MBA 8503: Operations and Supply Chain Management

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MBA 8503 Operations and Supply Chain Management

• Matthew J. Liberatore
• Spring 2011

Welcome!
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Introduction to Operations and Supply
Chain Management
Class 1 1/12/11
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What is Operations and Supply Chain Management?
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• Operations and Supply Chain Management is
  defined as the design, operation, and improvement
  of the systems that create and deliver the firms
  primary products and services

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Operations and Supply Chain Management Supply
Chain Processes
Manufacturing Processes
Sourcing Processes
Distribution Processes
Logistics Processes
Logistics Processes
Service Processes
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Introduction to Operations Management
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Kmart Versus Wal-Mart

• Both chains started in 1962
• In 1987, Kmart had 2,223 stores to Wal-Marts
  1,198.
• Kmarts sales were 25.63 billion to Wal-Marts
  15.96 billion
• By 1991, Wal-Marts sales exceeded Kmarts
• Kmart still had more stores

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Kmart Versus Wal-Mart continued

• In year ending January 1996, Wal-Marts sales
  were 93.6 billion to Kmarts 34.6 billion.
• During this time Kmart emphasized marketing and
  merchandising (such as national TV ad campaigns).
• Wal-Mart was investing millions in its operations
  to lower cost.

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Kmart Versus Wal-Mart continued

• Wal-Mart developed sophisticated distribution
  system that integrated its computer system with
  its distribution system.
• Kmarts employees lacked skills needed to plan
  and control inventory.

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Importance of Operations

• Improvements in operations can simultaneously
  lower costs and improve customer satisfaction.
• Improving operations often dependent on advances
  in technology.
• Can obtain competitive advantage by improving
  operations.

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Operations

• Heart of every organization
• Operations are the tasks that create value
• Operations management uses resources to transform
  inputs into desired outputs

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The Production System
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Systems Perspective

• Inputs
• Transformation System
• Alter
• Transport
• Store
• Inspect
• Outputs
• Environment

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• Automobile Factory
• Primary Inputs
• Sheet steel, engine parts
• Resources
• Tools, equipment, workers
• Primary Transformation Function
• Fabrication and assembly of cars
• Desired Output
• High quality cars

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• Hospital
• Primary Inputs
• Patients
• Resources
• MDs, nurses, drugs, equipment
• Primary Transformation Function
• Health care (diagnosis and treatment)
• Primary Output
• Healthy individuals

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Characteristics of Products and Services
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Facilitating Good Concept

• Often confusion in trying to classify
  organization as manufacturer or service
• Facilitating good concept avoids this ambiguity
• All organizations defined as service
• The tangible part of the service is defined as
  facilitating good
• Pure Services

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The Range From Services to Products
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Introduction to Supply Chain Management
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What Is a Supply Chain?

• Flow of products and services from
• Raw materials manufacturers
• Intermediate products manufacturers
• End product manufacturers
• Wholesalers and distributors and
• Retailers
• Connected by transportation and storage
  activities
• Integrated through information, planning, and
  integration activities
• Cost and service levels

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What Is Supply Chain Management?

• 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.

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Two Other Formal Definitions

• The design and management of seamless,
  value-added process across organizational
  boundaries to meet the real needs of the end
  customer
• Institute for Supply Management
• Managing supply and demand, sourcing raw
  materials and parts, manufacturing and assembly,
  warehousing and inventory tracking, order entry
  and order management, distribution across all
  channels, and delivery to the customer
• The Supply Chain Council

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PC Industry Supply Chain Tracing back the screen
you stare at for the bulk of your time.
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Ciscos Value Network
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SCM Definition
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The SCM Network
FIGURE 1 The logistics network
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Key Observations

• Every facility that impacts costs need to be
  considered
• Suppliers suppliers
• Customers customers
• Efficiency and cost-effectiveness throughout the
  system is required
• System level approach
• Multiple levels of activities
• Strategic Tactical Operational

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Other Related Observations

• Supply chain strategy linked to the Development
  Chain
• Challenging to minimize system costs and maximize
  system service levels
• Inherent presence of uncertainty and risk

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The Development Chain

• Set of activities and processes associated with
  new product introduction. Includes
• product design phase
• associated capabilities and knowledge
• sourcing decisions
• production plans

