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Introduction to Operations and Supply Chain Management

Introduction to Operations and Supply Chain Management. Chapter 1. Beni Asllani University of Tennessee at Chattanooga. Operations Management - 6 th Edition. Roberta Russell & Bernard W. Taylor, III. Lecture Outline. The Operations Function

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Introduction to Operations and Supply Chain Management

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  1. Introduction to Operations andSupply Chain Management Chapter 1 Beni AsllaniUniversity of Tennessee at Chattanooga Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Copyright 2009 John Wiley & Sons, Inc.

  2. Lecture Outline • The Operations Function • Evolution of Operations and Supply Chain Management (SCM) • Globalization • Productivity Overview • Strategic Planning and Operations Strategy • Outline of this Textbook Some slides include notes beneath them. Copyright 2009 John Wiley & Sons, Inc.

  3. The Operations FunctionOverview • What is Operations Management? • Transformation Processes and Value Chains • How Operations is Connected with Other Business Functions and with Suppliers Copyright 2009 John Wiley & Sons, Inc.

  4. What is Operations Management? • What is Operations Management? • design, operation, and improvement of productive systems • What is Operations? • a function or system that transforms inputs into outputs of greater value • What is a Transformation Process? • a series of activities along a value chain extending from supplier to customer • activities that do not add value are not needed and should be eliminated Copyright 2009 John Wiley & Sons, Inc.

  5. INPUT • Material • Machines • Labor • Management • Capital OUTPUT • Goods • Services TRANSFORMATION PROCESS Operations as a Transformation Process Figure 1.1 Feedback & Requirements Copyright 2009 John Wiley & Sons, Inc.

  6. Transformation Process • Physical: as in manufacturing operations • Locational: as in transportation or warehouse operations • Exchange: as in retail operations • Physiological: as in health care • Psychological: as in entertainment • Informational: as in communication Copyright 2009 John Wiley & Sons, Inc.

  7. A Value Chain Supplier Manufacturer Customer Flow of information: customer order and delivery requirements Flow of products: goods and services Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 1-7

  8. How Operations is Connected with Other Business Functions and with Suppliers Operations Marketing Finance and Accounting Human Resources Outside Suppliers Copyright 2009 John Wiley & Sons, Inc. 1-8

  9. Evolution of Operations and Supply Chain Management • Craft production • process of handcrafting products or services for individual customers • Division of labor • dividing a job into a series of small tasks each performed by a different worker. Division of labor is used to design assembly lines. • Interchangeable parts • standardization of parts. A necessary step toward mass production Copyright 2009 John Wiley & Sons, Inc.

  10. Evolution of Operations and Supply Chain Management (cont.) • Scientific management • systematic analysis of work methods • Mass production • high-volume production of a standardized product for a mass market • Lean production • an adaptation of mass production that emphasizes quality, flexibility, and reduced costs Copyright 2009 John Wiley & Sons, Inc.

  11. Evolution of Operations and Supply Chain Management (cont.) • Supply chain management • management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners Copyright 2009 John Wiley & Sons, Inc.

  12. Globalization Overview • Globalizing business functions • Why companies globalize • Risks of globalization • Global statistics • Hourly compensation costs for production workers • Trade in goods as % of Gross Domestic Product Copyright 2009 John Wiley & Sons, Inc.

  13. Globalizing Business Functions Almost any business function can be performed outside a company's home country Marketing Operations Purchasing from foreign suppliers Obtaining financing from overseas banks Having products designed in another country Having customer service or technical service performed in another country Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 1-13

  14. Why Companies Globalize Reduce labor costs Reduce material costs Gain access to new suppliers Gain access to international markets The fastest-growing markets are emerging markets such as China and India. These markets have an emerging middle class and high demand for goods and services Gain access to skilled people Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 1-14

  15. Why Companies Globalize (2) • Understand the requirements of overseas customers • Electrical devices must meet different standards for voltage and plug design in various countries • McDonalds sells beer in Germany • BMW, a German company, built its first SUV's for the U. S. market • Gain access to new technologies • Low-cost cars designed for India and eastern Europe may find a market elsewhere Copyright 2009 John Wiley & Sons, Inc.

