Inhoud

Summary Operations Management 2 Mariët Krebs.........................................................................2

Chapter 1 Introduction.......................................................................................................................2
Chapter 2 Globalisation and international trade................................................................................3
Chapter 4 Supply chain strategies......................................................................................................4
Chapter 3 Supply chain relationships.................................................................................................5
Chapter 8 Procurement......................................................................................................................7
Chapter 16 Service supply chains.....................................................................................................10
Chapter 5 Transport in supply chains...............................................................................................11
Chapter 7 Logistics service providers...............................................................................................12
Chapter 9 Inventory management...................................................................................................12
Chapter 10 Warehousing and materials handling............................................................................14
Chapter 14 Sustainable logistics and supply chain systems..............................................................16
Chapter 15 Reverse logistics.............................................................................................................16
Chapter 11 Technology in the supply chain......................................................................................18
Chapter 6 Transport security............................................................................................................18
Chapter 13 Supply chain vulnerability, risk, robustness and resilience............................................19
Chapter 18 Emerging supply chain designs......................................................................................20
Summary Operations Management 2

Chapter 1 Introduction
Higher value freight is better able to ‘absorb’ transport costs.
For many individual shipments: increased value/decreased volume= lower transport cost sensitivity.

Material substitution= the replacement of a physical product by a virtual product.

Deregulation= by removing unnecessary barriers to competition, markets become more contestable

and prices should come down and service should improve.
 Positive impact on many transport markets

Increased market competition led to improvements in the management of inventory. Cost savings
were identified trough eliminating unnecessary inventory.
 JIT deliveries became normal operating practice.
 Too much stock were associated with higher risks

In recent years companies have become less vertically integrated and more specialised.
 More outsourcing
 Functions and activities across the company are more integrated.

Logistics= the process of planning, implementing, and controlling procedures for the efficient and
effective transportation and storage of goods including services, and related information.

Logistics involves getting:

- The right product
- In the right way
- In the right quantity and quality
- In the right place at the right time

Supply chain= the network of organisations that are involved, through upstream and downstream
linkages, in the different processes and activities that produce value for a product.
A number of key flows in the supply chain:
1. Physical flows of materials
2. Flows of information that inform the supply chain
3. Resources which help the supply chain to operate effectively.

SCM: the management of both relationships and flows in the supply chain.
  Purpose: create value, enhance efficiency, satisfy customers

Logistics is part of SCM; SCM is a much wider, intercompany, boundary-spanning concept, than is the
case with logistics.

Chapter 2 Globalisation and international trade

Growth in international trade
Global trade has grown in recent decades. Most of this growth has been facilitated by the reduction
of trade barriers between countries and regions.
 Regional trade agreements allow more open trading (EU, AFTA)

Transfer price= when goods or services are transferred between divisions of the same company, a
value is attributes to them (minimise tax exposure)

Measuring logistics performance

LPI (logistics performance index): benchmarking tool created to help countries identify the challenges
and opportunities they face in their performance on trade logistics, and what they can do to improve
their performance. Six key dimensions:
1. Customs
2. Infrastructure
3. International shipments
4. Logistics competence
5. Tracking and tracing
6. Timeliness

One of the goals of logistics is to facilitate the process of trade, and this in turn can aid the economic
well-being of all countries.

Globalisation= an umbrella term for a complex series of economic, social, technological, cultural and
political changes, which continue to take place throughout the world.
 Example: commercial shipping activity

Glocalisation: thinking on a global, world-market scale, but adapting to local wants as appropriate.

3 terms relating to how companies think and behave as they internationalise:

o Ethnocentricity: where the company when doing business abroad thinks only in terms of the
home country environment.
o Polycentricity: where the company adopts the host country perspective
o Geocentricity: where the company acts completely independent of geography and adopts a
global perspective.
Directional imbalances arise in freight markets when there are mistakes in the volumes or types of
freight moving in opposite directions in a freight market.

