Operations Management

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 W HAT I S O PERATIONS AND S UPPLY C HAIN
M ANAGEMENT ?
Operations and supply chain management (OSCM) is defined as
the design, operation, and improvement of the systems that
create and deliver the firm’s primary products and services.

Operations refers to manufacturing and service processes used

to transform the resources employed by a firm into products
desired by customers

Supply chain refers to processes that move information and

material to and from the manufacturing and service process of
the firm

Reference: YouTube: What is Supply Chain Management?

(4:41/5:14) Link

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 P ROCESS S TEPS FOR M EN ’ S N YLON S UPPLEX
PARKAS

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 P ROCESS S TEPS FOR M EN ’ S N YLON S UPPLEX
PARKAS
Polartec insulation material (blue path)

Nylon, Supplex, used in the parkas (red path)

Fabricate the clothlike Supplex used to make the parkas (green

path)

Supplex and Polartec material coming together and used to

assemble the lightweight and warm parkas (yellow path)

For a successful transaction, all of these steps need to be

coordinated and operated to keep costs low and to minimize
waste. OSCM manages all of these individual processes as
effectively as possible

Reference: YouTube: How a Canada Goose Parka is made

(6:04) Link

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 D IFFERENCES B ETWEEN S ERVICES AND G OODS
There are five essential differences between services and goods.
A service is an intangible process that cannot be weighed or
measured, whereas a good is a tangible output of a process that
has physical dimensions.

A service requires some degree of interaction with the customer

for it to be a service. Goods, on the other hand, are generally
produced in a facility separate from the customer.

Services are inherently heterogeneous. Goods, in contrast, can

be produced to meet very tight specifications.

Services as a process are perishable and time dependent, and

unlike goods, they can’t be stored.

The specifications of a service are defined and evaluated as a

package of features, such as supporting facility, facilitating
goods, explicit services, implicit services.

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 D IFFERENCES B ETWEEN S ERVICES AND G OODS

Pure goods industries have become low-margin commodity

businesses, they are often adding some services

Core goods providers already provide a significant service

component as part of their businesses. For example, automobile
manufacturers provide extensive spare parts distribution services
to support repair centers at dealers.

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 D IFFERENCES B ETWEEN S ERVICES AND G OODS

Core service providers must integrate tangible goods. For

example, your cable television company must provide cable
hookup and repair services and also high-definition cable boxes

Pure services, such as those offered by a financial consulting

firm, may need little in the way of facilitating goods, but what they
do use—such as textbooks, professional references, and
spreadsheets—are critical to their performance.
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 T IME L INE D EPICTING W HEN M AJOR OSCM
C ONCEPTS B ECAME P OPULAR

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 T IME L INE D EPICTING W HEN M AJOR OSCM
C ONCEPTS B ECAME P OPULAR
Manufacturing strategy: Emphasizes how a factory’s capabilities
could be used strategically to gain advantage over a competing
company.

Just-in-time (JIT): Pioneered by the Japanese, JIT is an

integrated set of activities designed to achieve high-volume
production using minimal inventories of parts that arrive exactly
when they are needed

Total quality control (TQC): Aggressively seeks to eliminate

causes of production defects

Lean manufacturing: Aim primarily at reducing times within the

production system as well as response times from suppliers and
to customers.

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 T IME L INE D EPICTING W HEN M AJOR OSCM
C ONCEPTS B ECAME P OPULAR
Business Analytics:involves the analysis of data to better solve
business problems.

Much more data is now captured and available for

decision-making analysis than was available in the past

mathematical tools are now readily available that can be used to

support the decision-making process.

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 E XAMPLE : P RICING OF F LIGHT T ICKETS
An airline manager presented with the task of setting price points
for tickets on a flight

Real-time demand data, historic demand patterns, and powerful

mathematical models can now be applied to setting price points
for different classes of tickets.

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 E XAMPLE : P RICING OF F LIGHT T ICKETS
An airline manager presented with the task of setting price points
for tickets on a flight

Real-time demand data, historic demand patterns, and powerful

mathematical models can now be applied to setting price points
for different classes of tickets.

