Presentation on theme: "Three Basic Truths Pervasiveness Interdependence"— Presentation transcript:
1 Three Basic Truths Pervasiveness Interdependence Profitability and Survival
2 PervasivenessEvery organization must make a product or provide a service that someone values………….Manufacturer.Retailer.Design firm.University.Health services.
3 InterdependenceMost organizations function as part of a larger supply chainDiscussion with class about what kinds of operations and suppliers are required to realize a basic product idea like a running shoe, beginning with the initial design concept.
4 Supply ChainsNetworks of manufacturers and service providers that work together to move goods from the raw material stage through to the end userLinked through physical, information, and monetary flows
5 Profitability and Survival Organizations must carefully manage their operations and supply chains to prosper, and indeed, survive!Shoe manufacturer:How many shoes should we make? What mix?What resources do we need? What will we outsource?Location?Key performance criteria -- Cost? Quality? Speed?
6 Operations Management The planning, scheduling, and control of the activities that transform inputs into finished goods and servicesOperations Management
7 Operations FunctionThe collection of people, technology, and systems within a company ...… that has primary responsibility ...… for providing the organization’s products and/or services.
8 Viewing Operations as a Transformation Process Manufacturing operationsInputsOutputsMaterialsPeopleEquipmentIntangible needsInformationTangible goodsFulfilled requestsInformationSatisfied CustomersService operations
9 Supply Chain Management Active management of supply chain activities and relationships to maximize customer value and achieve a sustainable competitive advantageSupply Chain ManagementExample: Buying co-ops for independent hardware dealers
10 Material Flows First Tier Supplier Distributor Retailer AlcoaBall CorpAnheuser-BuschM&MMeijerFirst Tier SupplierDistributorRetailerTransportation companiesFinalcustomersUpstreamDownstreamSecond Tier Supplier
11 Definitions Strategies Mission Statement The mechanisms by which businesses coordinate their decisions regarding structual & infrastructural elementsMission StatementA statement that explains why an organization exists. It describes it’s core values and identifies the domain
12 DefinitionsBusiness Strategy Long-term master plan for the company; establishes the general directionFunctional Strategies Further develop the business strategy in segments of the business — must be aligned and coordinatedCore Competencies Organizational strengths that provide focus and foundation for the company’s strategies
13 Business Strategy must Identify target customers & marketsSet time frames and performance objectivesDefine the role of supply chain partnersIdentify & support development of core competencies
14 Operations and Supply Chain Strategies Definition: how structural & infrastructural elements within Operations & Supply Chain will be aquired & developed to support the overall business strategyThe three primary objectivesChoose mix of structure and infrastructure based upon dimensions valued by customerEnsure the mix aligned with the overall business strategyDoes it support the development of core competencies?
15 Functional StrategyTranslates the business strategy into functional terms for other departments or functions.Assures coordination with other departments or functions.Provides direction and guidance for operations and supply chain decisions.
16 QualityThe characteristics of a product or service which bear on its ability to satisfy stated or implied needsPerformance Quality the basic operational characteristics of a product or serviceConformance Quality to what degree the product or service meets specificationsReliability Quality The length of time a product will perform correctly without failing or requiring maintenanceTo remain competitive, operations and supply chain must consistently meet or exceed customer expectations on quality dimensions
17 TimeDelivery speed how quickly the OSC can fulfill on order or need once it has been identified.Delivery Reliability the ability to deliver goods or services when promised and the accuracy of he quantity shippedPg 30
18 FlexibilityHow quickly OSC can respond to the unique needs of different customersMix flexibility the ability to produce a wide range of products or servicesChangeover flexibility the ability to provide a new product with minimal delayVolume flexibility the ability to produce whatever volume the customer needsFlexibility is of particular importance in Research and DevelopmentPg 31
19 CostCost is always a concern, even if a company primarily competes on a different performance dimension.Cost covers a wide range of activities, most common categories areLabor CostsMaterial CostsEngineering CostsQuality-related costsThere are many cost categories, many are specific to the issues facing a particular firm. OSC are targets for cost management because they account for much of an organization’s cost.Pg 31
20 Trade-offs between Performance Dimensions No organization can sustain a competitive advantage on all performance dimensions indefinitely….All organizations must make trade-offs or decisions among dimensions to emphasize some at the expense of others.Most OSC decisions will require trade-offsTo optimize this decision making, OSC managers must know which dimensions are valued most by their customersExcellence in one dimension may conflict with excellence in anotherPg 32
