Effective supply chain coordination aims to improve supply chain performance by aligning the plans and objectives of individual enterprises. A supply chain is a network of companies and people involved in the production and delivery of a product or service. Key components include producers, vendors, warehouses, transportation companies, distribution centers, and retailers, which perform functions like product development, marketing, operations, distribution, finance, and customer service. Coordination within and across companies can help reduce costs and speed up production cycles.

1. Supply Chain
Planning &
Operations
Part 10

2. What is Supply Chain?
Supply chain coordination aims at improving supply chain
performance by aligning the plans and the objectives of
individual enterprises.
•A supply chain is a network of companies and people that are
involved in the production and delivery of a product or service.
•The components of a supply chain include producers,
vendors, warehouses, transportation companies, distribution
centers, and retailers.
•The functions of a supply chain include product development,
marketing, operations, distribution, finance, and customer
service.
•Today, many supply chains are global in scale.
•Effective supply chain management results in lower costs and
a faster production cycle.

3. What is just-in-time (JIT) inventory system?
JIT inventory system is a system that delivers inventory to a
company just in time for it to be used. This can help to
reduce inventory levels and costs.
• The just-in-time (JIT) inventory system is a management strategy
that minimizes inventory and increases efficiency.
• Just-in-time manufacturing is also known as the Toyota
Production System (TPS) because the car manufacturer Toyota
adopted the system in the 1970s.
• Kanban is a scheduling system often used in conjunction with JIT
to avoid overcapacity of work in process.
• The success of the JIT production process relies on steady
production, high-quality workmanship, no machine breakdowns, and
reliable suppliers.
• The terms short-cycle manufacturing, used by Motorola, and
continuous-flow manufacturing, used by IBM, are synonymous with
the JIT system.

4. What is VMI system?
VMI system is a system where the supplier manages the inventory for the company.
This can help to reduce the company's workload and improve coordination with
suppliers.
Here’s how a vendor managed inventory system works:
1.Both the vendor and buyer agree on what goals and metrics define success for their
VMI relationship. These are usually in-stock performance, inventory turnover rate, and
transaction cost. Other parts of the agreement will address whether or not the buyer
pays for the inventory on acquisition or on sale to the end user. Along with how excess
inventory will be returned.
2.The vendor ships inventory to the buyer or retailer.
3.The vendor monitors the sales patterns and inventory levels of their products at that
buyer or retailer.
4.The vendor makes reordering and replenishment calculations based on demand
forecasting and lead time.
5.The vendor’s VMI specialist or planner reviews the calculations and places the

5. What is Demand Sensing?
Demand sensing is a technique that uses real-time data to track
demand and adjust inventory levels accordingly. This can help to
reduce excess inventory and stockouts.
Demand sensing uses real-time data and advanced analytics to
understand and predict customer demand. This enables
companies to optimize their supply chain and inventory
management.
• The concept of demand sensing differs from traditional demand
planning, which relies on historical sales data and assumes that
future demand will follow the same patterns as in the past.
• Modern demand sensing is designed to be more agile and
responsive, incorporating up-to-date information on factors like
changes in consumer behavior, weather patterns, and economic
conditions.
• And in today's market, demand sensing is becoming
increasingly important as companies face a variety of challenges

6. What is the Significance of Coordination for Supply Chain?
Significance of coordination for supply chain performance
include minimizing inefficiencies and costs, enhancing customer
service and satisfaction, and improved overall supply chain
performance.
Effective supply chain coordination results in reduced excess
inventory, shortened delivery time, increased sales, improved
customer service and efficient product development efforts, low
manufacturing cost, improved flexibility in dealing with high
demand uncertainty and increased customer retention.

7. Outline
What is supply chain management?
A supply chain strategy framework
Components of a SCM
Major obstacles and common problems
Seven Eleven Japan

8. Traditional View: Supply Chains in the Economy (1990, 1996)
Freight Transportation$352, $455 B
Transportation manager in charge
Transportation software
Inventory Expense $221, $311 B
Inventory manager in charge
Inventory software
Administrative Expense $27, $31 B
Logistics related activity 11%, 10.5% of GNP
 $898 B spent domestically for SC activities in 1998.
 $1,160 B of inventory in the US economy in the early 2000s.
Transportation and inventory managers

9. Traditional View: Cost breakdown of a manufactured
good
Profit 10%
Supply Chain Cost 20%
Marketing Cost 25%
Manufacturing Cost 45%
Profit
Supply Chain
Cost
Marketing
Cost
Manufacturing
Cost
Effort spent for supply chain activities are invisible to the customers.

10. What can Supply Chain Management do?
Estimated that the grocery industry could save $30 billion (10% of operating
cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory 10
times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in the
inventory.
To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.
National Semiconductor used air transportation and closed 6 warehouses,
34% increase in sales and 47% decrease in delivery lead time.

11. Magnitude of Supply Chain Management
Compaq estimates it lost $0.5 B to $1 B in sales in 1995 because laptops were not
available when and where needed
P&G (Proctor&Gamble) estimates it saved retail customers $65 M (in 18 months) by
collaboration resulting in a better match of supply and demand
When the 1 gig processor was introduced by AMD (Advanced Micro Devices), the price
of the 800 meg processor dropped by 30%

12. Importance of SCM
understood by some
AMR Research:
"The biggest issue enterprises face today is intelligent visibility of their
supply chains-both upstream and down"
Forrester Research:
"Companies need to sense and proactively respond to unanticipated
variations in supply and demand by adopting emerging technologies such as
intelligent agents. To boost their operational agility, firms need to
transform their static supply chains into adaptive supply networks”
Gartner Group:
“By 2004, 90% of enterprises that fail to apply supply-chain management
technology and processes to increase their agility will lose their status as
preferred suppliers”
Open ended statement. Agility can be increased continuously.

13. Top 25
Supply Chains
AMR research http://www.amrresearch.com
publishes reports on supply chains
and other issues.
The Top 25 supply chains report comes
out in Novembers.
The table on the right-hand side is from
The Second Annual Supply Chain
Top 25 prepared by Kevin Riley and
Released in November 2005.

14. SCM Generated Value
Minimizing supply chain costs
while keeping a reasonable service level
customer satisfaction/quality/on time
delivery, etc.
This is how SCM contributes to the bottom line
SCM is not strictly a cost reduction paradigm!

15. A picture is better than 1000 words!
How many words would be better than 3
pictures?
- A supply chain consists of
- aims to Match Supply and Demand,
profitably for products and services
SUPPLY SIDE DEMAND SIDE
The right
Product
Higher
Profits
The right
Time
The right
Customer
The right
Quantity
The right
Store
The right
Price
=
+
+ +
+ +
- achieves
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream

16. Detergent supply chain:
Customer wants
detergent
Albertson’s
Supermarket
Third
party DC
P&G or other
manufacturer
Plastic cup
Producer
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Paper
Manufacturer
Timber
Industry
Chemical
manufacturer
(e.g. Oil Company)

17. Flows in a Supply Chain
Customer
Material
Information
Funds
The flows resemble a chain reaction.
Supplier

18. SCM in a Supply
Network
 Supply Chain Management (SCM) is concerned with the management and
control of the flows of material, information, and finances in supply chains.
Supply
Demand
Products and Services
Cash
Supply Side OEM Demand Side
THAILAND INDIA MEXICO TEXAS US
N-Tier Suppliers Suppliers Logistics Distributors Retailers
Information
 The task of SCM is to design, plan, and execute the activities at the different stages
so as to provide the desired levels of service to supply chain customers profitably

19. Importance of
Supply Chain
Management
 In 2000, the US companies spent $1 trillion (10% of GNP) on supply-
related activities (movement, storage, and control of products across
supply chains). Source: State of Logistics Report
 Eliminating inefficiencies in supply chains can save millions of $.
Tier 1
Supplier
Manufacturer Distributor Retailer Customer
Inefficient
logistics
High
stockouts
Ineffective
promotions
Frequent Supply shortages
High landed costs to
the shelf
High inventories
through the chain
Low order fill
rates
Glitch-Wrong Material,
Machine is Down –
effect snowballs

20. Supply
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Purchase
Inventory
Transportation
Inventory
A Generic Supply Chain

21. Cycle View of Supply
Chains
Customer Order
Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Any cycle
0. Customer arrival
1. Customer triggers an order
2. Supplier fulfils the order
3. Customer receives the order

22. Push vs Pull System
What instigates the movement of the work in the system?
In Push systems, work release is based on downstream demand
forecasts
Keeps inventory to meet actual demand
Acts proactively
e.g. Making generic job application resumes today (e.g.: exempli gratia)
In Pull systems, work release is based on actual demand or the
actual status of the downstream customers
May cause long delivery lead times
Acts reactively
e.g. Making a specific resume for a company after talking to the recruiter

23. Push/Pull View of
Supply Chains
Procurement,
Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
Push-Pull boundary
PUSH PROCESSES PULL PROCESSES

24. Examples of Supply
Chains
Dell / Compaq
Dell buys some components for a product from its suppliers after that product is
purchased by a customer. Extreme case of a pull process
Zara, Spain’s answer to Italy’s Benetton
Sells apparel with a short design-to-sale cycle, avoids markdowns.

