You are on page 1of 6

Operations Management Gyan Capsule

Systems Society, FMS Delhi

Supply Chain Management


You have probably heard the term numerous times, but you may have wondered
what exactly supply chain management actually is. To many people, the term
supply chain management sounds like technical jargon that could only be
meaningful to those working in certain industries, but in reality, supply chain
management is something that affects almost everyone in the world.
Supply chain management is a set of approaches utilized to efficiently
integrate suppliers, manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the right quantities, to the
right locations, and at the right time, in order to minimize system wide
costs while satisfying service level requirements.
Supply chain management can be thought of simply as the combination of two
basic ideas. First is the idea that every product that eventually ends up in the
hands of a customer has reached its destination as a result of the cumulative
efforts of a large number of companies and organizations. This array of
businesses and organizations can be referred to as the supply chain. Second is
the idea that many organizations have historically only paid attention to what
was happening within their businesses, never giving thought to the other vital
components of the chain. This type of thinking leads to miscommunications and
delays, and it can leave consumers feeling like they have not been treated well.
As a result, the comprehensive management of supply chains has become a
necessity so that products are delivered in a manner that is satisfactory to
consumers, as well as all of the organizations involved in particular supply chain.
Implementing the comprehensive management of a supply chain is no easy task,
but once it has been put into place, every person and organization within the
chain benefits greatly. Gone are the days when companies could be successful
by simply minding their own business and concentrating their efforts on
themselves. These days are different, and companies must ensure that each link
in a supply chain is as strong as the one preceding it. When effective supply
chain management has been implemented, profits increase, efficiency improves
and customers are made happier and more likely to deal with a particular
company in the future

The importance of SCM can be understood using one of the hottest tech battles
going in the world today - Samsung Vs Apple. Please go through the following
links for details:
http://www.koreatimes.co.kr/www/news/tech/2012/11/133_124073.html
http://jadedconsumer.blogspot.in/2011/11/admiring-apples-supply-chain.html
There are four major decision areas in supply chain management:
1) Location,
2) Production
3) Inventory
4) Transportation (distribution)

Location
The geographic placement of production facilities, stocking points, and sourcing
points is the natural first step in creating a supply chain. The location of facilities
involves a commitment of resources to a long-term plan. Once the size, number,
and location of these are determined, so are the possible paths by which the
product flows through to the final customer. These decisions are of great
significance to a firm since they represent the basic strategy for accessing
customer markets, and will have a considerable impact on revenue, cost, and
level of service. These decisions should be determined by an optimization routine
that considers production costs, taxes, duties and duty drawback, tariffs, local
content, distribution costs, production limitations, etc.

Production Decisions
The strategic decisions include what products to produce, and which plants to
produce them in, allocation of suppliers to plants, plants to DC's (Distribution
Centres), and DC's to customer markets. As before, these decisions have a big
impact on the revenues, costs and customer service levels of the firm. These
decisions assume the existence of the facilities, but determine the exact path(s)
through which a product flows to and from these facilities. Another critical issue
is the capacity of the manufacturing facilities--and this largely depends the
degree of vertical integration within the firm. Operational decisions focus on
detailed production scheduling. These decisions include the construction of the
master production schedules, scheduling production on machines, and
equipment maintenance. Other considerations include workload balancing, and
quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at
every stage of the supply chain as either raw material, semi-finished or finished
goods. They can also be in-process between locations. Their primary purpose is
to buffer against any uncertainty that might exist in the supply chain. Since
holding of inventories can cost anywhere between 20 to 40 percent of their
value, their efficient management is critical in supply chain operations. It is
strategic in the sense that top management sets goals. However, most
researchers have approached the management of inventory from an operational
perspective. These include deployment strategies (push versus pull), control
policies - the determination of the optimal levels of order quantities and reorder
points, and setting safety stock levels, at each stocking location. These levels
are critical, since they are primary determinants of customer service levels.

Transportation Decisions
The choice of mode for the above decisions is the more strategic ones. These are
closely linked to the inventory decisions, since the best choice of mode is often
found by trading-off the cost of using the particular mode of transport with the
indirect cost of inventory associated with that mode. While air shipments may be
fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile
shipping by sea or rail may be much cheaper, but they necessitate holding
relatively large amounts of inventory to buffer against the inherent uncertainty
associated with them. Therefore customer service levels and geographic location
play vital roles in such decisions.

Value Stream Mapping

A value stream is the set of all activities, from request to delivery, used to
provide a product or service to clients. Understanding and improving processes
as integrated end-to-end systems is fundamental to real and sustainable
improvement. It is one of the most powerful lean tools for improvement.
As organisations come under increasing pressure to deliver value to customers
and to decrease costs, the inevitable questions eventually emerge: What parts of our processes add value from our customers perspectives?
What parts of our processes add cost?

To these first questions come subsequent supplementary questions: What parts of our processes are unreliable and create variation?
What parts of our processes limit our capacity?
What parts of our processes reduce our flexibility?
What parts of our processes do we need to change to reduce our cycle times?

The usual aim of producing a value stream map is not just to understand one
process (e.g. how a new case is opened up on a computer system), but to look
at the whole end to end process. It is not just process mapping, but an attempt
to understand the whole flow of the process with a view to understanding how
the process parameters can be changed to achieve the type of improvement we
are interested in. Value stream mapping is integral to process improvement. It
reduces the risk of one stage in a process being improved to the detriment of
another stage. The map is used as the basis for planning one or more
improvement events with a view to transforming the process over time.

For detailed understanding please visithttp://www.leaninstitute.in/value-stream-map

Total Quality Management

Total quality management is a management system for an organization which


states that each and every employee is responsible for continual improvement of
all aspects of the organisation. TQM uses strategy, data, and effective
communication to integrate the quality principles into the culture and activities
of the organization.

Principles of TQM
1. Customer Focused: Whatever is done for quality improvement, it should be
remembered that only customers determine the level of quality.
2. Total Employee Involvement: Removing fear from work place, then
empowering employee thus providing the proper environment.
3. Process Cantered: Fundamental part of TQM is to focus on process thinking.
4. Integrated System: All employees must know the business mission & vision.
5. Strategic and Systematic Approach: Strategic plan must integrate quality
as core component.
6. Continual Improvement: Using analytical, quality tools, and creative
thinking to become more efficient and effective.
7. Fact Based Decision Making: Decision making must be based only on data,
not personal or situational thinking.
8. Communication: Communication strategy, method and timeliness must be
well defined

Production Planning and Control


Production planning is a managerial function which is mainly concerned with
following important issues: What production facilities are required?
How these production facilities should be laid out in the space available for
production?
How they should be used to produce the desired products at the desired rate
of production?
Production planning is generally done at the following three horizon levels:
Long term (Capacity Planning)
Medium term( Aggregate planning)
Short term (Operational Planning)
Production control is a mechanism to monitor the execution of the plans. It has
several important functions:
Making sure that production operations are started at planned place and
planned time
Observing progress of operation and recording it
Analyzing the recorded data and measuring deviations
Taking immediate corrective actions
Giving feedback to improve the process
Different form of production control: Quality control
Stock/Inventory control
Order processing against schedule
Cost Control
People and labour productivity
Production System can be defined as a transformation system in which a
saleable product or service is created by working upon a set of inputs.
Inputs are usually in the form of men, material, machine and method. It can be
classified in term of:

Type of production
Size of plant
Type of product
Physical flow of materials
Nature of order/Demand Pattern
Variety of jobs