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Three Basic Truths Pervasiveness Interdependence

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Presentation on theme: "Three Basic Truths Pervasiveness Interdependence"— Presentation transcript:

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.

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