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Department of Business Administration
3/12/2012 Page 1
Operations Management: A
supply chain approach
Dr. Patricia Deflorin
Department of Business Administration
3/12/2012 Page 2
Overview
1. Operation Strategy: Origins and New Directions
2. Supply Chain Management
3. Creating an Edge through New Process Development
4. Sharpening the Edge: Driving Operations Improvement
5. Designing and Managing Operating Networks
Department of Business Administration
Todays topics
• The Supply Chain: Introduction
• Supply Chain Management (SCM)
• Supply Chain Management Enablers
• Process Control and SCOR
• Green Supply Chain
• Managing Disintegrated Supply Chains: An Example
• Summary
3/12/2012 Page 3
Department of Business Administration
The Supply Chain: Introduction
• All facilities, functions, and activities associated with flow and
transformation of goods and services from raw materials to
customer, as well as the associated information flows
• An integrated group of processes to “source,” “make,” and “deliver”
products
4
Department of Business Administration
The Supply Chain: Introduction
Copyright 2011 John Wiley & Sons, Inc. 5
Department of Business Administration
The Supply Chain: Introduction Processes
Copyright 2011 John Wiley & Sons, Inc. 6
Department of Business Administration
The Supply Chain: Introduction Processes and Interfaces
Operations and supply
chain activities
Purpose Key Interfunctional
Participants
Key Interorganizational
Participants
Process selections Design and implement the transformation
processes that best meet the needs of the
customer and the firm.
Engineering,
Marketing, Finance,
Human resources, IT
Customers
Forecasting Develop the planning numbers needed for
effective decision making.
Marketing, Finance,
Accounting
Suppliers, Customers
Capacity planning Establish strategic capacity levels (bricks
and mortar) and tactical capacity levels
(workforce, inventory).
Finance, Accounting,
Marketing, Human
resources
Suppliers, Customers
Inventory management Manage the amount and placement of
inventory within the company and the
supply chain.
IT, Finance Suppliers, Customers
Planning and control Schedule and manage the flow of work
through an organization and the supply
chain; match customer demand to supply
chain activities.
Marketing, IT Suppliers, Customers
Purchasing Identify and qualify suppliers of goods and
services; manage the ongoing buyer-
supplier relationships.
Engineering, Finance,
Marketing
Suppliers
Logistics Manage the movement of physical goods
throughout the supply chain.
Marketing, Engineering Suppliers, Customers
3/12/2012 (Bozarth and Handfield, 2005) Page 7
Department of Business Administration
The Supply Chain: Introduction Job descriptions
3/12/2012 (Bozarth and Handfield, 2005) Page 8
Analyst Uses analytical and quantitative methods to understand , predict, and improve processes within the
supply chain.
Commodity manager Acquires knowledge in a specific market in which the organization purchases significant quantities
of materials and services. Helps formulate long-term commodity stragies and manage long-term
relationships with selected suppliers.
Customer service manager Plans and directs customer service teams to meet the needs of customers and support company
operations. Works closely with marketing and sales, logistic, and transportation departments.
International logistics manager Works closely with manufacturing, marketing, and purchasing to create timely, cost-effective
import/export supply chains.
Logistics services salesperson Markets transportation, warehousing, and specialized services to other companies.
Production manager Supervises production in a manufacturing setting. Responsible for a wide range of personnel.
Sourcing analyst Identifies global sources of materials, selects suppliers, arranges supplier’s contracts, and manages
ongoing supplier’s relationships.
Sourcing manager Measures supplier performance, identifies suppliers requiring improvement, and facilitates efforts to
imporve supplier’s processes.
Logistics and Material Planner Reviews existing procedures and examines opportunities to streamline production, purchasing,
warehousing, distribution, and financial forecasting to meet product distribution needs.
Systems support manager
(Management Information Systems)
Provides analytical support in the management of logistics information, supplier performance data,
materials requirements, and scheduling processes.
Transportation manager Manages private, third-party, and contract carriage systems to assure timely and cost-efficient
transportation of all incoming and outgoing shipments.
