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Summary lectures Operations & SCM
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Summary of the lectures and cases of OSCM
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Operations & SCM • →Hoorcollege 1 + 2
Operations Management= activity of managing resources and processes that produce products and services
- Process = arrangement of resources (people, equipment,) that transform input into output to satisfy
(internal or external) customer demand
- Operations function = how an organization produces products or services (competitive advantage)
Supply Chain Management = management of supply chain assets and flows (product, info) to maximize
total SC surplus (SC surplus; Customer Value - SC Cost) → SC profit; Price - SC cost
Possible disruptive trends that will change contemporary SC;
1. Digitization (in different forms and levels of adoption)
2. Sustainability (often focused at improved environmental impact)
Self-driving supply chains; System analyzes data continuously (independently) of external entities and
adopt solutions/decisions to real-time problems in a dynamic environment to achieve a predetermined
objective. System predicts ups/downs in demand and find way to reroute accordingly
• OBJECTIVE: Respond faster to changing conditions. Using machine learning AI or IoT sensors.
• EXPECTATION: Use analytical/simulation model to allow SC to predict future with minimum error and
take actions (e.g. address shifts in demand).
Promising direction to find info on business value of SDSC and AI, focused on;
1. Increase capacity to accurately predict demand or maintenance
2. Analyze potential use of this technology in specific supply chains
3. Explore types of AI techniques used in the literature to respond to SC optimization problems
Examine academic literature on SDSC to identify how companies can:
– Assess value of SDSC for its customers – What customers might expect to gain from SDSC
– How to assess business value of SDSC – Which directions seems promising for further research
Strategic frameworks to assess and manage SC impact;
- Large potential for new technologies; supply chain optimization models (doesn’t mean successful SC)
- Strategic frameworks help to decide on the focus of a supply chain, identify under which conditions
technologies can benefit, and help to assess the impact of disruptive trends
Fisher (1997): Product types and nature of demand
Objective: offer framework to understand nature of demand and devise SC to satisfy that demand
- 2 Types of products: Functional; Satisfy basic needs, stable demand, low profit margins
Can be both!! Innovative products; Short life cycle, variable demand, high profit margins
- 2 types of supply chain focus: Efficient supply chain; focus on efficient operations and planning
Responsive supply chain; focus on increased speed and flexibility
Matching supply chain with product:
- Mismatch: change the product or the supply chain
- For innovative products, improvements in responsiveness is better than efficiency
Innovative products helps against imitators
, How to achieve a given level of cost
effectiveness of demand responsiveness?
Treacy & Wiersema (1995): Value strategies
Organization can choose 3 value propositions to compete in market or industry:
1. Operational Excellence; Focus on keeping costs down, Delivering at the lowest possible price
2. Product Leadership; Focus on developing and delivering the newest and highest specification
product. Technology innovation
3. Customer Intimacy; Focus on delivering the best total solution for specific customer problems
Market leaders generally choose to excel in 1 of 3 while maintaining competitive standards in other two.
Factors affecting alignment of strategies;
- There’s a right supply chain strategy for a given competitive strategy
- Multiple products and customer segments; Tailored supply chains share some links and separate others
- Competitiveness changes: More competitors leads to increased emphasis on variety at a reasonable price.
Internet makes it easier to offer a wide variety of products
- Product life cycle; SC strategy must evolve during life cycle, from responsive to efficient and back to
responsive - Fragmentation of supply chain ownership
- Increasing product variety - Globalization: scattered facilities and customers
- Ever shorter product life cycles - Digitization
- Increasingly demanding customers - Increasing environmental concerns
• Detailed metrics can be derived & combined to measure impact of
decisions on cash, service and costs.
• Simple KPIs can be proposed for each SC driver of the framework.
• Different strategies lead to different trade-offs in the SC triangle!
• Different strategies lead to different targets for key (financial) metrics!
Supply Chain Metrics
Implementing a set SC performance indicators is a prerequisite to achieve a world-class supply chain:
– People behave based on the way they are measured
– What gets measured gets improved
– Should have a scoreboard= set of metrics addressing major concerns of customers, stockholders,
employees and suppliers
2 dimensional benchmarking; (SC triangle trade off, therefore important to benchmark)
– Measures for margin: (1 preferred)
• Gross margin: useful to relate to strategy, e.g. product leaders having higher margin
• EBITA: depending on depreciation rules and tax optimization
• EBIT: closest related to operational margin driven by SC
- Measures for capital employed (3 needed):
• Inventory turns: measures complexity and health business
• Cash-to-cash conversion: incorporates inventory, cash receivable and payable
• Fixed asset returns: how company leverages its assets
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