21 Mapping Business Processes An effective, simple way to improve understanding of the business process is by developing a graphic representation of all the activities and relationships with thin the processCreates common understanding of the activities, results and who performs the stepsDefines the boundaries of the processCan be a training toolProvides baseline to measure improvementPg 48
23 Is there room for improvement? DealerFaxesOrderPaperCreatedOrder SitsIn FaxIn BoxInternal MailDelivers FaxIn Clerk’sClerkProcessesIs ItemIn Stock?WorkerPicksClerk NotifiesDealer andPasses OrderOn to PlantInspectorChecksTransport FirmDelivers OrderReceives2 minutes0.5% of orders incorrect1 to 3 hours2 hours on averageNo history of lost,damaged, or incorrectdeliveriesYESNO10 to 45 minutes20 minutes on average0 to 2 hours1 hour on average0.5 to 1.5 hours1% of orders lost0 to 4 hours4% oforders lost5 minutesOrder spends 6.45 hrs in process3 hrs is waiting5% of orders are lost before picking1 out of 200 will be shipped with wrong items or amounts
24 Productivity Measures OutputsInputsProductivity =Productivity is the ratio of outputs to inputsSingle-factor, Multifactor, and Total measures of productivity
25 Variations of Productivity Batteries ProducedMachine Hours + Direct Labor HoursTotal Nightly Sales ($)Total Nightly Costs ($)Direct Labor HoursSingle-factorproductivity ratio:Multifactor:Total multifactor:Measures output levels relative to a single inputMeasures output levels relative to more than one inputRatio of a total output factor to total input factor
26 A comparison of a company’s actual performance to some standard output EfficiencyA comparison of a company’s actual performance to some standard outputUsually expressed as a percentageStandard is an estimate of what should be produced based on studies or historical resultsEfficiency = 100%(actual rate / standard rate)OR: Efficiency = 100%(standard time/actual time) for one unitHere the actual and standard values represent output or output rate.Standard output – an estimate of what should be produced, given a certain level of resources
27 Dimensions of Quality Performance Features Reliability Durability ConformanceAestheticsServiceabilityPerceived QualityWhich dimensions do you think are directly affected by Operations and Supply Chain activities?
28 Total Cost of Quality — Traditional View Note: Horizontal axis is reversed from that used in the text to reflect that the goal is zero defects.
29 TQM Principles Customer focus Leadership involvement Continuous improvementEmployee empowermentQuality assurance (including SQC or SPC)Strategic partnershipsStrategic quality planSQC = Statistical Quality ControlSPC = Statistical Process Control
30 Common Improvement Tools Cause and effect diagrams (aka “Fishbone” or Ishikawa diagrams)Check sheetsPareto analysisRun charts and scatter plotsBar graphsHistograms
37 Operations and Supply Chain Perspectives Repeatability, testability and serviceability of the designProduct volumesProduct costsMatch with existing capabilities
38 Process Types (in order of decreasing volume) Continuous FlowProduction LineBatch (High Volume)Batch (Low Volume)Job ShopProject
39 Mixing Together the Process Types Hybrid Process SpindlesASSEMBLYLINE forputting togetherfinal productArms andLegsChair manufacturing processBATCH forfabricatingparts ...Seats
40 Product – Process Matrix One of a Kind Low VolumeMultiple Products Moderate VolumesFew Major ProductsHigh VolumeCommodity ProductsJob ShopBatchLineVery Poor FitVery Poor Fit
41 Capacity Strategies: When, How Much, and How? DemandLeaderExcessCapacityLost BusinessLaggard
42 Economies of ScaleTotal Cost for Fictional Line: Fixed cost + (Variable unit cost)×(X) = $200,000 + $4X Cost per unit for X=1? X=10,000?X = 1: $200,004X= 10,000: $24
43 Fixed & Unit Cost Scenarios Page 214 in text.Common Carrier: Fixed cost = 0, unit cost = $750Contract Carrier: Fixed cost = $5,000, unit cost = $300Private Carrier: Fixed cost = $21,000, unit cost = $50
44 Indifference PointCompares capacity alternatives — at what volume level do they cost the same?Suppose one option has zero fixed cost and $750 per unit cost; the other option has $5,000 fixed cost, but only $300 per unit cost $0 + $750X = $5,000 + $300X What is the volume, X, at the indifference point?X = or about 11
45 Theory of ConstraintsConcept that the throughput of a supply chain is limited (constrained) by the process step with the lowest capacity.Sounds logical, but what does this mean for managing the other process steps?
46 Theory of Constraints Pipeline analogy Which piece of the pipe is restricting the flow?Would making parts A or D bigger help?
47 Why Forecast? Assess long-term capacity needs Develop budgets, hiring plans, etc.Plan production or order materialsGet agreement within firm and across supply chain partners (CPFR, discussed later)
48 Types of Forecasts Demand Supply Price Firm-level Market-level MaterialsLabor supplyPriceCost of supplies and servicesCost of money — interest rates, currency ratesMarket price for firm’s product or service
49 Forecast Laws Almost always wrong by some amount More accurate for shorter time periodsMore accurate for groups or familiesNo substitute for calculated values.
