(Spring/Feb 2013)

Master of Business Administration - MBA Semester 3 Operations Management Specialization OM 0012 Supply Chain Management (4 credits)
(Book ID:B1234)

ASSIGNMENT- Set 1 Marks 60

Note: Assignment Set -1 must be written within 6-8 pages. Answer all questions.

Q1. Explain sixstep approach that helps an organisation perform effective forecasting

10 marks (300-400) words

Forecasting helps managers and businesses develop meaningful plans and reduce uncertainty of events in the future. Managers want to match supply with demand; therefore, it is essential for them to forecast how much space they need for supply to each demand. Two important aspects associated with forecasting are the expected level of demand and the forecast's degree of accuracy. Two general approaches to forecasting are qualitative and quantitative. Also, there are three types of forecasting techniques: 1. Judgmental forecasts, 2. Time-series forecasts, and 3. Associative models. Judgmental forecasts rely on subjective inputs from various sources. Time-Series forecasts projects patterns identified in recent time-series observations. A time-series is a time-ordered sequence of observations taken at regular time intervals. Associative models are based on the development of an equation that summarizes the effects of predictor variables. Predictor variables are used to predict values of the variable of our interest. It is important to know how to calculate a forecast error: Error = Actual - Forecast. There are three ways of measuring the accuracy of forecasts: MAD, MSE, and MAPE. MAD weighs all errors evenly. MSE weighs errors according to their squared values. Lastly, MAPE weighs according to relative error. Qualitative forecasting is subjective, while quantitative forecasting involves projecting historical data, or developing associative models. Judgmental forecasts are qualitative, while time-series forecasts and associative models are both quantitative. Quantitative forecasting methods include the Nave forecasting method, the moving average method, the weighted average method, and the exponential smoothing method. Forecasts are never 100% accurate; hence, there is always room for improvement. Chapter 3 introduced different kinds of forecasting techniques; however no single technique works best in every situation. Random variation is always present within forecasts and there will always be a degree of residual error within forecasts. Forecasts are the basis for an organization's schedule, and therefore the accuracy of these forecasts will dictate how many resources must be used, the output production, and the timing of a production schedule.The higher the accuracy the higher the cost, therefore the best forecast is generated from some

combination of accuracy and cost. The availability of historical data, computer software, as well as the time needed to gather and analyze data must be taken into consideration when selecting a forecast technique. Computers play an important role in preparing forecasts based on quantitative data.Because forecast error equals the actual value minus the forecast value. Positive errors will occur when the forecast is too low and negative errors will occur when the forecast is too high.
There are a wide variety of forecasting techniques that can broadly be classified in three main approach

1. Judgmental Forecasts: Useful when forecasts must by done in a short period of time, when data is out dated, unavailable, or there's limited time to collect it. 2. Time Series Forecasts: Most Common, are used to identify specific patterns in data and use them to project future forecasts 3. Associative models: identify related variables in order to predict necessary forecasts. Forecasting is a method used to predict and place all information mainly in design and operating systems. They both estimate what that information will look like in the future. In order to do so, one must determine the purpose, establish a time horizon, select a forecasting technique, make it, and then monitor the new forecast. The methods used to decrease error include: Delphi method, naive method, and weighted average method. A major issue in forecasting is seasonal variations because it has a repeating movement. This is where the control chart becomes important mainly because it monitors forecasting errors.

Q2.

How CPFR model helps guiding Supply Chain partners in setting up their relationship and processes. 10 marks (300-400) words

Collaborative Planning, Forecasting and Replenishment (CPFR, a trademark of the Voluntary Interindustry Commerce Standards) (VICS) Association), is a concept that aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply chain process more efficient. Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners. CPFR began as a 1995 initiative co-led by Wal-Mart's Vice President of Supply Chain, Chief Information Officer, Vice President of Application Development, and the Cambridge, Massachusetts software and strategy firm, Benchmarking Partners. The Open Source initiative, was originally called CFAR (pronounced See-Far, for Collaborative Forecasting and Replenishment). According to an October 21, 1996 Business Week article entitled Clearing the Cobwebs from the Stockroom, New Internet software may make forecasting a snap, "Benchmarking developed CFAR with funding from Wal-Mart, IBM, SAP, and Manugistics. The latter two are makers of accounting and supply chain management software, respectively. To promote CFAR as a standard, Benchmarking has posted specifications on the Web and briefed more than 250 companies, including Sears, J.C. Penney, and Gillette. About 20 companies are implementing CFAR." Warner Lambert (now part of Pfizer) served as the first pilot for CFAR. The pilot's results were publicly announced at a CFAR industry session at Harvard University, July 30, 1996 of executives from Wal-Mart's suppliers as well as other retailers and the Uniform Code Council. Benchmarking Partners then presented CFAR to the Board of Directors of the Voluntary Interindustry Commerce Standards Committee (VICS). VICS

