# MPR: Chapter 3: Demand Management and Customer Service

The flashcards below were created by user Sandy2015 on FreezingBlue Flashcards.

1. True or False
Monitoring and evaluating forecasts in their aftermath is an equally important part of the forecasting process
True
2. What are forecasts subject to demand uncertainty?
• 1. Many customers act independently
• 2. Changes in the customer base and customer requirements
• 3. shifting influences on customer demand
• 4. Quality and objectiveness of demand assumptions.
• 5. Selection of forecasting techniques
• 6. Overall management of the forecasting process
3. True or false

A bias of zero is highly desirable because it shows that the forecast model is good and that over time, the difference between actual demand and the forecast is because of random error and not the forecast model.
True
4. What is RSFE?
Running sum of the forecast error
5. What is bias?
Demand that is consistently higher or lower than the period forecasts over a period of time.

• Bias = Summation (Actual - Forecast)/n
• Where n = number of periods
6. Describe the general guidelines for evaluating and monitoring forecasts.
• a. Forecasts by nature are not perfect.
• b. Forecasts often are calculated using averages based on time series data
•  - When demand is random and has no bias, it generally is better to forecast down the middle than to guess from one period to the next;over the long run, it all averages out.
•  - Forecasts should not chase demand from one period (day, week, month) to the next.
• c. Forecasts therefore are naturally in error from period to period, but that is not necessarily bad.
• d. It is important to measure period forecast error, such as actual demand vs forecast demand
•  - The analysis of forecast error should be alert for signs of bias and large magnitudes of demand variation
•  - The analysis of forecasts error should identify the opportunity for improvements in forecasting techniques as well as in business processes for reducing bias and demand variation.
7. How do you calculate MAD?
• 1. Calculate the total actual demand
• 2. Calculate the period forecast error (A-F) and the absolute error for the number of periods

MAD = Summation |A-F|/n   where n = the number of periods
Mean Absolute Devision

The degree of forecast error in the variance of actual demand from the forecast
9. What are desired outcomes of forecast evaluation and monitoring?
• 1. Correcting bias by better aligning the forecast with demand, which requires:
•  - avoiding forecasts that are too high for a prolonged period of time, which causes unnecessary inventory investment and capacity utilization
•  - avoiding a forecast that is too low, which means lost sales
•  - using more realistic forecasts and better forecasting techniques to deal with complex demand patterns such as seasonal, trend, and trend/seasonal
• 2. Reacting to unexpected or wide demand variations by
•  - improving the forecast to reduce forecast error
• - collaborating with customers to level the reate of demand through lean concepts and other process improvements
• 3. using CRM, including sales force and cRM databases, to anticipate customer orders and demand for new products
• 4. Leveraging the latest and more accurate error data as appropriate for better statistical estimates of safety stock.
• 5. Improvement in customer service and reduction in inventory investment.
10. What is MAPE?
Mean absolute percent error

• 2 step calculation:
• 1. The absolute percent error (APE) is the absolute error divided by the actual demand (A)
• Absolute error/Actual demand

2. The sum of the APE(%) for all periods is divided by the number of periods to calculate the MAPE
11. True or False

The absence of bias and zero bias do not mean the same thing
false
12. What is the condition known as the absence of bias?
when the actual demand in the forecast had a cumulative period forecast error of zero.

aka zero bias
13. What is the most important factor to deal with in evaluating and planning the forecast?
Bias - Remove bias and it is much easier to manage random variation in demand through statistical safety stock
14. True or False
If the tracking signal is less than the trip value, then the forecast is under control
True
15. True or False

If the tracking signal exceeds the trip value, the forecast may have lost its ability to predict actual period demand based on random variation and the forecast model may need to be modified
True
16. What is the calculation for Tracking signal?
17. What is a tracking signal?
signals used to track variation in demand. They are used to alert the forecast evaluator to this situation by setting a limit or trip value based on the ratio of the bias or the RSFE, to the MAD.

