Managing operations across the supply chain

Chapter 1: Introduction to Managing Operations Across the Supply Chain

Operations Management  management of processes used to design, supply, produce, and

deliver valuable goods and services to customers
 mainly concerned with how resources will be developed and
used to accomplish business goals
 bring together: the firm, customers, suppliers and
stakeholders
 enhance value of goods/services by increasing economic,
functional, and psychosocial value
 fundamentally dynamic

Supply Chain  global network of organizations and activities involved in designing,

transforming, consuming and disposing of goods and services

Goods  can be produced in advance, stored in inventory

Services  must have enough capacity to meet demand  otherwise postpone (backlog)
demand
Quality control more difficult for services than for goods
Dematerialization  transforming a tangible good into an intangible product/service
Total product experience  all the goods/services that together define the customer’s
complete consumption experience
Process  a system of activities that transforms inputs into outputs
Lean operation  produces maximum levels of efficiency/effectiveness using minimal
amount of resources

Supply Chain Management and technological advances in operations management have

grown as the result of certain forces:
- Advances in Technology and Infrastructure  Improved information sharing and
transportation infrastructure
- Reduction in Governmental Barriers to Trade
- Focus on Core Capabilities
- Collaborative Networks
Supply chain management  design and execution of relationships and flows that connect
parties and processes across a supply chain
 flows of information, materials, energy, money and people
Customers  anyone that uses/consumes the products of operations management processes
 internal customers  intermediate customers  final customers/consumers
Suppliers  parties that provide inputs to operational processes
 upstream product suppliers  Raw materials/components, directly related
to production process
 downstream product suppliers  provide enhancements to finished goods
 Resource and technology suppliers  provide everything needed to
support a firm’s processes
 aftermarket suppliers  product service and support
Stakeholders  groups of people who have (financial) interest in the well-being of an
operation

Customer management  management of customer interface

Supply management  management of processes used to identify, acquire, and administer
inputs to the firm
Logistics management  management of movement of materials and information into,
within, and out of the firm

Tier  each upstream stage of supply

Echelon  each downstream stage of supply/consumption

Strategic planning  addresses long-term decisions that define overall operations objectives
and capabilities
Tactical planning  addresses intermediate-term decisions to target aggregate product
demands
Operational planning  establishes short-term priorities and guides operational resource
allocations
Chapter 2: Operations and Supply Chain Strategy
Operations strategy  set of competitive priorities coupled with supply chain structural and
infrastructural design choices
 intended to create capabilities that support a set of value
propositions that address needs of key customers

Strategic planning often consists of: (hierarchy)

- Corporate planning  what business should we be in?
- Strategic business unit (SBU) planning  how do we compete?
- Functional planning  how do we best support the SBU strategy?

Corporate strategy  determines overall mission of the firm and type of business it wants te
be in
Strategic Business Unit (SBU)  semi-independent organizations used to manage different
product and market segments
 can be organized along a product, market, geographic
dimension etc.
 how do we compete?
Business model  determines type of customers, value propositions and supply
chain/operations management capabilities

SWOT analysis  identifies strengths, weaknesses, opportunities and strengths

Functional strategy  determines how the function will support overall business unit strategy
 most detailed and constrained out of the 3 strategies

Operations strategy has 3 key elements

1. Key customer  targeted by the firm as its important for their future success
 may be responsible for largest current/ future sales
Assessing Customer Wants and Needs  Product specific traits can be classified into:
 Order winners  product traits that cause a customer to select one product over its
competitors
Order qualifiers  product traits that must be at certain level for product to be
considered by the customer
Order losers  products traits if not satisfied cause loss of current/future orders
 only one that results from customers actual experience

2. Value proposition  all (in)tangible “benefits” that customers can expect to obtain
by using the products offered by the firm
Well-designed value proposition had the following characteristics:
1. Offers product features that customers find attractive and are willing to pay for
2. Differentiates the firm from its competition
3. Satisfied financial/strategic objectives of the business
4. Can be reliably delivered
5. Consistent with firm’s social and core values
3. Capabilities  operational activities that the firm can perform well

