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  • CLASSROOM OPENER GREAT BUSINESS DECISIONS – Michael Dell Decides to Sell PCs Directly to Consumers and Built-to-Order Michael Dell decided that to be successful in the PC business and to gain a significant competitive advantage he would bypass the dealer channel through which personal computers were being sold. Dell developed and deployed their own channel for manufacturing and selling PCs. This personal channel eliminated the reseller markups and large inventory expenses and allowed Dell to operate with lower costs than anyone in the industry, which led to higher profit margins. Michael Dell understood that consumers were getting smarter and that customer service abilities were becoming more sophisticated. Beginning with telephone sales, and then moving to Internet sales, Dell bypassed retailers and targeted corporate accounts. Dell understood that tailoring products to meet specific requirements of large accounts could be accomplished not only more cheaply, but also more effectively without an intermediary. Dell boasts sales of $12.3 billion and is the world’s number one direct-sales computer vendor. The company’s Web site currently generates over half of its orders. Everybody in the industry is trying to imitate Dell’s strategy.
  • Companies that excel in supply chain operations perform better in almost every financial measure of success, according to a report from Boston-based AMR Research Inc. When supply chain excellence improves operations, companies experience a 5 percent higher profit margin, 15 percent less inventory, 17 percent stronger “perfect order” ratings, and 35 percent shorter cycle times than their competitors. “ The basis of competition for winning companies in today’s economy is supply chain superiority,” said Kevin O’Marah, vice president of research at AMR Research. “These companies understand that value chain performance translates to productivity and market-share leadership. They also understand that supply chain leadership means more than just low costs and efficiency: It requires a superior ability to shape and respond to shifts in demand with innovative products and services.”
  • Production management describes all the activities managers do to help companies create goods. To reflect the change in importance from manufacturing to services, the term production often has been replaced by operations to reflect the manufacturing of both goods and services. Operations management (OM) is the management of systems or processes that convert or transform resources (including human resources) into goods and services. Operations management is responsible for managing the core processes used to manufacture goods and produce services.
  • 8.1. Define the term operations management Books, DVDs, downloaded MP3s, and dental and medical procedures are all examples of goods and services. Production management describes all the activities mangers do to help companies create goods. To reflect the change in importance from manufacturing to services, the term production often has been replaced by operations to reflect the manufacturing of both goods and services. Operations management (OM) is the management of systems or processes that convert or transform resources (including human resources) into goods and services. Operations management is responsible for managing the core processes used to manufacture goods and produce services. 8.2. Explain operations management role in business. The scope of OM ranges across the organization and includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more. 8.3. Describe the correlation between operations management and information technology. Managers can use IT to heavily influence OM decisions including productivity, costs, flexibility, quality, and customer satisfaction. One of the greatest benefits of IT on OM is in making operational decisions as operations management exerts considerable influence over the degree to which the goals and objectives of the organization are realized. Most OM decisions involve many possible alternatives that can have varying impacts on revenues and expenses. OM information systems are critical for managers to be able to make well-informed decisions. Recall how decision support systems and executive information systems can help an organization perform what-if analysis, sensitivity analysis, drill-down, and consolidation. Numerous managerial and strategic key decisions are based on OM information systems that affect the entire organization including: What: What resources will be needed, and in what amounts? When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? Where: Where will the work be performed? How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? Who: Who will perform the work?  
  • 8.4 Describe the five characteristics of competitive priorities. The key to developing a competitive OM strategy lies in understanding how to create value-added goods and services for customers. Specifically value is added through the competitive priority or priorities that are selected to support a given strategy. There are five key competitive priorities that translate directly into characteristics that are used to describe various processes by which a company can add value to its OM decisions including: Cost Quality Delivery Flexibility Service   8.5 Explain supply chain management and its role in a business. A supply chain consists of all parties involved, directly or indirectly, in the procurement of a product or raw material. Supply chain management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability. Dozens of steps are required to achieve and carry out each of the complex components in a supply chain. SCM software can enable an organization to generate efficiencies within these steps by automating and improving the information flows throughout and among the different supply chain components.
  • Production has historically been associated with manufacturing, but the nature of business has changed significantly in the last 20 years. The service sector, especially Internet services, has grown dramatically. The United States now has what is called a service economy—that is, one dominated by the service sector. Production management describes all the activities managers do to help companies create goods. To reflect the change in importance from manufacturing to services, the term production often has been replaced by operations to reflect the manufacturing of both goods and services. Operations management (OM) i s the management of systems or processes that convert or transform resources (including human resources) into goods and services. Operations management is responsible for managing the core processes used to manufacture goods and produce services.
  • C reation of goods or services involves transforming or converting inputs into outputs To ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process (feedback) and then compares them with previously established standards to determine whether corrective action is needed (control).
  • The Figure displays examples of inputs, transformation processes, and outputs
  • Although goods and services are listed separately in the Figure it is important to note that goods and services often occur jointly. For example, having the oil changed in your car is a service, but the oil that is delivered is a good. Similarly, house painting is a service, but the paint is a good. The goods–service combination is a continuum. It ranges from primarily goods with little service to primarily service with few goods (see Figure). There are relatively few pure goods or pure services; therefore, organizations typically sell product packages, which are a combination of goods and services. This makes managing operations more interesting, and also more challenging OM is critical to an organization because of its ability to increase value-added during the transformation process. In nonprofit organizations, the value of outputs (highway construction, police, and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of the operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Firms use the money generated by value-added for research and development, investment in new facilities and equipment, worker salaries, and profits. Consequently, the greater the value-added, the greater the amount of funds available for these important activities.
  • Example of how an airline service organization’s OM team adds value. The company consists of the airplanes, airport facilities, and maintenance facilities, and typical OM activities include: Forecasting: Estimating seat demand for flights, weather and landing conditions, and estimates for growth or reduction in air travel are all included in forecasting. Capacity planning: This is the key essential metric for the airline to maintain cash flow and increase revenues. Underestimating or overestimating flights will hurt profits. Scheduling: The airline operates on tight schedules that must be maintained including flights, pilots, flight attendants, ground crews, baggage handlers, and routine maintenance. Managing inventory: Inventory of such items as foods, beverages, first-aid equipment, in-flight magazines, pillows, blankets, and life jackets is essential for the airline. Assuring quality: Quality is indispensable in an airline where safety is the highest priority. Today’s travelers expect high-quality customer service during ticketing, check-in, curb service, and unexpected issues where the emphasis is on efficiency and courtesy. Motivating and training employees: Airline employees must be highly trained and continually motivated, especially when dealing with frustrated airline travelers. Locating facilities: Key questions facing airlines include which cities to offer services, where to host maintenance facilities, and where to locate major and minor hubs. The success of the business depends on short- and long-term planning and the ability of its executives and managers to make informed decisions.
