Business Driven Information Systems 2e CHAPTER 8 OPERATIONS MANAGEMENT AND SUPPLY CHAIN MANAGEMENT

Chapter Eight Overview SECTION 8.1 – OPERATIONS MANAGEMENT Operations Management Fundamentals OM in Business IT’s Role in OM Competitive OM Strategy OM and the Supply Chain   SECTION 8.2- SUPPLY CHAIN MANAGEMENT Supply Chain Fundamentals IT’s Role in the Supply Chain Supply Chain Management Success Factors Supply Chain Management Success Stories Future Supply Chain Trends

OPERATIONS MANAGEMENT SECTION 8.1 OPERATIONS MANAGEMENT

LEARNING OUTCOMES Define the term operations management Explain operations management role in business Describe the correlation between operations management and information technology

LEARNING OUTCOMES Describe the five characteristics of competitive priorities Explain supply chain management and its role in a business

OM FUNDAMENTALS Production - is the creation of goods and services using the factors of production Production management - describes all the activities managers do to help companies create goods Operations management (OM) - the management of systems or processes that convert or transform resources into goods and services

OM FUNDAMENTALS Transformation process - the actual conversion of inputs to outputs

OM FUNDAMENTALS

OM FUNDAMENTALS Value-added - the term used to describe the difference between the cost of inputs and the value of price of outputs

OM IN BUSINESS How does an airline service organization’s OM team adds value? Forecasting Capacity planning Scheduling Managing inventory Assuring quality Motivating and training employees Locating facilities

IT’S ROLE IN OM Managers use IT to heavily influence OM decisions including : What: What resources will be needed and in what amounts? When: When should the work be scheduled? Where: Where will the work be performed? How: How will the work be done? Who: Who will perform the work?

OM Strategic Business Systems Operations strategy addresses broad questions about using major resources to achieve corporate objectives Major long-term issues addressed in operations strategy include: How big to make the facilities? Where to locate the facilities? When to build additional facilities? What type of process(es) to install to make the products?

OM Strategic Business Systems Strategic planning - focuses on long range planning Strategic business units (SBUs) - consist of several stand-alone businesses Materials requirement planning (MRP) - use sales forecasts to make sure that needed parts and materials are available at the right time and place

OM Strategic Business Systems Tactical planning - focuses on producing goods and services as efficiently as possible within the strategic plan Global inventory management system - provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the production process

OM Strategic Business Systems Operational planning and control (OP&C) - deals with the day-to-day procedures for performing work, including scheduling, inventory, and process management Inventory management and control system Transportation planning system Distribution management system

COMPETITIVE OM STRATEGY Five key competitive priorities which a company can add value to its OM decisions including: Cost Quality Delivery Flexibility Service

COMPETITIVE OM STRATEGY Cost: there can be only one lowest-cost producer, and that firm usually establishes the selling price in the market Quality: is divided into two categories product and process quality Six Sigma Quality Malcolm Balridge National Quality Awards ISO 900, ISO 14000 CMMI

COMPETITIVE OM STRATEGY Delivery: a firms ability to provide consistent and fast delivery Flexibility: a firms ability to offer a wide variety of products Service: high-quality customer service adds tremendous value to an ordinary product

OM AND THE SUPPLY CHAIN Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

OM AND THE SUPPLY CHAIN Four basic components of supply chain management include: Supply chain strategy – strategy for managing all resources to meet customer demand Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services. Supply chain operation – schedule for production activities Supply chain logistics – product delivery process

OM AND THE SUPPLY CHAIN Typical manufacturing supply chain

OM AND THE SUPPLY CHAIN Typical service supply chain

OM AND THE SUPPLY CHAIN Wal-Mart and Procter & Gamble (P&G) SCM

OM AND THE SUPPLY CHAIN Effective and efficient SCM systems can enable an organization to: Decrease the power of its buyers Increase its own supplier power Increase switching costs to reduce the threat of substitute products or services Create entry barriers thereby reducing the threat of new entrants Increase efficiencies while seeking a competitive advantage through cost leadership

OM AND THE SUPPLY CHAIN Effective and efficient SCM systems effect on Porter’s Five Forces

OPENING CASE QUESTIONS DELL’S FAMOUS SUPPLY CHAIN How would operations management be a critical component to a company like Dell? How would Dell use each of the three OM planning strategies to improve its operations? How might Dell use each of the five competitive priorities to increase value to its goods and services? Illustrate Dell’s potential supply chain management system