Department of Business Administration
The Supply Chain: Introduction Value Chain versus Supply Chain
Value chain
– every step from raw materials to the eventual end user
– ultimate goal is delivery of maximum value to the end user
Supply chain
– activities that get raw materials and subassemblies into manufacturing operation
– ultimate goal is same as that of value chain
Terms are used interchangeably
Value: creation of value for customer is important aspect of supply chain management
9
Department of Business Administration
Supply Chain Management (SCM)
Managing flow of information through supply chain in order to
attain the level of synchronization that will make it more
responsive to customer needs while lowering costs
Keys to effective SCM
– information
– communication
– cooperation
– trust
10
Department of Business Administration
Supply Chain Management (SCM) Supply Chain Uncertainty and Inventory
Inventory
– insurance against supply chain uncertainty
A major objective of SCM:
– respond to uncertainty in customer demand without creating costly excess inventory
Factors that contribute to uncertainty
– ……
11
Department of Business Administration
Supply Chain Management (SCM) Bullwhip Effect
Occurs when slight demand variability is magnified as information moves
back upstream
(Copyright 2011 John Wiley & Sons, Inc.) 12
Department of Business Administration
Supply Chain Management (SCM) Effective SCM
Keys to effective SCM
– Information
– Communication
– Cooperation
– Trust
Enablers to effective SCM:
- Risk pooling
- Information Technology
- Supply Chain integration and collaboration
3/12/2012 Page 13
Department of Business Administration
Supply Chain Enabler Risk Pooling
Risks are aggregated to reduce the impact of individual risks
– Combine inventories from multiple locations into one
– Reduce parts and product variability, thereby reducing the number of product components
– Create flexible capacity
14
Department of Business Administration
Supply Chain Enablers Information Technology
Copyright 2011 John Wiley & Sons, Inc. 15
Department of Business Administration
Supply Chain Enablers E-Business
• Savings due to lower transaction costs
• Reduction of intermediary roles
• Shorter supply chain response times
• Wider presence and increased visibility
• Greater choices & more info for customers
• Improved service
• Collection & analysis of huge amounts of customer data &
preferences
• Access to global markets, suppliers & distribution channels
Copyright 2011 John Wiley & Sons, Inc. 16
Department of Business Administration
Supply Chain Enablers Electronic Data Interchange (EDI)
• Computer-to-computer exchange of documents in a standard
format
• Purchasing, shipping and receiving
• Improve customer service
• Reduce paperwork
• Increase productivity
• Improve billing and cost efficiency
• Reduce bullwhip effect through information sharing
Copyright 2011 John Wiley & Sons, Inc. 17
Department of Business Administration
Supply Chain Enablers Bar Codes
• Automated data collection system
• Bar code contains identifying information
• Provide instantaneous tracking information
• Checkout scanners create point-of-sale data
– Update inventory records
– Identify trends
– Order material
– Schedule orders
– Plan deliveries
Copyright 2011 John Wiley & Sons, Inc. 18
Department of Business Administration
Supply Chain Enablers Radio Frequency Identification (RFID)
• Use radio waves to transfer data from chip to a reader
• Provides complete visibility of product location
• Continuous inventory monitoring
• Reduce labor to manage inventory
• Reduce inventory costs
• ….
• RFID is not standardized yet
• Data protection issues
Copyright 2011 John Wiley & Sons, Inc. 19
Department of Business Administration
Supply Chain Enablers Radio Frequency Identification (RFID)
Copyright 2011 John Wiley & Sons, Inc. 20
Department of Business Administration
Supply Chain Enablers Radio Frequency Identification (RFID)
Copyright 2011 John Wiley & Sons, Inc. 21
Department of Business Administration
3/12/2012 Page 22
Supply Chain Enablers RFID
Department of Business Administration
Supply Chain Enablers Supply Chain Integration
Share information among supply chain members
– Reduced bullwhip effect
– Early problem detection
– Faster response
– Builds trust and confidence
Collaborative planning, forecasting, replenishment, and design
– Reduced bullwhip effect
– Lower costs (material, logistics, operating, etc.)
