Summary book Supply Chain
Summary chapter 1 + 2 (lecture 1)
- Operations and supply chain management (OSCM): the design, operation and improvement
of the systems that create and deliver the firm’s primary products and services.
- Operations and supply chain
o Operations: refers to manufacturing and service processes that are used to
transform the resources employed by a firm into products desired by customers.
o Supply chain: refers to the process that move information and material to and from
the manufacturing and service process of the firm.
- Process: one of more activities that transform inputs into outputs
o 1. Planning: consist of the processes needed to operate and existing supply chain
strategically
Firm must decide how anticipated demand will be met with available
resources
Developing set of metrics important to monitor supply chain, so that it is
efficient and delivers high quality and value to customers
o 2. Sourcing: involves the selection of suppliers that will deliver the goods and
services needed to create the firm’s product.
Set of pricing, delivery and payment processes are needed together with
metrics for monitoring and improving the relationships between partners of
the firms.
Processes include: receiving shipments, verifying them, transferring them to
manufacturing facilities and authorizing supplier payments.
o 3. Making: where the major product is produced or the service is provided.
Requires processes for workers and coordinating material and other critical
resources.
Metrics that measured speed, quality, and worker productivity are used to
monitor these processes.
o 4. Delivering: also referred as logistics process.
Carriers are picked to move products to warehouses and customers,
coordinate and schedule the movement of goods and information through
the supply network, develop and operate a network of warehouses, and run
the information system that manage the receipt of order from customers
and the invoicing systems that collect payments for customers.
o 5. Returning: involves processes for receiving worn-out, defective and excess
products back from customers who have problems with delivered products.
In case of services: this may involve all types of follow-up activities that are
required for after-sales support.
- Differences between services and goods:
o A service = intangible process, that cannot be weighted or measured, whereas a
good is a tangible output of a process that has physical dimensions.
Important: service innovation cannot be patented and product innovation
can.
Problem for customers with services, cannot test it before purchase.
o Interaction with the customers: with service always some degree of interaction.
goods can be generally produced in a facility separately form the customer.
, o Heterogeneous (with big exception of hard technologies): vary from day to day and
even hour by hour as a function of the attitudes of the customers and the servers.
goods however can be produced to meet very tight specifications day in and day out
with essentially zero variability.
o Services as a process are perishable and time dependent: unlike goods you can not
come back, or they can not be stored.
o Specifications of a service are defined and evaluated as a package of features that
affect the five senses
Features relate to: location, decoration and layout of the facility where
service is housed. Training and attitude of employees and the consistency of
service performance.
- The goods-services continuum: almost any product is offering a combination of goods and
services.
o This continuum captures the main focus of the business and spans from firms that
just produce products to those that only provide services.
o Pure good industries; low margin commodity business. And in order to differentiate
they are often adding some services.
o Core good providers already provide a significant service component as part of their
business.
o Core service providers must integrate tangible goods.
o Pure services, may need little in the way of facilitating goods. but what they do
use, are critical to their performance.
- Product-service bundling: refers to a company building service activities into its product
offerings for its customers to create additional value for the customer.
o Customers most successful in implementing this strategy start by drawing together
the service aspects of the business under one roof in order to create a consolidated
service organization.
- Efficiency: doing something at the lowest possible cost smallest input of resources
- Effectiveness: doing the right things to create the most value for the customer.
effectiveness and efficiency is a trade-off.
- Value: the attractiveness of a product relative to its price. (quality/price)
o Quality = attractiveness of the product, considering its features and durability.
- 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.
- Benchmarking: When one company studies the processes of another company to identify
best practices.
- Cash conversion cycle, cash-to-cash cycle : how quickly a company converts the cash it
receives from sales to company profits. quicker the cycle better for the company.
- 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.
- Payables period: indicates how quickly suppliers are paid by a company.
- Cash conversion cycle = days sales outstanding + days inventory – payable period
- Cash conversion cycle time: can be interpreted as the time it takes a company to convert the
money that it spend for raw materials into the profit that it receives for the products that are
sold and use those raw materials.
, o Smaller the better for number of days but with caution: having large payable
period might not make the firm very attractive to suppliers.
- Receivable turnover measures the number of times receivables are collected on average
during the fiscal year
o Receivables turnover = annual credit sales/average accounts receivable
o Measures company efficiency in collecting its sales on credit.
o Accounts receivable: represents the indirect interest-free loans that the company is
providing to it’s clients.
o Higher receivables ratio implies; company operates on a cash basis or that its
extension of credit and collection methods are efficient. Also reflects a short lapse of
time between sales and collection of cash (high ratio other way around)
o From supply perspective; firm may be able to impact ratio by such as speed of
delivery of products, accuracy in filling orders and amount of inspection the
customer needs to do.