  16. Risks of Globalization Quality problems Supply chain and delivery problems Foreign suppliers that use child labor or do not comply with labor laws in their country Foreign suppliers that make and sell unauthorized copies of your product. In China, this has happened to New Balance, GM, and Volkswagen, among many others Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 1-16

  17. Risks of Globalization (2) • Product safety problems, such as lead paint on toys made in China • Public concern about jobs lost as a result of outsourcing overseas • Poor corporate image • Unexpected changes in the value of a foreign currency may increase costs or reduce revenue Copyright 2009 John Wiley & Sons, Inc.

  18. Hourly Compensation Costs for Production Workers

  19. Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)

  20. Measures of Productivity In total factor productivity, the usual inputs are labor, capital, energy, and materials. Productivity measures efficiency and is an important measure of Operations performance. However, it should not be the only measure used to evaluate Operations.

  21. Strategic Planning Overview • Mission and strategy • Environmental scanning • Order qualifiers and order winners • Internal company analysis • Core competencies • Positioning the firm Copyright 2009 John Wiley & Sons, Inc.

  22. Strategic Planning • Company mission or primary task: what is the company in business to do? Examples: • Levi-Strauss: We will market and distribute the most appealing & widely worn apparel brands. • Dell: Dell listens to customers and delivers technology they trust and value. • A business strategy explains how a company will achieve its mission. Copyright 2009 John Wiley & Sons, Inc.

  23. Key Inputs to a Business Strategy • Mission statement • Environmental scanning (opportunities and threats) • What is going on outside the company that will affect your business? • Internal analysis of strengths and weaknesses • What is going on inside the company that affects your strategic options? Copyright 2009 John Wiley & Sons, Inc.

  24. Environmental Scanning - Current Situation and Future Trends • The company should look at what is going on outside the company with respect to: • Product and process technology in the industry • Laws and regulations that could affect the company • Economic trends • Social and demographic trends • Market trends and customer data • Industry and competitor strategies Copyright 2009 John Wiley & Sons, Inc.

  25. Environmental Scanning (2)Identify opportunities and threats • Examples of opportunities • Laws requiring use of ethanol in gasoline created opportunities for ethanol producers • Growing markets in China and India may create opportunities for your company. • Examples of threats • A competitor is introducing a product that your company cannot match. • New banking regulations are being proposed. • An economic recession Copyright 2009 John Wiley & Sons, Inc.

  26. Environmental Scanning (3)Order qualifiers and winners • Order qualifier: what qualifies a good or service to be considered for purchase? • Order winner: what characteristic of a good or service persuades customers to buy. • Order qualifiers and order winners: • Change over time • Depend on the target market • Depend on positioning in the marketplace Copyright 2009 John Wiley & Sons, Inc.

  27. Internal Company Analysis • Evaluate the company's financial, managerial, technical, and material strengths and weaknesses. • Look for core competencies that the company has or could develop. Copyright 2009 John Wiley & Sons, Inc.

  28. Core Competencies Core competency (distinctive competence) What does the firm do better than anyone else? Should create a sustainable (long-term) competitive advantage. Should be hard to imitate. Usually requires cooperation and information sharing among different business functions Often includes partnerships with suppliers or customers. Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 2-28

  29. Examples of Core Competencies • Wal-Mart has maintained "everyday low prices" for decades. • Nordstrom's is known for superior customer service. • The Mayo Clinic is known for excellent medical care, at a low cost. Copyright 2009 John Wiley & Sons, Inc.

  30. How Wal-Mart Keeps Prices Low • Demands very low prices from suppliers • Limits inventory by • Requiring suppliers to deliver most merchandise directly to stores just as it is needed (vendor-managed inventory) • Merchandise delivered to Wal-Mart distribution centers goes directly onto trucks for delivery to stores (cross-docking) • Stocks a limited number of brands in each product category • Headquarters closely monitors sales and inventory at each store • No-frills store layouts and product displays • Tight controls on staffing and employee compensation Copyright 2009 John Wiley & Sons, Inc.

  31. Order Qualifiers, Winners, andCore Competencies - Summary • Order qualifiers and order winners define customer requirements • A company should satisfy order qualifiers in its target market • A company's core competency should be an order winner in its target market Copyright 2009 John Wiley & Sons, Inc.