Chapter 4 Supply chain strategies

Logistics and supply chain strategy is not divorced from a firm’s strategy. It’s actually an important
part of a firm’s strategy.

Strategy= being concerned with planning and configuring the organisation for the future in
accordance with certain stakeholder expectations. -> long term plan for success.
 Usual starting point: to work from the ‘top down’ (top down perspective)
 You can also work with a holistic view of logistics and SCM

Formulating a strategy for logistics and SCM should not be restricted to the logistics function: instead
it should involve taking a cross-functional, process-based perspective.
2 principal logistics and supply chain strategies:
o Agile
o Lean

Lean production= a production system where the emphasis was not on the efficiency or individual
machines, but on total flows through a system.
- Elimination of waste
- Low levels of inventory
- Faster total process
- Achieving total quality
 ‘pulled’ based (inventory is produced and moved only when necessary), JIT
 Value is added at each stage of the process, and steps in the process that do not add value
are eliminated

Agile supply chain: a demand-pull chain designed to cope with volatile demand. It is structured so as
to allow maximum flexibility and will often incorporate postponed production.
 It in effect seeks to act as a ‘demand chain’ with all movement upstream in the supply chain
as a result of customer demand.
 Mass customisation: customisation into various different finished products.
This is enabled by a philosophy know as ‘postponement’, which involves the reconfiguration
of product and process design so as to allow postponement of final product customisation as
far downstream as possible.

Decoupling point= the point at which we move from the base product to customised products.
A simple scenario is to use lean strategies to manage base demand (a forecast-drive approach) and to
use agile strategies to manage surge demand (a demand-driven approach).

Lean, continuous replenishment: over time a steady demand pattern will be apparent, allowing the
supplier to ‘lean’ the supply chain with a high level over certainty (supplier -> retailer).

Agile, quick response: suppliers need to respond rapidly to changes in demand.

Lean, plan and execute: more planning is required at a point well ahead of when demand will actually
be realised. -> any uncertainty caused by long lead times can be managed (bijv. Christmas trees)

Leagile, postponement: combine lean and agile logistics, it is a hybrid strategy.

Chapter 3 Supply chain relationships

Globalisation of the manufacturing sector has resulted in the following trends:
 Global competition
 Global value chains -> increasing complexity and competition
 Global access to knowledge and new technologies
 Rapid pace of technological change
 SCM expertise and innovation as preconditions for business success.

Outsourcing= the transfer to a third party of the management and delivery of a process, previously
performed by the company itself.
Reasons for outsouring:
- Cost -> the outsource partner can provide it cheaper
- Flexibility
- A company wants to focus on its core competences
- Technology -> the outsource partner has the most up-to-date technology

Virtual organisations= organisations which outsource almost everything.

Other reasons for outsourcing:

- Reduce taxes
- Reduce logistic costs
- Share risk
- Overcome tariff barriers
- Learn from local suppliers, customers or competitors

Offshoring= the transfer of specific processes to lower cost locations in other countries.
The difference between outsourcing and offshoring:
outsourcing involves handing process ownership over to a third party, whereas with offshoring the
company may still own and control the process itself in the lower cost location.

Outsourcees will be selected on:

 Order qualifiers
 Order winners

Some criteria that could be included as order qualifiers include:

 Reliability of delivery
 Quality certifications
 Financial capability
 Price or cost reduction
 Delivery lead time

Corporate social responsibility (CRS): concerns how ‘ethical’ a company’s activities are.

Supply chain integration= a term that embodies various communication channels and linkages
within a supply network.
 The alignment and interlinking of business processes, not collaboration

4 primary modes of integration within a supply chain:

1. Internal integration: cross-functional integration within a selected organisation
2. Backward-integration: integration with 1st tier supplier
3. Forward integration: integration with 1st tier customer or service providers
4. Forward and backward integration: integration with suppliers and customers.

The journey from open market negotiations to collaboration:

Vertical collaboration: between suppliers and customers
Horizontal collaboration: between competitors and other supply chain actors.