25. SCM Strategy

26. Mission-Strategy-Tactics-
Decisions
Mission, Mission statement
The reason for existence of an organization
Strategy
A plan for achieving organizational goals
Tactics
The actions taken to accomplish strategies
Operational decisions
Day to day decisions to support tactics

27. Life Strategy for Ted
Ted is an undergrad. He would like to have a career in
business, have a good job, and earn enough income to live
comfortably
Mission: Live a good life
Goal: Successful career, good income
Strategy: Obtain a master’s degree
Tactics: Select a college and a concentration
Operations: Register, buy books, take
courses, study, graduate, get a job

28. Linking SC and Business
Strategy
New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
Competitive (Business) Strategy
Product Development Strategy
-Portfolio of products
-Timing of product introductions
Marketing Strategy
-Frequent discounts
-Coupons
Supply Chain Strategy

29. Strategies:
Product Development
It relates to Technologies for
future operations (via patents)
and Set of products/services
Be the technology leader
IBM workstations
Offer many products
Dell computers
Offer products for locals
Tata’s Nano at $2500=100000 rupees
Production at Singur, West Bengal, India;
l x w x h=3.1 x 1.5 x 1.6 meters;
Top speed: 105km/hr;
Engine volume 623 cc;
Mileage 50 miles/gallon;
Annual sales target 200,000.

30. Strategies
Marketing and sales strategy relates to positioning, pricing
and promotion of products/services
e.g. Never offer more than 40% discount
e.g. EDLP = every day low price
At Wal-Mart
e.g. Demand smoothing via coupons
BestBuy
Supply chain management strategy relates to procurement,
transportation, storage and delivery
e.g. Never use more than 1 supplier for every input
e.g. Never expedite orders just because they are late
e.g. Always use domestic suppliers within the sales season not in advance.

31. Fitting the SC to the
customer or vice
versa?
Understand the customer Wishes
Understand the Capabilities of your SC
Match the Wishes with the Capabilities
Challenge: How to meet extensive Wishes
with limited Capabilities?

32. Achieving Strategic Fit:
Consistent SCM and
Competitive strategies
Fit SC to the customer
Understanding the Customer
Range of demand, Production lot size,
seasonal products
Response time,
Service level, product availability
Product variety
Innovation
Accommodating
quality
Implied (Demand)
Uncertainty for SC
Implied trouble
for SC

33. Contributors to Implied Demand Uncertainty
Low High
Price Responsiveness
Customer Need
Implied Demand Uncertainty
Commodities
Detergent
Long lead time steel
Customized products
High Fashion Clothing
Emergency steel,
for maintenance/replacement
Short lead times, product variety,
distribution channel variety, high rate of innovation and
high customer service levels all increase
the Implied Demand Uncertainty

34. Loosing the strategic fit:
Webvan
Webvan started a merger with HomeGrocer in Sept 2000 and
completed in May 2001.
Declared bankruptcy in July 2001. Why?
“Webvan was so behemoth that could deliver anything to anyone anywhere that
it lost sight of a more mundane task: pleasing grocery customers day after day”.
Short to midterm cash mismanagement. Venture capital of $1.2 B run out.
Merger costs: duplicated work force, integration of technology, realignment of
facilities.
Peapod has the same business model but more focused in terms
of service and locations. It actually survives with its parent
company Royal Ahold’s (Dutch Retailer) cash.
Delivers now at a fee of $6.95 within a day.

35. Top 10 Retailers Reported in 2008 – First
4
Source www.deloitte.com/dtt/cda/doc/content/dtt_2008globalpowersofretailing.pdf

36. Top 10 Retailers Reported in 2008 – First 5-10

37. Big retailers’ Strategy
Wal-Mart: Efficiency
Target: More quality and service
Carrefour: International, ambiance
K-Mart: Confused.
Squeezed between Target and Wal-Mart
Reliance on coupon sales
Do coupons stabilize or destabilize a Supply chain?
K-Mart and Sears merged in November 2004. Now called Sears Holdings.
K-Mart gets cash
Sears gets presence outside malls

38. Other Factors
Multiple products in a SC. Multiple customers for a given product
Separate supply chains or Tailored supply chains
e.g. Barnes and Noble: Retailing and/or e-tailing
Product and/or customer classes
e.g. UTD library loans books for 6 months (2 weeks) to faculty (students)
Customer segmentation by pricing
Competitors: more, faster and global
UTD online programs compete globally
Product life cycle (shortening)
SCM strategy moves toward efficiency and low implied uncertainty as products age
e.g. Air travel is becoming more efficient
e.g. Southwest airlines lead the drive for efficiency
e.g. Airbus announced A380 accommodating 555-800 people on Jan 17, 2005.
e.g. Flat screen TV producer of AU Optronics of Taiwan was looking for ways to make its SC
more efficient in June 2004.
Replacement sales
Selling to replace broken units.
e.g. AC replacement is about 50% of the market.
Macroeconomic factors for visibility
Forecasting Home Depot sales from S&P 500 price index.
Positive correlation is detected.

39. Integration
Integration is the central theme in SCM
Building synergiesby integrating business functions, departments and
companies

40. Supply Chain Drivers and Obstacles

41. Drivers of Supply Chain
Performance
Efficiency Responsiveness
Inventory Transportation Facilities
Information
Supply chain structure
Logistical
Drivers
How to achieve
Sourcing Pricing
Cross-
Functional
Drivers

42. 1. Inventory
Convenience: Cycle inventory
No customer buys eggs one by one
Unstable demand: Seasonal inventory
Bathing suits
Xmas toys and computer sales
Randomness: Safety inventory
Pipeline inventory
Work in process or transit

43. Little’s law
Long run averages = Expected values
I = R . T
I=Pipeline inventory;
R=output per time=throughput;
T=delay time=flow time
Flow time? Thruput? Pipeline (work in process)
Inventory?
10/minute
Spend 1 minute

44. 2. Transportation
Air
Truck
Rail
Ship
Pipeline
Electronic

45. 3. Facilities
Production
Flexible vs. Dedicated
Flexibility costs
Production: Remember BMW: “a sports car disguised as a sedan”
Service: Can your instructor teach music as well as SCM?
Sports: A playmaker who shoots well is rare.
Inventory-like operations: Receiving, Prepackaging, Storing, Picking, Packaging,
Sorting, Accumulating, Shipping
Job Lot Storage: Need more space. Reticle storage in fabs.
Crossdocking: Wal-Mart

46. 4. Information
Role in the supply chain
The connection between the various stages in the supply chain
Crucial to daily operation of each stage in a supply chain
E.g., production scheduling, inventory levels
Role in the competitive strategy
Allows supply chain to become more efficient and more responsive at the same time
(reduces the need for a trade-off)
Information technology
Andersen Windows
Wood window manufacturer, whose customers can choose from a library
of 50,000 designs or create their own. Customer orders automatically sent
to the factory.

47. Characteristics of the Good Information
Information Global
Scope
Coordinated
Decisions
Supply Chain
Success
Strategy Analytical Models $$$
Information
 Accurate?
 Accessible?
 Up-to-date?
 In the Correct form?
» If not, database restricted ability. How difficult is it to import data into SAP?

48. Quality of Information
Information drives the decisions:
Good information means good decisions
IT helps: MRP, ERP, SAP, EDI
Relevant information?
How to use information?

49. Information Technology in
a Supply Chain: Legacy
Systems
Supplier Customer
Retailer
Distributor
Manufacturer
Strategic
Planning
Operational

50. Information Technology in a Supply Chain: ERP Systems
Supplier Customer
Retailer
Distributor
Manufacturer
Strategic
Planning
Operational
ERP
Potential
ERP
Potential
ERP

51. Information Technology in a Supply Chain: Analytical
Applications
Supplier Customer
Retailer
Distributor
Manufacturer
Strategic
Planning
Operational
Supplier
Apps
SCM
MES
Dem Plan
Transport execution &
WMS
APS Transport & Inventory
Planning
CRM/SFA

52. ERP Systems
Wider focus
Push (MRP) versus Pull (demand information transmitted quickly throughout the
supply chain)
Real-time information
Coordination and Information sharing
Transactional IT
Expensive and difficult to implement
About 25% of ERP installations are cancelled within a year
About 70% of ERP installations go over the budget

53. IT Push
0
100
200
300
400
500
1965 1973 1981 1989 1997
IT investment($B)

54. 5. Sourcing
Role in the supply chain
Set of processes required to purchase goods and services in a supply chain
Supplier selection, single vs. multiple suppliers, contract negotiation
Role in the competitive strategy
Sourcing is crucial. It affects efficiency and responsiveness in a supply chain
In-house vs. outsource decisions- improving efficiency and responsiveness
Cisco sources: Low-end products (e.g. home routers) from China.
Components of sourcing decisions
In-house versus outsource decisions
Supplier evaluation and selection
Procurement process:
Every department of a firm buy from suppliers independently, or all together.