Commonly used trip values are 3.0 and 4.0 in either direction.
18. What steps are involved in setting and using demand filters?
• 1. tag items with long lead times or heavy demand
• 2. Set filter limits at multiples of MAD or per other management policy
• 3. Assign planner to act on filter defaults daily;accept partial fill, or delay
• 4. Discuss actions with customers
• 5. track all defaults separately
• 6. Increase capacity for items that constantly trip filters
19. What is a demand filter?
A demand filter is a quantity limit setting on actual orders fro specific products.
20. What is the standard deviation calculation?
√Summation(Actual - Avg forecast)²/ (n-1)

use n -1 for number of periods less than 30

use n for number of periods over 30
21. What is standard deviation for forecasting?
It measures the difference between period forecasts and period actual demand during a forecast horizon.

It is used in forecasting to measure forecast error and is used for the same productive purposes as MAD.

These include calculating safety stock, improving customer service, and improveing inventory management.
22. How do you convert standard deviation to MAD?
23. How do you convert MAD to standard deviation?
Standard deviation = MAD x 1.25
24. Summarize the value proposition of customer relationship management (CRM)
• 1. Differentiate the customer experience from rivals
• 2. Increase customer retention
• 3. Provide insight into impending customer orders
25. What is the scope of CRM?
Differentiation based on customer segments

use of data and analytics to improve sales performance.
26. What is the key to successful CRM?
The ability to provide the right kinds of differentiated services to important customer segments within the total customer base
27. What are the most important criteria for customer segmentation based on?
• 1. Profitability
• 2. Strategic importance to the business
• 3. Special needs
28. What is used to determine the most profitable customers?
ABC Analysis
29. true or false

There can be a certain degree of overlap between customers in the profitability and strategic importance segments.
True
30. In what areas can you give profitable customers differentiated treatment?
• 1. volume discounts
• 2. priority attention from sales and marketing staff and other functions such as product development
31. What is "special customer needs segmentation"?
• When a supplier provides services to customers such as:
• 1. Concurrent engineering to support MTO
• 2. Electronic PO, ship notices, pack slips, invoices, and payment or VMI - to support a reduction in transaction costs.
• 3. Supply chain partnerships or lean process improvements to support small production and delivery lot sizes
• 4. Use of reusable pallets and containers to support a reduction in disposable packing and shipping materials
• 5. Green procurement policies to support wood products not from virgin forests
• 6. Postponement (final assy and packaging) to accommodate variability in demand volume and product mix.
32. What are the primary data sources on customers?
• 1. transaction records
• 2. sales representatives
• 3. Service reps
• 4. Market intelligence
33. How do analytics improve sales?
• 1. predict broad scale consumer preferences
• 2. predict individual consumer preferences
• 3. replace forecasts with knowledge of impending orders
34. What does Analytics refer to regarding CRM?
the use of customer data to develop insights and suggest actions to improve customer service, retention, and sales.
35. What is order promising?
the ability of a supplier to manage its materials and capacity, or the master scheduling process
36. What are two types of order promising?
• Available to promise (ATP)
• and
• Capable to promise (CTP)
37. What are the major steps in the fulfillment cycle?
• 1. customer inquiry and order
• 2. order entry
• 3. shipping and delivery
• 4. invoicing
38. What is customer order fulfillment?
it consists of a set of actions that result in the production and / or shipping of goods to customers.
39. What are the steps in the Customer order management process?
• 1. Customer order fulfillment process
• 2. order promising
• 3. Effective customer and internal communications
• 4. Order delivery performance
40. Differentiate between available to promise (ATP) and capable to promise (CTP)
• ATP  uses the master production schedule as the data source for customer order promising.  - It makes promises from on hand inventory balances and from future supply which are shown as scheduled receipts in the MPS
• - It relies on master scheduling software to calculate whether it is possible to promise an order from inventory or production but defers to the demand managers judgment for teh final decision.
• - it might require a high level of communication and negotiation with customers
•  - it works for MTS, MTO, and ATO items. in the case of MTO products, promises are made only from customer orders

