What is operations management?
- Administration of business practices to create the highest level of efficiency possible
within an organization.
o Using as few resources as possible (minimize costs)
o Meeting customer requirements
- Concerned with converting materials and labor into goods and services as efficiently as
possible.
- Operations managers aim to balance costs with revenue to maximize net operating
profit.
Supply chain: Network of organizations, people, activities, information and recourses involved
in delivering a product or service to a costumer.
Supply chain management: “a set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouse, and stores, so that merchandise is produced and distributed:
- At the right quantities, locations and time in order to:
o Minimize system-wide costs, while satisfying service level requirements
This leads to the 5 R’s of supply chain management:
- Right product, place, price, time (when do we start produce?) , quantity (how much
should we produce?)
The upstream supply chain includes all activities related to the organization’s
suppliers: those parties that source raw material inputs to send to the
manufacturer. The downstream supply chain refers to activities post-
manufacturing, namely distributing the product to the final customer.
,Usually, when the customer receives the product and verifies it, the customer
pays and the money travels back to the supplier. Sometimes the finances flow the
other direction (from supplier to customer) in form of debit.
Production slicing: Identifying the best location for each stage of the process
- Adding value along the way
- Integrating the entire supply chain
What is slicing the value chain?
A closely related concept is slicing up of global value chain. It refers to the allocation of
components production among different countries. Here, low cost or specialized production
advantages tempts a finished product producing firm to source a particular component from a
specific country.
What decisions will define you OM strategy?
- Customer value proposition → it will be reflected throughout your supply chain.
o E.g. high-end product (vs Budget product) (zie plaatje hieronder)
,Challenges in operations management
- Identifying the appropriate OM strategy
o Different products, channels or even costumers require different types of supply
chains
o Different product characteristics suggest different strategies
o Conflicting objectives: cost time and service levels
- Matching supply and demand
a. Supply challenges: raw material shortages, supply disruption, productivity
inefficiencies.
b. Demand challenges: Sales shortfall, larger-than-anticipated inventories,
cannibalization (although sometimes this can end up being good)
- Inventory and back-order levels fluctuations (when companies cannot match supply &
demand)
a. Inventory: supply > demand → products not yet been sold
b. Back-order: demand > supply → an order for a product which is temporarily out
of stock
c. Both are costly!
- Inventory and back-order levels fluctuate considerably across the supply chain →
The bullwhip effect: distribution channel phenomenon in which distorted information
from one end of a supply chain to the other leads to tremendous inefficiencies.
The bullwhip effect is a supply chain phenomenon describing how small fluctuations in
demand at the retail level can cause progressively larger fluctuations in demand at the
wholesale, distributor, manufacturer and raw material supplier levels. The effect is
named after the physics involved in cracking a whip.
, Causes:
- Lack of communication
- Incorrect demand forecasts
- Too many discounts and promotions
- Order batching (buying orders in large quantities)
Solutions:
- More communication
- Improve order planning
- Limit promotions and sales
- Smaller, more frequent orders (but it can be more expensive)
Other uncertainties: demand is not the only source of uncertainty
- Production capacity
- Transportation times
- Component availability
- Natural disasters
- Regulation
Lecture 2:
Costumer value: the way customers perceive the company’s offerings, including products,
services, and other intangibles.
Key questions:
- Why do they choose the product? → Catch the attention
- Why do they continue purchase it? → Retaining them
- Why stop buying it (this gives information about how to improve the product?
Competitor? We failed in some way?
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