This Summary of Operations and Supply Chain Management, The Core (Jacobs & Chase) is written in 2013-2014. Operations and Supply Chain Management (OSCM) The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. A Supply Chain encompasses all activities associated with the flow and transformation of goods and services from the raw materials stage through to the end-user, as well as the associated information flows. The management of supply chain requires effort to integrate the processes in the supply chain. To obtain a valuable chain with satisfied customers it is necessary to have an effective coordination and integration of materials through out the supply chain. Simultaneously, attention can be paid to reduction of costs. The main task of a supplier is the supply of raw materials, semi-finished products and finished products to downstream customers. Thereby, one can apply different strategies:
Manufacturers assemble products and services and concerns with made-or buy decisions regarding components and semi-finished products. They purchase acquisition of goods and services. Their objectives of purchasing are to identify products and services that can be obtained externally and to develop, evaluate and determine the best supplier, price and delivery for those products and services. Manufacturers that decide to buy instead of making products can follow three-stage process:
Distributors distribute products from manufacturers to retailers and customers. They are responsible for the temporarily storage of products in warehouses and the balance of fluctuations in production. In addition, distributors handle the transportation of products (e.g. trucks, trains, airplanes, ships or pipelines) Customers can buy directly products and services at supermarkets or service organisations or get direct delivery of products after ordering on the Internet or phone. Activities associated from supplier to customer can be described as downstream flows, which is contrary to upstream flows (customer to supplier).The reasons for the occurrence of upstream flows are:
Product-service bundling When a firm builds service activities into its product offerings to create additional value for the customer Efficiency Doing something at the lowest possible cost Effectiveness Doing the things that will create most value for the customer Value The attractiveness of a product relative to its cost Operations and supply chain processes can be categorized as follows:
The five characteristics of services:
The Goods-Services Continuum Outsourcing means that a third party logistics executes activities of a company. To gain success the third logistics provider actively needs to help solving problems, if there is perfect information exchange and trust between parties. There are three types of production processes:
Mass customization The ability to produce a unique product
exactly to a Business analytics The use of current business data to solve business As operations and supply management is a dynamic field, a global enterprise challenges nowadays different issues:
Sustainability The ability to meet current resource needs without compromising Triple bottom line A business strategy that includes social, economic, and Shareholders Own one or more shares of stock in the company The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:
Operations and supply The setting of broad policies and plans for using the firm’s A planning strategy involves a set of repeating activities, which are performed in different time intervals and in a closed-loop process:
There are seven major competitive dimensions forming the competitive position of a firm.
Trade-offs Occur when activities are incompatible so that more of one thing necessitates less of another (e.g high quality is viewed as a trade-off to low cost). Straddling Occurs when a company seeks to match the benefits of a successful position while maintaining its existing position Order winner A specific marketing-orientated dimension that clearly differentiates a product from competing products Order qualifier A dimension used to screen a product or service as a candidate for purchase Activity-system Diagrams that show how a company’s strategy is delivered maps through a set of supporting activities Supply chain risk The likelihood of a disruption that would impact the ability of a company to continuously supply products or services Productivity a measure of how well resources are used. Partial
measure Input factors: labor, capital, materials, energy Multifactor measure includes some, but not all inputs: Total measure includes all outputs and inputs. Capacity Management in Operations is the ability to hold, receive, store or accommodate a number of customers in a system. Capacity is the amount of resource inputs available relative to output requirements over a particular period of time. However, it does not imply the duration of its sustainability. When looking at capacity, operations managers look at inputs and outputs. Operations management focus also the time dimension of capacity. Capacity planning is views in the following three time durations:
Strategic capacity planning Capacity The output that a system is capable of achieving over a period of time. The Best Operating Level is a level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized. The determination of the minimum is difficult as it includes a complex trade-off between the allocation of fixed overhead costs and other costs. A measure to reveal how close a firm is to its best operation level is by calculating the capacity utilization rate. Capacity utilization rate Capacity used / Best operating level Economies of scale A cost advantage for companies as the volume increases, the average cost per unit of output drops. Focused factory When a production facility works best when it focuses on a fairly limited set of production objectives. This concept is focused on the capacity by operationalizing the mechanism by plant within a plant (PWP). Plant within a plant An area in a larger facility that is dedicated to a specific production objective. This can be used to operationalize the focused factory concept. Capacity Flexibility The ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one to another.
Economies of scope When multiple products can be produced at lower cost in combination than they can be separately. Changing the capacity it is important to maintain system balance, frequency of capacity additions or reductions, and the use of external capacity. The objectives of strategic capacity planning are to provide an approach for determining the overall capacity level of capital-intensive resources that best supports the company’s long-range competitive strategy. It has an impact on:
Capacity cushion Refers to the amount of capacity in excess of expected demand. It is the reserve capacity that handles sudden increases in demand or temporary losses of production capacity. Deterministic Performance Estimation Design capacity is the theoretical maximum output of a system or process in a given period. Effective capacity The capacity that can be expected given the product mix, methods of scheduling, maintenance and standards of quality. Interarrival time The time between two subsequent arrivals of products at their entrance in the process. Bottleneck An operation that limits output in the system and are constraints that limit output of production. If none of the machines, workers, etc. in the system is a bottleneck, then we say that the arrival process is the bottleneck. Determining a bottleneck requires the following:
The utilisation rate rho for a workstation consisting of n identical, parallel servers can be computed from rho = λ(n x μ) Productive utilisation rate is calculated similar to normal utilisation but exludes set-up times. The Work-in Progress (WIP): L = λW -L is the average WIP, -W the average throughput time, - λ is the average number of produced units per time-unit, There are three methods to calculate the capacity:
In deterministic performance estimation we assume there is no uncertainty but overly optimism. Therefore, the deterministic estimate will be
Lead time The time needed to respond to a customer order Customer order
decoupling point (CODP) Make-to-stock Firms that serve customers from finished goods inventory. Essential issue in satisfying customers is to balance the level of inventory against the level of customer service.
Firms applying make-to-stock use lean manufacturing to achieve higher service levels for a given inventory investment Assemble-to-order Used by those firms that combine a number of preassembled modules to meet a customer’s specification.
Make-to-order Used by firms that make the customer’s product from raw materials, parts and components. Essential issue is to deliver on time, while keeping costs low through high capacity utilization
Engineer-to-order Used by firms working with the customer to design the product, and then make it from purchased materials, parts and components.
Lean manufacturing To achieve high customer service with minimum levels of inventory investment. There are forces which influences the position of the decoupling point:
Total average value of inventory The total investment in inventory at the firm, which includes raw material, work-in-progress, and finished goods. Inventory turn An efficiency measure where the cost of goods sold is divided by Days-of-supply A measure of the number of days of supply of an item. Little’s law Mathematically relates inventory, throughput, and flow time Throughput The average rate that items flow through a process Flow time The time it takes one unit to completely flow through a process. Inventory = Throughput rate * Flow time Process selection refers to which kind of production process to use to produce a product or provide a service. There are different formats by which a facility can be arranged. The five basic structures are
The relation between layout structures is often illustrated on a product- process matrix. Workstation cycle time Assembly-line balancing Precedence relationship The required order in which tasks must be performed in an assembly process. If there are problems in lines/balancing, possibilities to accommodate tasks are:
The steps to balance an assembly line are as follows:
Determine the theoretical minimum number of workstations (see formula Theoretical minimum (Nt))
Customer contact Refers to the physical presence of the customer in the system Creation of the service Refers to the work process involved in providing the service itself Extent of contact The percentage of time the customer must be in the system relative to the total time it takes to perform the customer service. High and low degree of customer contact There are different degrees of customer/server contact:
The greater the amount of contact, the greater the sales opportunity Service-System Design Matrix Pure virtual customer contact Service Blueprint A standard tool for service process design is the flowchart. It Poka-yokes Procedures that prevent mistakes from becoming defects. A main problem in service setting is the management of waiting lines. The manager has to measure out the cost of waiting against the added cost of providing more service. Managing queues, the following suggestions are made:
Queuing System
Practical: How to solve exam questions
To Identify the appropriate waiting line model, there are two options given: M/M/1 (refers the arrival process) and M/D/1(refers to the service process). M/M/1: The first letter M means “Poisson distributed” arrivals and the second letter „negative exponential“ (random) service times. M/D/1: The first letter M means “Poisson distributed” arrivals and D means “deterministic” (constant) service times. The third letter refers to the number of service channels. Determine λ and m λ = Mean number of arrivals per time period. m = Mean number of people (or items) served per time period. Identify the appropriate performance measure Average queue time, Wq Average queue length, Lq Average time in system, Ws Average number in system, Ls Probability of idle service facility, P0 Utilization, r Probability of more than k customers in system, Pn > k Find the correct formula: Total Quality Management (TQM) may be defined as ‘managing the entire organization so that it excels on all dimensions of products and services that are important to the customer’. It has two fundamental operational goals:
Malcolm Baldrige National Quality Award Design quality refers to the inherent value of the product in the marketplace in thus a strategic decision for the firm. The dimensions of design quality are:
Conformance quality refers to the degree to which the product or service design specifications are met. It involves activities essential in achieving conformance. Quality at the source is concerned with a person’s work responsibility for making sure that the output corresponds the specification. Cost of Quality (COQ) analysis is one of the primary functions of thee QC departments. The COQ can be classified into four types:
ISO 9000 and ISO 14000 involve a series of standards agreed upon by the International Organization for Standardization (ISO). This approach was adopted in 1987 in more than 160 countries. ISO 9000 is based on eight quality management principles focusing on business processes related to different areas in the firm.