  • Managers use IT to heavily influence OM decisions including productivity, costs, flexibility, quality, and customer satisfaction Decision support systems and executive information systems can help an organization perform what-if analysis, sensitivity analysis, drill-down, and consolidation. Numerous managerial and strategic key decisions are based on OM information systems that affect the entire organization, including: What: What resources will be needed, and in what amounts? When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? Where: Where will the work be performed? How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? Who: Who will perform the work?
  • Operations strategy addresses very broad questions about how these major resources should be configured to achieve the desired corporate objectives. Some of the major long-term issues addressed in operations strategy include: How big to make the facilities? Where to locate the facilities? When to build additional facilities? What type of process(es) to install to make the products?
  • Decisions at the SBU level focus on being effective, that is, “on doing the right things.” These decisions are sometimes referred to as strategic planning, which focuses on long range planning such as plant size, location, and type of process to be used. The primary system used for strategic planning is a materials requirement planning system. Materials requirement planning (MRP) systems use sales forecasts to make sure that needed parts and materials are available at the right time and place in a specific company. The latest version of MRP is enterprise resource planning – covered in detail in the ERP chapter
  • Strategic decisions impact intermediate-range decisions, often referred to as tactical planning, which focuses on being efficient, that is, “doing things right.” Tactical planning focuses on producing goods and services as efficiently as possible within the strategic plan. Here the emphasis is on producing quality products, including when material should be delivered, when products should be made to best meet demand, and what size the workforce should be. One of the primary systems used in tactical planning includes global inventory management. Global inventory management systems provide the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the production process. This allows an organization to locate and analyze its inventory anywhere in its production process.
  • Operational planning and control (OP&C) - deals with the day-to-day procedures for performing work, including scheduling, inventory management, and process management. Inventory management and control systems provide control and visibility to the status of individual items maintained in inventory. The software maintains inventory record accuracy, generates material requirements for all purchased items, and analyzes inventory performance. Inventory management and control software provides organizations with the information from a variety of sources including: Current inventory and order status. Cost accounting. Sales forecasts and customer orders. Manufacturing capacity. New-product introductions Transportation planning systems track and analyze the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost. Distribution management systems coordinate the process of transporting materials from a manufacturer to distribution centers to the final customers. Transportation routes directly affect the speed and cost of delivery. An organization will use these systems to help it decide if it wants to use an effectiveness route and ship its products directly to its customers or use an efficiency route and ship its products to a distributor that ships the products to customers.
  • The key to developing a competitive OM strategy lies in understanding how to create value-added goods and services for customers. Specifically value is added through the competitive priority or priorities that are selected to support a given strategy. There are five key competitive priorities that translate directly into characteristics that are used to describe various processes by which a company can add value to its OM decisions including: Cost Quality Delivery Flexibility Service
  • Many organizations use modern quality control standards, including: Six sigma quality: The goal is to detect potential problems to prevent their occurrence and achieve no more than 3.4 defects per million opportunities. That is important to companies like Bank of America, which makes 4 million transactions a day. Malcolm Baldrige National Quality Awards : In 1987 in the United States, a standard was set for overall company quality with the introduction of the Malcolm Baldrige National Quality Awards, named in honor of the late U.S. secretary of commerce. Companies can apply for these awards in each of the following areas: manufacturing, services, small businesses, education, and health care. To qualify, an organization has to show quality in seven key areas: leadership, strategic planning, customer and market focus, information and analysis, human resources focus, process management, and business results. ■ ISO 900: The common name given to quality management and assurance standards. Comes from the International Organization for Standardization (ISO), a nongovernmental organization established in 1947 to promote the development of world standards to facilitate the international exchange of goods and services. ISO is a worldwide federation of national standards bodies from more than 140 countries. ISO 900 standards require a company to determine customer needs, including regulatory and legal requirements. The company must also make communication arrangements to handle issues such as complaints. Other standards involve process control, product testing, storage, and delivery. ISO 14000: This collection of the best practices for managing an organization’s impact on the environment does not prescribe specific performance levels, but establishes environmental management systems. The requirements for certification include having an environmental policy, setting specific improvement targets, conducting audits of environmental programs, and maintaining top management review of processes. Certification in ISO 14000 displays that a firm has a world-class management system in both quality and environmental standards. ■ CMMI: Capability Maturity Model Integration is a framework of best practices. The current version, CMMI-DEV, describes best practices in managing, measuring, and monitoring software development processes. CMMI does not describe the processes themselves; it describes the characteristics of good processes, thus providing guidelines for companies developing or honing their own sets of processes
  • 3. Delivery: Another key factor in purchasing decisions is delivery speed. The ability of a firm to provide consistent and fast delivery allows it to charge a premium price for its products. George Stalk, Jr., of the Boston Consulting Group, has demonstrated that both profits and market share are directly linked to the speed with which a company can deliver its products relative to its competition. In addition to fast delivery, the reliability of the delivery is also important. In other words, products should be delivered to customers with minimum variance in delivery times. 4. Flexibility: Flexibility, from a strategic perspective, refers to the ability of a company to offer a wide variety of products to its customers. Flexibility is also a measure of how fast a company can convert its process(es) from making an old line of products to producing a new product line. Product variety is often perceived by the customers to be a dimension of quality. Currently, there appears to be a trend toward offering environmentally friendly products that are made through environmentally friendly processes. As consumers become more aware of the fragility of the environment, they are increasingly turning toward products that are safe for the environment. Several flexible manufacturers now advertise environmentally friendly products, energy-efficient products, and recycled products. 5. Service: With shortened product life cycles, products tend to migrate toward one common standard. As a consequence, these products are often viewed as commodities in which price is the primary differentiator. For example, the differences in laptops offered among PC manufactures are relatively insignificant so price is the prime selection criterion.
