McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Business Driven Information Systems 2e CHAPTER 8 OPERATIONS MANAGEMENT AND SUPPLY

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

Business Driven Information Systems 2eBusiness Driven Information Systems 2eBusiness Driven Information Systems 2eBusiness Driven Information Systems 2e

CHAPTER 8

OPERATIONS MANAGEMENT AND

SUPPLY CHAIN MANAGEMENT

CHAPTER 8

OPERATIONS MANAGEMENT AND

SUPPLY CHAIN MANAGEMENT

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Chapter Eight OverviewSECTION 8.1 – OPERATIONS MANAGEMENT • Operations Management Fundamentals• OM in Business• IT’s Role in OM• Competitive OM Strategy• OM and the Supply Chain• SECTION 8.2- SUPPLY CHAIN MANAGEMENT• Supply Chain Fundamentals• IT’s Role in the Supply Chain• Supply Chain Management Success Factors• Supply Chain Management Success Stories• Future Supply Chain Trends•


SECTION 8.1SECTION 8.1

OPERATIONS MANAGEMENTOPERATIONS

MANAGEMENT

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LEARNING OUTCOMES

1. Define the term operations management

2. Explain operations management role in business

3. Describe the correlation between operations management and information technology

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LEARNING OUTCOMES

4. Describe the five characteristics of competitive priorities

5. Explain supply chain management and its role in a business

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OM FUNDAMENTALS

• Production - is the creation of goods and services using the factors of production

• Production management - describes all the activities managers do to help companies create goods

• Operations management (OM) - the management of systems or processes that convert or transform resources into goods and services

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OM FUNDAMENTALS

• Transformation process - the actual conversion of inputs to outputs

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OM FUNDAMENTALS

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OM FUNDAMENTALS

• Value-added - the term used to describe the difference between the cost of inputs and the value of price of outputs

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OM IN BUSINESS

• How does an airline service organization’s OM team adds value?– Forecasting– Capacity planning– Scheduling– Managing inventory– Assuring quality– Motivating and training employees– Locating facilities

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IT’S ROLE IN OM

• Managers use IT to heavily influence OM decisions including :– What: What resources will be needed and in

what amounts?– When: When should the work be scheduled?– Where: Where will the work be performed?– How: How will the work be done?– Who: Who will perform the work?

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OM Strategic Business Systems

• Operations strategy addresses broad questions about using major resources to achieve corporate objectives

• Major long-term issues addressed in operations strategy include:– How big to make the facilities?– Where to locate the facilities?– When to build additional facilities?– What type of process(es) to install to make

the products?

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• Strategic planning - focuses on long range planning

• Strategic business units (SBUs) - consist of several stand-alone businesses

• Materials requirement planning (MRP) - use sales forecasts to make sure that needed parts and materials are available at the right time and place

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• Tactical planning - focuses on producing goods and services as efficiently as possible within the strategic plan

• Global inventory management system - provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the production process

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• Operational planning and control (OP&C) - deals with the day-to-day procedures for performing work, including scheduling, inventory, and process management– Inventory management and control

system– Transportation planning system– Distribution management system

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COMPETITIVE OM STRATEGY

• Five key competitive priorities which a company can add value to its OM decisions including:1. Cost2. Quality3. Delivery4. Flexibility5. Service

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1. Cost: there can be only one lowest-cost producer, and that firm usually establishes the selling price in the market

2. Quality: is divided into two categories product and process quality

– Six Sigma Quality– Malcolm Balridge National Quality Awards– ISO 900, ISO 14000– CMMI

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3. Delivery: a firms ability to provide consistent and fast delivery

4. Flexibility: a firms ability to offer a wide variety of products

5. Service: high-quality customer service adds tremendous value to an ordinary product

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OM AND THE SUPPLY CHAIN

• Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

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• Four basic components of supply chain management include:

1. Supply chain strategy – strategy for managing all resources to meet customer demand

2. Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services.

3. Supply chain operation – schedule for production activities

4. Supply chain logistics – product delivery process

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• Typical manufacturing supply chain

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• Typical service supply chain

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• Wal-Mart and Procter & Gamble (P&G) SCM

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• Effective and efficient SCM systems can enable an organization to:– Decrease the power of its buyers– Increase its own supplier power– Increase switching costs to reduce the threat of

substitute products or services– Create entry barriers thereby reducing the threat

of new entrants– Increase efficiencies while seeking a competitive

advantage through cost leadership

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• Effective and efficient SCM systems effect on Porter’s Five Forces

