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Summary of the book Operations and Supply Chain Management: The Core. Chapters 1, 2, 3, 4, 4a, 6, 6a, 8, 9, 11, 12, 13 & 14
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Chapter 1: Operations and Supply Chain Management1.1 What is operations and supply chain management?
Supply chain management is a set of approaches utilized. to efficiently integrate
suppliers, manufacturers, warehouses, and stores so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time in order to
minimize system wide costs while satisfying service level requirements.
Operations and supply chain management is defined as the design, operation, and
improvement of the systems that create and deliver the firm’s primary products and
services. Think of the supply chain network as a pipeline through which material and
information flow.
A sustainable strategy that meets the needs of shareholders and employees and
preserves the environment is critical.
Operations, refers to manufacturing and service processes that are used to transform
the resources employed by a firm into products desired by customers.
Supply chain refers to processes that move information and material to and form the
manufacturing and service processes of the firm. These include the logistics processes
that physically move product, as well as the warehousing and storage processes that
position products for quick delivery to the customer. Supply chain in this context refers
to providing products and service to plants and warehouses at the input end and also to
the supply chain products and services to the customer on the output end of the supply
chain.
The field of operations and supply chain management is ever changing due to the
dynamic nature of competing in global business and the constant evolution of
information technology.
Operations and supply chain processes:
- Planning: consists of the processes needed to operate an existing supply chain
strategically.
- Sourcing: involves the selection of suppliers that will deliver the goods and
services needed to create the firm’s product.
- Making: is where the major product is produced or the services is provided.
- Delivering: is also referred to as a logistics process.
- Returning: involves processes for receiving worn-out, defective, and excess
products back form customers and support for customers who have problems
with delivered products.
Supply chain processes
1
,Differences between services and goods:
- Service is an intangible process
- Service requires some degree of interaction with the customer for it to be a
service
- Services are inherently heterogeneous – they vary form day to day as a function
of the attitudes of the customers and the servers
- Services as a process are perishable and time dependent
- The specifications of a service are defined and evaluated as a package of features
that affect the five senses.
The goods-services continuum
Product-service bundling refers to a company building service activities into its product
offering for its customer. Firms that offer product-service bundles typically generate
higher revenues, they tend to generate lower profits as a percentage of revenues when
compared to focused firms. This is because they are often unable to generate revenues
or margins high enough to cover the additional investment required to cover service-
related costs.
Flow of products and services from:
- Raw materials-manufacturers
- Intermediate products-manufacturers
- End-product-manufacturers
- Wholesalers and distributors
- Retailers
1.2 Efficiency, effectiveness, and value
Efficiency means doing something at the lowest possible cost.
Effectiveness means doing the right things to create the most value for the customer.
Value can be abstractly defined as quality divided by price.
Highly efficient firms usually shine when demand drops during recession periods since
they often can continue to make a profit due to their low-cost structure. These
operations-savvy firms may even see a recession as an opportunity to gain market share
as their less-efficient competitors struggle to remain in business. An interesting
relationship between the costs related to OSCM functions and profit is the direct impact
of a reduction of cost in one of these functions on the profit margin of the firm.
Benchmarking is a process in which one company studies the processes of another
company (or industry) to identify best practices.
2
,A typical company buys raw materials on credit, converts these materials into finished
products, sells the products to customers on credit, gets paid by customers in cash, and
reuses the cash to purchase more raw materials. This cycle time is called the cash
conversion cycle, and the quicker the cycle, the better for the company. This cycle is also
referred to as the cash-to-cash cycle time in many references.
The days sales outstanding is the number of days that it takes for a company to collect
cash from customers.
Days inventory is the number of days worth of inventory the company holds in
operation and supply chain processes.
The payable period measure indicates how quickly suppliers are paid by a company.
1.4 Historical development of operations and supply chain management
Historical development timeline (from past to present):
- Manufacturing strategy
paradigm
- Lean manufacturing, JIT, TQC
- Service quality and productivity
- Total quality management and
quality certification
- Business process reengineering
- Six sigma quality
- Supply chain management
- Electronic commerce
- Sustainability and triple bottom
line (3p’s)
- Business analytics
Chapter 2: Strategy and Sustainability
2.1 A sustainable operations and supply chain strategy
Strategy should describe how a firm intends to create and sustain value for its current
shareholders. By adding sustainability to the concept, we add the requirement to meet
these current needs without compromising the ability of future generations to meet
their own needs.
Shareholders are those individuals or companies that legally own one or more shares of
stock in the company. Many companies today have expended the scope of their strategy
to include stakeholders. Stakeholders are those individuals or organizations that are
influenced, either directly or indirectly, by actions of the firm. This expanded view
means that the scope of the firm’s strategy must not only focus on the economic viability
3
, of its shareholders, but also consider the environmental and social impact on key
stakeholders.
The triple bottom line considers evaluating the firm against social, economic, and
environmental criteria. The triple bottom line
- Social responsibility: pertains to fair
and beneficial business practices
toward labor, the community, and the
region in which a firm conducts its
business.
- Economic prosperity: within a
sustainability framework, this
dimension goes beyond just profit for
the firm; it also provides lasting
economic benefit to society.
- Environmental stewardship: refers to
the firm’s impact on the environment.
2.2 What is operations and supply chain strategy?
Operations and supply chain strategy (OSCS) is concerned with setting broad policies
and plans for using the recourses of a firm and must be integrated with corporate
strategy. Operations and supply chain strategy can be viewed as part of a planning
process that coordinates operational goals with those of the larger organization.
Operations effectiveness relates to the core business processes needed to run the
business.
Competitive dimensions:
- Cost or price: Make the product or Deliver the service cheap
- Quality: Make a great product or deliver a great service
- Delivery speed: Make the product or deliver the service quickly
- Delivery reliability: Deliver it when promised
- Coping with changes in demand: Change its volume
- Flexibility an new-product introduction speed: Change it
Central to the concept of operations and supply chain strategy is the notion of
operations focus and trade-offs. The underlying logic is that an operation cannot excel
simultaneously an all competitive dimensions.
Straddling occurs when a company seeks to match the benefits of a successful position
while maintaining its existing position.
An order winner is a criterion that differentiates the product or services of one firm
form those of another. Depending on the situation, the order-winning criterion may be
the cost of the product (price), product quality and reliability, or any of the other
dimensions developed earlier. An order qualifier is a screening criterion that permits a
firm’s products to even be considered as possible candidates for purchase.
4
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