SUPPLY CHAIN FUNDAMENTALS SECTION 8.2 SUPPLY CHAIN FUNDAMENTALS  

LEARNING OUTCOMES List and describe the components of a typical supply chain Define the relationship between information technology and the supply chain Identify the factors driving supply chain management Summarize the best practices for implementing a successful supply chain management system

SUPPLY CHAIN FUNDAMENTALS The average company spends nearly half of every dollar that it earns on production In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains

SUPPLY CHAIN FUNDAMENTALS The supply chain has three main links: Materials flow from suppliers and their “upstream” suppliers at all levels Transformation of materials into semifinished and finished products through the organization’s own production process Distribution of products to customers and their “downstream” customers at all levels

SUPPLY CHAIN FUNDAMENTALS Organizations must embrace technologies that can effectively manage supply chains

SUPPLY CHAIN FUNDAMENTALS

IT’S ROLE IN THE SUPPLY CHAIN IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

IT’S ROLE IN THE SUPPLY CHAIN Factors Driving SCM

Visibility Supply chain visibility – the ability to view all areas up and down the supply chain Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain

Consumer Behavior Companies can respond faster and more effectively to consumer demands through supply chain enhances Demand planning software – generates demand forecasts using statistical tools and forecasting techniques

Competition Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

Competition SCP and SCE in the supply chain

Speed

SCM SUCCESS FACTORS

SCM SUCCESS FACTORS Segment customers Customize the logistics network Listen to signals of market demand and plan accordingly Differentiate products closer to the customer Strategically manage sources of supply Develop a supply chain IT strategy Adopt performance evaluation measures

SCM SUCCESS FACTORS SCM industry best practices include: Make the sale to suppliers Wean employees off traditional business practices Ensure the SCM system supports the organizational goals Deploy in incremental phases and measure and communicate success Be future oriented

SCM SUCCESS FACTORS Top reasons why more and more executives are turning to SCM to manage their extended enterprises

SCM SUCCESS FACTORS Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains DSSs allow managers to examine performance and relationships over the supply chain and among: Suppliers Manufacturers Distributors Other factors that optimize supply chain performance

FUTURE SUPPLY CHAIN TRENDS Fastest growing SCM components Supply chain event management (SCEM) Selling chain management Collaborative engineering Collaborative demand planning

OPENING CASE QUESTIONS Dell’s Famous Supply Chain How might Dell use each of the five basic SCM components? How had Dell influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain? Explain the seven principles of SCM in reference to Dell’s business model

CLOSING CASE ONE BudNet Describe the five competitive priorities of operations management and how Budweiser can use each one to streamline production How can an SCM system help a distributor such as Anheuser-Busch make its supply chain more efficient and effective?

CLOSING CASE ONE BudNet SCM is experiencing explosive growth. Explain why this statement is true using BudNet as an example Evaluate BudNet’s effect on each of the five factors that are driving SCM success List and describe the components of a typical supply chain along with its ability to help Budweiser make effective decisions

CLOSING CASE TWO Listerine’s Journey Explain the role of operations management for Warner-Lambert Summarize SCM and describe Warner-Lambert’s supply chain strategy. Diagram the SCM components Detail Warner-Lambert’s three operations management strategies and identify systems it could use to help make strategic decisions

CLOSING CASE TWO Listerine’s Journey What would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources? Assess the impact to Warner-Lambert’s business if the majority of the eucalyptus crop was destroyed in a natural disaster

CLOSING CASE THREE Levi’s How did Levi Strauss achieve business success through the use of supply chain management? What might have happened to Levi’s if its top executives had not supported investments in SCM? David Bergen, Levi’s CIO, put together a cross-functional team of key managers from IT, finance, and sales to transform Levi’s systems to meet Wal-Mart’s requirements. Analyze the relationships between these three business areas and OM and SCM systems. How can OM and SCM systems help support these three critical business areas?

CLOSING CASE THREE Levi’s Describe the five basic SCM components in reference to Wal-Mart’s business model Explain RFID and provide an example of how Levi’s could use the technology to increase its business operations Identify any security and ethical issues that might occur for a company doing business with Wal-Mart

BUSINESS DRIVEN BEST SELLERS Built to Last, by Jim Collins

BUSINESS DRIVEN BEST SELLERS Good to Great, by Jim Collins