Supply Chain Planning Operation 8.pptx

1. Supply Chain
Planning &
Operations
Part 8

2. 2
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%

3. 3
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

4. MGT 236 4
Typical Organization
Chart

5. 5
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

6. 6
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

7. 7
Why OM?
Core of all business organizations
Many areas interrelated with OM activities
Management of operations is critical to create and maintain competitive
advantages

8. 8
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)

9. 9
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

10. 10
Operations Interfaces

11. 11
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.

12. 12
Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization

13. 13
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.

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

15. MGT 236 15
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

16. 16
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

17. 17
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

18. 18
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

19. 19
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

20. 20
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

21. 21
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

22. 22
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

23. 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

24. 24
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

25. 25
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

26. 26
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

27. 27
OM Decisions

28. 28
Operations Managers
Controlling
Inventory
Quality
Costs
Organization
Degree of standardization
Subcontracting
Process selection
Staffing
Hiring/lay off
Use of overtime
Incentive plans
Job assignments

29. 29
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .
Scope of Operations Management

30. 30
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

31. 31
Modeling !
Use models
Physical models (prototypes)
Schematic models (Graphs, charts, pictures)
Mathematical models,
Statistical models
Inventory models
Linear programming
Queuing techniques
Project management models

32. 32
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

33. 33
Decision Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach

34. 34
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

35. 35
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?

36. 36
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)

37. MGT 236 37
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

38. 38
Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility

39. 39
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

40. 40
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

41. 41
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

42. 42
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

43. 43
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

44. 44
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

45. MGT 236 45
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

46. MGT 236 46
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

47. MGT 236
Business Information Flow

48. 48
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

49. 49
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

50. 50
Summary
Definition of OM
OM’s relationship with Marketing, Finance and Accounting
Goods vs. service industries
OM issues, trends and models
Manufacturing systems

51. 51
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

52. 52
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

53. History of Industrial Revolution