Ch 1 Operations and supply chain management
§1 What is operations and supply chain management?
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.
Think of the supply network as a pipeline through which material and information flow.
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 from the
manufacturing and service processes of the firm. (logistics, warehousing, storage processes)
Process= one or more activities that transform inputs
into outputs.
● 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 service is provided.
● Delivering is also referred to as a logistics
process.
● Returning involves processes for receiving worn-out, defective, and excess products
back from customers and supporting customers who have problems with delivered
products.
Services Goods
Intangible Tangible
Interaction with customers Produced in a facility separate from the
customer
Heterogeneous Essentially zero variability
Perishable and time dependent Can be stored
Package of features that affect the 5 senses Just 1 product
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,The Goods-Services Continuum
Product-service bundling= when a firm builds service activities into its product offerings to
create additional value for the customer.
§2 Efficiency, effectiveness, and value
Efficiency= doing something at the lowest possible cost.
Effectiveness= doing the right things to create the most value for the customer.
Value= the attractiveness of a product relative to its price.
Comparing firms from an operations and supply chain view is important to investors since the
relative cost of providing a good or service is essential to high earnings growth.
Benchmarking= when one company studies the processes of another company to identify best
practices.
Cash conversion cycle= the cycle where the 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 then reuses the cash to purchase more raw materials.
Days sales outstanding= number of days that it takes for a company to collect cash from
customers.
Days inventory= number of days’ worth of inventory the company holds in operation and
supply chain processes.
Payables period= measure indicates how quickly suppliers are paid by a company.
C ash conversion cycle = days sales outstanding + days inventory − payable period
Annual credit sales
Receivables turnover = Average accounts receivable
Cost of goods sold
I nventory turnover = Average inventory value
Revenue (or sales)
Asset turnover = T otal assets
§3 Careers in operations and supply chain management
People in OSCM ➔ specialize in managing the planning, production, and distribution of goods
and services.
● Plant manager
● Hospital administrator
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, ● Branch manager
● Department store manager
● Call center manager
● Supply chain manager
● Purchasing manager
● Logistics manager
● Warehouse / distribution manager
● Business process improvement analyst
● Quality control manager
● Lean improvement manager
● Project manager
● Production control analyst
● Facilities manager
§4 Historical development of operations and supply chain management
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.
Future challenges in the field of OSCM
1. Coordinating the relationships between mutually supportive but separate organizations
2. Optimizing global supplier, production, and distribution networks
3. Managing customer touch points
4. Raising senior management awareness of OSCM as a significant competitive weapon
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,Ch 2 Strategy and sustainability
§1 A sustainable operations and supply chain strategy
Strategy should describe how a firm intends to create and sustain value for its current
shareholders (and stakeholders), sustainability is usually added to the concept.
Triple bottom line ➔ social, economic,
environment / People, Planet, Profit
● Social responsibility ➔ pertains to fair and
beneficial business practices toward labor,
the community, and the region in which a
firm conducts business.
● Economic prosperity ➔ means the firm is
obligated to compensate shareholders
who provide capital through stock
purchases and other financial instruments
via a competitive return on investment.
● Environmental stewardship ➔ the company should protect the environment as much as
possible, or at least cause no harm.
§2 What is operations and supply chain strategy?
Operations and supply chain strategy is concerned with setting broad policies and plans for
using the resources of a firm and must be integrated with corporate strategy.
Operations effectiveness= performing activities in a manner that best implements strategic
priorities at minimum cost.
Operations capabilities= a portfolio best suited to adapting to the changing product and/or
service needs of a firm’s customers.
Competitive dimensions
● Cost or price: make the product or deliver the service cheap
● Quality: make a great product or deliver a great service ➔ design quality and process
quality
● 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 and new-product introduction speed: change it
● Other product-specific criteria: support it
○ Technical liaison and support
○ Ability to meet a launch date
○ Supplier after-sales support
○ Environmental impact
○ Other dimensions
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,Trade-offs ➔ the underlying logic is that an operation cannot excel simultaneously on all
competitive dimensions.
Straddling= when a firm seeks to match what a competitor is doing by adding new features,
services, or technologies to existing activities. This often creates problems if certain trade-offs
need to be made.
Order winners= one or more specific marketing-oriented dimensions that clearly differentiate a
product from competing products.
