Measuring Forecast Accuracy

Supply Chain Forecast Accuracy is usually measured with Mean Absolute Percent Error or MAPE, the average of percentage errors. But there are several other metrics to consider. Here’s an example …

Business Model Canvas

Remember how you felt when you first started drawing your first Value Stream Maps? Well that’s how I felt when I first got my hands on Business Model Generation by Alexander Osterwalder, and Yves Pigneur. This is a new visual tool you can use to help connect your value propositions to your customers and suppliers. The… [Read More]

Safety Stock

Over time, inventory goes up and down.  As customer order shipments are made inventory transactions subtract the ship quantity from the quantity on hand.  When production is made or goods received into the warehouse the quantity on hand goes up.  This up/down cycle can be thought of as a ‘saw tooth’.  Except it’s never as… [Read More]

Material Classification Logic

Bruce asked “Do any of you have any standard material classification logic that you have used.  I’m working with a client to classify all of the parts they purchase.  In the past I’ve used some standards from NAPM but I can’t seem to find them now on the ISM site.” I thought for a moment… [Read More]

Square Root Law – inventory in multiple locations

Got asked what would happen to inventory when the number of stocking locations change.  I thought for a minute and remembered a quick rule of thumb … The Inventory Square Root Law states that … Average inventory increases proportionally  to the square root of the number of locations in which inventory is held. X2 =… [Read More]

Coefficient of Variation

A measure of the volatility of customer orders (or any time series), aka Demand Linearity Calculate the standard deviation (s) of the historical demand, use appropriate time buckets (daily, weekly, monthly) You might need to discard abnormal demand Calculate the historical mean (x) (or average) or use the forecast mean Then calculate the coefficient of… [Read More]

Demand Profile

Maslow’s hammer, or a golden hammer is an over-reliance on a familiar tool; as Abraham Maslow said in 1966 in A Psychology of Science, “It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”  So, must every product in every business segment be set… [Read More]

ABC Analysis: how to

ABC Analysis is a common approach for prioritizing, classifying, or categorizing inventory management techniques. Classification is usually based on price or cost times usage or consumption volume. Typically ‘A Items’ are the highest dollar volume and represent 5 to 10% of the items and 50 to 70% of the total dollar volume. The ABC Analysis… [Read More]

Bullwhip Effect

The bullwhip effect is the result of uncertainty caused from distorted information flowing up and down the supply chain.  The bullwhip effect is caused by fluctuations in information supplied to firms further up the supply chain. Distorted information causes firms to forecast demand incorrectly.  Thereby, many unnecessary costs are put upon each of the firms… [Read More]

Time Value Chart

      Determine Total Cycle Time Determine Queue Times between steps Create Step segments proportional to the task times Place steps, queue’s along the line segment in the order that they happen > Place Value Adding steps above the line > Place Non-value Adding steps below the line Draw in feedback loops & label… [Read More]