  • To help your students understand a supply chain, ask them to discuss and determine the steps typically taken when a customer buys a bike from Trek Customer places an order for a Trek bike with a store Store (such as Gart Sports, local bike shop, or local sporting goods store) receives the order Store receives the payment from the customer Store orders the bike from Trek Store sends payment to Trek Trek orders materials from its suppliers, such as packaging material, metal, and accessories Trek sends payments to suppliers Trek receives materials from suppliers Trek assembles the bike Trek ships the bike to the store Customer picks up the Trek bike from the store
  • There are dozens of steps required to achieve and carry out each of the four basic components of SCM Supply chain strategy is the strategy for managing all the resources required to meet customer demand for all products and services. Supply chain partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics. Supply chain operation is the schedule for production activities including testing, packaging, and preparation for delivery. Supply chain logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing. An organization generates tremendous operational efficiencies when it automates these steps and the information flows among them CLASSROOM EXERCISE Supply Chaining the Room Divide your class into four groups and assign a different SCM component to each group Ask your students to create a list describing the details of the work involved in their assigned component Ask your students to discuss how this work was accomplished prior to the invention of the computer Ask your students to describe the effect SCM software has on work accomplished among the four components
  • Dozens of steps are required to achieve and carry out each of the supply chain components The above figure diagrams the typical manufacturing supply chain . SCM software can enable an organization to generate efficiencies within these steps by automating and improving the information flows throughout and among the different supply chain components. CLASSROOM VIDEO Ford’s Integrated OM Supply Chain Great video on Ford's integrated manufacturing supply chain. http://www.youtube.com/watch?v=qyO9QSo0FjU
  • Dozens of steps are required to achieve and carry out each of the supply chain components The above figure diagrams the typical service supply chain . SCM software can enable an organization to generate efficiencies within these steps by automating and improving the information flows throughout and among the different supply chain components. CLASSROOM VIDEO Microsoft’s Supply Chain Xbox 360 For its next-generation Microsoft® Xbox 360™ video game system, Microsoft faced more complex manufacturing requirements than it saw with the original Xbox console. It also faced a need to speed production and reduce inventory costs compared to the performance of its earlier, Electronic Data Interchange (EDI)-based supply-chain solution. To provide full, real-time visibility into the supply chain for the product’s graphics chips, Microsoft created an integrated business process automation solution based on Microsoft Windows Server System™ integrated server software components, including Microsoft BizTalk® Server and the BizTalk Accelerator for RosettaNet. As a result, the company expects to speed on-time deliveries by 20 percent and reduce inventories by 10 percent. Those gains, plus increased productivity of manufacturing and IT staffs, will help deliver a first-year return on investment (ROI) of 126 percent. Developing the solution was 50 percent faster and more cost-effective than using EDI, saving six months off the development schedule. http://download.microsoft.com/download/d/f/d/dfd2e706-f4d9-4255-915d-cab0a8d3738b/BizTalkSupplyChainVideo.wmv
  • Wal-Mart and P&G implemented a tremendously successful SCM System links Wal-Mart’s distribution centers directly to P&G’s manufacturing centers Each time a Wal-Mart customers purchases a P&G product, the system sends a message directly to P&G’s factory for a reorder Explain how Wal-Mart’s and P&G’s relationship would be affected if a catastrophic incident destroyed the SCM system? How would Wal-Mart reorder products? How would Wal-Mart send payments? How would P&G know which products to send to Wal-Mart?
  • This is a good time to readdress Porter’s Five Forces Model Ask your students to diagram Porter’s Five Forces and then walk-thru each of the above bullets and explain how SCM is causing this effect
  • Is it a good idea to try to influence buyer power and supplier power? Why would a company wants to decrease its buyer power and increase its supply power? Decreasing buyer power gives a company a competitive advantage as Apple discovered with the introduction of its iPod. Being the first to market and the only supplier of a product puts the company in the coveted position of being able to set prices and control the market. Discuss how SCM systems can drive buyer power and supplier power
  • The answers to these questions are too detailed to paste – please review the Chapter IM for these answer.
  •   CLASSROOM VIDEO Microsoft’s Supply Chain Xbox 360 For its next-generation Microsoft® Xbox 360™ video game system, Microsoft faced more complex manufacturing requirements than it saw with the original Xbox console. It also faced a need to speed production and reduce inventory costs compared to the performance of its earlier, Electronic Data Interchange (EDI)-based supply-chain solution. To provide full, real-time visibility into the supply chain for the product’s graphics chips, Microsoft created an integrated business process automation solution based on Microsoft Windows Server System™ integrated server software components, including Microsoft BizTalk® Server and the BizTalk Accelerator for RosettaNet. As a result, the company expects to speed on-time deliveries by 20 percent and reduce inventories by 10 percent. Those gains, plus increased productivity of manufacturing and IT staffs, will help deliver a first-year return on investment (ROI) of 126 percent. Developing the solution was 50 percent faster and more cost-effective than using EDI, saving six months off the development schedule. http://download.microsoft.com/download/d/f/d/dfd2e706-f4d9-4255-915d-cab0a8d3738b/BizTalkSupplyChainVideo.wmv After showing this video I like to ask my students if I had showed it at the beginning of class would they even understand it? This is a great time to point out how far they have come and how much they have learned in this course.
  • 8.6 List and describe the components of a typical supply chain The components of a typical supply chain include: Supplier’s supplier, Supplier, Manufacturer, Distributor, Retailer, Customer, Customer’s Customer 8.7 Define the relationship between decision making and supply chain management SCM enhances decision making. Collecting, analyzing, and distributing transactional information to all relevant parties, SCM systems help all the different entities in the supply chain work together more effectively. SCM systems provide dynamic holistic views of organizations. Users can “drill down” into detailed analyses of supply chain activities in a process analogous to DSS. Without SCM systems, organizations would be unable to make accurate and timely decisions regarding their supply chain. 8.8 Identify the factors driving supply chain management Although people have been talking about the integrated supply chain for a long time, it has only been recently that advances in information technology have made it possible to bring the idea to life and truly integrate the supply chain. Visibility, consumer behavior, competition, and speed are a few of the changes resulting from advances in information technology that are driving supply chains 8.9 Summarize the best practices for implementing a successful supply chain management system The following are the SCM industry best practices: Make the sale to suppliers - A large part of any SCM system extends beyond the organization to the suppliers. Since the organization has very little control over anything external to itself, these pieces are typically the most complicated. Be sure suppliers are on board with the benefits that the SCM system will provide to ease SCM implementation difficulties. Wean employees off traditional business practices - If the organization cannot convince people that using the SCM software is worthwhile, the employees will probably find a way around using the software. Ensure the SCM system supports the organizational goals - Be sure to select SCM software that supports organizational goals and strategies Deploy in Incremental phases and measure and communicate success - Designing the deployment of the SCM system in incremental phases is the most successful deployment method. The BIG BANG approach – implementing everything at once – fails 90 percent of the time. Be future oriented - An SCM system, like all systems, must scale to meet future demands.