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The Development Chain
Figure 2 The enterprise development and supply
chain
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Global Optimization

• Geographically dispersed complex network
• Conflicting objectives of different facilities
• Dynamic system
• Variations over time
• Matching demand-supply difficult
• Different levels of inventory and backorders
• Recent developments have increased risks
• Lean production/Off-shoring/Outsourcing

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Global Apparel Value ChainTracing back the dress
you are wearing
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(No Transcript)
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Globally Dispersed Manufacturing
An Illustration How Li Fung Limited Might Make
a Dress
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Matching Supply and Demand a Major Challenge
REASONS EXAMPLES
Raw material shortages Internal and supplier parts shortages Productivity inefficiencies Boeing Aircrafts inventory write-down of 2.6 billion
Sales and earnings shortfall Larger than anticipated inventories Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of 22 million
Stiff competition General slowdown in the PC market Intel reported a 38 percent decline in quarterly profit
Higher than expected orders for new products over existing products EMC Corp. missed its revenue guidance of 2.66 billion for the second quarter of 2006 by around 100 million
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Uncertainty and Risk Factors

• Forecasting is not a solution
• Demand is not the only source of uncertainty
• Recent trends make things more uncertain
• Lean manufacturing
• Outsourcing
• Off-shoring

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Uncertainty and Risk Factors

• August 2005 Hurricane Katrina
• PG coffee supplies from sites around New Orleans
• Six month impact
• 2002 West Coast port strike
• Losses of 1B/day
• Store stock-outs, factory shutdowns
• 1999 Taiwan earthquake
• Supply interruptions of HP, Dell
• 2001 India (Gujarat state) earthquake
• Supply interruptions for apparel manufacturers

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Evolution of Supply Chain Management
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Progression of Logistics Costs
FIGURE 1-4 Logistics costs share of the U.S.
economy
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Logistics Costs Trends

• After rising over 50 percent in the five years
  leading up to the recession, total logistics
  costs have fallen the past two years.
• Logistics costs in 2009 were equal to about 1.1
  trillion a drop of 244 billion (or 18.2) over
  2008

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Composition of Logistics Costs

• Transportation costs were down more than 20
  percent last year
• Transportation costs now account for 4.9 percent
  of GDP, well below the 6 percent share in 2008.
• Carrying costs accounted for 2.5 percent of GDP
  in 2009, down from 2.9 percent in 2008 and well
  off the 8.3 percent of GDP in 1981

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Complexity The Magnitude

• The grocery industry could save 30 billion (10
  of operating cost) by using effective logistics
  strategies
• A typical box of cereal spends 104 days getting
  from factory to supermarket.
• A typical new car spends 15 days traveling from
  the factory to the dealership.

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Complexity The Magnitude

• Compaq computers loss of 500 million to 1
  billion in sales in one year
• Laptops and desktops were not available when and
  where customers were ready to buy them
• Boeings forced announcement of write-downs of
  2.6b
• Raw material shortages, internal and supplier
  parts shortages.
• Ciscos multi-billion (2.2b) dollar write-off of
  inventories in 2001-2002
• Customers balked on orders due to market meltdown

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Transactional Complexity

• National Semiconductors
• Production
• Produces chips in six different locations four
  in the US, one in Britain and one in Israel
• Chips are shipped to seven assembly locations in
  Southeast Asia.
• Distribution
• The final product is shipped to hundreds of
  facilities all over the world
• 20,000 different routes
• 12 different airlines are involved
• 95 of the products are delivered within 45 days
• 5 are delivered within 90 days.

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Magnitude of Supply Chain CostsCost Elements of
a Typical Trade Book
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Magnitude of Supply Chain CostsExample The
Apparel Industry
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Supply Chain The Potential

• PGs estimated savings to retail customers of
  65 million through logistics gains
• Dell Computers outperforming of the competition
  in terms of shareholder value growth over more
  than two decades by over 3,000 using
• Direct business model
• Build-to-order strategy
• Wal-Mart transformation into the worlds largest
  retailer by changing its logistics system
• highest sales per square foot, inventory turnover
  and operating profit of any discount retailer

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KAPLAN AND NORTONS (2006) OPERATION S STRATEGY
AND THE BALANCED SCORECARD
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Kaplan and Nortons (2006) strategy map templates