55. 6. Pricing
Role in the supply chain
Pricing determines the amount to charge customers in a supply chain
Pricing strategies can be used to match demand and supply
Price elasticity: Do you know yours?
Role in the competitive strategy
Use pricing strategies to improve efficiency and responsiveness
Low price and low product availability; vary prices by response times
Amazon: Faster delivery is more expensive
Components of pricing decisions
Pricing and economies of scale
Everyday low pricing versus high-low pricing
Fixed price versus menu pricing, depending on the product and services
Packaging, delivery location, time, customer pick up
Bundling products; products and services

56. Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /
Dedicated
Proximity /
Flexibility
Information Low cost/slow/no
duplication
High cost/
streamlined/reliable
Sourcing Low cost sources Responsive sources
Pricing Constant price Low-high price

57. Major Obstacles to
Achieving Fit
SC is big:
Variety of products/services
Spoiled customer
Multiple owners (Procurement, Production, Inventory, Marketing) / multiple
objectives
Globalization
Local optimization and lack of global fit

58. Dealing with Multiple Owners / Local Optimization
Information Coordination
Information sharing / Shyness / Legal and ethical issues
Contractual Coordination
Mechanisms to align local objectives with global ones
Coordination with (real) options
Rare in the practice
Without coordination, misleading reliance on metrics:
Average safety inventory, Average incoming shipment size, Average purchase
price of raw materials, Revenue
Major Obstacles to Achieving Fit

59. Major obstacles to
achieving fit
Instability and Randomness:
Increasing product variety
Shrinking product life cycles
Customer fragmentation: Push for customization, segmentation
Fragmentation of Supply Chain ownership: Globalization
Increasing implied uncertainty

60. Common problems
Lack of relevant SCM metrics: How to measure responsiveness?
How to measure efficiency, costs, worker performance, etc?
Poor inventory status information
Theft: Major problem for furniture retailers.
Transaction errors: Retailers with inaccurate inventory records
for 65% of SKUs
Information delays, dated information, incompatible info. systems
Misplaced inventory: 16% of items cannot be found at a major retailer
Spoilage: active ingredients in the products are losing their properties
Product quality and yield
Lack of visibility in SCs
Do you know the inventory your distribution centers hold?
Do you know the inventory your fellow retailer holds?

61. Common problems
Poor delivery status information
Not knowing the order status
Poor IT design
Unreliable, duplicate data
Security problems: too much or too little
Ignoring uncertainties
“The flight from uncertainty and ambiguity is so motivated that we often create
pseudocertainty.”
Nitin Nohra, HBR February 2006 issue, p.40.
Internal customer discrimination
Giving lower priority to internal customers than external customers
Poor integration
Elusive inventory costs
Accounting systems do not capture opportunity costs
SC-insensitive product design

62. Seven Eleven Japan (SEJ)
A Case Study

63. Factual Information on Seven Eleven Japan
(SEJ)
Largest convenience store in Japan with market value of $95 B. The third
largest retail company in the world after Wal-Mart and Home Depot.
Established in 1974.
In 2000, total sales $18,000 M, profit $620 M.
Average inventory turnover time 7-8.5 days.
Stock value increased by 3000 times from 1974 to 2000.
In 1985, there were 2000 stores in Japan, increasing by 400-500 per year.
Return on equity 14% over 2000-2004.
A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.
Sales:
Products
32.9% Processed food: drinks, noodles, bread and snacks
31.6% Fast food: rice ball, box lunch and hamburgers
12.0% Fresh food: diary products
25.3% Non-food: magazines, ladies stockings and batteries.
Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying

64. More on SEJ
More factual info:
Average sales about twice of an average US store
SKU’s offered in store: Over 3,000 (change by time of day, day of week,
season)
Virtually no storage space
No food cooking at the stores
Japanese Images of Seven Eleven:
Convenient
Cheerful and lively stores
Many ready made dinner items I buy
Famous for its great boxed lunch and dinner
- On weekends, when I was single, I went to buy lunch and dinner
SC strategy:
Micro matching of supply and demand (by location, time of day, day of week, season)

66. Information Analysis of
POS Data
Analysis of
Sales for product categories over time
SKU (stock keeping unit)
Waste or disposal
10 day (or week) sales trend by SKU
Sales trends for new product
In the early 1990s, half-prepared fresh noodle sales were going up,
new fresh noodle products were quickly developed
Sales trend by time and day
Different sales patterns for different sizes of milk at different times of the day results in
rearrangement of the milks in the fridge. Extreme store micromanagement.
Let us speculate: Flavored milks are put in front of the pure milks in the evening (or the morning?).
List of slow moving items
About half of 3000 SKUs are replaced by new ones every year

67. Facilities Strategy
Limited storage space at stores which have only 125-150 m2 space
Frequent and small deliveries to stores
Deliveries arrive from over 200 plants.
Products are grouped by the cooling needs
Combined delivery system: frozen foods, chilled foods, room temperature and hot foods.
Such product groups are cross-docked at distribution centers (DC). Food DCs store no
inventory.
A single truck brings a group of products and visits several stores within a geographical region
Aggregation: No supplier (not even coke!) delivers direct
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to
2000. Still, at least 3 fresh food deliveries per day. Goods are received faster with
the use of scanners.
Have many outlets, at convenient locations, close to where customers can walk
Focus on some territories, not all: When they locate in a place they blanket (a.k.a.
clustering) the area with stores; stores open in clusters with corresponding DC’s.
844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in 2004. No
stores in Kobe.
Success rate of franchise application <= 1/100

68. The Present and the
Future
Is food preparation a good idea at 7-eleven locations?
e.g. Compare microwave heating vs. salad preparation.
Why SEJ does not allow direct delivery from suppliers to retailers?
Point out which of the following strategies can also be used in US (or Taiwan)
Information strategy
Facilities strategy
Discuss the differences between the Japanese and US (or Taiwanese) consumers with
regard to
Frequency and amount of grocery purchase
Use of credit cards vs. cash for purchase
7-eleven inventory turnover rate is 50 in Japan and 19 in the USA.
7-eleven growing rapidly in the US so it aims to be a web depot in both the US and
Japan. Does this make sense from a supply chain perspective?
Cost vs. Responsiveness
Business strategy
What is the risk of micro-matching strategy?
No direct deliveries to SEJ, what is the potential risk of this strategy if used in the USA?

69. The Savvy Employees Who Saved 7-Eleven From
Bankruptcy

70. Lecture
Outline
• What Operations and Supply Chain
Managers Do
• Operations Function
• Evolution of Operations and Supply
Chain Management
• Globalization and Competitiveness
• Operations
• Strategy and Organization of the Text
• Learning Objectives for This Course
1-70

71. What Operations and
Supply Chain Managers
Do
• What is Operations Management?
■ design, operation, and improvement of productive systems
• What is Operations?
■ a function or system that transforms inputs into outputs of
greater value
• What is a Transformation Process?
■ a series of activities along a value chain extending from
supplier to customer
■ activities that do not add value are superfluous and should be
eliminated 1-71

72. • Physical: as in manufacturing
operations
• Locational: as in transportation or
warehouse operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication
Transformation
Process
1-72

73. INPUT
•Material
Operations as a Transformation
Process
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
OUTPUT
•Goods
•Services
Feedback & Requirements 1-73

74. Operations
Function
• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Outside
Suppliers
1-74

75. How is Operations Relevant to my Major?
• Accounting
• Information
Technology
• Management
• “As an auditor you must
understand the fundamentals of
operations management.”
• “IT is a tool, and there’s no
better place to apply it than in
operations.”
• “We use so many things you
learn in an operations class—
scheduling, lean production,
theory of constraints, and tons
of quality tools.”
1-75

76. How is Operations Relevant to my Major?
(cont.)
• Economics
• “It’s all about processes. I live
by flowcharts and Pareto
analysis.”
• “How can you do a good job
marketing a product if you’re
unsure of its quality or
delivery status?”
• “Most of our capital
budgeting requests are from
operations, and most of our
cost savings, too.”
• Marketing
1-76
• Finance

77. Evolution of Operations
and Supply Chain
Management
• Craft production
■ process of handcrafting products or services
for individual customers
• Division of labor
■ dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts
■ standardization of parts initially as
replacement parts; enabled mass production
1-77

78. • Scientific management
■ systematic analysis of work methods
• Mass production
■ high-volume production of a
standardized product for a mass market
• Lean production
■ adaptation of mass production that
prizes quality and flexibility
Evolution of Operations and Supply Chain
Management (cont.)
1-78

79. Historical
Events in
Operations
Management
Era Events/Concepts Dates Originator
Industrial Steam engine 1769 James Watt
Revolution Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney
Scientific
Management
Principles of scientific
management
Time and motion studies
Activity scheduling chart
Moving assembly line
1911
1911
1912
1913
Frederick W. Taylor
Frank and
Lillian Gilbreth
Henry Gantt
Henry Ford 1-79

80. Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s
1950s
Abraham Maslow
Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s
Operations research
groups
Operations
Research
MRP, EDI, EFT, CIM
1960s,
1970s
Joseph Orlicky, IBM
and others
1-80

81. Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality
management)
1980s
W. Edwards Deming,
Joseph Juran
Quality
Revolution
Strategy and
operations
1980s
Wickham Skinner,
Robert Hayes
Business
process
reengineering
1990s
Michael Hammer,
James Champy
Six Sigma 1990s GE, Motorola
1-81

82. Era Events/Concepts Dates Originator
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2
Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union,
and other trade
agreements, global supply
chains, outsourcing, BPO,
Services Science
1990s
2000s
Numerous countries
and companies
Historical Events in Operations
Management (cont.)
1-82

83. Evolution of Operations and Supply Chain
Management (cont.)
• Supply chain management
■ management of the flow of information, products, and services across
a network of customers, enterprises, and supply chain partners
1-83

84. Globalization and
Competitiveness
• Why “go global”?
■ favorable cost
■ access to international markets
■ response to changes in demand
■ reliable sources of supply
■ latest trends and technologies
• Increased globalization
■ results from the Internet and falling trade
barriers
1-84

85. Globalization and
Competitiveness (cont.)
Hourly Compensation Costs for Production Workers
Source: U.S. Bureau of Labor Statistics, 2005.
1-85

86. Globalization and
Competitiveness (cont.)
World Population Distribution
Source: U.S. Census Bureau, 2006.
1-86

87. Globalization and
Competitiveness (cont.)
Trade in Goods as % of GDP
(sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
1-87

88. Productivity and
Competitiveness
• Competitiveness
■ degree to which a nation can produce goods and
services that meet the test of international
markets
• Productivity
■ ratio of output to input
• Output
■ sales made, products produced, customers
served, meals delivered, or calls answered
• Input
■ labor hours, investment in equipment, material
usage, or square footage
1-88

89. Productivity and
Competitiveness (cont.)
Measures of Productivity
1-89

90. Productivity and Competitiveness
(cont.)
Average Annual Growth Rates in Productivity, 1995-2005.
Source: Bureau of Labor Statistics. A Chartbook of
International Labor Comparisons. January 2007, p. 28.
1-90

91. Productivity and Competitiveness
(cont.)
Average Annual Growth Rates in Output and Input, 1995-2005
Source: Bureau of Labor Statistics. A Chartbook of International
Labor Comparisons, January 2007, p. 26.
Dramatic Increase in
Output w/ Decrease in
Labor Hours
1-91

92. Productivity and
Competitiveness (cont.)
• Retrenching
■ productivity is increasing, but both output and input
decrease with input decreasing at a faster rate
• Assumption that more input would cause
output to increase at the same rate
■ certain limits to the amount of output may not be
considered
■ output produced is emphasized, not output sold;
increased inventories
1-92

93. • Strategy
■ Provides direction for achieving a mission
• Five Steps for Strategy Formulation
■ Defining a primary task
• What is the firm in the business of doing?
■ Assessing core competencies
• What does the firm do better than anyone else?
■ Determining order winners and order qualifiers
• What qualifies an item to be considered for purchase?
• What wins the order?
■ Positioning the firm
• How will the firm compete?
■ Deploying the strategy
Strategy and
Operations
1-93

94. Strategic
Planning
Mission
and Vision
Corporate
Strategy
Operations
Strategy
Marketing
Strategy
Financial
Strategy 1-94

95. The Rise of China’s Shein

96. Order Winners
and Order Qualifiers
Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 1-96

97. Positioning the
Firm
• Cost
• Speed
• Quality
• Flexibility
1-97

98. Positioning the
Firm: Cost
• Waste elimination
■ relentlessly pursuing the removal of all waste
• Examination of cost structure
■ looking at the entire cost structure for
reduction potential
• Lean production
■ providing low costs through disciplined
operations
1-98

99. Positioning the
Firm: Speed
• fast moves, fast adaptations, tight linkages
• Internet
■ conditioned customers to expect immediate responses
• Service organizations
■ always competed on speed (McDonald’s, LensCrafters, and
Federal Express)
• Manufacturers
■ time-based competition: build-to-order production and
efficient supply chains
• Fashion industry
■ two-week design-to-rack lead time of Spanish retailer, Zara
1-99

100. Positioning the
Firm: Quality
• Minimizing defect rates or conforming to
design specifications; please the customer
• Ritz-Carlton - one customer at a time
■ Service system is designed to “move heaven
and earth” to satisfy customer
■ Every employee is empowered to satisfy a
guest’s wish
■ Teams at all levels set objectives and devise
quality action plans
■ Each hotel has a quality leader 1-100

101. Positioning the
Firm:
Flexibility
• ability to adjust to changes in product mix,
production volume, or design
• National Bicycle Industrial Company
■ offers 11,231,862 variations
■ delivers within two weeks at costs only 10%
above standard models
■ mass customization: the mass production of
customized parts
1-101

102. Policy
Deployment
• Policy deployment
■ translates corporate strategy into measurable
objectives
• Hoshins
■ action plans generated from the policy
deployment process
1-102

103. Policy
Deployment
Derivation of an Action Plan Using Policy Deployment
1-103

104. Balanced
Scorecard
• Balanced scorecard
■ measuring more than financial performance
• finances
• customers
• processes
• learning and growing
• Key performance indicators
■ a set of measures that help managers evaluate
performance in critical areas
1-104

105. Balanced
Scorecard
1-105
Dashboard

106. Operations
Strategy
S
Se
er
rv
vi
ic
ce
es
s P
Pr
ro
oc
ce
es
ss
s
a
an
nd
d
P
Pr
ro
od
du
uc
ct
ts
s
T
Te
ec
ch
hn
no
ol
lo
og
gy
y
Capacity
Human
Resources Quality
Facilities Sourcing Operating
Systems
1-106

107. Learning Objectives
of this Course
• Gain an appreciation of strategic importance
of operations and supply chain management
in a global business environment
• Understand how operations relates to other
business functions
• Develop a working knowledge of concepts
and methods related to designing and
managing operations and supply chains
• Develop a skill set for quality and process
improvement 1-107

108. 108
Learning Objectives
To understand the escalating importance of
logistics and supply-chain management as
crucial tools for competitiveness.
To learn about materials management and physical
distribution.
To learn why international logistics is more complex
than domestic logistics.
To see how the transportation infrastructure in host
countries often dictates the options open to the
manager.
To learn why international inventory management is
crucial for success.

109. 109
International Logistics
International logistics is the
design and management of a
system that controls the forward
and reverse flow of materials,
services, and information into,
through, and out of the international
corporation.

110. 110
International Logistics (cont.)
Through the implementation of international logistics,
the firm can implement cost-saving programs such as
just-in-time (JIT), electronic data interchange (EDI),
and early supplier involvement (ESI).
The two phases of the movement of materials include:
materials management, or the timely movement of
materials, parts, and supplies.
physical distribution, or the movement of the firm’s physical
product to its customers.

111. 111
Three Concepts of Business Logistics
Total Cost Concept Trade-off Concept
Systems Concept

112. 112
Supply-Chain Management
Supply-chain management is the integration
of business processes from end user through
original suppliers, that provide products,
services, and information that add value for
customers.
Supply-chain management connects a company’s supply
side with its demand side.
It opens up supplier relationships for companies outside of
the buyer’s domestic market.

113.  Any organization, anywhere in the world, offering
a product or a service has a supply chain.
 Products and Services are created from materials, using
equipment, labor, time, money, and other resources.
 Producing and delivering products and services requires
Suppliers, Manufacturers, and Customers; all of which
make up the links in a supply chain.
 Supply chains exist in organizations that are:
– Large or Small (i.e., a multinational corporation or a “mom & pop shop” on the local corner)
– Public or Private (i.e., a publically traded company or a privately held company)
– For-Profit or Not-for-Profit (i.e., a commercial business, government or a charitable institution)
What is a Supply Chain?
11
3

114. Suppliers Customers
Finished
Material
Suppliers
(Tier 1)
Intermediate
Suppliers
(Tier 2)
Raw
Material
Suppliers
(Tier 3)
Wholesaler &
Distributor
Customers
(Tier 1)
Retail
Customers
(Tier 2)
Consumers
(Tier 3)
Manufacturer
(Your Company)
Finished
Product
Manufacturer
Internal
Internal
Internal
External
External
External
What is a Supply Chain? (continued)
 From SUPPLIERS: Raw Material, Intermediate, and/or Finished Material Suppliers
 To MANUFACTURERS: Finished Product Manufacturers (Internal and/or External)
 To CUSTOMERS: Wholesalers, Distributors, Retailers and/or Consumers
Each of these are “Links” in the supply chain
Inbound Transportation Outbound Transportation
Air
Truck Rail Water
Pipeline
Facilitated through the use of Logistics
Warehousing
A supply chain consists of the flow of materials and products . . .

115. Think about typical products that you buy
 Automobiles
 Books
 Candy Bars
 Cell phones
 Clothes / Shoes
 Fast food
 Laptop computers
 Soft Drinks
What is your favorite Candy Bar?
11
5
Do you know what goes into making it?