Chapter 8 Procurement
Procurement= about specifying requirements, identifying sources, evaluating options and acquiring
resources that are fit for purpose, cost effective and sustainable.
This should be considered in terms of the motivation of the buyer and the seller. This essence
between buying and selling is the essence of competition.

Sourcing strategies: provide a basis to consider a category of spend, defining the characteristics of
that category and how the marketplace determines how and sometimes when an organisation
should procure items with that category.
 Essentially a business case for an organisation to decide on the best way to procure
resources.
 Role of procurement: manage value and risk on behalf of the organisation
As a minimum a sourcing strategy should include:
 Level of spend being considered
 Risk
 Market maturity
 Technology lifecycle of market
 Contract duration

Kraljik matrix: provides a tool as a basis for outsourcing decisions:

The role of a procurement manager is to create an appropriate level of competition to manage the
level of risk and value that the business faces when sourcing or procuring goods, services or works.

Procurement techniques and tools:

 Request for quotation: when specifications are clear
 Negotiation
 Formal tender process: when the risk and the value are high
 eAuction: when the specifications and market are clear

Procurement should be considered as a process of lifecycle. There are 4 stages:

Category managers: provide the leadership and focal point for a business to source and manage the
risk and value related to a category or portfolio on behalf of the business.
 In larger businesses: responsible for developing the sourcing strategy.
Procurement systems have developed a lot over the years, due to technology. Enterprise resource
planning (ERP) made that possible by helping organisations with complex issues.
Many of the administrative tasks associated with traditional procurement are eliminated.

Price, cost and value

It is important not to confuse price with cost, terms that are sometimes used interchangeably but
mean very different things.
‘Whole lifecycle cost’: the cost of producing a particular item may relate to operating an asset or
using a service, which in turn can drive other higher costs.

Value for money is 3 different components of acquiring, operating and disposing. This is the optimum
combination of whole lifecycle costs and quality to meet the end users’ requirements.

Low cost country sourcing:

- Lower labor costs
- Improved infrastructure
- Availability of technology
 Advantage: possible cost reduction of 40%
 Disadvantage: complicated relationships and communication, but also ethical aspects.

Purchase price variance (PPV)= measure of the variance between the actual price pad versus the
standard cost of the item.
- Calculation: standard cost price – actual price
The performance of a buyer is measured against the standard cost in terms of a positive or negative
variance.

At the opposite is the business approach. This focus on performance from a strategic and top-down
perspective highlights the true nature and the real driver for procurement activity, which is to create
a return on investment through improved procurement and contract management.

Ethical sourcing
Companies are more aware of their responsibilities and can include a special paragraph in their
annual year report.
 Difficult to manage when low-cost country sources are involved.

A range of ethical issues to consider:

 Green products
 Carbon emissions
 Transport
 Standards at work
 Sustainability
Chapter 16 Service supply chains
Huge shifts:
- Agriculture -> manufacturing economies
- Manufacturing -> service economy (offshoring production to low-wage countries)

Servitisation= manufacturers offering services with their products

Service science= the study of the application of the resources of one or more systems for the benefit
of another system in economic change.
 Service innovation: what is driving the expansion of the service sector.

Service supply chain= the network of suppliers, service providers, consumers and other supporting
units that performs the functions of transaction of resources required to produce services;
transformation of these resources into supporting and core services; and the delivery of these
services to consumers.

The distinction between the service supply chain and the manufacturing supply chain in terms of
intangibility, heterogeneity, perishability and inseparability.

Both should be managed differently.

 Emphasis of a service supply chain is on the creation of value through labour and knowledge
 A manufacturing supply chain will create value through the provision of standard, repeatable
processes that ensure the delivery of freight to the end consumer.
Chapter 5 Transport in supply chains
Transport is an important part of SCM. It is typically regarded as a non-value-adding activity. But
when it is properly managed, it can allow supply chains to work more efficiently and effectively.
5 essential models for transport:
1. Air
2. Road
3. Water
4. Rail
5. Pipeline
6. (Internet)

 Choosing which mode to use for freight transportation will usually be a function of the
volume and value of the freight, the distance to be travelled, freight rates, etc.