  • This chapter takes a look at extending an organization through SCM and discusses: The reasons for SCM’s explosive growth Using SCM to enhance decision making SCM success factors Traditional SCM thinking involved “I buy from my suppliers, I sell to my customers.” Today, organizations are quickly realizing the tremendous value they can gain from having visibility throughout their supply chain Knowing immediately what is transacting at the customer end of the supply chain, instead of waiting days or weeks for this information to flow upstream, allows the organization to react immediately Best Buy checks inventory levels at each of its 750 stores across North America as often as every half-hour
  • Collecting, analyzing, and distributing transactional information to all relevant parties, SCM systems help all the different entities in the supply chain work together more effectively SCM has significantly improved companies’ forecasting abilities over the last few years Businesses today have access to modeling and simulation tools, algorithms, and applications that can combine information from multiple sources to build forecasts for days, weeks, and months in advance
  • CLASSROOM EXERCISE Supply Chaining Break your students into groups and ask them to design a supply chain for an organization of their choice Ask your students to try to choose an organization that is currently experiencing supply chain issues, perhaps an organization where the student has had recent issues, such as not receiving an order, receiving an incorrect order, or receiving someone else's order Be sure to have them list the names of the suppliers, manufacturers, distributors, retailers, and customers Ask the students to identify one or two areas where the organization can improve its supply chain Have each group present their supply chains to the class along with their recommendations for improvement
  • Best Buy checks inventory levels at each of its 750 stores in North America as often as every half-hour with its SCM system, taking much of the guesswork out of inventory replenishment Supply chain management improves ways for companies to find the raw components they need to make a product or service, manufacture that product or service, and deliver it to customers Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers. Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships. Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity. Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments. Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.
  • Considerable evidence shows that this type of supply chain integration results in superior supply chain capabilities and profits. CLASSROOM EXERCISE Near Beer Supply Chain Game This is an excellent exercise for students who are just learning about the supply chain. http://www.forio.com/nearbeer.htm
  • Information technology – only recently have advances in IT made it possible to bring the idea of a truly integrated supply chain to life Visibility – more visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated Consumer behavior – companies must respond to demanding customers through supply chain enhancements Competition – increased competition makes any organization that is ignoring its supply chain at risk of becoming obsolete Speed – as the pace of business increases through electronic media, an organization's supply chain must respond efficiently, accurately, and quickly
  • Visibility – more visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated Supply chain visibility allows organizations to eliminate the bullwhip effect To explain the bullwhip effect to your students discuss a product that demand does not change, such as diapers. The need for diapers is constant, it does not increase at Christmas or in the summer, diapers are in demand all year long. The number of newborn babies determines diaper demand, and that number is constant. Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe Distributors order diapers from manufacturers when their inventory level falls below a certain level, they might order a few extra just to be safe Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe Eventually the one or two extra boxes ordered from a few retailers becomes several thousand boxes for the manufacturer. This is the bullwhip effect, a small ripple at one end makes a large wave at the other end of the whip.
  • Once an organization understands customer demand and its effect on the supply chain it can begin to estimate the impact that its supply chain will have on its customers and ultimately the organizations performance
  • SCP and SCE both increase a company’s ability to compete SCP depends entirely on information for its accuracy SCE can be as simple as electronically routing orders from a manufacturer to a supplier
  • Ask your students to determine the different types of information flows that would be represented in an SCP system Ask your students to determine the different types of payment flows that would be represented in an SCE system
  • Why is information speed critical in a supply chain? If the information arrives three dates late, chances are high that managers have already made decisions based on current information that might have been inaccurate Information timeliness is critical IT is an enabler of information timeliness CLASSROOM EXERCISE Designing a Digital Dashboard for an SCM System Digital dashboards offer an effective and efficient way to view enterprisewide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a company’s return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations. Break your students into groups and ask them to develop a digital dashboard for the CEO of a transportation company. Be sure your students have addressed all of the following in their digital dashboard: Inventory Materials Demand/Supply Sales Supplier’s supplier Supplier Manufacturer Distributor Retailer Customer Customer’s Customer
  • Supply chain management metrics can help an organization understand how it’s operating over a given time period. Supply chain measurements can cover many areas including procurement, production, distribution, warehousing, inventory, transportation, and customer service. However, a good performance in one part of the supply chain is not sufficient. A supply chain is only as strong as its weakest link. The solution is to measure all key areas of the supply chain. This figure displays common supply chain management metrics.
  • Seven principles of supply chain management The seven principles highlighted in this figure run counter to previous built-in functional thinking of how companies organize, operate, and serve customers Dell computers offers one of the best examples of an extremely successful SCM system Dell’s highly efficient build-to-order business model enabled it to deliver customized computer systems quickly The U.S. government has even sent individuals to study Dell’s supply chain when determining ways to supply troops during wars If your students find themselves in the position of implementing an SCM, be sure they study Dell as an example of exactly what to do when building and implementing an SCM system CLASSROOM EXERCISE Driving SCM Break your students into groups and ask them to research each of the above companies and how they are using SCM to drive their business operations Have your students present their findings to the class
  • Studying industry best practices is an excellent way to improve SCM implementation success A large part of any SCM system extends beyond the organization to the suppliers. Since the organization has very little control over anything external to itself, these pieces are typically the most complicated to build, develop, and implement. Be sure suppliers are on board with the benefits that the SCM system will provide to ease SCM implementation difficulties If the organization cannot convince people that using the SCM software is worthwhile, the employees will probably find a way to continue performing their job without using the software Be sure to select SCM software that supports organizational goals and strategies Designing the deployment of the SCM system in incremental phases is the most successful deployment method. The BIG BANG approach – implementing everything all at once – fails 90 percent of the time An SCM system, like all systems, must scale to meet future demands CLASROOM EXERCISE Business Week Slide Show Business Week Slide Show on RFID http://images.businessweek.com/ss/06/10/ceoguide_rfid/slideshow.htm Ask your students to list any other businesses they know are using RFID to streamline business processes. Can they create a new product that uses RFID to help a business become more efficient or effective?  