– Higher capacity utilization
– Improved customer service levels
23
Department of Business Administration
Supply Chain Enablers Collaborative Planning, Forecasting, and Replenishment (CPFR)
• Two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand
• Parties electronically exchange
– past sales trends
– point-of-sale data
– on-hand inventory
– scheduled promotions
– forecasts
(Bozarth and Handfield, 2005) 24
Department of Business Administration
Process Control and SCOR
Process Control
– not only for manufacturing operations
– can be used in any processes of supply chain
Supply Chain Operations Reference (SCOR)
– a cross industry supply chain diagnostic tool maintained by the
Supply Chain Council
(Bozarth and Handfield, 2005) 25
Department of Business Administration
Return
Return products, post-delivery customer
support
Process Control and SCOR SCOR Model Processes
Plan
Develop a course of action that best meets sourcing, production
and delivery requirements
Source
Procure goods and services to meet planned or actual
demand
Make
Transform product to a finished state to meet
planned or actual demand
Deliver
Provide finished goods and services to meet
planned or actual demand, including
order management, transportation and
distribution
(Bozarth and Handfield, 2005) 26
Department of Business Administration
Process Control and SCOR SCOR Performance Metrics
(Bozarth and Handfield, 2005) 27
Performance
Attribute
Performance Metric Definition
Customer Facing Supply chain
delivery reliability
Delivery performance Percentage of orders delivered on time
and in full to the customer
Fill rate Percentage of orders shipped within 24
hours of order receipt
Perfect order fulfillment Percentage of orders delivered on time
and in full, perfectly matched with order
with no errors
Supply chain
responsiveness
Order fulfillment lead
time
Number of days from order receipt to
customer delivery
Supply chain
flexibility
Supply chain response
time
Number of days for the supply chain to
respond to an unplanned significant
change in demand without a cost penalty
Production flexibility Number of says to achieve an unplanned
20% change in orders without a cost
penalty
Department of Business Administration
Process Control and SCOR SCOR Performance Metrics
3/12/2012 (Bozarth and Handfield, 2005) 28
Performance
Attribute
Performance Metric Definition
Internal Facing Supply chain cost Supply chain
management cost
The direct and indirect cost to plan,
source and deliver products and services
Cost of goods sold The direct cost of material and labor to
produce a product or service
Value-added
productivity
Direct material cost subtracted from
revenue and divided by the number of
employees, similar to sales per
employee
Warranty/returns
processing cost
Direct and indirect costs associated with
returns including defective, planned
maintenace and excess inventory
Supply Chain Asset
Management
Efficiency
Cash-to-cash cycle time The number of days that cash is tied up
as working capital
Inventory days of supply The number of days that cash is tied up
us inventory
Asset turns Revenue divided by total assets
including working capital and fixed
assets
Department of Business Administration
“Green” Supply Chains
• Sustainability
• Meeting present needs without compromising the ability of
future generations to meet their needs
• Sustaining human and social resources
• It can be cost effective and profitable
• Can provide impetus for product and process innovations
• Impulse comes from downstream in the supply chain and
moves upstream to suppliers
29
Department of Business Administration
“Green” Supply Chains Early success using Green SCM principles
3/12/2012 (LMI, Supply Chain World Conference, 2005) Page 30
Texas Instruments: Saves $8
million each year by reducing its
transit packaging budget for its
semiconductor business through
source reduction, recycling, and
use of reusable packaging
systems (20% annual savings).
Commonwealth Edison: Produced
$50 million in financial benefits
from managing materials and
equipment with a life-cycle
management approach.
Pepsi-Cola: Saved $44 million by
switching from corrugated to
reusable plastic shipping
containers for one liter and 20-
ounce bottles conserving 196
million pounds of corrugated
material.
Dow Corning: Saved $2.3 million
by using reconditioned steel
drums in 1995. Also conserved
7.8 million pounds of steel.
Department of Business Administration
Green Supply Chain Potential for cost savings
3/12/2012 (LMI, Supply Chain World Conference, 2005) Page 31
Department of Business Administration
Green Supply Chain Classification based on problem context
3/12/2012 Page 32 Source: Srivastava, S.K. (2007), Green supply-chain management: A state-of the-
art literature review, International Journal of Management Reviews, p.53-80.
Department of Business Administration
Managing Disintegrated Supply Chains An Example
• Powertrain Cooling
• Engine Cooling
Modules
• Radiators
• Condensers
• Charge-Air-Coolers
• …
• Passenger Thermal Management
(HVAC-Heating, Ventilating and Air-
Conditioning)
• HVAC Modules (Underdash)
• Center Stack HVAC Module
• Evaporators
• Heater Cores
• ….