50 Forecasting Approaches Qualitative MethodsUsed when situation is vague and little data existsNew productsNew technologyInvolves intuition, experience*****************************E.g., forecasting sales to a new marketQuantitative MethodsUsed when situation is ‘stable’ and historical data existsExisting productsCurrent technologyHeavy use of mathematical techniques*******************************E.g., forecasting sales of a mature product
51 Time Series Components of Demand . . . . . . randomnessTime
52 Time Series with . . .Demand. . . randomness and trendTime
53 Time series with . . . . . . randomness, trend, and seasonality Demand Class discussion: what could account for this? Lawnmower sales? Camping trailer sales? Vacation package sales?MayMayMayMay
54 Moving Average Models Period Demand 1 12 2 15 3 11 4 9 5 10 6 8 7 14 1 122 153 114 95 106 87 148 123-period moving averageforecast for Period 8:= ( ) / 3= 10.67
55 Weighted Moving Averages Forecast for Period 8= [(0.5 14) + (0.3 8) + (0.2 10)] / ( )= 11.4What are the advantages?What do the weights add up to?Could we use different weights?Compare with a simple 3-period moving average.The heaviest weight is typically applied to the most recent data.If weights add up to 1.0, the denominator disappears as shown in the text. However, arbitrary weighting values like 4,3, and 1 can be used as long as the weighted demand sum is divided by the sum of the weights.
56 Exponential Smoothing I Sophisticated weight averaging modelNeeds only three numbers:Ft = Forecast for the current period t Dt = Actual demand for the current period t a = Weight between 0 and 1
57 The Sourcing DecisionSourcing decisions are high-level, often strategic decisions that address:What will use resources within the firmWhat will be provided by supply chain partnersInsourcing – The use of resources within the firm to provide products or servicesOutsourcing – The use of supply chain partners to provide products or servicesThe sourcing decision defines responsibilities of operations and supply chain managers:Insourcing – determine required capacity and resources– determine appropriate manufacturing or service processes to use– determine information systems required– manage and coordinate operationsOutsourcing – identify the most qualified suppliers– manage the buyer-supplier relationshipMake-or-Buy Decision
58 Advantages and Disadvantages of Insourcing High degree of controlAbility to oversee the entire programEconomies of scale and/or scopeDisadvantagesRequired strategic flexibilityRequired high investmentLoss of access to superior products and services offered by potential suppliers
59 Advantages and Disadvantages of Outsourcing High strategic flexibilityLow investment riskImproved cash flowAccess to state-of-the-art products and servicesDisadvantagesPossibility of choosing a bad supplierLoss of control over the process and core technologiesCommunication and coordination challenges“Hollowing out” of the corporation
60 LogisticsPlanning, implementing, and controlling the efficient, effective flow and storage of goods and materials between the point of origin and the point of consumption
61 Logistics Decision Areas Transportation…ModesFormatsPricingWarehousingConsolidationCross-Docking and Break-BulkHub-and-SpokeInventory
63 Two “Classic” Systems for Independent Demand Items Periodic review systemsContinuous (perpetual) review systemsFactorsOrder quantity (Q)Restocking level (R)Inventory level when reviewed (I)
64 Comparison of Periodic and Continuous Review Systems Periodic ReviewFixed order intervalsVariable order sizesConvenient to administerOrders may be combinedInventory position only required at reviewContinuous ReviewVarying order intervalsFixed order sizes (Q)Allows individual review frequenciesPossible quantity discountsLower, less-expensive safety stocks
65 What are the Total Relevant Annual Inventory Costs? Consider:D = Total demand for the yearS = Cost to place a single orderH = Cost to hold one unit in inventory for a yearQ = Order quantityThen:Total Cost = Annual Holding Cost + Annual Ordering Cost= [(Q/2) × H] + [(D/Q) × S]Comment: Can explain to students that item cost is considered when evaluating volume discountsHow do these costs vary as Q varies?Why isn’t item cost for the year included?
67 Ordering costs per year decrease as Q increases $Ordering costs per yeardecrease as Q increases(why?)(Q/2)×H(D/Q)×SQ
68 Total Annual Costs and EOQ EOQ at minimum total cost
69 EOQ SolutionWhen the order quantity = EOQ, the holding and setup costs are equal
70 Alphabet Soup TLA (Three Letter Acronym) Definitions ATP: Available to PromiseBOM: Bill of MaterialsDRP: Distribution Requirements PlanningMPS: Master Production ScheduleMRP: Materials Requirements PlanningPAC: Production Activity ControlS&OP: Sales and Operations Planning
71 Master Scheduling Criteria The Master Production Schedule must:Satisfy the needs of marketingBe feasible for operationsMatch with supply chain capability