established an industry committee to prepare for rolling CFAR out as an international standard. The original committee was co-chaired by the Vice President of Customer Marketing from Nabisco and the Vice President of Supply chain from Wal-Mart. Based on the suggestion of Procter & Gamble's Vice President of Supply Chain, the standard was renamed CPFR to emphasize the role of planning in the collaborative process. The first publication of the VICS CPFR Voluntary Guidelines came out in 1998. Currently there are committees "to develop business guidelines and roadmaps for various collaborative scenarios, which include upstream suppliers, suppliers of finished goods and retailers, which integrate demand and supply planning and execution. The committee is continuing to improve the existing guidelines, tools and critical first steps that enable the implementation of CPFR." These committees gained experience from pilot studies which have occurred over the past six years. VICS continues to lead much of the research and implementation of CPFR through its guidelines and project investigations.

Q3.

Explain the components of Procurement

10 marks (300-400) words

Procurement is the acquisition of appropriate goods and/or services at the best possible total cost of ownership to meet the needs of the purchaser in terms of quality and quantity, time, and location. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion. Overview Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If good data is available, it is good practice to make use of economic analysis methods such as costbenefit analysis or cost-utility analysis. An important distinction is made between analysis without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of expected value may be employed.

Based on the consumption purposes of the acquired goods and services, procurement activities are often split into two distinct categories. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement. Direct procurement occurs in manufacturing settings only. It encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, indirect procurement activities concern operating resources that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardised low value items like office supplies and machine lubricants to complex and costly products and services like heavy equipment and consulting services.

Procurement topics Procurement vs acquisition The US Defense Acquisition University (DAU) defines procurement as the act of buying goods and services for the government. DAU defines acquisition as the conceptualization, initiation, design, development, test, contracting, production, deployment, Logistics Support (LS), modification, and disposal of weapons and other systems, supplies, or services (including construction) to satisfy Department of Defense needs, intended for use in or in support of military missions. Acquisition is therefore a much wider concept than procurement, covering the whole life cycle of acquired systems. Multiple acquisition models exist, one of which is provided in the following section. Procurement systems Another common procurement issue is the timing of purchases. Just-in-time is a system of timing the purchases of consumables so as to keep inventory costs low. Just-in-time is commonly used by Japanese companies but widely adopted by many global manufacturers from the 1990s onwards. Typically a framework agreement setting terms and price is created between a supplier and purchaser, and specific orders are then called-off as required. Shared services In order to achieve greater economies of scale, an organizations procurement functions may be joined into shared services. This combines several small procurement agents into one centralized procurement system. Procurement process Procurement may also involve a bidding process i.e, Tendering. A company may want to purchase a given product or service. If the cost for that product/service is over the threshold that has been established (eg: Company X policy: "any product/service desired that is over $1,000 requires a bidding process"), depending on policy or legal requirements, Company X is required to state the product/service desired and make the contract open to the bidding process. Company X may have ten submitters that state the cost of the product/service they are willing to provide. Then, Company X will usually select the lowest bidder. If the lowest bidder is deemed incompetent to provide the desired product/service, Company X will then select the submitter who has the next best price, and is competent to provide the product/service. In the European Union there are strict rules on procurement

