1. Three Basic Truths Pervasiveness Interdependence
Profitability and Survival

2. Pervasiveness
Every organization must make a product or provide a service that someone values………….
Manufacturer.
Retailer.
Design firm.
University.
Health services.

3. Interdependence
Most organizations function as part of a larger supply chain
Discussion 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 Chains
Networks of manufacturers and service providers that work together to move goods from the raw material stage through to the end user
Linked 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 services
Operations Management

7. Operations Function
The 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 operations
Inputs
Outputs
Materials
People
Equipment
Intangible needs
Information
Tangible goods
Fulfilled requests
Information
Satisfied Customers
Service operations

9. Supply Chain Management
Active management of supply chain activities and relationships to maximize customer value and achieve a sustainable competitive advantage
Supply Chain Management
Example: Buying co-ops for independent hardware dealers

10. Material Flows First Tier Supplier Distributor Retailer
Alcoa
Ball Corp
Anheuser-Busch
M&M
Meijer
First Tier Supplier
Distributor
Retailer
Transportation companies
Final
customers
Upstream
Downstream
Second Tier Supplier

11. Definitions Strategies Mission Statement
The mechanisms by which businesses coordinate their decisions regarding structual & infrastructural elements
Mission Statement
A statement that explains why an organization exists. It describes it’s core values and identifies the domain

12. Definitions
Business Strategy Long-term master plan for the company; establishes the general direction
Functional Strategies Further develop the business strategy in segments of the business — must be aligned and coordinated
Core Competencies Organizational strengths that provide focus and foundation for the company’s strategies

13. Business Strategy must
Identify target customers & markets
Set time frames and performance objectives
Define the role of supply chain partners
Identify & 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 strategy
The three primary objectives
Choose mix of structure and infrastructure based upon dimensions valued by customer
Ensure the mix aligned with the overall business strategy
Does it support the development of core competencies?

15. Functional Strategy
Translates 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. Quality
The characteristics of a product or service which bear on its ability to satisfy stated or implied needs
Performance Quality the basic operational characteristics of a product or service
Conformance Quality to what degree the product or service meets specifications
Reliability Quality The length of time a product will perform correctly without failing or requiring maintenance
To remain competitive, operations and supply chain must consistently meet or exceed customer expectations on quality dimensions

17. Time
Delivery 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 shipped
Pg 30

18. Flexibility
How quickly OSC can respond to the unique needs of different customers
Mix flexibility the ability to produce a wide range of products or services
Changeover flexibility the ability to provide a new product with minimal delay
Volume flexibility the ability to produce whatever volume the customer needs
Flexibility is of particular importance in Research and Development
Pg 31

19. Cost
Cost 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 are
Labor Costs
Material Costs
Engineering Costs
Quality-related costs
There 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-offs
To optimize this decision making, OSC managers must know which dimensions are valued most by their customers
Excellence in one dimension may conflict with excellence in another
Pg 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 process
Creates common understanding of the activities, results and who performs the steps
Defines the boundaries of the process
Can be a training tool
Provides baseline to measure improvement
Pg 48

22. Relationship Map

23. Is there room for improvement?
Dealer
Faxes
Order
Paper
Created
Order Sits
In Fax
In Box
Internal Mail
Delivers Fax
In Clerk’s
Clerk
Processes
Is Item
In Stock?
Worker
Picks
Clerk Notifies
Dealer and
Passes Order
On to Plant
Inspector
Checks
Transport Firm
Delivers Order
Receives
2 minutes
0.5% of orders incorrect
1 to 3 hours
2 hours on average
No history of lost,
damaged, or incorrect
deliveries
YES NO
10 to 45 minutes
20 minutes on average
0 to 2 hours
1 hour on average
0.5 to 1.5 hours
1% of orders lost
0 to 4 hours
4% of
orders lost
5 minutes
Order spends 6.45 hrs in process
3 hrs is waiting
5% of orders are lost before picking
1 out of 200 will be shipped with wrong items or amounts

24. Productivity Measures
Outputs
Inputs
Productivity =
Productivity is the ratio of outputs to inputs
Single-factor, Multifactor, and Total measures of productivity

25. Variations of Productivity
Batteries Produced
Machine Hours + Direct Labor Hours
Total Nightly Sales ($)
Total Nightly Costs ($)
Direct Labor Hours
Single-factor
productivity ratio:
Multifactor:
Total multifactor:
Measures output levels relative to a single input
Measures output levels relative to more than one input
Ratio of a total output factor to total input factor

26. A comparison of a company’s actual performance to some standard output
Efficiency
A comparison of a company’s actual performance to some standard output
Usually expressed as a percentage
Standard is an estimate of what should be produced based on studies or historical results
Efficiency = 100%(actual rate / standard rate)
OR: Efficiency = 100%(standard time/actual time) for one unit
Here 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
Conformance
Aesthetics
Serviceability
Perceived Quality
Which 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 improvement
Employee empowerment
Quality assurance (including SQC or SPC)
Strategic partnerships
Strategic quality plan
SQC = Statistical Quality Control
SPC = Statistical Process Control

30. Common Improvement Tools
Cause and effect diagrams (aka “Fishbone” or Ishikawa diagrams)
Check sheets
Pareto analysis
Run charts and scatter plots
Bar graphs
Histograms

31. Generic C&E Diagram

32. Pareto Analysis (sorted histogram)
Late passengers
100
Late arrivals
Late baggage to aircraft 85 70
Weather 65
Other (160)

33. Run Charts and Scatter Plots
Measure
Run
Time
Variable Y
Scatter
Variable X

34. Histograms
Frequency
Measurements

35. Developing Products and Services
Why bother?
New product development process
What is good design?
An operations and supply chain perspective

36. Why Bother? External benefits Internal benefits
Exploit strengths/core competencies
Block competitors

37. Operations and Supply Chain Perspectives
Repeatability, testability and serviceability of the design
Product volumes
Product costs
Match with existing capabilities

38. Process Types (in order of decreasing volume)
Continuous Flow
Production Line
Batch (High Volume)
Batch (Low Volume)
Job Shop
Project

39. Mixing Together the Process Types  Hybrid Process
Spindles
ASSEMBLY
LINE for
putting together
final product
Arms and
Legs
Chair manufacturing process
BATCH for
fabricating
parts ...
Seats

40. Product – Process Matrix
One of a Kind Low Volume
Multiple Products Moderate Volumes
Few Major Products
High Volume
Commodity Products
Job Shop
Batch
Line
Very Poor Fit
Very Poor Fit

41. Capacity Strategies: When, How Much, and How?
Demand
Leader
Excess
Capacity
Lost Business
Laggard

42. Economies of Scale
Total Cost for Fictional Line: Fixed cost + (Variable unit cost)×(X) = $200,000 + $4X Cost per unit for X=1? X=10,000?
X = 1: $200,004
X= 10,000: $24

43. Fixed & Unit Cost Scenarios
Page 214 in text.
Common Carrier: Fixed cost = 0, unit cost = $750
Contract Carrier: Fixed cost = $5,000, unit cost = $300
Private Carrier: Fixed cost = $21,000, unit cost = $50

44. Indifference Point
Compares 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 Constraints
Concept 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 materials
Get agreement within firm and across supply chain partners (CPFR, discussed later)

48. Types of Forecasts Demand Supply Price Firm-level Market-level
Materials
Labor supply
Price
Cost of supplies and services
Cost of money — interest rates, currency rates
Market price for firm’s product or service

49. Forecast Laws Almost always wrong by some amount
More accurate for shorter time periods
More accurate for groups or families
No substitute for calculated values.

50. Forecasting Approaches
Qualitative Methods
Used when situation is vague and little data exists
New products
New technology
Involves intuition, experience
*****************************
E.g., forecasting sales to a new market
Quantitative Methods
Used when situation is ‘stable’ and historical data exists
Existing products
Current technology
Heavy use of mathematical techniques
*******************************
E.g., forecasting sales of a mature product

51. Time Series Components of Demand . . .
. . . randomness
Time

52. Time Series with . . .
Demand
. . . randomness and trend
Time

53. Time series with . . . . . . randomness, trend, and seasonality Demand
Class discussion: what could account for this? Lawnmower sales? Camping trailer sales? Vacation package sales?
May
May
May
May

54.  Moving Average Models Period Demand 1 12 2 15 3 11 4 9 5 10 6 8 7 14
1 12
2 15
3 11
4 9
5 10
6 8
7 14
8 12 
3-period moving average
forecast for Period 8:
= ( ) / 3
= 10.67

55. Weighted Moving Averages
Forecast for Period 8
= [(0.5  14) + (0.3  8) + (0.2  10)] / ( )
= 11.4
What 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 model
Needs 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 Decision
Sourcing decisions are high-level, often strategic decisions that address:
What will use resources within the firm
What will be provided by supply chain partners
Insourcing – The use of resources within the firm to provide products or services
Outsourcing – The use of supply chain partners to provide products or services
The 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 operations
Outsourcing – identify the most qualified suppliers
– manage the buyer-supplier relationship
Make-or-Buy Decision

58. Advantages and Disadvantages of Insourcing
High degree of control
Ability to oversee the entire program
Economies of scale and/or scope
Disadvantages
Required strategic flexibility
Required high investment
Loss of access to superior products and services offered by potential suppliers

59. Advantages and Disadvantages of Outsourcing
High strategic flexibility
Low investment risk
Improved cash flow
Access to state-of-the-art products and services
Disadvantages
Possibility of choosing a bad supplier
Loss of control over the process and core technologies
Communication and coordination challenges
“Hollowing out” of the corporation

60. Logistics
Planning, 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…
Modes
Formats
Pricing
Warehousing
Consolidation
Cross-Docking and Break-Bulk
Hub-and-Spoke
Inventory

62. Types of Inventory Cycle stock Safety stock (buffer inventory)
Anticipation inventory
Others
Hedge inventories
Transportation inventory (pipeline)
Smoothing inventories

63. Two “Classic” Systems for Independent Demand Items
Periodic review systems
Continuous (perpetual) review systems
Factors
Order quantity (Q)
Restocking level (R)
Inventory level when reviewed (I)

64. Comparison of Periodic and Continuous Review Systems
Periodic Review
Fixed order intervals
Variable order sizes
Convenient to administer
Orders may be combined
Inventory position only required at review
Continuous Review
Varying order intervals
Fixed order sizes (Q)
Allows individual review frequencies
Possible quantity discounts
Lower, less-expensive safety stocks

65. What are the Total Relevant Annual Inventory Costs?
Consider:
D = Total demand for the year
S = Cost to place a single order
H = Cost to hold one unit in inventory for a year
Q = Order quantity
Then:
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 discounts
How do these costs vary as Q varies?
Why isn’t item cost for the year included?

66. Holding Cost $
(Q/2)×H
Holding cost increases
as Q increases . . . Q

67. Ordering costs per year decrease as Q increases$
Ordering costs per year
decrease as Q increases
(why?)
(Q/2)×H
(D/Q)×S Q

68. Total Annual Costs and EOQ
EOQ at minimum total cost

69. EOQ Solution
When the order quantity = EOQ, the holding and setup costs are equal

70. Alphabet Soup TLA (Three Letter Acronym) Definitions
ATP: Available to Promise
BOM: Bill of Materials
DRP: Distribution Requirements Planning
MPS: Master Production Schedule
MRP: Materials Requirements Planning
PAC: Production Activity Control
S&OP: Sales and Operations Planning

71. Master Scheduling Criteria
The Master Production Schedule must:
Satisfy the needs of marketing
Be feasible for operations
Match with supply chain capability

72. MPS Formulas:

73. Projected On-Hand Inventory
On-hand inventory at end of October =
100
Month
November
December
Week 45 46 47 48 49 50 51 52
Forecast Demand
150
125
Orders Booked
170
165
140
120 85 20
Projected On-Hand Inventory
230 65
215
190
Master Schedule
300
250
e.g., Projected on-hand inventory for week 47: = – 150 = 215

74. Available-to-Promise
On-hand inventory at end of October =
100
Month
November
December
Week 45 46 47 48 49 50 51 52
Forecast Demand
150
125
Orders Booked
170
165
140
120 85 20
Projected On-Hand Inventory
230 65
215
190
Master schedule
300
250
Available-to-Promise 40
ATP (Week 45) = – ( ) = 65
ATP (Week 47) = 300 – ( ) = 40
ATP (Week 49) = 250 – ( ) = 120

75. Material Requirements Planning (MRP)
Requires:
Bill-of-Materials (BOM)
Inventory record
Master schedule
to determine what should be ordered when, and how much to order.