• Capable to promise
•  used then the MPS for a product is not able to accommodate a customer order from current or future inventory.
•  - it sets up a new MPS for the same product if capacity and material are available
•  - borrows capacity and material allocated to the MPS for another product if the capacity and material is not available, esp if the other product is destined for MTS stock replenishment or is being made in a lot size in excess of current need
•  - it is heavily dependent on CTP software
41. Who are the decision makers to move ahead with an abnormal order?
• sales
• marketing
• operations
42. What are abnormal demand characteristics?
• 1. not in the forecast
• 2. from a nonregular customer
• 3. random, nonrecurring, highly variable
• 4. Not received through normal channels
• 1. Financially attractive
• 2. recurring demand
• 3. flexibility of quantity and due date
• 4. impact on other customers' orders
44. What is the cross functional approach to measuring performance?
• This is a best practice approach
• - metrics do not conflict cross functionally
•  - It reflects integration of supply chain processes
•  - It includes aggregate and detailed order delivery metrics
45. What is the functional approach for measuring performance?
• Conventional silo approach
• - functions have their own set of metrics
• conflict exists among functional objectives
• - metrics are in silos
46. What are the two approaches to measuring performance in organizations?
• 1. By Functional Area
• 2. By Cross Functional approach
47. What is a metric?

A) Bias - Remove bias and it is much easier to manage random variation in demand through statistical safety stock
B) a performance measurement system consisting of a criterion, a standard, and a measure
C) Running sum of the forecast error
D) A demand filter is a quantity limit setting on actual orders fro specific products.
B) a performance measurement system consisting of a criterion, a standard, and a measure
(this multiple choice question has been scrambled)
48. What does SCOR stand for?
Supply Chain operations reference model
49. What does the SCOR body of knowledge provide?
• a standard definition for supply chain processes
• metrics
50. What are reliability metrics?
Reliability metrics focus on quality of product and service. it is known as the perfect order category

• Level 1 metrics:
• Perfect order fulfillment

• Level 2 metrics:
• Quality
• Line fill rate
51. How do you calculate Perfect order fulfillment?
The % of orders complying with all level 2 metrics

# of perfect orders/total number of orders
52. What is a responsiveness metric?
Order fulfillment cycle time
53. What is responsiveness?
focuses on the average cycle time that a manufacturer requires to respond to and deliver customer orders
54. What are the important level 2 metrics for responsiveness?
• order entry time
• dwell time
• make, distribute, and transport time
55. How do you calculate order fulfillment cycle time?
Number of days from order to customer receipt

Sum of actual cycle times for all orders delivered/total number of orders delivered
56. What are agility metrics?
Evaluate the ability of a supply chain to deal reliably with demand variation in the near and long terms
57. How do you measure agility?
• Upside supply chain flexibility
58. how do you calculate upside supply chain flexibility?
number of days required to meet an unplanned and sustainable increase of 20% in delivery quantities to meet market demand.
59. How do you calculate upside supply chain adapatability?
the maximum sustainable percentage increase in quantity delivered that can be achieved in 30 days
60. How do you calculate downside supply chain adaptability?
the ability to handle a reduction in orders. it is based on the minimum percentage reduction in quantities ordered that is sustainable 30 days prior to delivery with no inventory or cost penalties.
61. What does the cost attribute measure?
supply chain management cost and cost of goods sold
62. What is supply chain management cost?
the fixed and operational costs of the plan, source, and deliver and return processes. It is measured per \$1000 in revenue
63. Does supply chain management cost include the cost of goods sold?
No
64. What is included in the cost of goods sold?
Raw material, labor, and overhead as a % of revenue
65. How do you compare supply chain management costs to other companies?
It can be compared at level 2 with the costs of similar companies to obtain a percentile ranking. These would include costs to plan, source, and deliver.
66. What is asset management and how is it measured?
Asset management is managing cash.