116. Candy Bar Supply Chain (Simplified)
11
6
Suppliers Customers
Manufacturer
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Consumers
Candy Bar
Manufacturer
Wholesalers
and
Distributors
Retailers
(Stores)

117. 11
7
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Supply
Disruption
Consumers
Candy Bar
Manufacturer
Wholesalers
and
Distributors
Retailers
(Stores)
Supply Chain Disruption 1
What happens if there is a shortage of
Cocoa Beans ???
Suppliers Customers
Manufacturer

118. 11
8
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Supply
Disruption
Consumers
Candy Bar
Manufacturer
Wholesalers
and
Distributors
Retailers
(Stores)
Supply Chain Disruption 2
Suddenly, you cannot get the Chocolate
and Cocoa Butter that you need to make
your Candy Bars
Meanwhile . . .
your other suppliers will continue to ship
their products to you
Suppliers Customers
Manufacturer

119. 11
9
Consumers
Candy Bar
Manufacturer
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Wholesalers
and
Distributors
Retailers
(Stores)
Supply
Disruption
Supply Chain Disruption 3
Candy Bar production will be
forced to stop
Your customers still have inventory of candy
bars that they previously purchased from
you which they can continue to sell
and your inventory of the other materials
will start to build up
Suppliers Customers
Manufacturer

120. 12
0
Consumers
Candy Bar
Manufacturer
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Wholesalers
and
Distributors
Retailers
(Stores)
Supply
Disruption
Supply Chain Disruption 4
The disruption
impacts all suppliers
You are forced to cancel your orders for materials
from all your suppliers until Cocoa Beans are
available again
Suppliers Customers
Manufacturer

121. 12
1
Consumers
Candy Bar
Manufacturer
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Wholesalers
and
Distributors
Retailers
(Stores)
Supply
Disruption
Supply Chain Disruption 5
The disruption impacts
all customers
Your customers sell out all remaining
inventory of candy bars which creates a
TOTAL MARKET STOCKOUT
Suppliers Customers
Manufacturer

122. Candy Bar Supply Chain (Simplified)
12
2
Chocolate
Sugar
Packaging
Soy
Lecithin
Milk
Milk Fat
Lactose
Cocoa
Butter
Sugarcan
e
Paper
Cocoa
Beans
Consumers
Candy Bar
Manufacturer
Wholesalers
and
Distributors
Retailers
(Stores)
All supply chain links are interconnected
and a disruption with one will likely impact
all
The supply chain is only as
strong as its weakest link
Suppliers Customers
Manufacturer

123. Service firms offer
intangible products,
meaning products
that cannot be
physically touched.
Supply Chains in the Service Industry
It is not just products . . . services have a supply chain as well.
12
3
Many services require the use of Facilitating Goods which are tangible elements that are
used along with the service provided.
These items need to be purchased, transported, received, and warehoused in order to
provide the service activity, and each has a supply chain.

124. 12
4
It is the coordination of a network of otherwise independent
trading partners creating a desired product or service, and
moving it from suppliers, through manufacturing, and out to
customers when and where they want it.
Supply Chain Management is the way business gets done.
It is the execution process of any business.
What is a Supply Chain Management?

125. Supply Chain Management accounts for $1.4 trillion (≈8%) of the total
U.S. economy ---> annually.
Companies have been expanding globally and speeding up every link
in the supply chain to stay competitive.
This has created a significant and growing shortage of supply
chain talent --- which translates to JOBS !!!
Current trends will continue to raise the bar in supply chain
management, and by extension, the skills required:
 Continued and accelerated pace of globalization
 Expansion of e-Commerce
 Heightened focus on supply chain risk
 Widespread adoption of new technologies and innovations
Talent Shortage in Supply Chain Management

126. Supply Chain Management is a skilled profession with cutting edge technologies
and major innovations happening at an accelerated pace. Just a few examples:
Technology and Innovation

127. Logistics: Warehousing, Transportation, and Distribution
Finished
Material
Suppliers
(Tier 1)
Wholesaler &
Distributor
Customers
(Tier 1)
Finished
Product
Manufacturer
Intermediate
Suppliers
(Tier 2)
Raw
Material
Suppliers
(Tier 3)
Retail
Customers
(Tier 2)
Consumers
(Tier 3)
Purchasing
Strategic Sourcing
Ethical and Sustainable Sourcing
Supplier Relationship Management
Customer Service
Forecasting and Demand Planning
Distribution Channel Management
Customer Relationship Management
Planning & Scheduling
Operations
Management
Quality Assurance
International Trade
Risk Management
Project Management
Typical Supply Chain Career Areas
Suppliers Customers
Manufacturer
Inbound Transportation
Warehousing
Outbound Transportation
Distribution
Inventory Management
Material Handling
Abundant job opportunities across all of these functional areas

128. Careers in Supply Chain Management
Top 10 things you can expect from a career in Supply Chain Management
1. Job Availability (entry level and advanced)
2. Accelerated Growth and Advancement opportunities
3. Job Security
4. Excellent Income and Compensation packages
5. Career Contentment
6. Supply chain jobs available in every Industry and Worldwide
7. Work Location choices. Your supply chain skills are portable!
8. Travel and Relocation opportunities
9. Opportunities to Specialize in supply chain Disciplines & Sectors
10. Innovation and cutting edge Technologies
Recent survey = 79% content with their career

129. 129
Transportation Infrastructure
A firm’s logistics platform is determined by a
location’s ease and convenience of market reach
under favorable cost circumstances.
The public sector’s investment priorities, safety
regulations, tax incentives, and transport policies
can have major effects on the logistics decisions of
firms.
The logistics manager must learn about existing and
planned infrastructures abroad and at home and
factor them into the firm’s strategy.

130. 130
Vessels Used in Ocean Shipping
Liner Service
Bulk Service Tramp Service

131. 131
Airfreight
Airfreight is available to and from most countries,
including the developing world.
Forty percent of the world’s manufactured travel by
air.
Items that are high-value or high in density tend to
travel by air.

132. 132
Considerations for Selecting a Mode of Transport
Predictability
Transit Time
Cost Non-economic
Factors

133. 133
Export Documentation
A bill of lading is a contract between the exporter and
the carrier indicating that the carrier has accepted
responsibility for the goods and will provide transportation
in return for payment.
A commercial invoice is a bill for the goods stating basic
information about the transaction, including a description
of the merchandise, total cost of the goods sold,
addresses of the shipper and seller, and delivery and
payment terms.
A freight forwarder specializes in handling export
documentation.

134. 134
International Inventory Issues
Inventories tie up a major portion of corporate funds,
therefore proper inventory policies should be a major
concern to the international logistician.
Just-in-time inventory policies minimize the volume
of inventory by making it available only when
needed.
The purpose of establishing inventory systems are:
to maintain product movement in the delivery pipeline
to have a cushion to absorb demand fluctuations

135. 135
Three Factors that Decide the Level of Inventory
Order Cycle Time
Desired Customer
Service Levels
Use of Inventories as
a Strategic Tool

136. 136
International Packaging Issues
Packaging is instrumental in getting the merchandise to
the destination in a safe, presentable condition.
Because of the added stress of international shipping,
packaging that is adequate for domestic shipping may be
inadequate for international shipping.
Packaging considerations that should be taken into
account are environmental conditions and weight.
One solution to the packaging problem has been the
development of inter-modal containers.
Cost attention must be paid to international packaging.

137. 137
Storage Facilities
A stationary period is involved when merchandise
becomes inventory stored in warehouses.
The location decision addresses how many
distribution centers to have and where to locate them.
Storage facilities abroad can differ in availability and
quality.
The logistician should analyze international product
sales and then rank order products according to
warehousing needs.

138. 138
Special Trade Zones
Foreign trade zones are areas where
foreign goods may be held or processed
and then re-exported without incurring
duties.
Trade zones can be useful as
transshipment points to reduce logistics
cost and redesign marketing approaches.
Governments and firms benefit from
foreign trade zones.

139. 139
Export Processing Zones and Economic Zones
In export processing zones, special rules apply that are
different in other regions of the country.
These zones usually provide tax-free and duty-free
treatment for production facilities whose output is
destined abroad.
The maquiladoras of Mexico are one example of a
program that permits firms to take advantage of sharp
differentials in labor costs.
Through the creation of special economic zones, the
Chinese government has attracted many foreign
investors bringing in millions of dollars.

140. 140
Centralized Logistics Management
In international logistics, the existence of a
headquarters staff that retains decision-making
power over logistics is important.
To avoid internal problems, both headquarters staff
and local management should report to one person.
This individual can contribute an objective view
when inevitable conflicts arise in international
logistics coordination.

141. 141
Decentralized Logistics Management
When a firm serves many diverse international markets,
total centralization might leave the firm unresponsive to
local adaptation needs.
If each subsidiary is made a profit center in itself, each
one carries the full responsibility for its performance.
Once products are within a specific market, increased
input from local logistics operations should be expected
and encouraged.

142. 142
Outsourcing Logistics Services
The systematic outsourcing of logistics
capabilities is a third option.
By collaborating with transportation
firms, private warehouses, or other
specialists, corporate resources can be
concentrated on the firm’s core product.
One-stop logistics allows shippers to
buy all the transportation modes and
functional services from a single carrier.