processes that must be followed by public bodies, with contract value thresholds dictating what processes should be observed (relating to advertising the contract, the actual process etc). Procurement steps Procurement life cycle in modern businesses usually consists of seven steps: Information gathering: If the potential customer does not already have an established relationship with sales/ marketing functions of suppliers of needed products and services (P/S), it is necessary to search for suppliers who can satisfy the requirements. Supplier contact: When one or more suitable suppliers have been identified, requests for quotation, requests for proposals, requests for information or requests for tender may be advertised, or direct contact may be made with the suppliers. Background review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined, or trials undertaken. Negotiation: Negotiations are undertaken, and price, availability, and customization possibilities are established. Delivery schedules are negotiated, and a contract to acquire the P/S is completed. Fulfillment: Supplier preparation, expediting, shipment, delivery, and payment for the P/S are completed, based on contract terms. Installation and training may also be included. Consumption, maintenance, and disposal : During this phase, the company evaluates the performance of the P/S and any accompanying service support, as they are consumed. Renewal: When the P/S has been consumed and/or disposed of, the contract expires, or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier

Q4. Describe the various steps in the Supply Chain Management process 10 marks (300-400) words that facilitates the development and structuring of a relationship based mapping

Supply-chain operations reference-model (SCOR) is a process reference model developed by the management consulting firm PRTM, now part of PricewaterhouseCoopers LLP (PwC) and endorsed by the Supply-Chain Council (SCC) as the cross-industry de facto standard diagnostic tool for supply chain management. SCOR enables users to address, improve, and communicate supply chain management practices within and between all interested parties in the extended enterprise. SCOR is a management tool, spanning from the supplier's supplier to the customer's customer. The model has been developed by the members of the Council on a volunteer basis to describe the business activities associated with all phases of satisfying a customer's demand. The model is based on 3 major "pillars":

Process modeling

Performance measurements Best practices

The process modeling pillar

By describing supply chains using process modeling building blocks, the model can be used to describe supply chains that are very simple or very complex using a common set of definitions. As a result, disparate industries can be linked to describe the depth and breadth of virtually any supply chain. SCOR is based on five distinct management processes: Plan, Source, Make, Deliver, and Return.

Plan Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements. Source Processes that procure goods and services to meet planned or actual demand. Make Processes that transform product to a finished state to meet planned or actual demand. Deliver Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management. Return Processes associated with returning or receiving returned products for any reason. These processes extend into post-delivery customer support. Enable - New process since Version 11 (Dec 2012).

With all reference models, there is a specific scope that the model addresses. SCOR is no different and the model focuses on the following:

All customer interactions, from order entry through paid invoice. All product (physical material and service) transactions, from your suppliers supplier to your customers customer, including equipment, supplies, spare parts, bulk product, software, etc. All market interactions, from the understanding of aggregate demand to the fulfillment of each order.

SCOR does not attempt to describe every business process or activity. Relationships between these processes can be made to the SCOR and some have been noted within the model. Other key assumptions addressed by SCOR include: training, quality, information technology, and administration (not supply chain management). These areas are not explicitly addressed in the model but rather assumed to be a fundamental supporting process throughout the model. SCOR provides three-levels of process detail. Each level of detail assists a company in defining scope (Level 1), configuration or type of supply chain (Level 2), process element details, including performance attributes (Level 3). Below level 3, companies decompose process elements and start implementing specific supply chain management practices. It is at this stage that companies define practices to achieve a competitive advantage, and adapt to changing business conditions. SCOR is a process reference model designed for effective communication among supply chain partners. As an industry standard it also facilitates inter and intra supply chain collaboration, horizontal process integration, by explaining the relationships between processes (i.e., Plan-Source, Plan-Make, etc.). It also can be used as a data input to completing an analysis of configuration alternatives (e.g., Level 2) such as: Make-to-Stock or Make-ToOrder. SCOR is used to describe, measure, and evaluate supply chains in support of strategic planning and continuous improvement.

Q5.