• Two metrics include:
• Cash to cycle time
• Return on supply chain fixed assets
67. What is cash-to-cash cycle time?
the efficiency of the use of assets - fixed and working capital - on a cross functional basis by planning, procurement, manufacturing, and distribution

• it provides a view of order delivery or customer service from a financial perspective
• The calculation determines the number of days of working capital tied up in the supply chain
• The calculation, which determines the number of days from raw material purchases to receipt of payment for products sold is:

# of days of inventory + days of accounts receivable - days of accounts payable

This can be compared to other companies to obtain a ranking
68. What is return on supply chain fixed assets?
measures the effectiveness of the manufacturer in generating revenues from its capital investment in fixed assets

(supply chain revenue - COGS-supply chain management costs)/supply chain fixed assets
69. How can standards be created?
• internal best estimates
• collaboration with customers
• benchmark information
70. Safety stock is also known as ___________.

A) Order fulfillment cycle time
B) buffer inventory
C) Running sum of the forecast error
D) the maximum sustainable percentage increase in quantity delivered that can be achieved in 30 days
B) buffer inventory
(this multiple choice question has been scrambled)
71. What does safety stock do?
addresses demand uncertainty by providing an incremental quantity of finished goods or components.
72. What is a consequence of not having safety stock when a stock out occurs with pending customer orders?
• customer dissatisfaction
• loss of sales revenue
73. List the two types of uncertainty for which safety stock is a buffer
• Demand
• Supply
74. Describe two methods for selecting a service level for safety stock
Mathematical - based on the number of stockouts tolerable during the forecast horizon

Judgmental - defining a customer service level that equals an acceptable fill rate based on benchmarking or negotiated customer rates
75. How do you calculate service level?
total of orders with no stockouts / total orders
76. How do you calculate stock out rate?
number of allowable stockouts/ total number of orders
77. What is the safety stock calculation based upon?
• the proven statistical probability that actual period demand values within the forecast horizon will:
• deviate from the demand forecast
• fall symmetrically around the period average forecast in what is called a normal distribution or a bell shaped curve
78. How do you calculate safety stock with Standard deviation and a safety factor?
safety stock = standard deviation x safety factor
79. What is the calculation for safety stock adjusted for Lead time interval?
Std deviation adjusted for Lead time interval = (std deviation of forecast interval) x √Lead time interval/forecast interval

Safety stock adjusted for LTI = safety factor x (standard deviation adjusted for LTI)
80. if the replenishment lead time interval is less than the forecast interval what happens to the standard deviation for forecast interval?
it will decrease
81. If the replenishment lead time interval is higher than the forecast interval what will happen to the standard deviation for forecast interval?
it will increase
82. true or false:

The longer the forecast interval is relative to the lead time interval, the more time available in the forecast interval to buffer uncertainties in the lead time interval
true
83. True or false

Customer service it the bridge between customers and the value producing processes of manufacturing and service providing organizations
true
84. What should a customer service policy address?
• customer focus
• service levels
• performance measurement
• systems support
• customer interface
• culture
• integration with strategic goals
85. What is the performance measurement process?
• Evaluate generic performance objectives
• Define performance metrics
• Determine lower level performance measures
• Develop standards or targets
86. Allocation
The classification of quantities of items that have been assigned to specific orders but have not yet been released from the stockroom to production
87. Available to promise
The uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer order promising
88. bias
A consistent deviation from the mean in one direction - either high or low;a normal property of a good forecast is that it is not biased
89. capable to promise
The process of committing orders against available capacity as well as inventory. Used to determine when a new or unscheduled customer order can be delivered.
90. demand filter
A standard that is set to monitor sales data for individual items in forecasting models. It is usually set to be tripped when the demand for a period differs from the forecast by more than some number of mean absolute deviations
91. metric
A system for collecting, measuring, and comparing a measure to a standard for a specific criterion for an operation, item, good, service, business, and so on
92. normal distribution
A particular statistical distribution where most of the observations fall fairly close to one mean, and a deviation from the mean is as likely to be plus as it is to be minus.
93. running sum of forecast errors
The arithmetic sum of the differences between actual and forecasted demand for the periods being evaluated.
94. safety factor
The numerical value used in the service function, based on the standard deviation or mean absolute deviation of the forecast, to provide a given level of customer servce
95. service level
A measure, usually expressed as a percentage, of satisfying demand through inventory or by the current production schedule in time to satisfy the customers' requested delivery dates and quantities
96. tracking signal
The ratio of the cumulative algebraic sum of the deviations between the forecasts and the actual values to the MAD
97. standard deviation
A measurement of dispersion of data or of a variable
98. Which of the following best expresses the intent of forecasting?