143. 143
The Supply Chain and the
Internet
Because of the internet, firms are able to conduct
many more global comparisons among suppliers and
select from a wider variety of choices.
When customers have the ability to access a
company through the internet, the company must be
prepared for 24-hour order-taking and customer
service.
For all countries, but particularly in developing
nations, the issue of universal access to the internet
is crucial.

144. 144
Logistics and Security
After the terrorist attacks of 2001, companies have to
deal with the fact that the pace of international
transactions has slowed down and that formerly
routine steps will now take longer.
Logistics systems and modern transportation
systems are often the targets of attacks.
The need to institute new safeguards for international
shipments will affect the ability of firms to efficiently
plan their international shipments.

145. 145
Logistics and the Environment
Since environmental laws and regulations differ
across the globe, the firm’s efforts need to be
responsive to a wide variety of requirements.
Reverse distribution systems are instrumental in
ensuring that the firm not only delivers the product
to the market, but also can retrieve it from the
market for subsequent use, recycling, or disposal.
Companies need to learn how to simultaneously
achieve environmental and economic goals.

146. How Supply Chain Bottlenecks are Creating
Environmental Issues

147. Understanding
Distribution in the
Supply Chain: Role
and Significance

148. Where Did the Process
of Distribution in
Supply Come From?
▶ The process of distribution in
supply can be traced back to the
early days of commerce. As
trade between different regions
and cultures began to increase,
the need for a system to
distribute goods and services
became apparent

149. The Evolution of
Distribution in Supply
▶ The growth of trade: As trade between
different regions and cultures has
increased, the need for a system to
distribute goods and services has
become more important.
▶ The development of new transportation
technologies: The development of new
transportation technologies, such as
railroads and steamships, has made it
possible to move goods more quickly and
efficiently.
▶ The growth of cities: The growth of cities
has created a demand for new
distribution methods, as people begin to
live farther from where their goods are
produced.
▶ The rise of globalization: The rise of
globalization has led to even more
changes in distribution, as businesses
need to find ways to distribute their
products to a global market.

150. The Future of
Distribution in Supply
▶ The continued growth of e-
commerce: E-commerce is growing
rapidly, and this is likely to have a
significant impact on the way goods
and services are distributed.
▶ The development of new
technologies: The development of
new technologies, such as drones
and self-driving vehicles, is likely to
revolutionize the way goods and
services are distributed.
▶ The changing needs of
customers: The needs of customers
are constantly changing, and
businesses need to be able to adapt
their distribution strategies to meet
these needs.

151. The Rise and Fall of
Montgomery Ward
▶ Montgomery Ward was one of the first
major retailers in the United States.
The company was founded in 1872 by
Aaron Montgomery Ward, and it
quickly became a leader in the mail-
order business.
▶ Ward's innovation was to offer a wide
variety of products at discounted prices
through a catalog that was distributed
nationwide.
▶ Ward's business model was very
successful, and the company grew
rapidly during the Industrial Revolution.
By the early 1900s, Montgomery Ward
was one of the largest retailers in the
United States.

152. What Montgomery Ward Did Well
▶ Offered a wide variety of products at discounted prices through its catalog
▶ Catalog was also very well-designed

153. What Montgomery Ward
Did Not Do Well
▶ Failed to adapt to the changing
retail landscape.
▶ Focused on low prices, which led
to a decline in customer
satisfaction and a loss of market
share

154. Where Montgomery
Ward Is Today
▶ The Montgomery Ward brand is
now owned by Sears Holdings
Corporation. Sears has been
struggling financially in recent
years, and it is unclear whether
the Montgomery Ward brand will
be revived.

155. Conclusion
▶ The process of distribution in supply has come a long way
since its early days. Today, it is a complex and
sophisticated field that is essential to the smooth
functioning of the global economy. As businesses continue
to grow and expand, the need for efficient and effective
distribution systems will only become more important.

156. Definition of Distribution
in the Supply Chain
▶ Warehousing: Goods are stored in
warehouses until they are needed to be
shipped to customers.
▶ Transportation: Goods are transported
from the warehouse to the customer using
a variety of methods, such as trucks,
ships, and airplanes.
▶ Logistics: Logistics is the process of
managing the flow of goods through the
distribution system. This includes
activities such as inventory management,
order fulfillment, and transportation
scheduling.
▶ Customer service: Customer service is
the process of interacting with customers
to ensure that they are satisfied with the
distribution process. This includes
activities such as answering questions,
resolving problems, and providing
feedback.

157. Role of Distribution
in the Supply Chain
▶ Customer satisfaction: Customers
expect to receive products when they
need them. If products are not delivered
on time, customers may become
dissatisfied and switch to a competitor.
▶ Profitability: Efficient distribution can
help to reduce costs and increase profits.
This is because it can help to reduce
inventory levels, improve transportation
efficiency, and provide better customer
service.
▶ Competitive advantage: Efficient
distribution can give businesses a
competitive advantage. This is because it
can help businesses to deliver products
more quickly and cheaply than their
competitors.

158. Ensuring Smooth Flow of
Products to Meet Customer
Demands Efficiently
▶ The location of customers: Businesses need
to ensure that they have warehouses and
distribution centers located in close proximity
to their customers. This will help to reduce
transportation costs and improve delivery
times.
▶ The type of product: The type of product
being distributed will also affect the
distribution strategy. For example, perishable
goods will need to be distributed more
quickly than non-perishable goods.
▶ The needs of customers: Businesses need to
understand the needs of their customers in
order to provide them with the best possible
distribution experience. This includes factors
such as delivery speed, delivery options, and
customer service.

159. Conclusion
▶ Distribution is a critical part of the
supply chain. It is responsible for
getting goods and services from
the producer to the consumer in a
timely and efficient manner. By
understanding the role of
distribution and the factors that
affect it, businesses can develop
distribution strategies that ensure
a smooth flow of products to meet
customer demands efficiently.

160. Functions and
Responsibilities of a
Distributor
▶ Inventory management: Distributors are
responsible for managing the inventory of
products that they sell. This includes
ordering the correct amount of product,
storing it in a safe and secure location,
and tracking inventory levels.
▶ Order fulfillment: Distributors are
responsible for fulfilling orders from
customers. This includes picking the
products from the warehouse, packing
them, and shipping them to the customer.
▶ Customer service: Distributors provide
customer service to customers who have
questions or problems with their orders.
This includes answering questions,
resolving problems, and providing
feedback.
▶ Marketing and sales: Distributors may
also be responsible for marketing and
selling products to retailers or other
businesses. This includes developing
marketing plans, generating leads, and
closing sales.

161. Importance of
Distributors in Expanding
Market Reach
▶ Distributors can play an important
role in expanding the market reach
of manufacturers. They can help to
reach a broader customer base by
providing products to retailers in
different geographic areas. They
can also help to expand market
coverage by providing products to
retailers in different channels, such
as online or brick-and-mortar
stores.

162. Understanding the
Difference Between
Distribution and Logistics
▶ Distribution refers to the process
of moving products from the
manufacturer to the customer.
▶ Logistics, on the other hand,
refers to the overall
management of the flow of
goods and services. This
includes activities such as
transportation, warehousing,
and inventory management.

163. Distribution's Focus on
Product Delivery and
Customer Satisfaction
▶ Distribution places emphasis on
delivering products to customers and
meeting customer demands
efficiently.
▶ This includes activities such as order
fulfillment, customer service, and
inventory management.
▶ Distributors strive to ensure that
customers receive the products they
need when they need them.
▶ Distributors also strive to provide
excellent customer service, such as
answering questions and resolving
problems quickly.

164. Conclusion
▶ Distributors play an important role
in the supply chain by providing a
link between producers and
consumers.
▶ Distributors help to ensure that
products are available when and
where customers need them, and
they can also provide valuable
services such as inventory
management and order fulfillment.
▶ By focusing on product delivery
and customer satisfaction,
distributors can help
manufacturers to increase sales
and improve their reputation.

165. Additional
Information
▶ Marketing and sales support:
Distributors may help
manufacturers to develop
marketing plans, generate leads,
and close sales.
▶ Financial services: Distributors
may offer financial services to
manufacturers, such as credit,
financing, and inventory
management.
▶ Technical support: Distributors
may provide technical support to
manufacturers, such as product
training and troubleshooting

166. Impact of Logistics' Emphasis
on Transportation,
Warehousing, and Inventory
Management
▶ Logistics is the process of planning, organizing, and
managing the flow of goods and services from the point
of origin to the point of consumption. It encompasses a
wide range of activities, including transportation,
warehousing, inventory management, and customer
service.
▶ Transportation is the movement of goods from one
location to another. It is a critical part of logistics, as it
determines how quickly and efficiently goods can be
delivered to customers. There are a variety of
transportation options available, each with its own
advantages and disadvantages.
▶ Warehousing is the storage of goods in a secure facility.
It is important for businesses to have enough warehouse
space to store their products, as well as the right
equipment to handle the loading and unloading of goods.
▶ Inventory management is the process of ensuring that
the right amount of goods is available in the right place at
the right time. This is important for businesses to avoid
stockouts, which can lead to lost sales, and to avoid
overstocking, which can lead to unnecessary costs.