Distribution centre= a type of warehouse where a large number of products are delivered by
different suppliers, preferable in full truck loads. Each distribution centre services a number of retail
stores in the regional area.

Factory Gate Pricing(FGP): the use of an ex-works price for a product plus the organisation and
optimisation of transport by the purchaser to the point of delivery.

For implementation of FGP a single point of control is required in the supply chain, otherwise there
will be additional costs such as in achieving collaboration between all transport parties.

Intermodal transport= where freight moves within a loading unit -> loading unit may move upon a
number of different transport modes.

Transloading= when freight need to be transferred from one type of loading unit to another.
Some reasons for transloading:
- Combine smaller shipments
- To meet regional/national road weight limits
- The loading unit is needed for another shipment

A variety of issues impact the efficiency and effectiveness of transport services:

 Congestion problems
 Waste including empty running
 Road user charges
 Skill shortages
Chapter 7 Logistics service providers
In recent years, many companies have sought in particular to move away from own-account
transportation to third-party transportation.
Logistics service providers= companies that operate in this sector.

Third-party logistics (3PL)= the term we use when organisations outsource logistic activities.

Services provided by 3PLs:

 Transportation
 Warehousing
 Pick and pack
 Trade finance
 Inventory management

Fourth party logistics (4PL)= when an organisation outsource their complete supply chain.

Some important factors to be considered when selectin LSPs:

 Services to be provided
 Costs and costing approach
 Speed/transit time
 Information systems

Chapter 9 Inventory management

Inventory= any material that a firm holds in order to satisfy customer demand. It is everywhere in
the supply chain.

Inventory turnover: a concept used to measure a firm’s performance in inventory management.

 Cost of all goods sold in a year / value of average inventory held throughout the year

Another view of holding inventory is based on trade-offs. Inventory holding costs are traded-off with
other economical advantages.
Costs associated with inventory:
- Associated with procuring the inventory
o Money spent to process a procurement order
o Money spent to actually buy the inventory
- Associated with actually holding the inventory

Lead time= the time after which the order is filled and the inventory level increases by the amount of
the order.

Opportunity cost= the amount of money the firm would have earned if the money were invested
elsewhere other than in inventory.

Economic order quantity= represents a balance between order processing costs and inventory
holding costs.
 With lower order quantities there are too many orders; the order processing costs are high
and dominate the total costs.

Safety stock= the amount of inventory stocked by the system in case of unforeseen event arising.
Without safety stock some inventory demand may not be met -> buffer stock.

2 basic systems for inventory control:

1. Reorder point inventory system: orders are issued when the reorder point has been reached.
2. Periodic inventory control system: on a periodic base the inventory is checked.

Principles for inventory reduction:

 Pool inventory: inventory centralisation, where demand from different locations is combined.
 Reduce variation
 Reduce lead time: this will reduce transit inventory costs.
JIT: the idea of making do with the minimum possible level of inventory holding. Core concepts:
 Inventory hides problems
 Small lot production

Chapter 10 Warehousing and materials handling

Supply chains have inventory stored at multiple stages in various states of manufacture or assembly.
 Warehouse have become highly sophisticated to maintain the flow or freight to the end
customer.

Costs of warehousing:
- Cost of the inventory
- The fixed asset costs of warehouses and plant such as racks and forklifts
- Costs of labour and administration

Key objectives of material storage and handling systems: to minimise cost and to add value.

Value-adding activities= those supply chain activities that enhance products to increase the
customer’s perceptions of those products’ benefits.
Customer value can be added by:
- Improving the quality during storage (whiskey)
- Improving the service associated with the product (packaging)
- Reducing its costs
- Reducing its lead time (cross-docking)
 Storage should be avoided unless the freights requires one of these activities.