  • The role of SCM is evolving, and it is not uncommon for suppliers to be involved in product development and for distributors to act as consultants in brand marketing CLASSROOM EXERCISE SCM Again Break your students into groups and ask them to identify how each of the “Top reasons executives are using SCM to manage extended enterprises” in the Figure is supported by an SCM system For example, how does SCM help an organization control costs and save costs? Ans: Organizations gain visibility into their supply chains through an SCM system. This allows them to identify such things as inefficient and ineffective business process. Fixing these processes helps the organization control costs and save money. The answers to these questions will vary, and the goal of the activity is for students to understand the many different benefits an organization can gain through an SCM system
  • Discuss the Apple computer example Apple Computer initially distributed its business operations over 16 legacy applications Apple quickly realized that it needed a new business model centered around an integrated supply chain to drive performance efficiencies Apple devised an implementation strategy that focused on specific SCM functions including finance, sales, distribution, and manufacturing The new business model included: Build-to-order and configure-to-order manufacturing capabilities (similar to Dell) Web-enabled configure-to-order order entry and order status Real-time credit card authorization Available-to-promise and rules-based allocations Integration to advanced planning systems CLASSROOM VIDEO Video on SCM and RFID Great video on SCM and RFID to start off a lecture http://www.youtube.com/watch?v=4Zj7txoDxbE  
  • Supply chain event management (SCEM) – enables an organization to react quickly to resolve supply chain issues Selling chain management – applies technology to the activities in the order life cycle from inquiry to sale Collaborative engineering – allows an organization to reduce the costs required during the design process of a product Collaborative demand planning – helps organizations reduce their investment in inventory, while improving customer satisfaction through product availability The functionality in supply chain management systems is becoming more and more sophisticated as supply chain management matures The future stages of SCM will incorporate more functions such as marketing, customer service, and product development It will also use more advanced communication methods, adoption of more user friendly decision support systems, and availability of shared information to all participants in the supply chain
  • 5. How might Dell use each of the five basic SCM components? Student answers to this question will vary. Potential answers include: Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers. Dell must plan how it wants to handle its supply chain – efficiently or effectively. Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships. Dell will need to choose partners who have the same innovative mindset and are capable of keeping up with Dells fast pace. Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity. Dell needs to ensure all of its computers are of the highest quality – quality issues in the PC market will kill a PC manufacturer. Deliver – This step is commonly referred to as logistics. Logistics is the set processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments. This step is critical to Dell since it does not have a distributor to deliver its products. Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products. Since Dell does no have any distributors it must make the return process as easy as possible for customers. 6. How had Dell influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain? Dell is one of the fasted companies on the planet due to information technology. Dell only holds 72 hours worth of inventory in its supply chain, hence it must have tremendous supply chain visibility. It must be able to anticipate consumer behavior to ensure its supply chain can meet forecasted demands. Dell’s competition is working hard to catch-up. 7. Explain the seven principles of SCM in reference to Dell’s business model. Students should take the principles of how to build a Dell-like supply chain and compare them to the following: Segment customers by service needs, regardless of industry, and then tailor services to those particular segments. Customize the logistics network and focus intensively on the service requirements and on the profitability of the preidentified customer segments Listen to signals of market demand and plan accordingly. Differentiate products closer to the customer, since companies can no longer afford to hold inventory to compensate for poor demand forecasting. Strategically manage courses of supply, by working with key suppliers to reduce overall costs of owning materials and services. Develop a supply chain information technology strategy that supports different levels of decision making. Adopt performance evaluation measures that apply to every link in the supply chain and measure true profitability at every stage.
  • 1. Describe the five competitive priorities of operations management and how Budweiser can use each one to streamline production. ? Cost : BudNet is strategically uses OM from a strategic, tactical, and OP&C levels to continually minimize costs so it can increase profits. Beer is a tough business and competing on cost is a key factor for Budweiser as it competes against high-end beers such as microbrews. Quality : Budnet must continuously monitor its quality. Customers expect a Budweiser to taste exactly the same regardless of where the beer was purchased. Quality control is key to ensuring the product is of the best quality. If every time a customer opened a Budweiser it tasted differently they probably would not buy Budweiser. Delivery : Budnet must continuously monitor its operations to ensure it is delivering products timely. Nothing kills a beer company quicker than inability to deliver products – without products there are no sales. If it is Superbowl weekend all of its customers need beer – this is not the time to run out. Flexibility : Ordering beer has highs and lows. During holidays, summer, and special events such as the Superbowl customer will be ordering high quantities. During low periods orders will be minimal. The company must be flexible enough to produce according to the needs of its customers. Service : Service for Budnet includes its distributors – it does not deal with the end-customer. It must ensure its distributors and resellers are incented to promote Budweiser and ensure it has great shelf-space at stores to ensure sales. 2. How can an SCM system help a distributor such as Anheuser-Busch make its supply chain more effective and efficient? An SCM system can help make a distributor more effective by tracking, monitoring, and analyzing inventory throughout the entire supply chain. An SCM system can trigger the production of a product for a manufacturer, determine where to transport the finished product through a specific distribution company to a particular supplier, and can even recommend the optimal location for the product at the supplier’s store. A good SCM system will know exactly when a customer purchases a product from a supplier, and will automatically request product replacement from the manufacturer. This drives efficiency and effectiveness since inventory levels throughout the entire supply chain can be operated by just-in-time.