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OPENING CASE QUESTIONSDELL’S FAMOUS SUPPLY CHAIN

1. How would operations management be a critical component to a company like Dell?

2. How would Dell use each of the three OM planning strategies to improve its operations?

3. How might Dell use each of the five competitive priorities to increase value to its goods and services?

4. Illustrate Dell’s potential supply chain management system


SECTION 8.2SECTION 8.2

SUPPLY CHAIN FUNDAMENTALS


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LEARNING OUTCOMES

6. List and describe the components of a typical supply chain

7. Define the relationship between information technology and the supply chain

8. Identify the factors driving supply chain management

9. Summarize the best practices for implementing a successful supply chain management system

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• The average company spends nearly half of every dollar that it earns on production

• In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains

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• The supply chain has three main links:1. Materials flow from suppliers and their

“upstream” suppliers at all levels

2. Transformation of materials into semifinished and finished products through the organization’s own production process

3. Distribution of products to customers and their “downstream” customers at all levels

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• Organizations must embrace technologies that can effectively manage supply chains

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IT’S ROLE IN THE SUPPLY CHAIN

• IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

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IT’S ROLE IN THE SUPPLY CHAIN

Factors Driving SCM

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Visibility

• Supply chain visibility – the ability to view all areas up and down the supply chain

• Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain

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Consumer Behavior

• Companies can respond faster and more effectively to consumer demands through supply chain enhances

• Demand planning software – generates demand forecasts using statistical tools and forecasting techniques

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Competition

• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain

• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

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Competition

• SCP and SCE in the supply chain

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Speed

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SCM SUCCESS FACTORS

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SCM SUCCESS FACTORS

• Segment customers• Customize the logistics network• Listen to signals of market demand and

plan accordingly• Differentiate products closer to the

customer• Strategically manage sources of supply• Develop a supply chain IT strategy• Adopt performance evaluation measures

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SCM SUCCESS FACTORS

• SCM industry best practices include:1. Make the sale to suppliers

2. Wean employees off traditional business practices

3. Ensure the SCM system supports the organizational goals

4. Deploy in incremental phases and measure and communicate success

5. Be future oriented

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SCM SUCCESS FACTORS• Top reasons why more and more executives are turning to

SCM to manage their extended enterprises

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SCM SUCCESS FACTORS

• Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains

• DSSs allow managers to examine performance and relationships over the supply chain and among:– Suppliers– Manufacturers– Distributors– Other factors that optimize supply chain performance

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FUTURE SUPPLY CHAIN TRENDS

• Fastest growing SCM components– Supply chain event management (SCEM)– Selling chain management – Collaborative engineering– Collaborative demand planning

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OPENING CASE QUESTIONSDell’s Famous Supply Chain

5. How might Dell use each of the five basic SCM components?

6. How had Dell influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain?

7. Explain the seven principles of SCM in reference to Dell’s business model

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CLOSING CASE ONEBudNet

1. Describe the five competitive priorities of operations management and how Budweiser can use each one to streamline production

2. How can an SCM system help a distributor such as Anheuser-Busch make its supply chain more efficient and effective?

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CLOSING CASE ONEBudNet

3. SCM is experiencing explosive growth. Explain why this statement is true using BudNet as an example

4. Evaluate BudNet’s effect on each of the five factors that are driving SCM success

5. List and describe the components of a typical supply chain along with its ability to help Budweiser make effective decisions

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CLOSING CASE TWOListerine’s Journey

1. Explain the role of operations management for Warner-Lambert

2. Summarize SCM and describe Warner-Lambert’s supply chain strategy. Diagram the SCM components

3. Detail Warner-Lambert’s three operations management strategies and identify systems it could use to help make strategic decisions

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CLOSING CASE TWOListerine’s Journey

4. What would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources?

5. Assess the impact to Warner-Lambert’s business if the majority of the eucalyptus crop was destroyed in a natural disaster

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CLOSING CASE THREELevi’s

1. How did Levi Strauss achieve business success through the use of supply chain management?

2. What might have happened to Levi’s if its top executives had not supported investments in SCM?

3. David Bergen, Levi’s CIO, put together a cross-functional team of key managers from IT, finance, and sales to transform Levi’s systems to meet Wal-Mart’s requirements. Analyze the relationships between these three business areas and OM and SCM systems. How can OM and SCM systems help support these three critical business areas?

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CLOSING CASE THREELevi’s

4. Describe the five basic SCM components in reference to Wal-Mart’s business model

5. Explain RFID and provide an example of how Levi’s could use the technology to increase its business operations

6. Identify any security and ethical issues that might occur for a company doing business with Wal-Mart

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BUSINESS DRIVEN BEST SELLERS

• Built to Last, by Jim Collins

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BUSINESS DRIVEN BEST SELLERS

• Good to Great, by Jim Collins

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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved Business Driven Information Systems 2e CHAPTER 8 OPERATIONS MANAGEMENT AND SUPPLY