Warehouses should aim to provide value-adding services as well as minimise operating costs.

Cross-docking= freight is moved to a storage location. It bypasses the storage areas in warehouses
and distribution centres.
Replenishment= goods are moved from reserve storage locations to pick locations. This is normally
triggered by the quantity at the pick locations falling below a predetermined level.

ERP: defines the material requirements that are transmitted to the warehouse or distribution centre
for a warehouse management system to manage the information processes within the warehouse.

Warehouse management system= manage the complexity in warehouses to trigger the right work at
the right time across the operation to meet demand.

By employing mechanical and automated handling technologies, floor space between storage
locations can be minimised and the locations themselves are able to occupy multiple levels.

Storage solutions depend on:

 Volume;
 Variety;
 Throughput of freight in a warehouse or distribution centre.

Warehouse designers must select the appropriate balance between storage and picking + the most
effective and efficient solutions.

Socio-technical system theory= focus on the impact of implementing warehousing technologies on

the workforce. Fundamental principles:
 Joint optimisation of the technical and social system
 Quality of work life
  Employee participation in system design
 Semi-autonomous work groups

Chapter 14 Sustainable logistics and supply chain systems

Globalisation and international trades -> increased outsourcing and offshoring -> huge flows of
international freight.

Sustainable logistics: concerned with reducing the environmental and other disbenefits associated
with the movement of freight.
Sustainable supply chains: seek to reduce these disbenefits by redesigning sourcing and distribution
systems so as to eliminate any inefficiencies and unnecessary freight movements.

Carbon footprint= a term used to describe the environmental disbenefits associated with economic
activities such as the movement of freight.

Food miles= the distance over which the various components of a particular food item have to travel
before final consumption.

3 ways to improve the sustainability of logistics and supply chain systems:

1. Redesigning supply chains
2. Using scale to reduce the negative environmental effects of logistics activities
3. Similarly promoting various efficiency solutions

Many logistics operators are seeking efficiencies with how they move and store freight so as to
reduce the environmental impact of their activities.

Economic growth and growth in transport are closely linked: economic growth -> more transport
required. Decoupling this can be realize by:
 Increase scale
 Increase efficiency

Chapter 15 Reverse logistics

Reverse logistics= the process of planning, implementing, and controlling the efficient, cost effective
flow of raw materials, in-process inventory, finished goods, and related information from the point of
consumption to the point of origin for the purpose of recapturing or creating value or proper
disposal.
 Increase the amount of product materials recovered from the world’s waste stream.
 A manufacturer systematically accepts previously shipped products or parts from the point of
consumption.

Motivations for reverse logistics:

 Government policy and legislation: several countries force manufacturers to take back their
products after use.
 Economic considerations: disposal costs are high
 Environmental considerations
o Help companies to adhere to environmental legislation
o Can create an opportunity for companies to project themselves as ‘green’ companies
 Shift towards buying sets of services

Recovery options in reverse logistics:

 Reuse: a recovered product is used again for a similar purpose
  Remanufacturing: reducing a product into its constituent parts. The parts can be reused in
the assembly of new products.
 Recycling: the process of collecting and disassembling used products and separating them
into categories of like materials (plastic, glass, etc.).
o Least value-added recovery process of the 3

Hierarchy of recovery options:

1. Resource reduction
2. Reuse
3. Remanufacturing
4. Recycling
5. Disposal with energy recovery
6. Landfill

Open-loop system: flows enter at one point and leave at another in the logistics system. These
companies do not use the recovered materials for themselves.

The differences between the recoverable and traditional manufacturing environments:

The distribution of returns is difficult to manage. There is a mismatch between demand and returns,
which lead to excess stocks of unwanted parts and shortages of those that are required.