  • 3. SCM is experiencing explosive growth. Explain why this statement is true using BudNet as an example. An SCM can help an organization: Control costs and improve saving Improve productivity Reduce inventory Improve visibility Reduce process cycle times Improve quality Maintain and gain a competitive advantage 4. Evaluate BudNet’s effect on each of the five factors that are driving SCM success. There are five factors that are contributing to the explosive growth of SCM. (1) IT, (2) Visibility, (3) Consumer behavior, (4) Competition, (5) Speed. BudNet is using these factors to control quality, improve productivity, and ultimately increase revenues. Anheuser-Busch uses BudNet to constantly adjust production levels, fine-tune marketing campaigns, change marketing strategies, design promotions to suit the ethnic makeup of its markets, detect rivals and competition, and define product placement and pricing strategies. 5. List and describe the components of a typical supply chain along with its ability to help Budweiser make effective decisions. Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers. Dell must plan how it wants to handle its supply chain – efficiently or effectively. Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships. Dell will need to choose partners who have the same innovative mindset and are capable of keeping up with Dells fast pace. Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity. Dell needs to ensure all of its computers are of the highest quality – quality issues in the PC market will kill a PC manufacturer. Deliver – This step is commonly referred to as logistics. Logistics is the set processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments. This step is critical to Dell since it does not have a distributor to deliver its products. Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products. Since Dell does no have any distributors it must make the return process as easy as possible for customers. As Budweiser evolves into an extended organization, the roles of supply chain participants are changing. Budweiser’s suppliers might be involved in product development and its distributors might act as consultants in brand marketing. The notion of virtually seamless information links within and between organizations is an essential element of integrated supply chains.
  • 1. Explain the role of operations management for Warner-Lambert. Books, DVDs, downloaded MP3s, and dental and medical procedures are all examples of goods and services. Production management describes all the activities mangers do to help companies create goods. To reflect the change in importance from manufacturing to services, the term production often has been replaced by operations to reflect the manufacturing of both goods and services. Operations management (OM) is the management of systems or processes that convert or transform resources (including human resources) into goods and services. Operations management is responsible for managing the core processes used to manufacture goods and produce services. 2. Summarize SCM and describe Warner-Lambert’s supply chain strategy. Diagram the SCM components. The supply chain consists of all parties involved, directly or indirectly, in the procurement of a product or raw material. Supply chain management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability. 3. Detail Warner-Lambert’s three operations management strategies and identify systems it could use to help make strategic decisions. Operations strategy is concerned with the development of a long-term plan for determining how to best utilize the major resources of the firm so that there is a high degree of compatibility between these resources and the firm’s long-term corporate strategy. Operations strategy addresses very broad questions about how these major resources should be configured in order to achieve the desired corporate objectives. Some of the major long-term issues addressed in operations strategy include: How big to make the facilities? Where to locate the facilities? When to build additional facilities? What type of process(es) to install to make the products?
  • 4. What would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources? A natural disaster in Saudi Arabia which depletes its natural gas would cause problems in Warner-Lambert’s supply chain. Without the natural gas that yields the synthetic alcohol, Listerine would be unable to deliver its 43-proof punch. Unless it could quickly find another vendor of the natural gas or if it had a large safety inventory, the production of Listerine would come to a complete stop. 5. Assess the impact to Warner-Lambert’s business if the majority of the eucalyptus crop was destroyed in a natural disaster. A natural disaster which destroyed all of the eucalyptus crop would be devastating to Warner-Lambert’s business and would cause many problems in its supply chain. The price of eucalyptus would skyrocket causing unforeseen increases in costs throughout the supply chain. Unless it could quickly find an alternative ingredient to eucalyptus, the production of Listerine would come to a complete stop.
  • 1. How did Levi Strauss achieve business success through the use of supply chain management? Levi’s used its SCM system to decreased the power of its buyers, increased its own supplier power, increased switching costs to reduce the threat of substitute products or services, created entry barriers thereby reducing the threat of new entrants, and increased efficiencies while seeking a competitive advantage through cost leadership. 2. What might have happened to Levi’s if its top executives had not supported investments in SCM? One of the main factors that brought Levi’s back from the dead was its ability to sell jeans in Wal-Mart. Wal-Mart demands that all partners have up-to-date SCM systems that can easily integrate with Wal-Mart’s systems. If Levi’s top executives did not have the foresight to view selling jeans at Wal-Mart as a competitive advantage, then chances are the company would not have made a strong comeback in the highly competitive clothing market. Although Levi’s was in the process of upgrading its systems, it was going to take over five years to implement. This was simply too long. Levi’s had no choice but to spend the money to upgrade its SCM system if it wanted to do business with Wal-Mart. 3. David Bergen, Levi’s CIO, put together a cross-functional team of key managers from IT, finance, and sales to transform Levi’s systems to meet Wal-Mart’s requirements. Analyze the relationships between these three business areas OM and SCM systems. How can OM and SCM systems help support these three critical business areas? Business personnel and IT personnel must work together for an organization to succeed. If Levi’s failed to include IT personnel, finance personnel, or sales personnel in the cross-functional team, it would have had a difficult time achieving a successful system transformation. All managers in all areas of the company will need to use the SCM system to make strategic decisions.
  • 4. Describe the five basic SCM components in reference to Wal-Mart’s business model. Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers. Dell must plan how it wants to handle its supply chain – efficiently or effectively. Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships. Dell will need to choose partners who have the same innovative mindset and are capable of keeping up with Dells fast pace. Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity. Dell needs to ensure all of its computers are of the highest quality – quality issues in the PC market will kill a PC manufacturer. Deliver – This step is commonly referred to as logistics. Logistics is the set processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments. This step is critical to Dell since it does not have a distributor to deliver its products. Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products. Since Dell does no have any distributors it must make the return process as easy as possible for customers. Wal-Mart plans each of the above components into and throughout its supply chain. Since Wal-Mart is essentially a distributor and does not manufacture anything itself, it must be able to plan, source, make, deliver, and return everything it distributes from its manufacturers. 5. Explain the future trends of SCM and how Levi’s could use these technologies to streamline its business operations. Radio frequency identification (RFID) technologies use active or passive tags in the form of chips or smart labels that can store unique identifiers and relay this information to electronic readers. RFID tags contain a microchip and an antenna, and typically work by transmitting a serial number via radio waves to an electronic reader, which confirms the identity of a person or object bearing the tag. Levi’s can add RFID tags to every product and shipping box. At every step of the item’s journey, a reader scans one of the tags and updates the information on the server. Levi’s can observe sales patterns in real time and make swift decisions about production, ordering, and pricing. Integrating RFID in the supply chain will help Levi’s achieve greater efficiency and effectiveness through the use of real-time information. 6. Identify any security and ethical issues that might occur for a company doing business with Wal-Mart. There are numerous security and ethical issues facing Wal-Mart including: Theft Loss prevention Manipulating supply levels to change prices Manipulating demand levels to change prices Identity theft Sharing sensitive information Passing on viruses
  • Drawing upon a six-year research project at the Stanford University Graduate School of Business, Jim Collins and Jerry I. Porras took 18 truly exceptional and long-lasting companies and studied each in direct comparison to one of its top competitors. They examined the companies from their very beginnings to the present day—as start-ups, as midsize companies, and as large corporations. Throughout, the authors asked: “What makes the truly exceptional companies different from the comparison companies and what were the common practices these enduringly great companies followed throughout their history?” Filled with hundreds of specific examples and organized into a coherent framework of practical concepts that can be applied by managers and entrepreneurs at all levels, Built to Last provides a master blueprint for building organizations that will prosper long into the 21st century and beyond.