These decisions have a major impact on the utilization of aircraft

capacity, which impacts both revenue and costs for the airlines.

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 E XAMPLE : P RICING OF F LIGHT T ICKETS
An airline manager presented with the task of setting price points
for tickets on a flight

Real-time demand data, historic demand patterns, and powerful

mathematical models can now be applied to setting price points
for different classes of tickets.

These decisions have a major impact on the utilization of aircraft

capacity, which impacts both revenue and costs for the airlines.

These decisions can even be made using criteria related to

weather conditions, fuel prices, crew schedules, and other flights
to maximize the profit of the firm.

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 E XAMPLE : P RICING OF F LIGHT T ICKETS
An airline manager presented with the task of setting price points
for tickets on a flight

Real-time demand data, historic demand patterns, and powerful

mathematical models can now be applied to setting price points
for different classes of tickets.

These decisions have a major impact on the utilization of aircraft

capacity, which impacts both revenue and costs for the airlines.

These decisions can even be made using criteria related to

weather conditions, fuel prices, crew schedules, and other flights
to maximize the profit of the firm.

Reference: YouTube: How Airlines Price Flights Link

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 E FFICIENCY, E FFECTIVENESS , AND VALUE
Efficiency: A ratio of the actual output of a process relative to
some standard. Also, being “efficient” means doing something at
the lowest possible cost.

Effectiveness: Doing the things that will create the most value for
the customer.

Value: The attractiveness of a product relative to its price.

A common set of financial indicators that Wall Street tracks to

benchmark companies are called management efficiency ratios.
Benchmarking is a process in which one company studies the
processes of another company (or industry) to identify best
practices

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 A C OMPARISON OF AUTOMOBILE C OMPANIES

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 A C OMPARISON OF AUTOMOBILE C OMPANIES
Example: A retail store that sells biking equipment and bikes. Due to
declining cash sales, John, the CEO, decides to extend credit sales to
all his customers. In the fiscal year ended December 31, 2019, there
were $100,000 gross credit sales. Starting and ending accounts
receivable for the year were $10,000 and $15,000, respectively. John
wants to know how many times his company collects its average
accounts receivable over the year.

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 A C OMPARISON OF AUTOMOBILE C OMPANIES
Therefore, Trinity Bikes Shop collected its average accounts
receivable approximately 7.2 times.

Accounts Receivable Turnover in Days: The accounts receivable

turnover in days shows the average number of days that it takes a
customer to pay the company for sales on credit. The formula for the
accounts receivable turnover in days is as follows:

Receivable turnover in days = 365 / Receivable turnover ratio = 365 /

7.2 = 50.69

Therefore, the average customer takes approximately 51 days to pay

their debt to the store. If the retailer maintains a policy for payments
made on credit, such as a 30-day policy, the receivable turnover in
days calculated above would indicate that the average customer
makes late payments.

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 S TRATEGY
Operations and supply chain strategy is concerned with setting
broad policies and plans for using the resources of a firm and
must be integrated with corporate strategy

Example: IKEA’s Strategy. YouTube: IKEA - Why They’re So

Successful (11:49)

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 S TRATEGY-IKEA

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 P RODUCTIVITY M EASUREMENT
Productivity is a common measure of how well a country,
industry, or business unit is using its resources (or factors of
production).

Productivity is defined as

Outputs
Productivity = .
Inputs

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 P RODUCTIVITY M EASUREMENT
Productivity is what we call a relative measure. In other words, to
be meaningful, it needs to be compared with something else.

Productivity comparisons can be made in two ways. First, a

company can compare itself to similar operations within its
industry, or it can use industry data when such data are available
(e.g., comparing productivity among the different stores in a
franchise).

Another approach is to measure productivity over time within the

same operation. Here we would compare our productivity in one
time period with that in the next.

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 E XAMPLES OF P RODUCTIVITY M EASURES

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