2 main reasons why there can be accumulations and shortages in a remanufacturing environment:
 Uncertainty in timing and quantity of returns
 Stochastic routings and processing times

Key factors for successful reverse logistics implementation:

 External factors
o Legislation
o Customer demand: more people want green products
o Incentive
 Internal factors
o Environmental concerns
 o Strategic cost/benefits
o Volume and quality of returns: returned product quality is not uniform
o Resource: must be used effective
o Integration and coordination (efficient information systems)

Chapter 11 Technology in the supply chain

The internet of things: refers to the network of physical objects embedded with electronics, sensors
and software to enable these things to connect with other things.

Benefits of automating processes:

- Cost reduction
- Error reduction
- Improved cycle times

An agile supply chain is reliant on the timeliness and quality of shared information. The ability to
access real-time product information anywhere along the supply chain is thus a key component of
becoming truly agile.

Barriers to visibility of information are:

 Number of supply chain partners
 Barriers in sharing information between organisations
 Cost implications of implementation of technology
 Cultural barriers
 Technical ability to let systems interface

RFID= technology which automatically identify and locate physical freight.

Operational improvements from using RFID:
- Shipping consolidation
- Verification
- Storage
- Warehouse efficiency
- Item tracking
 It has the potential to deliver real-time supply chain agility.

With globalisation comes also the need for global standards regarding data to improve the ease of
exchange.

Chapter 6 Transport security

ISPS code= mandatory security initiative which applies to all countries that are members of the
international maritime organization. The objectives are to enable the prevention and detection of
security threats.
3 main areas of security technology:
 Access control
o Gates, fences
 Biometrics
o Identification cards
 Detection systems
o Closed circuit television

Chapter 13 Supply chain vulnerability, risk, robustness and resilience

Robust SCM strategy: should enable a fir to manage regular fluctuations in demand efficiently under
normal circumstances regardless of the occurrence of a major disruption.

Supply chain vulnerability: expressing the risk in the supply chain -> shortages, loss supplier, loss
customer, etc.

Resilience: a term used to mean ‘the ability of a system to return to its original state after being
disturbed’. When applying to the supply chain:
 It encourages a whole system perspective
 It explicitly accepts that disturbances happen
 It implies adaptability to changing circumstances.

Conclusions about risk taking behaviour:

 Managers focus on the possible losses associated with plausible outcomes
 Decisions involving risk are heavily influenced by their impact on the manager’s own
performance targets
 There is unlikely to be a single unified attitude to risk taking within a large organisation.

Objective risk= the probability hat a particular adverse event occurs during a stated period of time,
or results from a particular challenge.
Perceived risk= the imprecise and unreliable perceptions of ordinary people.
 These both have places in logistics and SCM.

‘wicked problem’= a problem with more than one possible solution. It involves multiple stakeholders
with slightly different interests and value sets.
Risk management is a wicked problem, it consists of often conflicting or competing efforts.

To approach wicked problems, the supply chain can be broken down in 4 levels:
 1. Process engineering and inventory management – focusses on what is being carried and
process design within and between organisations. -> underlies lean manufacturing.
a. Risk management is about improved visibility and velocity
2. Assets and infrastructure dependencies – considers the assets used to source, produce or
carry the goods and information flows addressed at level 1.
a. Risk management is about improved security
3. Organisations and inter-organisational networks – at this level, risk is likely to be perceived as
the financial consequences of an event or decision.
4. The macro-environment – PEST analysis of environmental changes.
a. Risk management is about scanning environment financial consequences, impact on
budget and stakeholders.

Chapter 18 Emerging supply chain designs

The key megatrends affecting logistics and SCM today:
 Competitive landscape is dictated by supply chains
 Some supply chains are becoming too stretched
 Designing for supply chain efficiency
 Rising energy costs will have a growing impact
 Resource scarcity is extending reach
 There is an increasing awareness of the environmental impact
 Technology and the Internet of Everything have a growing influence

Design for supply chain efficiency (DSCE)= by taking supply chain concerns into account in the
product and process design phase, it becomes possible to operate a much more efficient supply
chain.

The supply chain encompasses 3 flows:

1. Material
2. Information
3. Resources

Skills that logistics and supply chain managers require: