Supply Chain

Management
MS 491
Hassaan Tariq
School of Management Sciences
Fall 2021

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 1

 Let’s Discuss Things!
• Marking Schemes stay the Same, Only Addition is Project instead of
Assignment

• What is SCM
• Vertical Integration
• Reverse Logistics
• Flows in SCM
• 1st and 2nd Tier Suppliers and Customers
• 3PL vs 4th Party Logistics
• Bull-Whip Effect
• Business Process Re-Engineering
Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 2
 Let’s Discuss Things!
• Supplier Management
• Supplier Evaluation and Certifications
• Expansion and Contraction of SCM  Nearshoring, Outsourcing,
Right-Shoring
• Agile, Lean and Green Supply Chains

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 3

 Let’s Discuss Things!
• Chapter 2 – Purchasing Management
• Purchasing vs Procurement
• Traditional vs E-Procurement
• Tender , Bid, Purchase Order,
• Financial Impact of Purchasing  Return on Assets/ROI, Profit
Leverage Effect, Inventory Turnover
• Make or Buy in SCM and their Effect
• Breakeven Analysis
• Parameters for Supplier Selection  Technology, Info Sharing, Cost,
Quality, Reliability, Capacity, Ordering System, Communication
Capability, Location, Service Levels
Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 4
 Let’s Discuss Things!
• Chapter 2 – Purchasing Management
• Total Cost of Ownership  Order Processing Cost, Inventory Carrying
Cost, Cost of Working Capital, Back-Order Cost
• Single vs Multiple Suppliers
• Centralized and De-Centralized Purchasing
• Global Sourcing and Players
• Public Procurement and terms
• Problems and Numericals from the Chapter???

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 5

 Current Supply Chain Scenario and
Reasons!
• Disruptions  Due to ????????????????????

• Impact on Pakistan?????

• Is CPEC a Game Changer?????

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 6

 Cycle View
of Supply
Chain
Processes

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 Push/Pull
view of
SCM

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Manufacturing Strategies and De-Coupling Points – SCM Perspective

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Supply Chain Macro-Processes

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 What’s a Responsive SC
• Respond to wide ranges of quantities demanded
• Meet short lead times
• Handle a large variety of products
• Build highly innovative products
• Meet a high service level
• Handle supply uncertainty

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Drivers of SC
Performance

12
Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM
Efficient vs Responsive SC

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Supply Chain Flows
• Amazon
• Toyota
• Daraz

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Forecasting & Demand
Management

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• What is Forecasting??? E.g. Apple Iphone 4 – 600,000/ Pre-Orders
• Airbus delivered 29 planes out of the 202 ordered – A380
• Types of Forecasts?
• Where to Forecast and Where Not?

• Demand, Independent vs Dependent Demand?

• Demand Management in Pakistan?

• Ultimate aim of Supply Chain is to Balance Demand and Supply!

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• Forecast A statement about the future value of a variable of
interest. Demand can be a variable.

• Long Term and Short Term Forecasting

• Famous Saying  Forecasting is In-Accurate

• Good Forecasting should be accurate, timely, reliable, meaningful

units, cost-effective and simple to use & understand.
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Forecasting in different Business Environments
• Accounting. New product/process cost estimates, profit projections, cash
management.
• Finance. Equipment/equipment replacement needs, timing and amount of
funding/borrowing needs.
• Human resources. Hiring activities, including recruitment, interviewing, and
training; layoff planning, including outplacement counseling.
• Marketing. Pricing and promotion, e-business strategies, global competition
strategies.
• MIS. New/revised information systems, internet services.
• Operations. Schedules, capacity planning, work assignments and workloads,
inventory planning, make-or-buy decisions, outsourcing, project management.
• Product/service design. Revision of current features, design of new products
or services.
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Benefits of Forecast
• Reduced Inventories
• Reduced Stockout
• Smooth Production plans
• Reduced Cost
• Improved Customer Service levels

• Demand Forecasting is done at various levels in Supply Chains!

Suppliers Buyers  Consumers ; Invetory Forms and Where forecasting is
Required
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 Companies understanding about
Forecasting
• To make forecast more reliable and accurate, a company must be
knowledgeable about the following factors.
• Past Demand
• Lead time of Product Replenishment
• Planned Advertising or Marketing Efforts
• Planned price and Discounts
• State of the Economy
• Actions that Competitors have taken

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 Steps in a Forecasting Process

• Determine the purpose of the forecast

• Establish a time horizon
• Obtain, clean, and analyze appropriate data
• Select a forecasting technique
• Make the forecast
• Monitor the forecast errors

Mandatory Reading.
https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique
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 2 Main types of Forecasting
• Qualitative  Qualitative techniques permit inclusion of soft
information (e.g., human factors, personal opinions, hunches) in the
forecasting process. Those factors are often omitted or downplayed
when quantitative techniques are used because they are difficult or
impossible to quantify

• Quantitative  Quantitative methods involve either the projection of

historical data or the development of associative models that attempt
to utilize causal (explanatory) variables to make a forecast

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 Classification of Forecasting Techniques
• Judgmental forecasts rely on analysis of subjective inputs obtained from
various sources, such as consumer surveys, the sales staff, managers and
executives, and panels of experts. For New Industries!

• Time-series forecasts simply attempt to project past experience into the

future. These techniques use historical data with the assumption that the
future will be like the past.

• Associative models use equations that consist of one or more explanatory

variables that can be used to predict demand. For example, demand for
paint might be related to variables such as the price per gallon and the
amount spent on advertising, as well as to specific characteristics of the
paint (e.g., drying time, ease of cleanup).
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 Qualitative Methods

• Jury of Executive Opinion  Dominated Discussions by Top Mgt, e.g.

Fashion Trends

• Sales Forces Composite  Individual Biasis

• Delphi Method  Technology, Projects,

• Consumer Survey  Focused Groups as well

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Machine Learning based Forecasting

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 Machine Learning Forecasting Methods
• ARIMA and S-ARIMA
• Artificial neural network
• Long short-term-memory-based neural network
• Random forest
• Generalized regression neural networks
• K-nearest neighbours regression
• Classification and regression trees (CART)
• Support vector regression
• Gaussian processes

For Project every group needs to pick any one method, De-Code the backend
process and provide realistic Example by using the method of your choice.
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ML vs Traditional Forecasting Results

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Quantitative Methods – Traditional
Forecasting
• Time series forecasting is based on the assumption that the future is
an extension of the past; thus, historical data can be used to predict
future demand.

• Since these forecasts rely solely on past demand data, all quantitative
methods become less accurate as the forecast’s time horizon
increases.

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 Components/Behaviours of Time Series Method
• Trend A long-term upward or downward movement in data

• Seasonality Short-term regular variations related to the calendar or time

of day

• Cycle Wave like variations lasting more than one year

• Irregular variation Caused by unusual circumstances, not reflective of

typical behavior

• Random variations Residual variations after all other behaviors are

accounted for
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Variations in Time Series

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Naïve Forecasting
• A forecast for any period that equals the previous period’s actual
value. 2 Methods. Reliability is low but Simple to understand. Not
much previous data required.

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Averaging Techniques

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Simple Moving
Average

• Technique that
averages a number of
recent actual values,
updated as new values
become available.

•A moving average
forecast tends to
smooth and lag
changes in the data

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MA 3 vs 5 Periods

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 34

 • A weighted average is similar to a moving average,
except that it typically assigns more weight to the
most recent values in a time series.

Weighted
Moving
Average

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 Practice Question

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 Solution

Hassaan Tariq, SMGs, GIKI, Fall 2021, MS 491, SCM 37

 Exponential Smoothing
• A weighted averaging method based on the previous forecast plus a
percentage of the forecast error.

• Next forecast = Previous forecast + α(Actual − Previous forecast)

• The closer α is to zero, the greater the smoothing

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Numerical –Exponential Smoothing

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Choosing Alpha – Exponential Smoothing
• Selecting a smoothing constant is basically a matter of judgment or
trial and error, using forecast errors to guide the decision.
• The goal is to select a smoothing constant that balances the benefits
of smoothing random variations with the benefits of responding to
real changes if and when they occur.
• Commonly used values of α range from .05 to .50.
• Low values of α are used when the underlying average tends to be
stable; higher values are used when the underlying average is
susceptible to change.

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 Trend based Forecasting
• Trend Line Forecasting

• Spear Man’s Co-Efficient

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Trend-Line Equation

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Trend Line Practice Question

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Measuring Forecasting Accuracy

• Mean absolute deviation

(MAD) The average absolute
forecast error
• Mean squared error (MSE)
The average of squared
forecast errors.
• Mean absolute percent error
(MAPE) The average absolute
percent error.

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 Practice
Question

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 Demand Management

• Demand management includes activities that range from determining

or estimating the demand from customers, through converting
specific customer orders into promised delivery dates, to helping
balance demand with supply.

• Timely and honest customer order promises are possible. Physical

distribution activities can be improved significantly.

