operation and supply management.pdf

8/10/2019 operation and supply management.pdf

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Introduction to Business

11 September 2014

Operat ions

andSupply Chain

Management

Prof dr Finn Wyn stra

Professor and NEVI Chair

Purchasing and Sup ply Management

[email protected]

www.rsm.nl /psm



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• What is the role of Operations Management and Supply

Chain Management (SCM) in business?

• How do firms produce goods and services?

• How does one balance demand and supply?

When to hold inventory, and when not?

Today’s central questions



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Objective of this session

• Provide structured background for the book

(Ch 9, pp 224-248)

• Specifically, discuss additional topics:

– Classification of different production types

– How to balance demand and supply?

– Supply Chain Management

• Not: summarize the entire chapter….

– A lot of stories and digressions

– Strong US orientation



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Some definitions..

• Production management: all activities thatmanagers execute to help organisations

manufacture ( physical ) goods

• Operations management: managing theprocess of converting resources (materials,

labour, knowledge,…) into goods and

services

= production management, but then also forservices

See: Understand ing Bu sin ess, p. 229-230



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What do these firms have in common?



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Productiontype 1:

unit and small series production

• Mainly assembly operations

• Low degree of automatisation

• Forms:

– Production of complex installations

• E.g. construction of a factory or road

– Manufacturing of large equipment

• E.g. production of a cruise vessel

– Production of single items on custom order

• E.g. a commissioned work of art

– Production of single items in small series

• E.g. high-speed trains..

P d i 2 l i



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Productiontype 2: large series

and mass production

• Mainly assembly operations

• Average degree of automatisation

• Forms

– Production of components in large series

• E.g. “chip” manufacturing

– Production of large series of final products

• E.g. automotive assembly

– Mass production

• E.g. small toys



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Productiontype 3: Process production

• Mainly transformation operations:

changing the properties of materials

• High degree of automisation

• Forms: – Continuous process

• E.g. production of power, oil

– Discontinuous (intermittent) process; batches

• E.g. dairy products – Discontinuous process, combined with

large series/mass packaging

• E.g. beer, dairy



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Why is this classification relevant?

• The type of production has important effects on how to

efficiently and effectively produce services/products

– And how to manage the supply chain!

• Woodward (1958) discovered that there is no one single

best organisation model

– This is highly dependent on the dominant

productiontype in an organisation

• Unit production organic organisation…

• Series production mechanistic organisation.. production: not just interesting because that is where “it”

happens, but also because it is has a profound effect on

organising!

232



Compare: Understanding Business, p. 232…more

coarse classification…

two dimensions to classify

production processes

Continuous Process Intermittent Process

Continuous Assembly Intermittent Assembly

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One level deeper:

facility lay-out (book, pp. 238-240)

• Physical arrangement of resources

• Product or Assembly Line Layout

– High degree of specialisation, fixed sequence of

steps, same activity may occur at multiple places

• Process Layout

– High degree of specialisation, each activity just at

one place

• Cellular or Module Layout

– Less specialisation, teams of workers collaborate to

work on a complete module• Fixed-Position

– Different workers come together to

work on a fixed object 12



Relation between production types and facility

layout

Layout Occurs mainly in

production type:

Example

Assembly line Large series/mass Automotive

Process Large series/mass

Process

Furniture

Chemicals

Cellular Large series/mass

Unit/small series

(Automotive)

Semiconductor

equipment

Fixed position Unit Cruise ships

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Goods versus services

• Classification unit/series/process production most

recognisable for goods, but also applicable to services

• Unit and small series production:

• Large series and mass production:

• Continuous process production:



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Operations Management:

what decisions are we talking about?

INPUTS

Land

Labor

Capital

Entrepreneurship

Knowledge

PRODUCTIONCONTROL

Planning

RoutingScheduling

Dispatching

Follow-up

OUTPUTS

Goods

Services

Ideas

See: Und erstanding Bu siness, p. 231.

Decisions w i l l be disc uss ed in detail in

Operatio ns Management (Trimester 2).

Where should

I produce ?

How do I design

my factory-layout?

How much will I

produce of each

product, how

frequently, and inwhich sequence?

How often will I

deliver, in which

quantities?