Competitive priorities (quality, cost)

Timeliness  the degree to which a product is delivered or available when the
customer wants it
Time to market  time it takes a firm to conceive, design, test, produce, and deliver a
product to the market
Innovation  radical/incremental changes in processes/products
Flexibility  ability to respond to changes (supply chain relationships/ competitive
environments)
Risk management  operations that anticipate and deal with problems/unforeseen
events
Triple bottom line  3 different measures for profit and loss (measures a company’s total
impact)
1. Profit  monetary result of operations
2. People  social impact
3. Planet  environmental impact

Fit  the extent to which there is alignment between the firm’s operational capabilities ,its
value proposition and the desires of its critical customers

Strategic Profit Model (SPM)  shows how operational changes affect the overall
performance of the business unit, it converts operational changes into financial impacts
In general: the higher the ROA, the better the level of performance
Chapter 3: Managing Processes and Capacity
Process  system of activities that transform inputs into valuable outputs
Process thinking  a way of viewing activities in an organization as processes rather than as
processes rather than as departments/functions
Juran’s Law  15% of operational problems are the result of human errors; the other 85%
are due to systemic process errors. to improve operations we should focus our attention on
processes first

Anatomy of a process:
1. Activities of a process  5 categories
- Operation  anything that transforms an input
- Transportation  moving an input
- Inspection  checks/verifies results of activities
- Delay  when flow of input is unintentionally stopped as result of interference
- Storage  where items are inventoried under formal control
2. Inputs, Outputs and Flows
Two basic types of flows: information and material flows
Inputs  items that come from outside the process and consumed by the process
Outputs  (un)intended products of the process (physical goods, services, info)
3. Process Structure  how inputs, activities and outputs of a process are organized
 limits the process capabilities  specific types of outputs and levels of
performance that a process can generate
4. Management Policies  how the requirements for any specific process are specified,
measured and evaluated
Capacity Planning
Too much capacity  increased costs
Too little capacity  lost sales
3 strategies:
Capacity lead  adding capacity (assuming that demand will grow)
Add or remove capacity corresponding to demand
Capacity lag  wait to add capacity until demand is actually known
Capacity changes can be: (from up to bottom: Operational, tactical, strategic)

Learning curve  as production volume doubles, labor hours decrease by a constant

proportion
Capacity of its process is determined by the limits of its resources

Maximum capacity  highest output rate that an activity or a process can achieve
Effective capacity  level of capacity that can be expected under normal conditions/ what
management plans under normal conditions
Utilization  % of process capacity that is used
Yield rate  % of units successfully produced as a percentage of inputs

Theory of Constraints (TOC)  management system that strives to improve system

performance, there are five main principles:
1. Every process has a constraint
Bottleneck  the process that limits the overall output
Serial/sequential structure  activities occur one after the other
Parallel structure  2 or more resources doing the same task simultaneously
Little’s Law  F (flow time) = I (inventory) / TH (throughput rate)
Flow time  total time it takes a unit to get through a process
Cycle time  time that it takes to process one unit at an operation in the
overall process.
2. Every Process Contains Variance That Consumes Capacity
 variance exists in inputs, outputs, process activities  introduces complexity and
uncertainty into processes
 Formula developed from queuing theory:

Three basic ways to deal with variability:

1. Reduce it  finding sources of variance and eliminating/controlling them
2. Buffer it  by placing a buffer before/after highly variable activities
3. Process that flexibly respond to it

3. Every Process Must Be Managed as a System

Elements need to be aligned, changes can lead to unpredictable results

4. Performance Measures Are Crucial to the Process’s Success

Metric  a measure, standard and a consequence that together close the gap between
customers values and organizations intention
 should be verifiable and quantitative
Managers must identify the critical customers, have to prioritize the requirements,
without losing sight of less critical groups

5. Every Process Must Continuously Improve

Technology, competition, customers and expectation are always changing
Processes must be evaluated and changed if necessary
Chapter 4: Product/Process Innovation
Managers are trying to find ways to improve products and processes
 all development projects are operational processes
 new product and new process development activities are often closely linked
 can be viewed as part of the resource/technology supply chain
Product Life Cycle  pattern of sales growth and decline over the period in which a product
is offered:
Launch
Growth
Maturity  demand stabilizes
Decline  try to avoid by using incremental design/product development