A) To give managers information on which to base decisions
B) To give shop floor workers ranges and variations within which production must take place
C) To give managers accurate data projecting material requirements
D) To give production supervisor's direct input into the distribution requirements system
A) To give managers information on which to base decisions
(this multiple choice question has been scrambled)
99. Tracking signals do which of the following?

A) Identify causes of forecast error
B) Identify forecast bias
C) compute the appropriate trip value to be used in demand filtering
D) Adjust forecasts when errors are reported
B) Identify forecast bias
(this multiple choice question has been scrambled)
100. Which one of the following is not a valuable forecast evaluation activity?

A. Determining and eliminating bias in a forecast
B. Tracking actual demand against projected demand.
C. Using MAD and standard devision to track variation
D. Involvement of users in the process of developing forecast tools
D. Involvement of users in the process of developing forecast tools
(this multiple choice question has been scrambled)
101. The average of the absolute values of the deviations from some expected value best defines which of the following terms?

A. Forecast Error
B. Mean absolute deviation
C. Standard Deviation
D. Mean average deviation
B. Mean absolute deviation
(this multiple choice question has been scrambled)
102. Tracking signals are computed by which of the following methods?

A) Increase the alpha coefficient to the MAD
B) Divide the average error by tthe trip value
C) Multiply the MAD by 1.25
D) Divide the cum sum of errors by the MAD
D) Divide the cum sum of errors by the MAD
(this multiple choice question has been scrambled)
103. All of the following are characteristics of customer service leadership EXCEPT:
A. Creating and maintaining high standards
B. Being proactive with customers
C. defining a vision of service excellence
D. teaching a customer service leadership behavior only.
D.
(this multiple choice question has been scrambled)
104. Which of the following is a key element of customer relationship management?
A. setting filter limits at multiples of MAD
B. Handling customer requests for changes to due dates outside the system
C Promising from on hand inventory and future supply
D. Differentiating the company's customer experience from rivals by superior anticipation and responsiveness
D. Differentiating the company's customer experience from rivals by superior anticipation and responsiveness
105. Which of the following components should be addressed by a world class customer service strategy?
A. customer concerns, supplier concerns
B. customer concerns.
C. Customer concerns, employee concerns, supplier concerns, Shareholder concerns
D. Customer concerns, employee concerns, supplier concerns
C. Customer concerns, employee concerns, supplier concerns, Shareholder concerns
(this multiple choice question has been scrambled)
106. Responding to the customer with the price and availability, promise and confirmation, and advance ship notices best defines which of the following terms?
A. focus on quality
B. order fulfillment cycle
C. continuous improvement
D. Order qualilfier
B. order fulfillment cycle
(this multiple choice question has been scrambled)
107. Perfect order fulfillments is used to measure which of the following categroies?

A. flexibility
B. cost
C. reliability
D. responsiveness
C. reliability
(this multiple choice question has been scrambled)
 Author: Sandy2015 ID: 309056 Card Set: MPR: Chapter 3: Demand Management and Customer Service Updated: 2015-10-11 15:52:38 Tags: Demand Management Customer service MPR Folders: Demand Management and Customer Service Description: Chapter 3 in MPR Show Answers: