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Operations Management

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Presentation on theme: "Operations Management"— Presentation transcript:

1 Operations Management
William J. Stevenson 8th edition

2 Supply Chain Management
CHAPTER 16 Supply Chain Management Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

3 Supply Chain Management
Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service. Sometimes referred to as value chains

4 Functions and Activities
Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

5 Typical Supply Chains Purchasing Receiving Storage Operations
Production Distribution

6 Typical Supply Chain for a Manufacturer
Figure 16.1a Supplier Storage } Mfg. Dist. Retailer Customer

7 Typical Supply Chain for a Service
Figure 16.1b Supplier } Storage Service Customer

8 Need for Supply Chain Management
Improve operations Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-commerce Complexity of supply chains Manage inventories

9 Bullwhip Effect Figure 16.3 = Amount of inventory Tier 2 Suppliers
Producer Distributor Retailer Final Customer

10 Benefits of Supply Chain Management
Organization Benefit Campbell Soup Doubled inventory turnover rate Hewlett-Packard Cut supply costs 75% Sport Obermeyer Doubled profits and increased sales 60% National Bicycle Increased market share from 5% to 29% Wal-Mart Largest and most profitable retailer in the world

11 Benefits of Supply Chain Management
Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

12 Elements of Supply Chain Management
Table 16.1 Deciding how to best move and store materials Logistics Determining location of facilities Location Monitoring supplier quality, delivery, and relations Suppliers Evaluating suppliers and supporting operations Purchasing Meeting demand while managing inventory costs Inventory Controlling quality, scheduling work Processing Incorporating customer wants, mfg., and time Design Predicting quantity and timing of demand Forecasting Determining what customers want Customers Typical Issues Element

13 Logistics Logistics Refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain

14 Logistics Movement within the facility Incoming and outgoing shipments
Bar coding EDI Distribution JIT Deliveries

15 Materials Movement Figure 16.4 Work center Work center Storage
RECEIVING Storage Work center Work center Shipping

16 Distribution Requirements Planning
Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII

17 Uses of DRP Management uses DRP to plan and coordinate: Transportation
Warehousing Workers Equipment Financial flows

18 Electronic Data Interchange
EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

19 Electronic Data Interchange
Increased productivity Reduction of paperwork Lead time and inventory reduction Facilitation of just-in-time systems Electronic transfer of funds Improved control of operations Reduction in clerical labor Increased accuracy

20 Efficient Consumer Response
Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry Reflects companies’ efforts to achieve quick response using EDI and bar codes

21 E-Commerce E-Commerce: the use of electronic technology to facilitate business transactions Applications include Internet buying and selling Order and shipment tracking Electronic data interchange

22 Advantages E-Commerce
Companies can: Have a global presence Improve competitiveness and quality Analyze customer interests Collect detailed information Shorten supply chain response times Realize substantial cost savings Create virtual companies Level the playing field for small companies

23 Disadvantages of E-Commerce
Customer expectations Order quickly -> fast delivery Order fulfillment Order rate often exceeds ability to fulfill it Inventory holding Outsourcing loss of control Internal holding costs

24 Successful Supply Chain
Trust among trading partners Effective communications Supply chain visibility Event-management capability The ability to detect and respond to unplanned events Performance metrics

25 SCOR Metrics Table 16.4 Perspective Metrics Reliability
On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment Flexibility Supply chain response time Upside production flexibility Expenses Supply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilization Total inventory days of supply Cash-to-cash cycle time Net asset turns

26 Creating an Effective Supply Chain
Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate activities with suppliers with customers Coordinate planning and execution across the supply chain Form strategic partnerships

27 Supply Chain Performance Drivers
Quality Cost Flexibility Velocity Customer service

28 Velocity Inventory velocity Information velocity
The rate at which inventory(material) goes through the supply chain Information velocity The rate at which information is communicated in a supply chain

29 Challenges Barriers to integration of organizations
Getting top management on board Dealing with trade-offs Small businesses Variability and uncertainty Long lead times

30 Trade-offs Lot-size-inventory Inventory-transportation costs
Bullwhip effect Inventory-transportation costs Cross-docking Lead time-transportation costs Product variety-inventory Delayed differentiation Cost-customer service Disintermediation

31 Supply Chain Benefits and Drawbacks
Table 16.5 Problem Potential Improvement Benefits Possible Drawbacks Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed differentiation Disintermediation Quick response May not be feasible May need absorb functions Large number of parts Modular Fewer parts Simpler ordering Less variety Cost Quality Outsourcing Reduced cost, higher quality Loss of control Variability Shorter lead times, better forecasts Able to match supply and demand

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