OPERATIONS AND

SUPPLY CHAIN
MANAGEMENT
 Operations & Supply Chain
Management
 Course Code :205 Semester-II
 Type of Subject : Generic-Core
 Maximum Marks : 100 (50+20+30)
 Credits :3
 Teaching Sessions : 35
 Evaluation/Project Session : 10

Course Objectives:
1. To develop an understanding of the strategic importance of Operations & SCM and
how it can provide a competitive advantage in the marketplace.
2. To understand the relationship between Operations & SCM and Other business
functions, such as Marketing, Finance, Accounting, and Human Resources.
3. To develop knowledge of the issues related to designing and managing operations
& SCM and the techniques to do so.
Units to be covered
Unit-1
1.1 Introduction to Operations and Supply Chain Management
1.2 Quality
Unit-2 Operations Processes
2.1 Process Characteristics in Operations
2.2 Process Product Mix
2.3 Service System Design Matrix
Unit-3
3.1 Production Planning and Control
3.2 Demand Forecasting
3.3 Production Planning
3.4 Production Control
Units to be covered
Unit-4
4.1 Inventory Planning and Control
4.2 Inventory Costs
4.3 EOQ
4.4 Inventory Control
Unit-5
5.1 Supply Chain Management
5.2 Customer Service
WHAT IS MANAGEMENT ?
 F.W. Taylor - “Art of knowing what you want to do and
then seeing that it is done the best and cheapest way”.
 Henry Fayol – “To Manage is to forecast, to plan, to
organise, to command, to co-ordinate and to control”.
 Peter F. Drucker –”Management is work and as such it
has its own skills, its own tools and its own techniques”.

 “Management is the art of getting things done through

and with people”.
 Management Process has 5-functions: Planning,
Organizing, Staffing, Leading & Controlling
Operations Management
 Manufacturing, Service and Agriculture are the major economic activities in
any country.
 Production is the creation of goods and services
 Manufacturing-converts inputs into products/goods-perform operations
 Service-addresses the requirements of its customers using service delivery
system- perform operations.
 Operations- processes- i.e. any activity or group of activities that takes one or
more inputs, transforms them, and provide one or more outputs for its
customers.
 An operation system is defined as one in which several activities are
performed to “transform” a set of inputs into a useful output using
transformation process. These inputs and outputs can be physical things such
as material and/ or informational and experiential things.
Operations Management
 Operation management is a systematic approach to
address all the issues pertaining to the transformation
process that converts some inputs into outputs that are
useful, and could fetch revenue for the organization.

 Operations management (OM) is the set of activities

that create value in the form of goods and services by
transforming inputs into outputs.
Operations Management
 Four aspects of this definitions:
1. A systematic approach involves understanding the nature of issues
and problems to be studied, establishing measures of
performance, collecting relevant data, using scientific tools and
techniques and solution methodologies to analyze and developing
effective as well as efficient solution to the problem at hand.
Therefore, for successful operation management, the focus should
be on developing set of tools and techniques to analyze problems
faced within an operation system.
2. The second aspect of operation management pertain to
addressing several issues that an organization faces. These issues
very markedly in terms of the time horizon, the nature of the
problem to be solved and commitment of the required resources.
Operations Management
 Four aspects of this definitions:
3. Transformation processes are central to operation systems. The
transformation process ensures that inputs are converted into useful
outputs. Therefore, the focus of the operation management discipline is to
address the various aspects of design in the transformation process as well
as planning and control.
4. Finally, the goal of operation management is to ensure that through careful
planning and control of the operations the organization is able to keep costs
to the minimum and obtain revenue in excess of costs. In order to ensure
this, an appropriate performance evaluation system is required. Therefore,
the operation management discipline also involves the development of such
a system of performance evaluation and methodology by which the
operating system could make improvements to meet targeted performance
measures.
OM’s Transformation Process
 Systematic direction, control, and evaluation of the entire
range of processes that transform inputs into finished goods
or services.
 Environmental factors-culture, political, and market
influences
 Inputs-HR, capital, materials, land, energy, information,
customer
 Transformations-convert inputs into outputs
 Outputs-goods or services, and waste
 Customer Contact-customers actively participate in
transformation processes, self-service
 Performance Feedback-repair records, customer comments
 Typical Characteristics of Services and Goods Producers