ISO 1400 adresses the need to be environmentally responsible. The standards define a three-ponged approach for dealing with environmental challenges. The first is the definition of more than 350 international standards for monitoring the quality of air, water and soil. The second part is a strategic approach by defining the requirements of an environmental management system that can be implemented using the monitoring tools. Finally, the environmental standard encourages the inclusion of environment aspects in product design an encourages the development of profitable environment-friendly products and services. Six Sigma refers to the method companies use to eliminate defects in their products and processes. It seeks to reduce variation in the processes that lead to product defects. The Six-Sigma thinking allows managers to describe performance of a process in terms of its variability and to compare it using the defects per millions opportunity (DPMO) metric. Defects per million opportunities (DPMO) requires three pieces of data:
DPMO = Number of defects___________________________* 1,000,000 Number of opportunities for error per unit * Number of units The methodology side of Six-Sigma are project-oriented through the Define, Measure, Analyse, Improve, and Control (DMAIC) cycle. It is used to set the focus on the understanding and achieving what the customer wants. By the integration of analytical tools for Six-sigma, DMAIC categories can be illustrated. In exhibit 10.5 on page 316-317 the analytical Tools for Six Sigma and Continuous Improvement are depicted. Statistical process control (SPC) involves testing a random sample of output from a process to determine whether the process in producing items within a preselected range. Assignable variation Deviation in the output of a process that can be clearly identified and managed Common variation Deviation in the output of a process that is random and inherent in the process itself Upper and lower specification limits Process capability is the ability of a process to produce output within specification limits. This concept only holds meaning for processes that are in state of statistical control. Improving process capability involves (a) changing the mean in the short run, and (b) reducing normal variability in the long run, requiring investment. Process limits are based on based on normal variation in the process. Specification limits are variation as designed, which is acceptable for customers. Lean production Integrated activities designed to achieve high-volume, high-quality production using minimal inventories of raw materials, work-in-process, and finished goods. Customer value In the context of lean production, something for which the customer is willing to pay. Waste Anything that doesn’t add value from the customer’s perspective. There are seven types of waste:
Value stream These are the value-adding and non-value-adding activities required design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. Waste reduction The optimization of value-adding activities and elimination of non-value-adding activities that are part of the value stream. Value stream mapping A graphical way to analyze where value is or not being added as material flows through a process. To eliminate waste, a firm can do the following:
Kaizen is the Japanese philosophy that focuses on continuous improvement. The Kaizen bursts identify specific short-term projects that teams work on to implement changes in the process. Preventive maintenance is emphasized to ensure that flows are not interrupted by downtime or malfunctioning equipment. This involves periodic inspection and repair designed to keep equipment reliable. Lean concepts:
Level schedule A schedule that pulls material into final assembly at a constant rate. Freeze window The period of time during which the schedule is fixed and no further changes are possible. Backflush Calculating how many of each part were used in production and using these calculations to adjust actual on-hand inventory balances. This eliminates the need to actually track each part used in production. Uniform plant Smoothing the production flow to dampen schedule variation. Kaban production control systems Kaban is the Japanese translation for sign or instruction card. In those production control systems, only cards or containers are used to make up the Kaban pull system and regulate JIT flows. Level scheduling requires material to be pulled into final assembly in a pattern, which is uniform enough to allow the various elements production to respond to pull signals. Kaban significantly reduces the setup costs and changeover times achieving a smooth flow. Strategic sourcing is the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate need of the business. Depending on the contract duration, transaction costs and specificity of the product, a firm’s purchasing can be classified into types of processes:
The Bullwhip Effect describes the phenomenon of variability magnification as we move from the customer to the producer in the supply chain. It indicates a lack of synchronization among supply chain members. The causes of the bullwhip effect are:
The consequences of the Bullwhip Effect are:
Functional products Staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Innovative products Products such as fashionable clothes and personal computers that typically have a life cycle of just a few months. Hau Lee’s Uncertainty Framework The concept of Hau Lee aligns the supply chains (sc) with the uncertainties revolving around the supply process side of supply chains. His framework is illustrated in a two by two matrix resulting from low/high uncertainty and low/high demand uncertainty. There are four types of supply chain strategies:
Outsourcing is the act of moving a firm’s internal activities and decision responsibility to outside providers. This allows a company to create a competitive advantage while reducing cost. Applying to this capability, an entire function (e.g. distribution, manufacturing) or some elements of an activity (e.g. producing parts) may be outsourced. Reasons to move firm’s activities outside the firm can be motivated by organizational and financial factors as well as the factor of improvement. Factors evaluating whether to outsource or not are the following:
Green sourcing refers to the finding of new environmentally friendly technologies and the increasing the use of recyclable materials. It helps to reduce drive cost in a variety of ways: product content substitution, waste reduction, and lower usage. To transform a traditional process to a green sourcing one, the Six-step process can be applied:
Total Cost of Ownership (TCO) is a financial estimate of the cost of an item, which determines direct and indirect costs of a product or system. It includes all the costs related to the procurements and use of items, including any related costs in disposing of the item after it is no longer useful. It can be applied to internal costs or more broadly to costs throughout the supply chain. The costs can be categorized into three broad areas:
Formula: To evaluate supply chain efficiency, two common measures are used: inventory turnover and weeks-of-supply. The Inventory turnover are the costs of goods sold divided by the average inventory value, whereas the Days-of-Supply are the inverse of inventory turn scaled to days. Inventory turnover: Cost of goods sold Average aggregate inventory value Cost of goods sold: cost for a company to produce goods or services provided to customers Average aggregate inventory value: total value of all items held in inventory for the firm valued at cost Weeks-of-Supply: Average aggregate inventory value * 52 weeks Cost of goods sold Logistics is a part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods/service. International logistics is concerned with managing logistics internationally. Global and local supply chains can differ in distances and time differences, forecasting, exchange rates, infrastructure, variety of products and foreign rules. Third-party logistics companies are companies that manages all or part of another company’s product delivery operations. Parts of the logistics process can be classified into three components:
The objectives of logistic processes can be as follows:
Transportation modes
Constraints are restrictions that limit the degree to which a manager can pursue an objective and can be as follows:
Cross-docking An approach used in consolidation warehouses where, rather than making larger shipments, large shipments are broken down Free trade zone A closed facility into which foreign goods can be brought without being subject to the payment of normal input duties. Trading blocs A group of countries that agree on a set of special arrangements governing the trading of goods between member countries. The functions of warehouses are:
There are three methods to evaluate the best locations for a warehouse:
Factor-rating systems uses weights to assign importance of qualitative and quantitative factors. There are no exact results dues to subjectivity of weights.
Cost volume analysis is used to make an economic comparison of known locations.
Center-of-Gravity Method is a mathematical technique for finding best location for a single warehouse with the objective to minimise costs. This method requires data from location of markets (retailers), volume of goods to be shipped to those markets and the shipping costs. The ideal location is the minimized weighted distance between warehouse and retailer. Transportation management is concerned with planning, implementation and control of external transportation services such that objectives and constraints are met. This includes the mode(s) of transportation, the selection of carriers in each mode, costs analysis, routing and the relation with materials handling. In addition, transport management decides on whether to outsource transportation or not. Transportation in a supply chain is influenced by multiple factors:
Cost analysis A product with low value is characterized as a cheap and relatively slow mode of transportation. Costs form an important part of logistics costs. A product with high value is characterized as a fast and more expensive mode of transportation. Costs for transport are less relevant than moving inventory costs. |