167. Importance of Effective
Distribution Management
▶ Supply chain performance: Effective
distribution management can help to
improve supply chain performance
by reducing lead times, improving
inventory turns, and increasing
customer service levels.
▶ Cost control: Effective distribution
management can help to control
costs by optimizing transportation
routes, negotiating favorable freight
rates, and managing inventory
levels.
▶ Customer satisfaction: Effective
distribution management can help to
improve customer satisfaction by
ensuring that products are delivered
on time, in good condition, and at
the right price.

168. Impact on Supply Chain
Performance and
Customer Satisfaction
▶ Reduce lead times: By optimizing
transportation routes and managing
inventory levels, well-managed
distribution can help to reduce lead times,
which can improve customer satisfaction.
▶ Improve inventory turns: By managing
inventory levels effectively, well-managed
distribution can help to improve inventory
turns, which can reduce costs.
▶ Increase customer service levels: By
ensuring that products are delivered on
time, in good condition, and at the right
price, well-managed distribution can help
to increase customer service levels.

169. Role of Distribution
Management in Cost
Control and Optimization
▶ Optimize transportation routes: By
optimizing transportation routes,
well-managed distribution can
help to reduce transportation
costs.
▶ Negotiate favorable freight
rates: By negotiating favorable
freight rates, well-managed
distribution can help to reduce
transportation costs.
▶ Manage inventory levels: By
managing inventory levels
effectively, well-managed
distribution can help to reduce
inventory carrying costs.

170. Conclusion
▶ Logistics is a complex and
essential part of the supply chain.
Effective distribution management
can help to optimize supply chain
performance, cost control, and
customer satisfaction. By
emphasizing transportation,
warehousing, and inventory
management, logistics can support
the distribution process and help
businesses achieve their goals.

171. Additional
Information
▶ Increase market share: By
providing superior customer
service and meeting customer
demand, well-managed
distribution can help businesses to
increase market share.
▶ Improve brand reputation: By
delivering products on time and in
good condition, well-managed
distribution can help to improve
brand reputation.
▶ Reduce risk: By managing
inventory levels effectively, well-
managed distribution can help to
reduce risk.

172. Improved Inventory
Control and Demand
Forecasting
▶ By tracking inventory levels and sales data,
distribution managers can identify trends and
patterns that can be used to forecast future
demand. This information can then be used
to ensure that the right amount of inventory
is on hand to meet customer demand.
▶ By using data analytics, distribution
managers can identify and optimize
distribution routes and schedules. This can
help to reduce transportation costs and
improve delivery times, which can lead to
improved inventory turnover.
▶ By working closely with suppliers,
distribution managers can ensure that there
is a smooth flow of goods throughout the
supply chain. This can help to reduce the
risk of stockouts and ensure that customers
receive their orders on time.

173. Better Coordination Between Suppliers,
Manufacturers, and Retailers
▶ Distribution management can also foster better coordination among supply
chain partners. This can be done by sharing information about inventory levels,
sales data, and demand forecasts. By working together, supply chain partners
can ensure that goods are delivered to the right place at the right time, which
can lead to improved efficiency and profitability.

174. Enhanced Customer
Service and
Satisfaction
▶ By ensuring that products are delivered on
time and in good condition, distribution
managers can help to improve customer
satisfaction. This can lead to repeat
business and increased sales.
▶ By providing accurate information about
product availability, distribution managers
can help customers to make informed
purchasing decisions. This can help to
reduce customer frustration and improve the
overall customer experience.
▶ By offering flexible delivery options,
distribution managers can meet the needs of
different customers. This can help to
improve customer satisfaction and loyalty.

175. Optimal Use of
Resources and Reduced
Operating Costs
▶ Optimizing transportation routes
and schedules. This can help to
reduce transportation costs and
improve delivery times.
▶ Managing inventory levels
effectively. This can help to reduce
inventory carrying costs and
improve inventory turnover.
▶ Using data analytics to identify and
optimize distribution
processes. This can help to
reduce waste and improve
efficiency.

176. Conclusion
▶ Effective distribution
management can play a vital
role in improving inventory
control, demand forecasting,
coordination among supply
chain partners, customer
service, and satisfaction. By
optimizing the flow of goods and
services throughout the supply
chain, distribution managers can
help businesses to reduce costs,
improve efficiency, and increase
profitability.

177. Additional
Information
▶ Increase market share: By providing
superior customer service and
meeting customer demand, well-
managed distribution can help
businesses to increase market
share.
▶ Improve brand reputation: By
delivering products on time and in
good condition, well-managed
distribution can help to improve
brand reputation.
▶ Reduce risk: By managing inventory
levels effectively, well-managed
distribution can help to reduce risk.

178. Supply Chain
Complexity and Global
Operations
▶ Inventory management: Managing inventory
in a global supply chain can be complex, as
businesses must consider factors such as
different product regulations, varying
demand patterns, and longer lead times.
▶ Demand fluctuations: Demand for products
can fluctuate rapidly in a global market,
which can make it difficult to forecast
demand and ensure that the right amount of
inventory is on hand.
▶ Transportation and logistics: Transportation
and logistics can be more challenging in a
global supply chain, as businesses must
often deal with multiple carriers and different
shipping regulations.
▶ Maintaining service quality and consistency:
Maintaining service quality and consistency
can be difficult in a global supply chain, as
businesses must often deal with different
cultures and languages.

179. Inventory Management and
Demand Fluctuations
▶ The challenges of inventory
management and demand
fluctuations are closely related.
When demand for a product
fluctuates, businesses must adjust
their inventory levels accordingly.

180. Inventory Management
and Demand
Fluctuations
▶ Inventory management is the
process of planning, organizing,
and controlling the flow of goods
and materials from the point of
production to the point of
consumption. Demand
fluctuations refer to the changes
in the demand for a product or
service over time.

181. Impact of Inventory
Management Challenges and
Demand Fluctuations on
Distribution Activities
▶ The impact of inventory
management challenges and
demand fluctuations on distribution
activities can be significant.
▶ Demand fluctuations can also have a
significant impact on distribution
activities.

182. Strategies for Managing
Inventory and Demand
Fluctuations
▶ Demand forecasting: Businesses can use
demand forecasting to predict future demand
for their products. This information can then
be used to adjust inventory levels
accordingly.
▶ Just-in-time (JIT) inventory management: JIT
inventory management is a system where
businesses only order the amount of
inventory they need to meet immediate
demand. This can help businesses to reduce
inventory costs and improve efficiency.
▶ Demand pooling: Demand pooling is a
strategy where businesses pool their
demand for a product or service. This can
help businesses to get better pricing from
suppliers and improve efficiency.
▶ Flexible manufacturing: Flexible
manufacturing is a system where businesses
can quickly and easily change the
production of a product to meet changing
demand. This can help businesses to adapt
to demand fluctuations and avoid stockouts.

183. Inventory management and demand
fluctuations are important challenges that
businesses must face. By using the
strategies outlined above, businesses can
manage these challenges and ensure that
they have the right amount of inventory to
meet customer demand.

184. Transportation and
Logistics Challenges
▶ Transportation and logistics can
also be challenging in a global
supply chain. Businesses must
often deal with multiple carriers
and different shipping regulations.
This can make it difficult to track
shipments and ensure that they
arrive on time.

185. Maintaining Service
Quality and Consistency
▶ Maintaining service quality and
consistency is important for any
business, but it can be
especially challenging in a
global supply chain.

186. 186
Operations Management
= OM
Management of ANY activities/process that create goods and
provide services
Exemplary Activities: Forecasting, Scheduling, Quality management
Why to study OM
At a typical manufacturing company
Profit 5%
OM Cost 21%
Marketing
Cost 26%
Manufacturing
Cost 48%

187. 187
The management of systems or processes that create goods
and/or provide services
Organization
Finance Operations Marketing
The distinct –active- role of operations:
Inputs become Outputs after some
Transformation
Operations Management = OM

188. MGT 236 188
Typical Organization
Chart

189. 189
Operations example in Manufacturing:
Food Processing
INPUTS PROCESS OUTPUTS
Raw vegetables Cleaning Clean vegetables
Metal sheets Cutting/Rolling/Welding Cans
Energy, Vegetables Cutting Cut vegetables
Energy, Water,
Vegetables
Cooking Boiled
vegetables
Energy, Cans,
Boiled vegetables
Placing Can food

190. 190
Types of Operations
Operation Examples
Goods producing Farming, mining, construction
Storage/transportation Warehousing, trucking, mail, taxis,
buses, hotels, location
Exchange Trade, retailing, wholesaling, renting,
leasing, loans
Entertainment Radio, movies, TV, concerts, recording
Communication Newspapers, journals, magazines, radio,
TV, telephones, satellite

191. 191
Why OM?
Core of all business organizations
Many areas interrelated with OM activities
Management of operations is critical to create and maintain competitive
advantages

192. 192
Organization of
Businesses
Three basic functions
Operations/Production
Goods oriented (manufacturing and assembly)
Service oriented (health care, transportation and retailing)
Value-added (the essence of the operations functions)
Finance-Accounting
Budgets (plan financial requirements)
Economic analysis of investment proposals
Provision of funds (the necessary funding of the operations)

193. 193
Organization of Businesses (Cont.)
Marketing
Selling
Promoting
Assessing customer wants and needs
Communicating those needs to operations
The need for working closely
Operations
Finance
Marketing

194. 194
Operations Interfaces

195. 195
Systems (Holistic)
Approach
Emphasizes interrelations among subsystems.
A systems approach is essential whenever something is
being designed, redesign implemented, or improved. It is
important to take into account the impact on all parts of the
system.
Example: A new feature is added to a product.
Designer must take into account how customers will view the
change, instruction for using new feature, the cost, training of
workers, production schedule, quality standard, advertising
must be informed about the new feature.