Assess the role of E-business in a Supply Chain

10 marks (300-400) words

The ability to adapt to change, by quickly and easily locating new services or partners, learning their specific capabilities, and forming a rapid "electronic bond" with them. 1. Introduction: A supply chain is a network of facilities and distribution options for the entire network of companies to work together to design, produce, deliver, and service products. Since its inception about 10 years ago, the field of supply chain management has become tremendously important to companies in an increasingly competitive global marketplace. On the contrary, e-commerce does not just mean trading and shopping on the Internet. It means business efficiency at all operation levels. Executives know it is critical to effective business operations, but until now quantifiable performance measures have been as scarce. A very of us in the corporate level who heard of the phrase "supply chain management" (SCM). 2. Definition & Relation with E-Commerce: Supply Chain Management means coordinating, scheduling and controlling procurement, production, inventories and deliveries of products and services to customers. The SCM is the backbone of Ecommerce, a very critical component of E-commerce. Supply Chain Efficiency means having the right product at the right place at the right time, can save money/reduce costs, and can enhance cash utilization. 3. Leading Role of E- Commerce: So, lets going to highlight the leading role of e-commerce over supply chain management. A. OVER ALL LEADING ROLE 1. Integrated, automatic system-to-system interaction with all trading partners In a simple phrase, an integrated supply chain management (SCM) system is the backbone to achieve the above ebusiness objectives. Although the phrase SCM interprets different meanings to different people but one fact is clear: businesses have been striving to achieve efficiency in their "sourcing," "making" and "delivering" 2. The ability to integrate those interactions seamlessly with your in-house applications and processes to provide true end-to-end visibility and control SupplyChain Management means coordinating, scheduling and controlling procurement, production, inventories and deliveries of products and services to customers. It includes all the steps people does everyday in his/her administration, operations, logistics, and information processing from your customers to suppliers. 3. A high-quality and reliable means of exchanging messages over the Internet, which provides business-level guarantees of delivery and integrity Supply Chain Efficiency can improve customer service - having the right product at the right place at the right time. Supply Chain Efficiency can save money/reduce costs. According to a recent benchmarking study conducted by Pittiglio Rabin Todd & McGrath, one of the founders of the Supply-Chain Council, best in class companies have an advantage in total supply chain management cost of 3 to 6 percent of revenue. Total supply chain management cost = Order-Management Cost+, Material Acquisition Cost+ Inventory Carrying Cost+ Supply-Chain Finance Cost+ Planning Cost+ MIS Costs. The global rush toward e-business is having a profound impact on organizations in very industry. It affects not

only how they do business with their customers, suppliers, distributors and other trading partners, but also how they must manage their businesses internally. What is more, the nature of e-business itself is rapidly evolving, further compounding the rate at which business transformation must occur. Business world is moving ever faster than before. Adaptation to change is very important for any e-business software. Agility will become a necessity for any e-business infrastructure software. The credit on payment over Internet and lawful accounting practices will be a serious problem to affect e-business development. It relates to legal aspects and law enforcement practices. It will be a very hard fight to overcome legal hurdles. Purpose a. To increase enterprise satisfaction and confidence in doing business on the Internet. b.To establish credibility and trustworthiness of enterprises, suppliers, and distributors. c. To help enterprises provide a world-class customer experience, innovate rapidly and lower their costs. d. To support and enhance self-regulation of B2B Internet commerce. Q6. What are the processes involved in Reverse Supply Chain Management? 10 marks (300-400) words

Supply chain management (SCM) is the management of an interconnected or interlinked between network, channel and node businesses involved in the provision of product and service packages required by the end customers in a supply chain. Supply chain management spans all movement and storage of raw materials, workin-process inventory, and finished goods from point of origin to point of consumption. Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally." SCM draws heavily from the areas of operations management, logistics, procurement, information technology and strives for an integrated approach.

Problems addressed
Supply chain management must address the following problems:

Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers. Distribution Strategy: questions of operating control (e.g. centralized, decentralized or shared); delivery scheme (e.g. direct shipment, pool point shipping, cross docking, direct store delivery (DSD), closed loop shipping); mode of transportation (e.g. motor carrier, including truckload, Less than truckload (LTL), parcel, railroad, intermodal transport, including trailer on flatcar (TOFC) and container on flatcar (COFC), ocean freight, airfreight); replenishment strategy (e.g. pull, push or hybrid); and transportation control (e.g. owneroperated, private carrier, common carrier, contract carrier, or third-party logistics (3PL)). Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than LTL shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs which

may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.

Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc. Inventory Management: Quantity and location of inventory, including raw materials, workin-process (WIP) and finished goods. Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.

Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional. SCM applications provide real-time analytical systems that manage the flow of product and information throughout the enterprise supply chain network.