Primarily
Primarily Service Continuum of Goods
Producers Characteristics Producers

Mixed
Intangible, nondurable Tangible, durable

Output can’t be Output can be

inventoried inventoried

High customer contact Low customer contact

Short response time Long response time

Labor intensive Capital intensive

Operations Management Concepts
 Quality: goods and services that are reliable and
perform correctly.
 Quality allows customers to receive the performance that
they expect.
 Efficiency: the amount of input to produce a given
output.
 Less input required lowers cost and waste.
 Responsiveness to customers: actions taken to respond
to customer needs.
 Firm can react quickly and correctly to customer needs as
they arise.
 Organizing to Produce Goods and Services
 Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
4. Human Resources – provides labor, wage and
salary administration and job evaluation
Why Study OM?
1. OM is one of four major functions of any organization, we
want to study how people organize themselves for
productive enterprise
2. We want (and need) to know how goods and services are
produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization
What Operations Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
Significance & Functions of OM
 Significance of Operations Management:
 The scope of operations management ranges across
the organization. Operation management people are
involved in product and service design, process
selection, selection & management of technology,
design of work system, location planning, facility
planning, and quality improvement of the
organization’s product or services.
Significance & Functions of OM
 Functions of Operation Management:
 The operations functions includes many interrelated
activities, such as;
1. Forecasting
2. Capacity planning
3. Scheduling
4. Managing inventories
5. Assuring quality
6. Motivating employees
7. Facility location decision
Ten Critical Decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources job design
7. Supply-chain management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
The Critical Decisions
1. Design of goods and services
 What good or service should we offer?
 How should we design these products and

services?
2. Managing quality
 How do we define quality?
 Who is responsible for quality?
The Critical Decisions
3. Process and capacity design
 What process and what capacity will these
products require?
 What equipment and technology is
necessary for these processes?
4. Location strategy
 Where should we put the facility?
 On what criteria should we base the
location decision?
The Critical Decisions
5. Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet our
plan?
6. Human resources and job design
 How do we provide a reasonable work
environment?
 How much can we expect our employees
to produce?
 The Critical Decisions
7. Supply-chain management
 Should we make or buy this component?
 Who should be our suppliers and how can we
integrate them into our strategy?
8. Inventory, material requirements planning, and
JIT
 How much inventory of each item should we
have?
 When do we re-order?
The Critical Decisions
9. Intermediate and short–term scheduling
 Are we better off keeping people on the
payroll during slowdowns?
 Which jobs do we perform next?

10. Maintenance
 How do we build reliability into our
processes?
 Who is responsible for maintenance?
Significant Events in OM
Evolution of OM
 For over two centuries operations and production management
has been recognised as an important factor in a country’s
economic growth.
 The traditional view of manufacturing management began in
eighteenth century when Adam Smith recognised the economic
benefits of specialisation of labour. He recommended breaking of
jobs down into subtasks and recognises workers to specialised
tasks in which they would become highly skilled and efficient.
 In the early twentieth century, F.W. Taylor implemented Smith’s
theories and developed scientific management. From then till
1930, many techniques were developed prevailing the traditional
view.
Evolution of OM
 Production management becomes the acceptable term from
1930s to 1950s. As F.W. Taylor’s works become more widely
known, managers developed techniques that focused on
economic efficiency in manufacturing.
 Workers were studied in great detail to eliminate wasteful
efforts and achieve greater efficiency.
 At the same time, psychologists, socialists and other social
scientists began to study people and human behaviour in the
working environment.
 In addition, economists, mathematicians, and computer
socialists contributed newer, more sophisticated analytical
approaches.
Evolution of OM
 With the 1970s emerges two distinct changes in our
views. The most obvious of these, reflected in the new
name operations management was a shift in the service
and manufacturing sectors of the economy.
 As service sector became more prominent, the change
from ‘production’ to ‘operations’ emphasized the
broadening of our field to service organizations.
 The second, more suitable change was the beginning of
an emphasis on synthesis, rather than just analysis, in
management practices.
Historical Development of OM
 Industrial revolution Late 1700s
 Scientific management Early 1900s
 Hawthorne Effect 1930s
 Human relations movement 1930s-
 Management science 1940s-
 Computer age 1960s-
 Environmental Issues 1970s-
 JIT & TQM* 1980s-

*JIT= Just in Time, TQM= Total Quality Management

Historical Development con’t
 Reengineering 1990-
 Global competition 1980-
 Flexibility 1990-
 Time-Based Competition 1990-
 Supply chain Management 1990-
 Electronic Commerce 2000-
 Outsourcing & flattening of world 2000-

For long-run success, companies must place much importance on their operations
 Historical Summary of Operation
Management
1976 Specialization of labour in manufacturing Adam Smith

1799 Interchangeable parts, cost accounting Eli Whitney and others

1832 Division of labour by skill; assignment of jobs by skill; basics Charles Babbage
of time study
1900 Scientific management time study and work study developed; Frederick W. Taylor
dividing planning and doing of work
1900 Motion of study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, machines jobs in Henry Gantt
manufacturing
1915 Economic lot sizes for inventory control F.W. Harris
1927 Human relations; the Hawthorne studies Elton Mayo
1931 Statistical inference applied to product quality: quality control W.A. Shewart

charts
1931 Statistical inference applied to product quality: quality control charts W.A. Shewart
1935
 Statistical
1935 Statistical sampling
sampling appliedapplied
to quality to quality
control: control:
inspection inspection
sampling H.F.Roming
plans H.F. Dodge & H.G. Dodge & H.G.

samplingresearch
1940 Operations plansapplications in World War II P.M. Blacker and others. Roming
 1946 Digital computer John Mauchlly and J.P. Eckert
1940 Operations research applications in World War II P.M. Blacker and others.
1946 Digital computer John Mauchlly and J.P.
Eckert
 Historical Summary of Operation
Management
 1947 Linear programming
G.B. Dantzig, Williams & others
 1950 Mathematical programming, on-linear and stochastic
A. Charnes, W.W. Cooper processes & others
 1951 Commercial digital computer: large-scale computations available.
Sperry Univac
 1960 Organizational behaviour: continued study of people at work
L. Cummings, L. Porter
 1970 Integrating operations into overall strategy and policy, Computer applications
to manufacturing, Scheduling and control, Material requirement planning (MRP)
W. Skinner J. Orlicky Scheduling and G. Wright
 1980 Quality and productivity applications from Japan: and robotics, CAD-CAM
W.E. Deming J. Juran
OM in Practice
 OM has the most diverse organizational function
 Manages the transformation process

 OM has many faces and names such as;

 V. P. operations, Director of supply chains,

Manufacturing manager
 Plant manger, Quality specialists, etc.
 All business functions need information from OM in

order to perform their tasks

Business Information Flow
OM Across the Organization
 Most businesses are supported by the functions of
operations, marketing, and finance
 The major functional areas must interact to achieve
the organization goals
OM Across the Organization –
con’t
 Marketing is not fully able to meet customer needs if they do
not understand what operations can produce
 Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
 Information systems enables the information flow throughout
the organization
 Human resources must understand job requirements and
worker skills
 Accounting needs to consider inventory management,
capacity information, and labor standards
 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply-chain partnering
 Rapid product
 Lengthy product development development, alliances
 Mass customization
 Standard products
 Empowered employees,
teams
 Job specialization
The Logistics/SCM Mission
 Getting the right goods or services to the right place, at the
right time, and in the desired condition at the lowest cost and
highest return on investment.

 Product / Service Utility

 Possession Utility - the value or usefulness that comes from a customer
being able to take possession of a product
 Form Utility - in a form that can be used by the customer and is of value
to the customer
 Place Utility - available where they are needed by customers
 Time Utility - available when they are needed by customers
 Logistics obviously help time and place utility
Logistics vs Supply Chain Management

Council of Logistics Management

 “Logistics is the process of planning, implementing and

controlling the efficient, cost-effective flow and storage of

raw materials, in-process inventory, finished goods and
related information from the point of origin to point of
consumption for the purpose of conforming to customer
requirements.”
Handfield and Nichols
 SCM is the integration of all activities associated with the

flow and transformation of goods from raw materials

through to end user, as well as information flows, through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
Supply-Chain Management

The objective is to build a chain of suppliers

that focuses on maximizing value to the
ultimate customer
Supply Chain Management
 Supply chains encompass the companies and the business
activities needed to design, make, deliver, and use a product
or service. Businesses depend on their supply chains to
provide them with what they need to survive and thrive. Every
business fits into one or more supply chains and has a role to
play in each of them.
 Simply stated, "the supply chain encompasses all of those
activities associated with moving goods from the raw-
materials stage through to the end user."
 The term “supply chain management” arose in the late 1980s
and came into widespread use in the 1990s. Prior to that time,
businesses used terms such as “logistics” and “operations
management” instead. Some definitions of a supply chain are
offered below:
SCM-Definitions
 “A supply chain is the alignment of firms that bring products or services to
market.”-from Lambert, Stock, and Ellram in their book Fundamentals of Logistics Management (Lambert,
Douglas M., James R. Stock, and Lisa M. Ellram, 1998, Fundamentals of Logistics Management, Boston, MA:
Irwin/McGraw-Hill, Chapter 14)
 “A supply chain consists of all stages involved, directly or indirectly, in fulfilling
a customer request. The supply chain not only includes the manufacturer and
suppliers, but also transporters, warehouses, retailers, and customers them-
selves.”—from Chopra and Meindl in their book Supply Chain Management: Strategy, Planning, and Operations
(Chopra, Sunil, and Peter Meindl, 2001, Supply Chain Management: Strategy, Planning, and Operations, Upper Saddle
River, NJ: Prentice-Hall, Inc. Chapter 1)
 “A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished products
to customers.”—from Ganeshan and Harrison at Penn State University in their article An Introduction to Supply
Chain Management published at http://silmaril.smeal.psu.edu/supply_chain_intro.html
SCM
 “Supply chain management is the coordination of
production, inventory, location, and transportation
among the participants in a supply chain to achieve
the best mix of responsiveness and efficiency for
the market being served.”
Supply Chain Management

Supplier

Supplier }
Storage Mfg. Storage Dist. Retailer Customer

Supplier

Supplier

Supplier } Storage Service Customer

 Supply Chain Overview

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation
 Traditional Scope of the Supply Chain
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance

Internal supply chain

 Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
Evolution of Supply Chain Management

Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

 EVOLUTION OF SCM
 Ancient Times - The Barter System evolved as an answer to the trading
requirements. This was the first supply chain

 300 BC- Caesar made trading posts in East Asia to grow his trade. This was the
first retailer supplier

 1151- First known fire and plague insurance offered in Iceland

 1305- House of Taxis operated courier messenger service for the rich European
clients

 1621- Dutch West India Co. formed to trade with America and West Africa

 1904- Charles S. Rolls became selling agent for cars made by F. Henry Royce
 EVOLUTION OF SCM (contd..)
• 1956- Warren Buffet started investment partnership in Omaha with money from
family and friends and he went on to become a billionaire (An overseas 3PL)

• 1960-1975- The essence of SCM understood. This first phase is characterized as an

inventory 'push' era that focused primarily on physical distribution of finished
goods

• 1975-1990- The earlier approach changed. Companies began migrating from an

inventory push to a customer pull channel as power began to move the downstream
to the customer

• 1980- In the last phase, companies realized that the productivity could be increased
significantly by managing relationships, information and material flow across
enterprise borders
 EVOLUTION OF SCM (contd..)
• 1981- IBM outsourced almost all of its activities and built a full computer

• 1985- Wal-Mart replaced K-Mart as the leader in retail stores

• 1990- Computer changed the way business is done

• 1996- Internet revolutionized the information pathway and the distribution system
of the business

• 1998- The concept of e-commerce changed the definition of business itself

• 2000- Currently concepts like t-commerce and digital TV are beginning to take
shape
 Why is supply chain management so
important?
 To gain efficiencies from procurement, distribution and logistics
 To make outsourcing more efficient
 To reduce transportation costs of inventories
 To meet competitive pressures from shorter development times,
more new products, and demand for more customization
 To meet the challenge of globalization and longer supply chains
 To meet the new challenges from e-commerce
 To manage the complexities of supply chains
 To manage the inventories needed across the supply chain
"Supply Chain Management has an important role to
play in moving goods more quickly to their
destination. "
 The Supply Chain’s Strategic
Importance
Supply chain management is the integration
of the activities that procure materials and
services, transform them into intermediate
goods and final products, and deliver them
through a distribution system

Competition is no longer between

companies; it is between supply chains
 Why is supply chain management
difficult?
 Different organizations in the supply chain may have different,
conflicting objectives
 Manufacturers: long run production, high quality, high
productivity, low production cost
 Distributors: low inventory, reduced transportation costs, quick
replenishment capability
 Customers: shorter order lead time, high in-stock inventory, large
variety of products, low prices
 Supply chains are dynamic - they evolve and change over time
 Supply chains and vertical integration
 For any organization vertical integration involves either taking on more of the
supplier activities (backward) and/or taking on more of the distribution activities
(forward)
 An example of backward vertical integration would be a peanut butter manufacturer
that decides to start growing peanuts rather than buying peanuts from a supplier
 An example of forward vertical integration would be a peanut butter manufacturer
that decides to start marketing their peanut better directly to grocery stores
 In supply chains, some of the supplying and some of the distribution might be
performed by the manufacturer
 The significance of vertical integration in the supply chain is that the activities that
are performed by the manufacturer are typically more easily managed than those
which are performed by other organizations
 Therefore, the degree of vertical integration can have an impact on the structure and
relationships between members of a supply chain
 FUNCTIONS OF SCM

SCM

Strategic Level Tactical Level Operational Level

Strategic, tactical and operating issues
 Strategic - long term and dealing with supply chain design
 Determining the number, location and capacity of facilities
 Make or buy decisions
 Forming strategic alliances
 Tactical - intermediate term
 Determining inventory levels
 Quality-related decisions
 Logistics decisions
 Operating - near term
 Production planning and control decisions
 Goods and service delivery scheduling
 Some make or buy decisions
Key issues in supply chain
management include
 Distribution network configuration
 How many warehouses do we need?
 Where should these warehouses be located?
 What should the production levels be at each of our plants?
 What should the transportation flows be between plants and
warehouses?
 Inventory control
 Why are we holding inventory? Uncertainty in customer demand?
Uncertainty in the supply process? Some other reason?
 If the problem is uncertainty, how can we reduce it?
 How good is our forecasting method?
Key issues in supply chain
management include
 Distribution strategies
 Direct shipping to customers?
 Classical distribution in which inventory is held in warehouses and
then shipped as needed?
 Cross-docking in which transshipment points are used to take stock
from suppliers’ deliveries and immediately distribute to point of
usage?
 Supply chain integration and strategic partnering
 Should information be shared with supply chain partners?
 What information should be shared?
 With what partners should information be shared?
 What are the benefits to be gained?
Key issues in supply chain management
include
 Product design
 Should products be redesigned to reduce logistics costs?
 Should products be redesigned to reduce lead times?
 Would delayed differentiation be helpful?
 Information technology and decision-support systems
 What data should be shared (transferred)
 How should the data be analyzed and used?
 What infrastructure is needed between supply chain members?
 Should e-commerce play a role?
 Customer value
 How is customer value created by the supply chain?
 What determines customer value? How do we measure it?
 How is information technology used to enhance customer value in the
supply chain?
Key issues in supply chain management
include
 Creating an effective supply chain
 Develop strategic objectives and tactics
 Integrate and coordinate activities in the internal portion of the supply
chain
 Coordinate activities with suppliers and customers
 Coordinate planning and execution across the supply chain
 Consider forming strategic partnerships