196. 196
Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization

197. 197
Value Added
Value added: The difference between cost of inputs and price (??) of outputs.
Is this definition right? Should value added include profit?
Value added: The difference between the cost of inputs
and the (market or fair) value or price of outputs.

198. Value-Added
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Control
Feedback
Feedback
Feedback
Value added

199. MGT 236 199
OM’s
Transformation
Role
To add value
Increase product value at each stage
Value added is the net increase between output product value and input
material value
Provide an efficient transformation
Efficiency – means performing activities well for least possible cost

200. 200
Degree of
Standardization !
Standardized output
Take advantage of standardized methods, less skilled workers, materials…
Example: Iron, Wheat, most of commodities
Customized output
Each job is different
Workers must be skilled
Example: Hair cut

201. 201
Manufacturing (=Goods) vs. Service operations
Production of goods (goods oriented)
Tangible products
Automobile
Refrigerator
Services (TV and auto repair, lawn care)
Government
Regulatory bodies, FAA, FDA
Wholesale/retail
Financial services
Education

202. 202
Similarities for
Service/Manufacturers
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both can have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues

203. 203
Goods vs. Service
Operations (Cont)
Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory

204. 204
Manufacturing vs. Service
!
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content Low High
Uniformity of input High Low
Measurement of
productivity
Easy Difficult
Opportunity to correct
quality problems
Easy Difficult

205. 205
Steel production
Automobile fabrication
Home remodeling
Retail sales
Auto Repair
Appliance repair
Maid Service
Manual car wash
Teaching
Lawn mowing
High percentage goods
Low percentage service
Goods-service Continuum
Low percentage goods
High percentage service

206. 206
U.S. Manufacturing vs. Service Employment
0
20
40
60
80
100
45 50 55 60 65 70 75 80 85 90 95 00
Year
Percent
Year Mfg. Service
45 79 21
50 72 28
55 72 28
60 68 32
65 64 36
70 64 36
75 58 42
80 44 46
85 43 57
90 35 65
95 32 68
00 30 70
Manufacturing vs.
Service Industries in
US

207. Growth of the Service Sector
Service sector growing to
50-80% of non-farm jobs
Global competitiveness
Demands for higher
quality
Huge technology changes
Time based competition
Work force diversity

208. 208
Responsibilities of Operations Management
Planning
Capacity, utilization
Location
Choosing products or services
Make or buy
Layout
Projects
Scheduling
Market share
Plan for risk reduction, plan B?
Forecasting

209. 209
OM Decisions
All organizations make decisions and follow a similar path
First decisions very broad – Strategic decisions
Strategic Decisions – set the direction for the entire company; they are broad in
scope and long-term in nature

210. 210
OM Decisions
Following decisions focus on specifics - Tactical
decision
Tactical decisions: focus on specific day-to-day issues like
resource needs, schedules, & quantities to produce
are frequent
Strategic decisions less frequent
Tactical and Strategic decisions must align

211. 211
OM Decisions

212. 212
Operations Managers
Controlling
Inventory
Quality
Costs
Organization
Degree of standardization
Subcontracting
Process selection
Staffing
Hiring/lay off
Use of overtime
Incentive plans
Job assignments

213. 213
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .
Scope of Operations Management

214. 214
Help comes from Models
A structure which has been built purposefully to exhibit features and characteristics of
some other object.
Do not use “thing” or “something” in a definition.
For
Improved understanding and communication
Experimentation
Standardization for analysis
Abstraction vs. computability

215. 215
Modeling !
Use models
Physical models (prototypes)
Schematic models (Graphs, charts, pictures)
Mathematical models,
Statistical models
Inventory models
Linear programming
Queuing techniques
Project management models

216. 216
What type of models
Simulation models : to test a proposed idea
– Monte Carlo Simulation
Optimization models : to create an optimal idea
– Linear programming
Pattern recognition models : to recognize a pattern
– Statistics, Forecasting, data mining

217. 217
Decision Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach

218. 218
Models Are Beneficial
Easy to use, less expensive
Require users to organize
Increase understanding of the problem
Consistent tool
Standardized format
Specific objectives
Systematic approach to problem solving
Analysis of tradeoffs
Enable “what if” questions
Power of mathematics

219. 219
Pareto Phenomenon
• A few factors account for a high percentage of the
occurrence of some event(s).
• 80/20 Rule - 80% of problems are caused by 20% of
the activities.
How do we identify the vital few?

220. 220
Historical Evolution of Operations Management
Industrial revolution (1770’s)
Scientific management (1911)
Mass production
Interchangeable parts
Division of labor
Human relations movement (1920-60)
Unemployment insurance
Pension plans
Decision models (1915, 1960-70’s)
Influence of Japanese manufacturers (1970-1990)

221. MGT 236 221
Historical Development
con’t
Reengineering 1990s
Global competition 1980s
Flexibility 1990s
Time-Based Competition 1990s
Supply chain Management 1990s
Electronic Commerce 2000s
Outsourcing & flattening of world 2000s
For long-run success, companies must place much importance on their
operations

222. 222
Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility

223. 223
Recent Trends !
Worker involvement
Environmental issues, emission reductions are popular after Central
European floods
Service economy in US, foreign production
E-business – information technology
Supply chain management
Total Quality Management
Globalization, emerging markets, NAFTA
Lean Production – see the next page

224. 224
Production systems
classified
Craft Production : System in which highly skilled workers use
simple, flexible tools to produce small quantities of
customized goods.
Carpenter
Lean production : System that uses minimal amounts of
resources to produce a high volume of high-quality goods
with some variety.
Dell
Mass production: System in which lower-skilled workers use
specialized machinery to produce high volumes of
standardized goods.
Ford

225. 225
Production systems
classified
Agile=Lean
manufacturing
It provides flexibility to switch quickly and economically from
one product design to another with little disruption. This
characteristic, in turn enables faster response to changes in
customer demand.
A sophisticated computerized inventory control system allows
the plant to keep track of large number of parts.
Keys to being an agile manufacturer are :
Reduction in inventories,
Reduction in turnaround times,
Availability of automated flexible machinery,
Rapid collection and processing of information

226. 226
Suppliers’
Suppliers
Direct
Suppliers Producer Distributor Final
Consumer
Simple Product Supply Chain
Supply Chain: A sequence of activities and
organizations involved in producing and delivering
a good or service

227. 227
Stage of Production Value
Added
Value of
Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
A Supply Chain for Bread

228. 228
Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Cost control and productivity
Quality and process improvement
Increased regulation and product liability
Lean production

229. MGT 236 229
Today’s OM Environment
Customers demand better quality, greater speed,
and lower costs
Companies implementing lean system concepts – a
total systems approach to efficient operations
Recognized need to better manage information
using ERP and CRM systems
Increased cross-functional decision making

230. MGT 236 230
OM in Practice
OM has the most diverse organizational function
Manages the transformation process
OM has many faces and names such as;
V. P. operations, Director of supply chains, Manufacturing
manager
Plant manger, Quality specialists, etc.
All business functions need information from OM in
order to perform their tasks

231. MGT 236
Business Information Flow

232. 232
OM Across the
Organization
Most businesses are supported by the functions of operations, marketing, and
finance
The major functional areas must interact to achieve the organization goals

233. 233
OM Across the
Organization – con’t
Marketing is not fully able to meet customer needs if they do
not understand what operations can produce
Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
Information systems enables the information flow throughout
the organization
Human resources must understand job requirements and
worker skills
Accounting needs to consider inventory management,
capacity information, and labor standards

234. 234
Summary
Definition of OM
OM’s relationship with Marketing, Finance and Accounting
Goods vs. service industries
OM issues, trends and models
Manufacturing systems

235. 235
Highlights
OM is the business function that is responsible for managing
and coordinating the resources needed to produce a
company’s products and services.
The role of OM is to transform organizational inputs into
company’s products or services outputs
OM is responsible for a wide range of decisions, ranging from
strategic to tactical.
Organizations can be divided into manufacturing and service
organizations, which differ in the tangibility of the product or
service

236. 236
Highlights – con’t
Many historical milestones have shaped OM. Some of these
are the Industrial Revolution, scientific management, the
human relations movement, management science, and the
computer age
OM is highly important function in today’s dynamic business
environment. Among the trends with significant impact are
just-in-time, TQM, reengineering, flexibility, time-based
competition, SCM, global marketplace, and environmental
issues
OM works closely with all other business functions