Operations & Supply Chain

Management
OPERATIONS
MANAGEMENT
 Operations Management

• Operations management refers to those activities that relate to the creation of goods and
services through the transformation of inputs to outputs.

• Converting resources(materials, equipment, technology and labor) to goods and services as

efficiently as possible to maximize the profit of the organization and adds value to the
customer.
Design of goods and service Manpower Planning

Managing quality Supply Chain management

What
Operations
Process Strategy Inventory management
Manager
Do?
Location Strategy Scheduling

Layout Strategy Maintenance

Supply Chain Management

Supply Chain
Management (SCM) is
the oversight of
materials, information
and finances as they
move in a process from
supplier to manufacturer
to wholesaler to retailer
to customer along the
value chain
Supply Chain Management
4 V’s of Operations
4 V’s of Operations
Types of Manufacturing Process
Types of Manufacturing Process
 Push vs Pull Supply Chain
• With a Push- based supply chain, products are
pushed through the channel from the production
side up to the retailer.
• The manufacturer sets production level in accord
with historical ordering patterns from the
retailers.
• It takes longer for a push based supply chain to
respond to changes in demand, which can result
in overstocking or bottlenecks and delays,
unacceptable service levels and production
obsolescence.
• E.g. Retail Shops
• In a Pull-based supply chain, procurement,
production and distribution are demand driven
rather than forecasting.
• Demand pull is triggering of material movement
to a work center only when that work center is
ready to begin the next job.
• In effect, it shortens or eliminates the queue from
in front of a work center.
• E.g. Restaurant
Lean vs Agile Supply Chain
 Procurement

It consists of Sourcing as well as Purchase functions. Its the end-to-end process from the supplier selection to the
regular component deliveries

Sourcing Purchase
q Sourcing process is the process of selection of supplier q The activity performed after the sourcing process.
for the supply of new component
q Eg After a new model launch, the component price
q Eg if there is change in requirement of component of changes due to RM/FE and issues related to supplier
car(tyre) in a new model to be launched. quality/delivery comes under purchase
q Sourcing process done to finalise supplier & price. q Activities include quarterly/annual price
Subsequent component development comes under amendments(RM/FE), regular supplier quality/delivery,
sourcing Annual price negotiation
q Activities include : Part development, Source selection,
Price Negotiation and finalization , budgeting

New part/component is to be developed with the supplier : Sourcing

Arrange part/components for day to day manufacturing : Purchase
Developing new part and arranging it for the day to day manufacturing : Procurement
 Strategic Sourcing

It is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a
company. Strategic sourcing refers to strategic planning, supplier development, contract negotiation, supply chain
infrastructure, and outsourcing models.

Tasks in Strategic Sourcing

q Assessment of a company's current spending (what is bought, where, at what prices?).

q Assessment of the supply market (who offers what?) (Competition benchmarking)

q Total cost analyses (how much does it cost to provide those goods or services?).

q Identification of suitable suppliers.

q Development of a sourcing strategy (where to purchase, considering demand and supply situations, while
minimizing risk and costs

q Negotiation with suppliers (products, service levels, prices, geographical coverage, Payment Terms, etc.).
 Overall Sourcing Process in a Typical Auto
Manufacturing Company

1. The quotation request from the Engg. Department to supply chain for developing new part.
2. Bidder selection by Supply chain in consultation with the quality and engineering department.
3. RFQ (Request for quotation) sent to the suppliers.
4. Suppliers send the technical as well as commercial quotes.
5. After technical review from engg. Out of the technically ok supplier, L1 source is selected (Lowest quote)
6. Negotiation is done with the supplier and cost finalised
7. Approval for the cost from the concerned authority in the company
8. Purchase order sent to the suppliers.
9. Part development done at the supplier end
10. Developed part supplied for various trials by the vendors
 Facility Layout

q Location or arrangement of
everything within and around
Basic Layout Types
buildings
q Fixed Position
q Planning for the physical q Product
arrangement of transforming
q Process
resources of the operation
q Cellular
Fixed Position Layout Cellular Layout

q Eg Construction of Ship, Building Construction

q Eg Single line assembly plant

Product Layout copyright@SJMSOM,IITBombay ProcessLayout 16

Session1
 Capacity Planning

What is a capacity? Two Levels of Capacity:

Capacity gives a sense of the rate at which output can be
produced by an operating unit (i.e., a machine, process,
facility or company).
Capacity Planning:
An approach for determining the ‘overall capacity level’ of
capital intensive resources, including facilities, equipment,
and overall labor force size.
Peak/Design Theoretical Capacity:
This is the maximum rate at which the process can
operate under ideal conditions.
Effective Capacity or Best Operating Level: Economically
sustainable under normal conditions/ sometimes not safe
to run at peak.

Measuring of Capacity: Two issues are important

Unit of measurement
Level

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 Inventory Management

Inventory is an idle resource which is usable and has value”

q Stock of items held to meet future demand
q Those stocks or items used to support production, supporting activities and
customer service

BullwhipEffect
The bullwhip effect is a phenomenon observed in supply
chains where the demand variability increases as one
moves up the supply chain from customers towards to
distributors to manufacturers.

copyright@SJMSOM,IITBombay
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Session1
 Inventory Management

Inventory & Flow of Materials

Types of Inventory

Reasons to Hold Inventory

q Meet random variations in customer demand
q Meet unexpected demand
q Smooth seasonal or cyclical demand
q Take advantage of price discounts
q Protect against price increases
Reasons to Reduce Inventory
Financial costs to carrying excess inventory
Risk of damage
Risk of obsolescence and depreciation
Large inventories hide operational problems
 ABC Classification
SFN: Movement
Slow
Fast
Percentage of Total Value

Non Moving

VED: Criticality
Vital
Essential
Desirable

Percentage of Total Items

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 Economic Order Quantity

Typical Inventory Decisions

How much to order?
When to order?

Inventory Costs
Co: ordering
Item Costs cost for each
order
Carrying costs (Holding Costs) can be broken Ch: Holding
down into two categories: cost per unit
1. Storage costs - Space, personnel, and per year
Equipment
2. Risk costs - Obsolescence, damage, pilferage,
insurance, and deterioration
3. Ordering Costs : Costs of placing an order
with the factory or outside supplier –
includes purchase order costs, setup costs

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Economic Order Quantity

When to order?
Assumptions:
• Demand for an item is known, reasonably constant, and
independent
• Lead time-known and constant
• Receipt of inventory is instantaneous and complete
• Quantity discounts are not possible
• Stockouts (shortages) can be completely avoided if orders
are placed at the right time

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 Demand Forecasting

Two Types of Forecasting Techniques:

Qualitative (or judgmental) methods use management judgment, expertise, and opinion to make forecasts

Delphi method: The Delphi method isa structured communication technique or method, originally developed as a
systematic,
interactive forecasting method which relies on a panel of experts.

Quantitative: statistical techniques that use historical demand data to predict future demand

Moving Average
Weighted Average
Exponential Smoothing
Linear regression

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 Demand Forecasting

The Simple Moving Average method uses several demand values during the recent past
to develop a forecast. Moving average is good for stable demand with no pronounced
behavioral patterns.
The moving average method can be adjusted to more closely reflect fluctuations in the
data.
Weighted Moving Average method, weights are assigned more to the recent data

Exponential smoothing is also an averaging method that weights the most recent data
more strongly

Linear regression is a method of forecasting in which a mathematical relationship is

developed between demand and some other factor that causes demand behavior

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