Order qualifiers= dimensions used to screen a product or service as a candidate for purchase.
§3 Strategies are implemented using operations and supply chain activities - IKEA strategy
Activity-system maps= diagrams that show how a company’s strategy is delivered through a
set of supporting activities.
§4 Assessing the risk associated with operations and supply chain strategies
Supply chain risk= the likelihood of a disruption that would impact the ability of company to
continuously supply products or services.
● Supply chain coordination risks ➔ associated with the day-to-day management of the
supply chain, dealt with using safety stock, safety lead time, overtime, etc.
● Disruption risks ➔ caused by natural or human-made disasters, such as earthquakes,
hurricanes, and terrorism
Risk management process
1. Identify the sources of potential disruptions
2. Assess the potential impact of the risk
3. Develop plans to mitigate the risk
Risk mapping involves assessment of the probability or relative frequency of an event against
the aggregate severity of the loss.
§5 Productivity measurement
Productivity= a measure of how well resources are used.
Productivity comparisons
● Across similar operations
● Over time
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,Ch 3 Forecasting
§1 Forecasting in operations and supply chain management
Strategic forecasts= medium- and long-term forecasts used for decisions related to strategy
and estimating aggregate demand.
Tactical forecasts= short-term forecasts used as input for making day-to-day decisions related
to meeting demand.
Decoupling point= point within the supply chain where inventory is positioned to allow
processes or entities in the supply chain to operate independently. Selection of decoupling
points is a strategic decision that determines customer lead times and can greatly impact
inventory investment.
§2 Quantitative forecasting models
Time series analysis= a type of forecast in which data relating to past demand are used to
predict future demand.
Components of demand
● Average demand for the period
● Trend
● Seasonal element
● Cyclical elements ➔ political elections,
war, economic conditions, sociological
pressures
● Random variation ➔ caused by chance
events
● Autocorrelation ➔ persistence of occurrence
Time series models
● Simple moving average
Moving average= a forecast based on average past demand.
F t = At−1 + At−2 + At−3
n
+ ...+ At−n
● Weighted moving average & simple exponential smoothing
Weighted moving average= a forecast made with past data where more recent data are given
more significance than older data.
F t = w1 At−1 + w2 At−2 + ... + wn At−n
Exponential smoothing= a time series forecasting technique in which each increment of past
demand data is decreased by (1-α).
1 Exponential models are surprisingly accurate
2 Formulating an exponential model is relatively easy.
3 The user can understand how the model works.
4 Little computation is required to use the model.
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, 5 Computer storage requirements are small because of the limited use of historical data.
6 Tests for accuracy as to how well the model is performing are easy to compute.
Smoothing constant alpha= the parameter in the exponential smoothing equation that controls
the speed of reaction to differences between forecasts and actual demand ➔ the higher the
value of alpha, the more closely the forecast follows the actual.
F t = F t−1 + α(At−1 − F t−1 )
● Exponential smoothing with trend
Smoothing constant delta (δ)= an additional parameter used in an exponential smoothing
equation that includes an adjustment for trend.
F t = F IT t−1 + α(At−1 − F IT t−1 )
T t = T t−1 + δ (F t − F IT t−1 )
F IT t = F t + T t
● Linear regression
Linear regression forecasting= a forecasting technique that assumes that past data and
future projections fall around a straight line.
● Trend and seasonal models
Decomposition= the process of identifying and separating time series data into fundamental
components such as trend and seasonality.
Seasonal variation
● Additive seasonal variation
● Multiplicative seasonal variation
Forecast error= the difference between actual demand and what was forecast (residuals).
Causal relationship forecasting= forecasting using independent variables other than time to
predict future demand.
§3 Qualitative techniques in forecasting
● Market research
● Panel consensus
● Historical analogy
● The Delphi method ➔ conceals the identity of the individuals participating in the study.
Everyone had the same weight.
§4 Web-based forecasting: collaborative planning, forecasting, and replenishment (CPFR)
Collaborative Planning, Forecasting, and Replenishment (CPFR)= an Internet tool to
coordinate forecasting, production, and purchasing in a firm’s supply chain.
1. Creation of a front-end partnership agreement
2. Joint business planning
3. Development of demand forecasts
4. Forecast sharing
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