  32. Strategic Positioning(also called Positioning) How the company chooses to compete Sets competitive priorities for the company Considerations in Positioning Strengths and weaknesses of the firm Present and future needs of customers Strategies of competitors Potential of technology to help the firm get and keep customers Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 2-32

  33. Competitive Priorities that Operations Supports Cost – also called competing on price Quality Flexibility Speed We will discuss these priorities throughout the semester. It is hard to excel at more than two of these. Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 2-33

  34. Positioning the Firm: Competing on Cost • Waste elimination • relentlessly pursuing the removal of all waste • Examination of cost structure • looking at the entire cost structure for reduction potential – not just direct labor • High-volume production and automation are sometimes the best alternatives. • In other cases, lean production is more efficient. Copyright 2009 John Wiley & Sons, Inc.

  35. Positioning the Firm: Competing on Speed There are several ways to compete on speed. • Rapid service delivery: Lens Crafters, FedEx • Build-to-order production: Dell can produce a computer to order in two days • Rapid new product introduction • Zara can design a new garment, manufacture it, and have it in stores in 9 – 15 days. Copyright 2009 John Wiley & Sons, Inc.

  36. Positioning the Firm: Quality • Conformance quality ensures the consistency of a good or service. • Any good or service can have conformance quality. • Conformance quality is usually an order qualifier. • Since competitors are also likely to have conformance quality, this type of quality is usually not an order winner. Copyright 2009 John Wiley & Sons, Inc.

  37. Positioning the Firm: Quality (2) • Companies that compete on quality focus on pleasing or delighting the customer. • These companies often offer luxury goods or services with high design quality. • Nordstrom's stores • Ritz Carlton Hotels • Rolls-Royce automobiles • Rolex watches Copyright 2009 John Wiley & Sons, Inc.

  38. Positioning the Firm:Flexibility • Flexibility is the ability to adjust to changes in product mix, production volume, or product design • One approach to flexibility involves responding to general changes in demand. • Benetton constantly monitors sales. Production of hot-selling items will be increased, and they may be offered in new colors. Production of items that are not selling well will cease. • Zara responds to changing demand by introducing more than 20,000 items per year. (Zara competes on both speed and flexibility). Copyright 2009 John Wiley & Sons, Inc.

  39. Positioning the Firm:Flexibility (2) • Mass customization is the mass production of customized products using computer-aided design (CAD) and computer-aided manufacturing (CAM). This is another approach to flexibility. • National Bicycle offers more than 11 million combinations of product options for bicycles. • The customized bicycles are shipped within two weeks and cost only 10% more than standard bicycles. • Like Dell, National Bicycle uses a build-to-order system. Copyright 2009 John Wiley & Sons, Inc.

  40. Technology and Methods forMass Customization • Here are some of the technologies and methods that make mass customization work at Dell • Computer-aided design (CAD) and computer-aided-manufacturing (CAM). • Frequent deliveries from suppliers so that Dell has the parts it needs • Supply Chain Management (SCM) information systems so that suppliers know what to deliver • Since Dell also ships finished computers in two days, it is competing on both technology and speed. Copyright 2009 John Wiley & Sons, Inc.

  41. Operations Strategy Products Services Process and Technology Human Resources Quality Capacity Sourcing Operating Systems Facilities Copyright 2009 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 2-41

  42. Organization of This Text:Part I – Operations Management • Intro. to Operations and Supply Chain Management: Chapter 1 • Quality Management: Chapter 2 • Statistical Quality Control: Chapter 3 • Product Design: Chapter 4 • Service Design: Chapter 5 • Processes and Technology: Chapter 6 • Facilities: Chapter 7 • Human Resources: Chapter 8 • Project Management: Chapter 9 Copyright 2009 John Wiley & Sons, Inc.

  43. Organization of This Text:Part II – Supply Chain Management • Supply Chain Strategy and Design: Chapter 10 • Global Supply Chain Procurement and Distribution: Chapter 11 • Forecasting: Chapter 12 • Inventory Management: Chapter 13 • Sales and Operations Planning: Chapter 14 • Resource Planning: Chapter 15 • Lean Systems: Chapter 16 • Scheduling: Chapter 17 Copyright 2009 John Wiley & Sons, Inc.

  44. Copyright 2009 John Wiley & Sons, Inc.All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. Copyright 2009 John Wiley & Sons, Inc.

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