Fast innovating firms gain the following advantages:

More sales by getting products on the market faster than competitors
Can react quickly on the development and promotional efforts of their competitors
High-quality innovators:
Fewer problems in the marketplace
Higher customer satisfaction
Efficient innovators:
Able to fund more projects than other firms
Can sell at lower prices
Idea and Opportunity Development
Firm gain/sustain an innovative vulture through the following practices
Creating effective rewards for employees
Providing adequate recourses for workers
Open innovation  organizational effort to capture ideas/resources from sources outside the
firm for innovative use
Crowdsourcing  obtaining ideas/services from a large group of people

Innovation Portfolio planning  selecting/prioritizing innovation projects that are the most
promising and most consistent with the firm’s marketing and technology strategies

4 types of innovation projects

Codevelopment relationship  joint ownership in product design

Benefits: increased number of sources, increase in launched products, reduce time to
launch/produce products and financial and legal risk is shared
Risks: losing control over intellectual property, becoming too dependent on partners
Early supplier involvement (ESI)  a codevelopment approach in which suppliers participate
directly in product design activities
 this way suppliers can influence decisions for higher efficiency in for example
delivery or product development

Stage-gate process  to manage costs and risk in innovation projects

1. Resources are committed only on a stage-by-stage basis.
2. Near the completion of each stage, senior managers review progress and make a go/
no-go decision to determine if the project should be continued.
3. If the decision is go, then resources are provided for the next stage
4. At the next gate, the project is reviewed again and another go/no-go decision is
made.
 5. If the decision is no-go then the project may repeat the stage, or it may be
terminated

Not all stages have to be executed purely sequential 

Concurrent engineering  simultaneous design and development of all the processes and
information needed to produce/sell/distribute/service a product

Overall resources spent in new product/process development can be split into three
categories:
Development costs
Sustaining and warranty costs
Production and sales support costs
The integrated/concurrent engineering approach benefits:
Able to complete projects faster and introduce product sooner
Lower sustaining and warranty costs
Able to design supply chains that are more cost effective

Product must meet the targeted customer’s needs, some techniques to ensure this:
Voice of the Customer (VOC)  research that gathers detailed data about the
customers wishes, needs, (dis)likes etc.
Quality function deployment (QFD)  tool to translate ordinary language into
engineering language used to set product/process parameters
 diagram knows as ‘customer requirements planning matrix/House of Quality’
guides the process
 Failure modes and effects analysis (FMEA)  A procedure for identifying and
correcting potential quality problems inherent to product or process designs.
Team-based  how could the product design fail and how to prevent this?

5 steps from problem identification to resolution needed:

1. Determine what portions need to be analyzed
2. Identifies potential failures, modes for each failure and effects of each failure
mode
3. Prioritizes the failure modes  risk priority number (RPN)=
occurrence*severity*undetectability
4. Create plans to deal with each critical failure mode
5. Implement the plans and measure their impact, repeat analysis if needed
Value Engineering/Value Analysis  A method to improve the benefits and costs of
a product through a detailed examination of its function.

Design for Supply Chain Operations

Producibility  how fast, easy, efficient and reliable a product can be produced
Design for Six Sigma  systematically evaluate the consistency with which a
good/service can be produced or delivered
Robust design  products that can be made consistently even with varying inputs and
operation conditions
Modular product design  designing products as combinations of product features
Service platform  A prod- uct designed to deliver a wide range of customizable
services.