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Scheduling and dispatching decisions have

an effect on ….

INPUTS

Land

LaborCapital

Entrepreneurship

Knowledge

PRODUCTIONCONTROL

Planning

Routing

Scheduling

Dispatching

Follow-up

OUTPUTS

Goods

ServicesIdeas

• Production cost

• Transportation cost• Inventory cost

• Lead time

• Sales (“stock-out”)

How can one ensure to meet as much demand possible,

as efficiently as possible?



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Break!





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1. Do nothing (“C’est la vie!”)

2. Create buffer resources

a. Overtime, more flexible working hours, more shifts

b. Outsourcing/ purchasing

3. Buffer inventory (final product or work-in-progress)

4. Buffer time (delayed delivery, ‘back orders’)

5. Influence demand (adjust or differentiate prices)

How to balance demand and supply?

Choosing (a combination of)

these alternatives

is a strategic consideration!



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Basic production strategies

• Push: produce and put on stock (Make to Stock)

– Bu f fer inv entor ies

– Advantages: efficient production process, predictable..

– Disadvantages: inventory cost, obsolescence..

• Pull: producing to the extent and at the moment when

there is demand

– Bu ffer capaci ty, buffer t ime

– Make to Order / Engineer to Order

– Advantages: less inventory cost and obsolescence

– Disadvantages: leadtime, stockout



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“Supply Chain Management”

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25 To the BMW X5 in 2014



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Of each Euro some 70 cent goes to suppliers!

To the BMW X5 in 2014…..

S o ur c e: A u t om o t i v eN ew

s S u p pl i er C u t w aw a y s



The iPad from a

marketer’s

perspective



The iPad from

a supply chain

perspective



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From Operations to Supply Chain Management

• More and more organisations outsource activities to specialised,

external suppliers – Cheaper (economies of scale and scope)

– Reduction of fixed costs

– Quality advantages (specialisation, economies of learning)

– Flexibility in meeting demand fluctuations

– Innovation …

The essence is to manage a chain of firms rather than a singlefactory:

“Firms no longer compete with each other;complete supply chains do.”



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“Van korrel tot borrel”, “van zand tot klant”..

What are Operations and SupplyChain Management about?



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Supply Chain Activity Flow

Material/Services Flow

Service Requirements FlowS

U

P

P

L

I

E

R

C

U

S

T

O

M

E

R

Supply

Management

Planning

&

Scheduling

Inbound

Logistics

Processing

• Manufacturing

• Service

Outbound

Logistics

&

Distribution

Customer

Service

•Sourcing Decisions

•Supplier Development

•Contracts/Agreements

•Supplier Management

•Procurement Planning

•Supplier Communication•Price, Volume

Considerations

•Supply Planning

•Inventory

Management

•Demand

Forecasting

•Consolidation

•Delivery

Scheduling

•Expediting

•Production Planning/

Scheduling

•Process Flow

•Process Technology

•Controls & Policies

•Quality Assurance•Human Resource

Management

•Customer

Service Policies

& Procedures

•Order Management

•Customer Response

Feedback

•Distribution

Requirements

Planning (DRP)

•Continuous

Replenishment

(CRP)•Network

Rationalization

•Transportation

ManagementCash Flow

Information Flow

C a a age e t about

Some definitions..



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• Purchasing and Supply Management:

planning, implementing and controlling processes and activities,which are aimed at

– acquiring goods and services from (external) suppliers

• Logistics management:

planning, implementing and controlling processes and activities,

which are aimed at- the physical flow of goods and related information,

from origin to consumption

• Inbound: from suppliers to producers

• Materials handling: within the factory• Outbound: from producers to consumers

• Reverse: from consumers to producers

See P. 241 and 379 book .

Final definitions..



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• Supply Chain Management: managing activities related to.

– the acquisition of goods and services

– the supply and

– the conversion of these in other goods and services, and

– the distribution and delivery of these products

– the return of these products (where applicable)

SCM=Purchasing+Logistics+Operations

See P. 377 book.

Th i t f OM d SCM



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The importance of OM and SCM…

“… it is the implementation phaseof management.”

Understanding Business, 9th Ed.

“… Delivering the Business!”

Ahold



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operation and supply management.pdf