• Demand management is also concerned with identifying all sources of

demand for manufacturing capacity, including service-part demands,
intra company requirements, and promotional inventory buildup or
other needs for pipeline inventory stocking.
 Demand Management VS Demand Driven Supply Chains
• Demand management is a process within an organisation which enables that organisation to
tailor its capacity to meet variations in demand or to manage the level of demand using
marketing or supply chain management strategies.

• Demand driven supply chain (DDSC), also known as demand-driven supply network (DDSN),
is a system of technologies and processes that sense and react to real-time demand across a
network of customers, suppliers and employees, this has been significantly enabled due to
the rise in the use of e-commerce systems and new technologies due to the onset of the
Internet of Things (IoT).
• In a traditional supply chain, inventory or services are provided based on a forecasted
demand and historical sales patterns, however, in a demand driven supply chain companies
that form part of the supply chain work closely to shape market demand by sharing and
collaborating information so avoiding time lags in information flow, with a view to avoiding
the bullwhip effect occurring across the supply chain.
• A demand driven supply chain focuses on the demand from the consumer data and feeds
this data through to the supply base so driving greater efficiency into inventory availability
giving a demand-pull technique.
 Demand
Managemen
t Process
 Objectives and Levers of Demand Management
• The objectives on the demand side are to (1) Grow market, (2) Steal market share from
competitors, or (3) Shift buying patterns of the customers

• Companies may deal with Limited Supplies through Demand Shaping

• ERP Systems can help to reduce Demand Variability through small and frequent orders, and
integrating Up and Down Stream SCM.

• Demand characteristics (sales volume, volatility, sales duration, etc.)

• Levers Include:-
• • Pricing – incentives (discounts, MOQ’s, etc.)  MOQ (Minimum Order Qty)
• • Advertising – increasing brand awareness, and
• • Promotions – price reduction over short period of time.
 Demand Shaping

• Demand shaping involves finding ways to balance supply with

demand and it can take two basic forms: influencing demand and
managing and prioritizing demand

• Another way to distinguish among methods of demand shaping is

called external balancing versus internal balancing.
• External balancing works to change customer behavior while internal
balancing works to change organizational behavior
 Influencing Demand
• Influencing demand describes the activities of product and brand
management, marketing, and sales to convince customers to purchase the
organization’s products and services so that the organization’s business
objectives are met or exceeded.

• Another aspect of influencing demand is the requirement for the demand

side of the organization to influence the product development, logistics,
and supply sides of the organization to recognize and support actual
customer expectations and requirements.

• Changing how customers order goods can also be called external balancing
and the two key external balancing levers that most organizations have are
adjustments in price and Promotions and adjustments in lead time.
 Influencing Demand
• Positively influencing demand over the longer term involves
• Developing products that customers are actually demanding,
• Settling on the most profitable product mix,
• Setting strategic pricing,
• Placing products at various physical or online distribution points to establish a
presence and
• Level of customer convenience, and promoting products through
advertisement
 Managing and Prioritizing Demand
• Organizations must manage and prioritize demand because sales will
differ on a regular basis from planned demand in total volume and/or in
product mix and because supply often cannot produce products in the
exact timing and mix specified by the demand plan.

• The primary internal balancing levers used to manage and prioritize

demand include production flexibility and inventory holding.
• Production flexibility involves small batches of production with fast
changeovers to produce more units that are in demand now. It can also involve
prioritizing production to increase supply of certain items or prioritizing items
within distribution systems to better distribute supply to meet demand.

• For inventory, safety stock helps manage supply-demand mismatches by

preventing stockouts or avoiding lead time issues; however, it only makes
oversupply situations worse.
 Managing and Prioritizing Demand – External
Levers
• Management and prioritization from an external balancing perspective
can be based on customer segmentation strategies, such as fulfilling
orders to the most valuable customer segments first.
• Another example is rationing supply so that each warehouse or retailer
receives a portion of the full demand but no entity goes without a
certain minimum amount
Managing and Prioritizing Demand - Examples
 Demand and Power Law Distribution
• Demand follows power law distribution, meaning large volume of
sales is concentrated in fewer products.

• The distribution of percent sales volume to percent of SKUs (Stock

Keeping Units) tends to follow a Power Law distribution (y = ax^k )
where y is percent of demand (units or sales or profit), x is percent of
SKUs, and a and k are parameters.
• The value for k should obviously be less than 1 since if k=1 the
relationship is linear.
 Sources of Variation in Demand Management

Demand is also affected by Seasonality

Lumpy Demand  When items are really slow moving
The hockey stick effect is characterized by a sharp rise or fall of data points after a long flat period
Corporate cannibalism is when a product sees a decrease in sales volume or market share due to the release
of some new product that has been introduced by the same company.
Supply Chain Segmentation using Demand Profiling