Note Pdtmog - Operations Management Chapter 3

CHAPTER 3:
MANAGING OPERATIONS
Topic Outline
• Supply chain management
• Inventory management
• Maintenance and reliability
• Short term scheduling
3.1: Supply Chain Management
• What is a Supply Chain?
• Decision Phases in a Supply Chain
• Process View of a Supply Chain
• The Importance of Supply Chain Flows
• Examples of Supply Chains
What is a Supply Chain?
 All stages involved, directly or indirectly, in fulfilling a
customer request
 Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
 Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)
 Customer is an integral part of the supply chain
 Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in both
directions
 Probably more accurate to use the term “supply network”
or “supply web”
 Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers (Fig. 1.2)
 All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
Customer wants
Retailer or third Giant/Tesco/TM
party Distributor Supermarket
detergent and goes
to Supermarket
P&G or other
manufacturer
Packaging
Chemical manufacturer
Plastic
manufacturer
Producer
(e.g. Oil Company)
Paper Timber
Manufacturer Industry
Flows in a Supply Chain
Information
Product
Customer
Funds
Old Versus New Structure in Supply
chain
VERTICAL Intergration –
suitable for Slow moving industries
/companies emphasis on
maximizing their efficiency
through economy of scale.
Old Versus New Structure in Supply chain
con’t
Raw Material
Company
Fast moving industry, they focus
Transportation
in more flexible and responsive
Company supply chains.fast moving
company adopts the virtual
Manufacturing
Company
integration through the
combination of outsourcing,
Independent partnering with the in house
Distributor
expertise.
Independent retailer
The Objective of a Supply Chain
• Maximize overall value created
• Supply chain value: difference between what the final
product is worth to the customer and the effort the supply
chain expends in filling the customer’s request
• Value is correlated to supply chain profitability (difference
between revenue generated from the customer and the
overall cost across the supply chain)
 Example: Dell receives RM2000 from a customer for a
computer (revenue)
 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 Difference between RM2000 and the sum of all of these
costs is the supply chain profit
 Supply chain profitability is total profit to be shared
across all stages of the supply chain
 Supply chain success should be measured by total
supply chain profitability, not profits at an individual stage
 Sources of supply chain revenue: the customer
 Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
 Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
Decision Phases of a Supply Chain
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation
Supply Chain Strategy or Design
 Decisions about the structure of the supply chain and
what processes each stage will perform
 Strategic supply chain decisions
◦ Locations and capacities of facilities
◦ Products to be made or stored at various locations
◦ Modes of transportation
◦ Information systems
 Supply chain design must support strategic objectives
 Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty
Supply Chain Planning
• Definition of a set of policies that govern short-term
operations
• Fixed by the supply configuration from previous phase
• Starts with a forecast of demand in the coming year
Supply Chain Planning
 Planning decisions:
◦ Which markets will be supplied from which locations
◦ Planned buildup of inventories
◦ Subcontracting, backup locations
◦ Inventory policies
◦ Timing and size of market promotions
 Must consider in planning decisions demand uncertainty,
exchange rates, competition over the time horizon
1-17
Supply Chain Operation

 Time horizon is weekly or daily
 Decisions regarding individual customer orders
 Supply chain configuration is fixed and operating
policies are determined
 Goal is to implement the operating policies as
effectively as possible
 Allocate orders to inventory or production, set order due
dates, generate pick lists at a warehouse, allocate an
order to a particular shipment, set delivery schedules,
place replenishment orders
 Much less uncertainty (short time horizon)
1-18
Process View of a Supply Chain

• Cycle view: processes in a supply chain are divided into a
series of cycles, each performed at the interfaces
between two successive supply chain stages
• Push/pull view: processes in a supply chain are divided
into two categories depending on whether they are
executed in response to a customer order (pull) or in
anticipation of a customer order (push)
1-19
Cycle View of Supply Chains

Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
1-20
Cycle View of a Supply Chain

• Each cycle occurs at the interface between two
successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-manufacturer)
• Procurement cycle (manufacturer-supplier)
• Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and
responsibilities of each member and the desired
outcome of each process.
1-21
Push/Pull View of
Supply Chain Processes
 Supply chain processes fall into one of two categories
depending on the timing of their execution relative to
customer demand
 Pull: execution is initiated in response to a customer
order (reactive)
 Push: execution is initiated in anticipation of customer
orders (speculative)
 Push/pull boundary separates push processes from pull
processes
1-22
Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions relating to supply
chain design – more global view of how supply chain
processes relate to customer orders
• The relative proportion of push and pull processes can
have an impact on supply chain performance
1-23
Supply Chain Macro Processes in a

Firm
• Supply chain processes discussed in the two views can
be classified into ;
• Customer Relationship Management (CRM)
• Internal Supply Chain Management (ISCM)
• Supplier Relationship Management (SRM)
• Integration among the above three macro processes is
critical for effective and successful supply chain
management
1-24
Examples of Supply Chains

• Gateway
• Zara
• Toyota
• Amazon / Borders
What are some key issues in these supply chains?
https://www.youtube.com/watch?v=gBRrG0-SA1I
1-25
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CHAPTER 3:

Supply Chain Operation

Process View of a Supply Chain

Cycle View of Supply Chains

Cycle View of a Supply Chain

Supply Chain Macro Processes in a

Examples of Supply Chains

What are some key issues in these supply chains?

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