Department of Business Administration
Managing Disintegrated Supply Chains Supply Chain Collaboration
Key Facts:
• Number of key suppliers: 25
• Area: Europe
• Supply frequency: from multiple times per day to monthly
Department of Business Administration
Managing Disintegrated Supply Chains Supplier Distribution
Department of Business Administration
Managing Disintegrated Supply Chains Supply Chain Collaboration-Tools
Logistics Quality Variation-Management
Daily Delay monitoring for each product Analysis of PPM* monitoring Analysis of problems of the variation
management
If discrepancies occur:
• Entry into respective database
• Analysis of impact
• Initiation of special deliveries
• Request of an action plan
If discrepancies occur:
• Entry into respective database
• Product-Leader meeting
• Initiation of special actions
• Request of an action plan
If discrepancies occur:
• Entry into respective database
• Initiation of special actions
• Request of an action plan
Monthly • Evaluation of volume-dependability
(Red-Light Monitoring)
• Initiation of the escalation
procedure
• Charging of costs (additional
expenses)
• ppm analysis (top 3)
• Analysis of external quality occurrences
• Analysis of quality problems based on
distinctive categories
• Check of action plan and its effectiveness
• Initiation of the escalation procedure
Top 3 List – worst supplier
Quarterly Analysis of supplier performance
Supplier evaluation
Definition of further escalation procedures:
• Request of an 8D Report
• Supplier site visit
• Invitation of the supplier for the performance discussion
• Supplier audit
*(problems identified/delivered goods)*parts per million
Department of Business Administration
Managing Disintegrated Supply Chains Elements of the collaboration management
Logistic Quality Variation
Database
Supplier Management
Escalation procedure
Special audit
Charge of costs
Workshops
Supplier meetings
Supplier audits
Input
Monitoring and analysis
Plan
Implementation
Department of Business Administration
Managing Disintegrated Supply Chains Claim management – Problem list
• Data transfer from SAP
• Actions are effective if problem isn’t repeated within 90 days
• Summary of the problems and graphical display
• Monthly notification of the data of the supplier creating problems
• Worst suppliers in terms of quality are displayed monthly within the plant
Problem suppliers (max. 100%)
First Quarter 2006
• Modine Pliezhausen GmbH 40%
• Gate S.r.l. 41%
• Modine Austria GmbH 81%
Department of Business Administration
Managing Disintegrated Supply Chains Supply Chain Coordination: Supplier Day
• Review of the last year
• Discussion of future activities and strategy
• Workshops on various topics for the joint process optimization
• Award of the supplier of the year
• Informal discussions and get together
Department of Business Administration
Managing Disintegrated Supply Chain Study of “Successful practice”
Measuring the strategic value of sourcing:
• 44% of customers and 42% of service providers do not undertake formal
strategic reviews of the benefits to their business or sourcing contracts.
• 72% of the customers report that they do not have, or do not share with
their service providers, criteria for measuring the success or failure of
their sourcing arrangement.
Source: KPMG 2007 (sample = 650 companies in 32 countries)
Department of Business Administration
Managing Disintegrated Supply Chains Study of “Successful practice”
Success in meeting expectations:
0 20 40 60 80
47%
66%
64%
61%
Bringing experience to the business
it did not have previously
Ensuring SLAs are met
Ensuring end users/user
departments are satisfied with the
service provided
Cost targets and financial success
criteria
Percentage of respondents
Source: KPMG 2007 (sample = 650 companies in 32 countries)
Department of Business Administration
Summary
• Supply Chain Management is an important factor within international
markets
• Supply Chain Management Enablers reduce risks and support value
generation
• Effective Supply Chain Management is based upon:
– Information
– Communication
– Cooperation
– Trust
3/12/2012 Page 42
Department of Business Administration
Next Assignments
Date Topic Literature
19.3. R&D Ellram et al (2008)
Zirger and Maidique (1990)
Please send the handouts until
patricia.deflorin@uzh.ch until March 19th, 2012
Department of Business Administration
Definitions
Operations function
Also called operations. The collection of people, technology, and systems within an organization that has primary responsibility for providing the organization’s products or services.
Supply chain
A network of manufacturers and service providers that work together to convert and move goods from the raw materials stage through to the end user. These manufacturers and service providers are linked together through physical flows, information flows, and monetary flows.
Operations management
The planning, scheduling, and control of the activities that transform inputs into finished goods and services.
3/12/2012 Page 44 (Bozarth and Handfield, 2005)
Department of Business Administration
Definitions
Upstream
A term used to describe activities or firms that are positioned earlier in the supply chain relative to some other activity or firm of interest. For example, corn harvesting takes place upstream of cereal processing, while cereal processing takes place upstream of cereal packaging.
Downstream
A term used of describe activities or firms that are positioned later in the supply chain relative to some other activity or firm of interest. For example, sewing a shirt takes place downstream of weaving the fabric, while weaving the fabric takes place downstream of harvesting the cotton
First-tier supplier
A supplier that provides products or services directly to a particular firm.
3/12/2012 Page 45 (Bozarth and Handfield, 2005)
Department of Business Administration
Definitions
Second-tier supplier
A supplier that provides products or services to a firm’s first-tier supplier.
Supply chain management
The active management of supply chain activities and relationships in order to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by a firm or group of firms to develop and run supply chains in the most effective and efficient ways possible.
Supply-Chain Operations Reference (SCOR) model
A framework developed and supported by the Supply-Chain Council that seeks to provide standard descriptions of the processes, relationships, and metrics that define supply chain management.
3/12/2012 Page 46 (Bozarth and Handfield, 2005)
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