  • Built to Last, the defining management study of the ‘90s showed how great companies triumph over time and how long-term sustained performance can be engineered into the DNA of an enterprise from the very beginning. But what about the company that is not born with great DNA? How can good companies, mediocre companies, even bad companies achieve enduring greatness? The Study: For years, this question preyed on the mind of Jim Collins. Are there companies that defy gravity and convert long-term mediocrity or worse into long-term superiority? And if so, what are the universal distinguishing characteristics that cause a company to go from good to great? The Standards: Using tough benchmarks, Collins and his research team identified a set of elite companies that made the leap to great results and sustained those results for at least 15 years. How great? After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in 15 years, better than twice the results delivered by a composite index of the world’s greatest companies, including Coca-Cola, Intel, General Electric, and Merck. The Findings: The findings of the good-to-great study will surprise many readers and shed light on virtually every area of management strategy and practice: Level 5 leaders: The research team was shocked to discover the type of leadership required to achieve greatness. The hedgehog concept: To go from good to great requires transcending the curse of competence. A culture of discipline: When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great results. Technology accelerators: Good to great companies think differently about the role of technology. The flywhere and the doom loop: Those who launch radical change programs and wrenching restructuring will almost certainly fail to make the leap.
  • Ch08

    1. 1. Business Driven Information Systems 2e CHAPTER 8 OPERATIONS MANAGEMENT AND SUPPLY CHAIN MANAGEMENTMcGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
    2. 2. 8-2 Chapter Eight OverviewSECTION 8.1 – OPERATIONS MANAGEMENT• Operations Management Fundamentals• OM in Business• IT’s Role in OM• Competitive OM Strategy• OM and the Supply Chain•SECTION 8.2- SUPPLY CHAIN MANAGEMENT• Supply Chain Fundamentals• IT’s Role in the Supply Chain• Supply Chain Management Success Factors• Supply Chain Management Success Stories• Future Supply Chain Trends•
    3. 3. SECTION 8.1 OPERATIONS MANAGEMENTMcGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
    4. 4. 8-4 LEARNING OUTCOMES– Define the term operations management– Explain operations management role in business– Describe the correlation between operations management and information technology
    5. 5. 8-5 LEARNING OUTCOMES1. Describe the five characteristics of competitive priorities3. Explain supply chain management and its role in a business
    6. 6. 8-6 OM FUNDAMENTALS• Production - is the creation of goods and services using the factors of production• Production management - describes all the activities managers do to help companies create goods• Operations management (OM) - the management of systems or processes that convert or transform resources into goods and services
    7. 7. 8-7 OM FUNDAMENTALS• Transformation process - the actual conversion of inputs to outputs
    8. 8. 8-8OM FUNDAMENTALS
    9. 9. 8-9 OM FUNDAMENTALS• Value-added - the term used to describe the difference between the cost of inputs and the value of price of outputs
    10. 10. 8-10 OM IN BUSINESS• How does an airline service organization’s OM team adds value? – Forecasting – Capacity planning – Scheduling – Managing inventory – Assuring quality – Motivating and training employees – Locating facilities
    11. 11. 8-11 IT’S ROLE IN OM• Managers use IT to heavily influence OM decisions including : – What: What resources will be needed and in what amounts? – When: When should the work be scheduled? – Where: Where will the work be performed? – How: How will the work be done? – Who: Who will perform the work?
    12. 12. 8-12OM Strategic Business Systems• Operations strategy addresses broad questions about using major resources to achieve corporate objectives• Major long-term issues addressed in operations strategy include: – How big to make the facilities? – Where to locate the facilities? – When to build additional facilities? – What type of process(es) to install to make the products?
    13. 13. 8-13OM Strategic Business Systems• Strategic planning - focuses on long range planning• Strategic business units (SBUs) - consist of several stand-alone businesses• Materials requirement planning (MRP) - use sales forecasts to make sure that needed parts and materials are available at the right time and place
    14. 14. 8-14OM Strategic Business Systems• Tactical planning - focuses on producing goods and services as efficiently as possible within the strategic plan• Global inventory management system - provides the ability to locate, track, and predict the movement of every component or
    15. 15. 8-15OM Strategic Business Systems• Operational planning and control (OP&C) - deals with the day-to-day procedures for performing work, including scheduling, inventory, and process management – Inventory management and control system – Transportation planning system – Distribution management
    16. 16. 8-16 COMPETITIVE OM STRATEGY• Five key competitive priorities which a company can add value to its OM decisions including: 1. Cost 2. Quality 3. Delivery 4. Flexibility 5. Service
    17. 17. 8-17 COMPETITIVE OM STRATEGY• Cost: there can be only one lowest-cost producer, and that firm usually establishes the selling price in the market• Quality: is divided into two categories product and process quality – Six Sigma Quality – Malcolm Balridge National Quality Awards – ISO 900, ISO 14000 – CMMI
    18. 18. 8-18 COMPETITIVE OM STRATEGY1. Delivery: a firms ability to provide consistent and fast delivery3. Flexibility: a firms ability to offer a wide variety of products5. Service: high-quality customer service adds tremendous value to an ordinary product
    19. 19. 8-19 OM AND THE SUPPLY CHAIN• Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability
    20. 20. 8-20 OM AND THE SUPPLY CHAIN• Four basic components of supply chain management include: – Supply chain strategy – strategy for managing all resources to meet customer demand – Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services. – Supply chain operation – schedule for production activities – Supply chain logistics – product delivery process
    21. 21. 8-21 OM AND THE SUPPLY CHAIN• Typical manufacturing supply chain
    22. 22. 8-22 OM AND THE SUPPLY CHAIN• Typical service supply chain
    23. 23. 8-23 OM AND THE SUPPLY CHAIN• Wal-Mart and Procter & Gamble (P&G) SCM
    24. 24. 8-24 OM AND THE SUPPLY CHAIN• Effective and efficient SCM systems can enable an organization to: – Decrease the power of its buyers – Increase its own supplier power – Increase switching costs to reduce the threat of substitute products or services – Create entry barriers thereby reducing the threat of new entrants – Increase efficiencies while seeking a competitive advantage through cost leadership
    25. 25. 8-25 OM AND THE SUPPLY CHAIN• Effective and efficient SCM systems effect on Porter’s Five Forces
    26. 26. 8-26 OPENING CASE QUESTIONS DELL’S FAMOUS SUPPLY CHAIN1. How would operations management be a critical component to a company like Dell?2. How would Dell use each of the three OM planning strategies to improve its operations?3. How might Dell use each of the five competitive priorities to increase value to its goods and services?4. Illustrate Dell’s potential supply chain management system
    27. 27. SECTION 8.2 SUPPLY CHAIN FUNDAMENTALSMcGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
    28. 28. 8-28 LEARNING OUTCOMES1. List and describe the components of a typical supply chain3. Define the relationship between information technology and the supply chain5. Identify the factors driving supply chain management7. Summarize the best practices for implementing a successful supply chain management system
    29. 29. 8-29 SUPPLY CHAIN FUNDAMENTALS• The average company spends nearly half of every dollar that it earns on production• In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains
    30. 30. 8-30 SUPPLY CHAIN FUNDAMENTALS• The supply chain has three main links: 1. Materials flow from suppliers and their “upstream” suppliers at all levels 2. Transformation of materials into semifinished and finished products through the organization’s own production process 3. Distribution of products to customers and their “downstream” customers at all levels
    31. 31. 8-31 SUPPLY CHAIN FUNDAMENTALS• Organizations must embrace technologies that can effectively manage supply chains
    32. 32. 8-32SUPPLY CHAIN FUNDAMENTALS
    33. 33. 8-33 IT’S ROLE IN THE SUPPLY CHAIN• IT’s primary role is to create integrations or tight process and information linkages between functions within a firm
    34. 34. 8-34IT’S ROLE IN THE SUPPLY CHAIN Factors Driving SCM
    35. 35. 8-35 Visibility• Supply chain visibility – the ability to view all areas up and down the supply chain• Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain
    36. 36. 8-36 Consumer Behavior• Companies can respond faster and more effectively to consumer demands through supply chain enhances• Demand planning software – generates demand forecasts using statistical tools and forecasting techniques
    37. 37. 8-37 Competition• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain
    38. 38. 8-38 Competition• SCP and SCE in the supply chain
    39. 39. 8-39Speed
    40. 40. 8-40SCM SUCCESS FACTORS
    41. 41. 8-41 SCM SUCCESS FACTORS• Segment customers• Customize the logistics network• Listen to signals of market demand and plan accordingly• Differentiate products closer to the customer• Strategically manage sources of supply• Develop a supply chain IT strategy• Adopt performance evaluation measures
    42. 42. 8-42 SCM SUCCESS FACTORS• SCM industry best practices include: 1. Make the sale to suppliers 2. Wean employees off traditional business practices 3. Ensure the SCM system supports the organizational goals 4. Deploy in incremental phases and measure and communicate success 5. Be future oriented
    43. 43. 8-43 SCM SUCCESS FACTORS• Top reasons why more and more executives are turning to SCM to manage their extended enterprises
    44. 44. 8-44 SCM SUCCESS FACTORS• Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains• DSSs allow managers to examine performance and relationships over the supply chain and among: – Suppliers – Manufacturers – Distributors – Other factors that optimize supply chain performance
    45. 45. 8-45 FUTURE SUPPLY CHAIN TRENDS• Fastest growing SCM components – Supply chain event management (SCEM) – Selling chain management – Collaborative engineering – Collaborative demand planning
    46. 46. 8-46 OPENING CASE QUESTIONS Dell’s Famous Supply Chain1. How might Dell use each of the five basic SCM components?3. How had Dell influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain?5. Explain the seven principles of SCM in reference to Dell’s business model
    47. 47. 8-47 CLOSING CASE ONE BudNet1. Describe the five competitive priorities of operations management and how Budweiser can use each one to streamline production3. How can an SCM system help a distributor such as Anheuser-Busch make its supply chain more efficient and effective?
    48. 48. 8-48 CLOSING CASE ONE BudNet1. SCM is experiencing explosive growth. Explain why this statement is true using BudNet as an example3. Evaluate BudNet’s effect on each of the five factors that are driving SCM success5. List and describe the components of a typical supply chain along with its ability to help Budweiser make effective decisions
    49. 49. 8-49 CLOSING CASE TWO Listerine’s Journey• Explain the role of operations management for Warner-Lambert• Summarize SCM and describe Warner- Lambert’s supply chain strategy. Diagram the SCM components• Detail Warner-Lambert’s three operations management strategies and identify systems it could use to help make strategic decisions
    50. 50. 8-50 CLOSING CASE TWO Listerine’s Journey1. What would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources?3. Assess the impact to Warner-Lambert’s business if the majority of the eucalyptus crop was destroyed in a natural disaster
    51. 51. 8-51 CLOSING CASE THREE Levi’s1. How did Levi Strauss achieve business success through the use of supply chain management?3. What might have happened to Levi’s if its top executives had not supported investments in SCM?5. David Bergen, Levi’s CIO, put together a cross- functional team of key managers from IT, finance, and sales to transform Levi’s systems to meet Wal-Mart’s requirements. Analyze the relationships between these three business areas and OM and SCM systems. How can OM and SCM systems help support these three critical business areas?
    52. 52. 8-52 CLOSING CASE THREE Levi’s• Describe the five basic SCM components in reference to Wal-Mart’s business model• Explain RFID and provide an example of how Levi’s could use the technology to increase its business operations• Identify any security and ethical issues that might occur for a company doing business with Wal-Mart
    53. 53. 8-53 BUSINESS DRIVEN BEST SELLERS• Built to Last, by Jim Collins
    54. 54. 8-54 BUSINESS DRIVEN BEST SELLERS• Good to Great, by Jim Collins

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