Enabling Technologies for Product/Process Innovation

Computer-aided design (CAD)  Systems that automate the development of
drawings and technical specifications.
Computer-aided engineering (CAE)  Systems that create and analyze three-
dimensional product models
Group technology coding system, allows designers/manufacturers to identify
‘families’ of parts with similar characteristics  reducing design time
Product life cycle management (PLM)  A software-facilitated process used to
capture and share all the information needed to define products throughout their life.
 development of next gen products that reuse design of former products can happen
faster
Chapter 5: Manufacturing and Service Process structures
Process Structures  Determine how inputs, activities and outputs or a process are
organized
Product-Process Matrix 
Cellular Manufacturing  production of
products with similar process characteristics
on small assembly lines called cells
Mass Customization  uses advanced tech to
customize products quickly at a low cost
(with the use of 3D printing, robotics or FMS)

Project  one-time/infrequent activities

Job shop  flexible process for products that require different inputs with different
flows
Batch process  process in which goods/ services are produced in groups
Repetitive  process where discrete products flow through same sequence of
activities
Continuous process  single-flow process for high volume, standardized products
The four different market orientations
Engineer to order (ETO)  unique, customized products for individual customers
 long order to deliveruy lead times
 often ‘project’ or ‘job shop’ process structures
Make to order (MTO)  products with similar designs, customized during production
 often use ‘ job shop’ , ‘batch’ and ‘cellular’ process
structures
Assemble to order (ATO)  products from standard components/modules
 often use ‘repetitive processes’ and ‘mass customization’
Make to Stock (MTS)  finished goods that are held in inventory

Customer contact  presence of the customer in a process

Service process matrix:

Professional service  lawyers, doctors, consultants

Service factory  trucking companies, airlines, hotels
Service shops  hospitals
Mass services  retail banks, gas stations

Front-office processes  processes involving customer contact

Back-office processes  processes that are behind the scenes

Operations layout  arrangement of the equipment, employees, and aisles for movement
 affects performance, cost, time and flexibility
Four basic types of layouts:

Line balancing  assigns individual tasks to workstations so that idle time and # of
workstations are minimized
5 steps:
1. Identify the time required to complete each task and the precedence relationships, the
order in which the tasks must be done. Show the relationships graphically in a
precedence diagram.
2. Determine the maximum time at each workstation based on customer demand  takt
time.
3. Determine the theoretical minimum number of workstations.
4. Assign as many tasks as possible to each workstation until the sum of the task times
adds up to, but is not greater than, the takt time. Workstations may have idle time if
the sum of the tasks does not equal the takt time.
5. Determine the efficiency of the balanced line.

Cellular layout: product families  groups of products that have similar processing
requirements

Internet of Things (IoT)  network of physical devices that are embedded with sensors
software and connectivity that enable data exchange and analysis
Chapter 6: Managing quality
Quality management can dramatically impact business success:
- Affect costs, leas time, customer perceptions, corporate reputations etc.
- Different terms for quality:
Product Quality  how well it meets customers’ needs and desires
Design Quality  how well a products designed features match up to the
requirements
Conformance quality  measure of whether or not a delivered product meets its
design expectations
Quality management  management approach: focus on quality, merging
development of quality-oriented corporate cultures with intensive use of managerial
and statistical tools

Total Quality Management (TQM)  business management strategy aimed at embedding

awareness of quality in all organizational processes
 almost every employee has some influence on it

Cost of quality (COQ)  helps clarifying the cost impacts of poor performance quality
Four major cost categories:
Prevention costs  efforts to prevent product defects
Appraisal costs  inspections to assess quality levels
Internal failure costs  defects that are found prior to shipment to customers
External failure costs  defects that are found after shipment to customers

Quality and digitalization

Internet of things (IoT)  devices that

Chapter 10 Sourcing and Supply Management

Supply Management  the identification, acquisition, positioning and management of
resources and capabilities
Sourcing  process used to acquire goods and services
Supply chain risk  the probability of an unplanned event that has negative impact on ability
to serving customers
Supply chain resilience  capability to minimize the impact of a disruption and to recover
afterwards
Chapter 14: Materials and Resource Requirements Planning
MRP  calculates when and how much of raw materials, parts, and subassemblies are
needed for production
 a planning system used to ensure the right quantities of materials are available
when needed
Uses three key information inputs:
- MPS  the quantities of each finished product to be completed each period
- BOM
- Inventory records

Independent demand  created by customers

Dependent demand  dependent on decisions made by internal operations managers