturity Model. More dynamic, agileprocess; firm influences operations throughout the supply chain
Red Wing Shoes change efforts focused on the three primary components of S&OP: -ANSWER People, process, and technology
Key change in Red Wing Shoes example - ANSWER Forecasts/plans shared withsuppliers and manufacturing teams and they are involved in the creation of the plan
People side of Red Wing Shoes - ANSWER Added a new demand planning role for each
Spendthrifts - ANSWER Buy at last minute regardless of cost Overbooking - ANSWER A common practice to sell more reservations for a flight thanthere are seats on an aircraft to maximize revenue
Traffic Management - ANSWER -Control reservations by passenger origin anddestination to maximize revenue -The hub-and-spoke design used by most major airlines greatly complicates the problem Forecasting - ANSWER Process of predicting future outcomes based on the availablerelevant information. Key input to the Sales and Operations Planning process. Many factors influence outcomes and errors can have significant costs/consequences Judgmental Forecasting Approach - ANSWER Used when situation is vague and littledata exists. Involves intuition, experience. (New products, new technology, etc.)
Top-Down approach to judgmental forecasting - ANSWER A small group at the top of theorganization generates a sales forecast and it trickles down. Advantage is that executives may know more about a certain thing Bottom-Up approach to judgemental forecasting - ANSWER Forecasting starts withsales representatives since they have a lot of information from customers
Quantitative Forecasting Approach - ANSWER Used when situation is 'stable' andhistorical data exists. Involves mathematical techniques. (Existing products, current technology, etc.) Types of Quantitative Forecasting Approaches - ANSWER -Time Series-Explanatory
Time Series Methods of Quantitative Forecasting - ANSWER A set of evenly spaced
numerical data obtained by observing response variable at regular time periods. Naive Time Series Forecast - ANSWER Forecast for current model is same as it was forlast month
K-Period Moving Average Time Series Forecast - ANSWER Gives equal weight to all datapoints
Weighted Moving Average Time Series Forecast - ANSWER Gives a different weight tocertain months, for example
Time Series Forecasting With Level Demand - ANSWER -Naive Forecast -K-Period Moving Average -Weighted Moving Average-Exponential Smoothing
Exponential Smoothing - ANSWER This period's forecast is just last period's forecastplus some error correction. α determines how much error correction is given. All past actual demands are included, but are given exponentially decreasing weights When α=1 - ANSWER Naive Forecast Time Series Forecasting with Trend - ANSWER An overall upward or downward patternthat persists over several periods or more due to population, technology, etc. Adjust the exponential smoothing model by adding the trend term, T. Time Series Forecasting with Seasonality - ANSWER Regular pattern of up and downfluctuations (due to weather, customs, etc.) that repeats itself annually or more often than that Seasonality Index - ANSWER Average Monthly Demand ÷ Average Overall Demand
The A/F Ratio Method - ANSWER Allows us to combine past data from many forecastingtasks that were similar to the current forecasting task by putting them all on the same scale A/F Ratio - ANSWER Actual Demand ÷ Forecasted Demand Forecast Error - ANSWER = Forecast Demand - Actual Demand When the A/F Ratio is < 1 - ANSWER Forecast Demand > Actual Demand Forecast is too high! When the A/F Ratio is > 1 - ANSWER Forecast Demand < Actual Demand Forecast is too low! Assumption when using A/F Ratios - ANSWER -"these items are similar to the new item,so forecast demand errors will also be similar" -Not all items are "similar" in terms of how they are forecasted Differences arise from one product/category and one forecaster to another.Aggregation can be misleading
Newsboy Inventory Situation - SOLUTION An order must be placed before the sellingseason starts and the selling season is short enough (and/or the lead time is long enough) that no replenishment can occur during the selling season. Must select anorder quantity of Q
Newsvendor Inventory Key Tradeoff - ANSWER Cost of too much inventory vs. Cost oftoo little ivnentory
Cost of Understocking= - ANSWER Sale price per unit - Cost per unit
Cost of Overstocking - ANSWER Cost per unit - Salvage value per unit Key Decisions in Multi-Period Inventory Control Systems - ANSWER -When should weorder? -How much should we order? Approaches to Multi-Period Inventory Control Systems - ANSWER -Fixed-Time PeriodReview Models -Continuous Review Models Fixed-Time Period Review Models for Multi-Period Inventory Control Systems - ANSWEROrders are time triggered (ex: monthly sales call by sales representative)
Continuous Review Models for Multi-Period Inventory Control Systems - ANSWEROrders are event triggered (Ex: running out of stock)
Fixed-Time Period Review Models - ANSWER The Base Stock, or "order-up-to" model.P=Review Period, S=Order-up-to Level, L= lag between time order is placed and time order is delivered) Continuous Review Models - ANSWER The timing of the orders may vary but the orderquantity is fixed. R=Reorder Point, Q=Order Quantity, L=Lead Time
Ordering more less often - ANSWER Looks better when considering fixed order charge.Higher inventory holding costs associated
Ordering less more often - ANSWER Looks better when considering inventory holdingcosts. More fixed order charges incurred
Assumptions in the Economic Order Quantity Model ANSWER -Demand for the product
Setting the reorder point, R - ANSWER With no uncertainty, just multiply the averagedemand per period by the lead time in periods. With uncertainty, use formula on formula sheet. Several factors considered when setting the reorder point with uncertainty - ANSWER-Stockout cost -Holding cost -Demand variability-Leadtime variability
Most firms stress __________ _____________ as a long term goal - ANSWER inventoryreduction
Reasons a firm might maintain a certain level of inventory - ANSWER 1) To decouplevarious parts of the production process (making stations more independent of a problem station)
- To meet variation in product demand3) To hedge against expected price increases (buy more of an input if cost is going to rise)4) To take advantage of quantity discounts
Key goal of inventory control is to manage these associated inventory costs: - ANSWER-Production or purchase costs -Fixed setup or ordering costs -Shortage/stockout costs-Holding Costs
Production or purchase costs. - ANSWER -Purchased items (could be affected by orderquantity) -Produced items (cost is more difficult to calculate)
Setup or Ordering Costs - ANSWER -Independent of order size -Ordering costs include order forms, postage/delivery, order entry costs -Setup costs include direct labor and lost production time Holding costs - ANSWER -Expenses of managing inventory (warehouse space, theft,spoilage/obsolescence, insurance, handling/counting costs) -Opportunity cost of money tied up in inventory (typically 20-40% of item value annually) Shortage Costs - ANSWER -Lost Sales or Backorders Goodwill costs (when we disappoint the customer, there are costs beyond the lost sale;customer gets frustrated and shops elsewhere)
Questions to ask in order to evaluate the in-stock rate - ANSWER -What is the grossmargin on the product? -What is the inventory holding cost for the product? -What is the likelihood a customer will buy a substitute product if they encounter astockout? -How well competitors maintain stock of merchandise Sales Capture Rate - ANSWER The % of possible sales we are capturing Lost Sales (shortage costs) can be much larger than calculated because. - ANSWERWhen a customer experiences a stockout there could be: -No lost sales (customer purchases substitute or returns after re-stock -Lose the sale (customer buys elsewhere or decides to do without-Lost sales on a whole basket of goods customer doesn't buy anything -Lost customer - only after repeated stockouts, usually Companies underestimate these costs - ANSWER Stockout costs are hard to measure
Using only the average of multiple forecasts. - ANSWER Loses valuable information thatthe individual forecasts provide us
Delphi method of forecasting- potential problems - ANSWER -Groupthink-multipleforecasters -Some individuals are more aggressive These problems result in a group arriving at a consensus that is unrealistic Delphi Method of Forecasting - ANSWER Depends upon a panel of experts Higher variation among forecasters is an indicator of. - ANSWER More highly uncertaindemand. Assign each item to the "low uncertainty" or "high uncertainty" group
Initial Order - ANSWER "speculative" --> Ordering based on forecasts Replacement order - ANSWER "reactive" --> Reacting to data of forecast accuracy Order higher percentile of _______ Order lower percentile of ________(Risk-based production sequencing) - ANSWER -Low uncertainty -High uncertainty Improving Forecast Accuracy - ANSWER -Reference products from prior season (mostcommon - easy) -Use test sales small batches of products in a few stores to see how well they sell, thenmake a decision on whether to introduce into all stores -Update forecast based on early sales
An important lever for better matching supply to demand - ANSWER Decreasing leadtimes -Lead time of 0-1 day - little need to forecast (easier to forecast and react to demandwith shorter lead time)
Obtaining even a small mount of early sales data will. - ANSWER Dramatically improveforecast accuracy. Typically, a couple weeks of sales data allows for a forecast error reduction from 50-100% to 10-20% How much to produce in the first production order? - ANSWER General rule: buy enoughthat you probably won't stock out prior to receiving the replenishment order, but not so much that you will have to dump excess inventory at the end of the season Be more conservative with your first order for. - ANSWER Higher uncertainty items Product life cycles are getting. - ANSWER Shorter all the time An exit strategy aims to. - ANSWER Liquidate inventory to maximize revenue from theremaining products in inventory
Issues to be considered in an exit strategy - ANSWER -When do we mark down? -One time markdown vs. Multiple markdowns over time 3 step methodology for exit strategy - ANSWER -Forecast -Optimize-Test
Forecasting for an exit strategy - ANSWER Step 1Estimate the sales lift that would result from a given markdown (appears to be an exponential distribution)
-smaller number of options- large number of options still a finite and preselected set Individualized mass customization - ANSWER Produce a tailor-made product or servicefor every single customer (no limitation in number of options ex adding a picture)
Why customers like customized products - ANSWER -Utilitarian value of a personalizedproduct (fits better, works better, looks better, etc.) -Value of interpersonal differentiation -Satisfaction derived from self-expression-The experience of co-creation (fun, exciting, fulfilling)
The 4 Approaches to Mass Customizaiton - ANSWER -Collaborative (product andrepresentation change) -Adaptive (product and representation don't change) -Cosmetic (Product doesn't change, but representation does)-Transparent (Product changes, but representation doesn't)
Collaborative approach to mass customization - ANSWER -Work directly with thecustomer to determine needs and choices -Useful when customer has trouble articulating exactly what they want or when thereare too many choices or complex tradeoffs (eyeglasses, shoes, etc.)
Adaptive approach to mass customization - ANSWER -Offers a standard, adjustableproduct designed so that customers can alter it themselves Needed when customers' demands span an enormous set of possibilities. May allowcustomer to store configurations for future use (ex. Car seats, adjustable mattresses)
Cosmetic approach to mass customization - ANSWER -A standard product is presenteddifferently to different customers Changes for customers could include packaging, marketing materials, purchase termsand conditions, etc. Tylenol (liquid, pill, tablets), Sugar example (same sugar, different brands)
Transparent approach to mass customization ANSWER Provide unique productswithout letting the customer know Useful when customer doesn't want to be bothered with making choices Observe customer behavior without direct interaction and thencustomize the product within a standard package (ex. hotel database of customer preferences, automobile oil changes same thing, filter and oil changes per vehicle) To provide the greatest customer value. - ANSWER Companies can frequently use acombination of several approaches to customization
3 Key Factors that must be in place for Mass Customization to be Successful - ANSWER-Elicitation -Process Flexibility -Logistics and order tracking Elicitation - ANSWER -Help customers go through a process to clearly state their needs -Can use menus on the web, prototypes, or face-to-face interaction Process Flexibility - ANSWER -Some dimensions or characteristics are more difficult tocustomize than others -Technical development makes it easier Logistics and order tracking - ANSWER Customization can lead to more processing andtransport work but also to the growth of information needs of the process. Information element, each item is attained with an individual customer Two Keys to consider in the next wave of mass customizaiton - ANSWER -Identifyingcustomization opportunities that create value for the customer and are supported by smooth, swift, and inexpensive transactions -Achieving a manageable cost structure and cost level for the producer asmanufacturing complexity increases
A changing environment requires new approaches to supply chain management -ANSWER -Globalization -E-Commerce -Instant Communication -Demand-side complexity-Developing economies (BRIC)
BRIC Developing economies - ANSWER Brazil, Russia, India, China Supply Chain Management ANSWER The effective control of the flows of material,information and finance in a network consisting of suppliers, manufacturers, distributors, and customers Supply chain objectives ANSWER -Maximize the supply chain's competitive advantageand benefits to the ultimate consumer -Maximize the overall profit generated by the chain Profit= ANSWER Price to the final consumer - total supply chain costs Three key areas of decision making in managing the supply chain for competitiveadvantage - ANSWER -Sourcing decisions -Logistics Management -Managing inventory in the supply chain Sourcing - ANSWER -Which suppliers do we choose? -It's not just about cost! Also about quality, flexibility, delivery, speed and reliability -Most manufacturers use some sort of structured supplier evaluation and certificaitonsystem
ISO 9000 - ANSWER International standard for evaluating suppliers Advantages of few suppliers - ANSWER -Less cost/effort needed -Easier to coordinate schedules-More detailed assessment of performance
Disadvantages of fewer suppliers - ANSWER -Higher risk of disruption in supply-Potential loss of bargaining power
Buy locally or globally? - ANSWER -More far-flung suppliers would often be selectedbased on lower costs of production -High demand uncertainty coupled with high cost of holding inventory would favor alocal supplier
In determining the structure of supplier relationships. - ANSWER It is important toconsider how important the item is to the overall product
More important items are sourced. - ANSWER With vertical integration (Company is theirown supplier)
Less important items are sourced. - ANSWER At arm's-length transaction (short-termcontract)
Vertical Integration - ANSWER 100% ownership "Virtual" Integration - ANSWER Joint venture / equity partner Strategic Alliances - ANSWER Long-Term Relationship