- Inventory turnover = cost of goods sold/average inventory value
o Measures the average number of times inventory is sold and replaced during the
fiscal year. measures the company’s efficiency in turning its inventory into sales.
Purpose is to measure the liquidity or speed of inventory usage.
o Compared to companies in same industry
o Low inventory turnover is signal of inefficiency or it can imply poor sales or excess
inventory relative to sales. Can also indicate poor liquidity, possible overstocking and
obsolescence., but it may also reflect a planned inventory build-up in the case of
material shortages or in anticipation of rapidly rising prices.
o High inventory ratio implies: strong sales or ineffective buying. Can indicate better
liquidity, or can indicate shortage or inadequate inventory levels.
o Generally high inventory turnover ratio is good
- Asset turnover = Revenue (or sales)/ total assets
o Measures a firm’s efficiency at using its assets in generating sales revenue, the higher
the number the better.
o Also indicates pricing strategy: companies with low profit margin tend to have high
asset turnover, while those with high profit margin have low asset turnover.
o Ratio varies significantly differs across industries
- Asset turnover to great extent same as receivables turnover and inventory turnover since
all three involve investments in assets.
- Asset turnover more generally and includes the plants, warehouses, equipment and other
assets owned by the firm. because many of these facilities are needed to support the
operations and supply chain activities, the ratio can be significantly impacted by the
investments in technology and outsourcing for example.
- Manufacturing strategy: Emphasizes how a factory’s capabilities could be used strategically
to gain advantage over a competing company
- Just in time (JIT): an integrated set of activities designed to achieve high- volume production
using minimal inventories of parts that arrive exactly when they are needed.
- Total quality control (TQC): aggressively seeks to eliminate causes of production defects.
- Lean manufacturing: term used to refer to the set of concepts relating to JIT and TQC
- Total quality management (TQM): managing the entire organization so that it excels on all
dimensions of products and services that are important to the customer
, - Business process reengineering (BPR): an approach to improving business processes that
seeks to make revolutionary changes as opposed to evolutionary (small) changes.
- Six sigma: a statistical term to describe the quality goal of no more than 3.4 defects out of
every million units. Also refers to a quality improvement philosophy and program.
- Mass customization: the ability to produce a unique product exactly to a particular
customer’s requirements.
- Electronic commerce: the use of the internet as an essential element of business activity
- Sustainability: the ability to meet current resource needs without compromising the ability of
future generations to meet their needs
- Triple bottom line: a business strategy that includes social, economic, and environmental
criteria
- Business analytics: the use of current business data to solve business problems using
mathematical analysis.
- Current issues OSCM:
o Coordination the relationships between mutually supportive but separate
organizations
o Optimizing global supplier, production and distribution networks
o Managing customer touch points
o Raising senior management awareness of OSCM as a significant competitive weapon.
- Chapter 2
- Sustainability: the ability to meet current resource needs without compromising the ability of
future generations to meet their needs.
- Shareholders: are those individuals or companies that are legally own one or more shares of
stock in the company
- Stakeholders: are those individuals or organizations that are influenced, either directly or
indirectly, by the actions of the firms.
- Triple bottom line: considers evaluating the firm against social, economic and environmental
criteria. (people, planet, profit)
o Social responsibility: pertains to fair and beneficial business practices towards labour,
the community, and the region in which a firm conducts its business. A triple bottom
line company seeks to benefit its employees, the community and the other social
entities that are impacted by the firm’s existence.
o Economic prosperity: means that the firms is obligated to compensate shareholders
who provide capital through stock purchases and other financial instruments via a
competitive return on investment. Company strategies should promote growth and
grow long-term value to this group in the form of profit, dimension goes beyond just
profit for firm; also provides lasting economic benefit to society.
o Environmental stewardship: refers to the firm’s impact on the environment.
Company should protect the environment as much as possible, or at leas cause no
harm.
- Operations and supply chain strategy: the setting of broad policies and plans that will guide
the use of the resources needed by the firm to implement its corporate strategy.
- Operations effectiveness: performing activities in a manner that best implements strategic
priorities at minimum cost
- Cost of service?
o Segment market only buys on basis low cost. to succeed in this niche firm bust
be the low-cost producer.
