Definitions of OM “Design, execution, and control of a firm's operations that convert its resources into desired goods and services, and implement its business strategy” The business function responsible for the transformation processes that create the goods and services required by the organization’s customers. Chase, Aquilano & Jacobs (2009) “the maintenance, control, and improvement of organizational activities that are required to produce goods or services for consumers.”
More definitions.. deals with the design and management of products, processes, services and supply chains. It considers the acquisition, development, and utilization of resources that firms need to deliver the goods and services their clients want. The purvey of OM ranges from strategic to tactical and operational levels. Representative strategic issues include determining the size and location of manufacturing plants, deciding the structure of service or telecommunications networks, and designing technology supply chains. Tactical issues include plant layout and structure, project management methods, and equipment selection and replacement. Operational issues include production scheduling and control, inventory management, quality control and inspection, traffic and materials handling, and equipment maintenance policies.
OM is about transformation Inputs > Transformation > Outputs Transformation is about processes to create value Assembly Plastic Forming Surgery Check Processing Transportation
Importance of OM Every business provides a transformation; and it must create value to the customer (and typically generate profits). Value > cost (inputs + transformation) The value obtained will be directly related to the planning, management, and execution of the transformation processes. Therefore, every organization needs effective OM systems – This applies to government, Not for profit, SME, …
OM …. SCM What is Supply Chain Management? All stages involved, directly or indirectly, in fulfilling a customer request Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions – Spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of- consumption – But, all stages may not be present in all supply chains Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)
SCM Basics Network much better term than chain
SCM Basics Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages Cycle view clearly defines processes involved and the roles and responsibilities of each member and the desired outcome of each process. Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier
SCM Basics Strategic Issues – Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities – Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics – Supplier development – Product design coordination, so that new and existing products can be optimally integrated into the supply chain – Information Technology infrastructure to support supply chain operations – Where-to-make and what-to-make-or-buy decisions (outsourcing) – Reverse logistics – Aligning overall organizational strategy with supply strategy
SCM Basics Tactical Issues – Sourcing contracts and other purchasing decisions – Production decisions, including contracting, locations, scheduling, and planning process definition. – Inventory decisions, including quantity, location, and quality of inventory – Transportation strategy, including frequency, routes, and contracting – Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise
SCM Basics Operational Issues – Daily production and distribution planning, including the consumption of materials and flow of finished goods – Production scheduling for each manufacturing facility – Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. – Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers – Inbound operations, including transportation from suppliers and receiving inventory – Outbound operations, including all fulfillment activities and transportation to customers – Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers – Customs and other international trade issues
SCM Strategy Similar to “overall strategy” as is linked to the core competencies of price, variety, quality, flexibility – Translating into product availability, delivery speed, fill rates, … – For many SCM decision areas, the choice of strategy is about reaching the level of customer service and cost that meets the target market ’s requirement Service Level (Quality, Speed, Flexibility, Variety, Accuracy, …) $
Inventory Management Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-in-process An inventory system is the set of policies and controls that monitor levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be Why do organizations have inventory? 1. To maintain independence of operations 2. To meet variation in product demand 3. To allow flexibility in production scheduling 4. To provide a safeguard for variation in raw material delivery time 5. To take advantage of economic purchase-order size
Inventory Management Inventory costs Holding (or carrying) costs: costs for storage, handling, insurance, etc Setup (or production change) costs: costs for arranging specific equipment setups, etc Ordering costs: costs of someone placing an order, customs brokerage, etc Shortage costs: costs of canceling an order, expediting to customer, lost sales
Inventory Management Common Metrics of Inventory – Average Inventory (AvgI) = Average value in $ of your material stocks – Cost of goods sold (COGS)= $ in terms of raw material value – Inventory turns = COGS / AvgI (how many times your inventory cycles or is replaced) – Weeks of supply = [AvgI / COGS ] x 52 (if all your suppliers shut down, how many weeks before you run out of stuff)
Inventory Systems Decisions: When to order and How much to order Two typical approaches: – Fixed period: Goal is to have F units of inventory. Every W time units the system checks the actual inventory level V. If V is less than F, reorder F – V + “extra”. – Fixed quantity: Every order is for Q units, reorder is triggered by reaching r units of inventory Fixed period models were common on “sales visit” systems of the past. Information technology allows real time inventory information, thus fixed quantity – reorder point are the norm today.
Inventory Tracking Large variety of Information technology tools and platforms used to track and manage inventory – From simple self-made databases to multi-million dollar global Enterprise Resource Planning platforms. – Use of technologies such as bar scanners, RFID, and GPS to determine the flow and location of inventory
Transportation Management Multiple transportation services options are available that are functions of speed, shipment size, and cost – Think of the multiple options to ship UPS Modes: Air, Rail, Truck, Maritime – Air: fastest/ most expensive, limited sizes – Maritime/Rail: slowest, cheapest – Truck: multiple versions, for example dedicated-expedited transport of a full container (TL = truckload) to LTL of a few pallets (LTL = less than truckload). Routing decisions for distribution Consolidation of shipment (both inbound and outbound) Intermodal Transportation
Transportation Management Transportation decisions and SC costs – Line haul rates (distance + weight or volume). They have price breaks based on shipment size – LTL versus (TL) full container (this is linked to the “order size”) – Stopovers (to pickup or deliver) – Expediting (additional drivers) – Border crossings/ customs – Insurance, losses during transportation (permits/escorts) – Cost of holding inventory while being transported – Safety stock cost as transportation options will determine the lead time – Hazardous material transportation issues
Third Party Logistics (3PLs) A third-party logistics provider is a firm that provides service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers' needs based on market conditions and the demands and delivery service requirements for their products and materials.
Network Analysis/ Design The network design must account for the diverse components of the system Proximity to Customers Business Climate Total Costs Infrastructure Quality of Labor Suppliers 3PLs Other Facilities Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation