OPERATIONS AND SUPPLY

CHAIN MANAGEMENT

LOGO
 Content

1. What is OSCM?

2. Why study OSCM?

3. OSCM decision making

4. The heritage of OSCM

5. Current challenges facing OSCM

WHAT IS OPERATIONS
AND SUPPLY CHAIN
MANAGEMENT?
WHAT IS MANAGEMENT?

Functions
Plan
Art & Organize
Science Direct
Staff
Control
 PRODUCTS?

Goods
Physical items produced by business organizations.

Services
Activities that provide some
combination of time, location, form, and
psychological value
 WHAT IS OPERATIONS?

Processes Processes
Input Output Customer
Man
Products
Machine
&
Material
Services
Money
Methods
…
Value
Added
 What is Operations Management?

Process Process
Input Output Customer
Man
Machine
Material
Money
Methods
…
Value
Added
Cost
Design
Management Quality
Improve Efficiency (Time,
Flexibility)
 What Is Operations
Management?
• Operations management (OM) is the
science and art of ensuring that goods and
services are created and delivered
successfully to customers.
− Design of goods, services, and the processes
that create them.
− Day-to-day management of those
processes.
− Continual improvement of these goods,
services, and processes.
 OM - SUPPLY & DEMAND

Operations & Sales & Marketing

Supply Chains

Wasteful
Supply
> Demand
Costly

Opportunity
Supply
< Demand Loss
Customer
Dissatisfaction

Supply
= Demand Ideal
 What is Operations?

 Distinguish:
 Manufacturing Management
 Production Management
 Operations Management
 Operations and Supply Chain Management
A global network of organizations and activities that
supplies a firm with goods and services.
 WHY STUDY
OPERATIONS AND
SUPPLY CHAIN
MANAGEMENT?
 WHY STUDY OSCM?

 OSCM is one of three major functions

of any organization
 We want to know what operations
managers do
 We want (and need) to know how
goods and services are produced
 OM is such a costly part of an
organization
 ORGANIZATIONAL FUNCTIONS

Marketing
¨ Gets customers

Operations
¨ Creates product or service

Finance/Accounting
¨ Obtains funds
¨ Tracks money
© 1995 Corel Corp.
 Functions - Bank

Commercial Bank
© 1984-1994
T/Maker Co.

Marketing Operations Finance/

Accounting

Teller Check Transactions

Security
Scheduling Clearing Processing
 RESPONSIBILITIES OF OM

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
 OM DECISIONS

Tactical:
Strategic:
 Quality Control
 Product/Service
Design  Demand
Forecasting
 Process Selection
 Supply Chain
 Capacity Planning Management
 Facility Location  Production
 Facility Layout Planning
 Job Design  Inventory Control
 Scheduling
 OM IN THE WORKPLACE

Operations Managers have such titles as:

• Chief Operating Officer
• Hotel or Restaurant Manager
• Vice President of Manufacturing
• Customer Service Manager
• Plant Manager
• Field Services Manager
• Supply Chain Manager
 WHERE ARE THE OM JOBS?

 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
 SKILL FOR OM JOBS

 People Skills
 Political Awareness skill
 Mentoring Ability skill
 Collaboration skill
 Negotiation skill
 Communication skill…
 Knowledge Skills
 Product and/or Service Knowledge
 Process Knowledge
 Industry and Global Knowledge
 Financial an Accounting Skills
 Project Management Skills…
 GOODS-SERVICE CONTINUUM
Steel production
Automobile fabrication

House building
Low service content Road construction
High goods content
Dressmaking
Farming

Auto Repair
Appliance repair

Maid Service
Increasing Manual car wash
goods content
Increasing Teaching
service content Lawn mowing
High service content
Low goods content
Similarities Between Goods - Services

1. Goods and services provide value and

satisfaction to customers who purchase and use
them.

2. They both can be standardized or customized to

individual wants and needs.

3. A process creates and delivers each good or

service, and therefore, OM is a critical skill.
Manufacturing and service are often different in terms of
what is done, but quite similar in terms of how it is done
 Goods Versus Services

Goods Service
 Can be resold ¨ Reselling unusual
 Can be inventoried ¨ Difficult to
inventory
 Some aspects of ¨ Quality difficult to
measure
quality measurable
 Selling is distinct ¨ Selling is part of
from production service
 Goods Versus Services (con’t)

Goods Service
 Product is ¨ Provider, not product
transportable is transportable
 Site of facility ¨ Site of facility
important for cost important for customer
contact
 Often easy to ¨ Often difficult to
automate
automate
 Revenue generated ¨ Revenue generated
primarily from primarily from
tangible product intangible service.
PROCESS?

Process Procedure
 PROCESS

Policy Process Procedure

What is it? Rule Set of activities Specific and
Regulation that must be detailed step of
Set of guidelines executed actions
Why does Legislation Defines steps Defines what
it exist? Industry needed to ensure actions need to
requirements policy is happen
Define organizations enforced/adhered
position to
Level of High level Defines: Exact step by
detailed Includes: Who step
responsibilities and When Who
consequences How often What order
How to deal with
undefined events
Review 6-12 months As needed At the conclusion
frequency of every cycle
 PROCESSES

Key business processes:

• Value creation processes
• Support processes
• General management processes
 PROCESSES

Value creation processes

- Focused on producing or delivering an organization’s
primary goods or services, examples:
• Filling and shipping a customer’s order
• Assembling a dishwasher
• Providing a home mortgage.
 PROCESSES

Support processes
• Purchasing materials and supplies
• Managing inventory
• Installation
• Health benefits
• Technology acquisition
• Day care on-site services
• Research and development.
 PROCESSES

General management processes

- Including:
• Accounting and information systems
• Human resource management
• Marketing.
 OM _COSTLY PART

FINANCE
MARKETING /ACCOUNTING
OPTION OPTION OM OPTION

INCREASE REDUCE REDUCE

SALES FINANCE PRODUCTION
CURRENT REVENUE 50% COSTS 50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of goods –80,000 –120,000 –80,000 –64,000

Gross margin 20,000 30,000 20,000 36,000

Finance costs –6,000 –6,000 –3,000 –6,000

Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% –3,500 –6,000 –4,200 –7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
GENERAL APPROACHES TO
DECISION MAKING
KEY DECISIONS OF OM

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
 General approaches to
decision making

 Models
 Quantitative Approaches
 Performance Metrics
 Analysis of Trade-Offs
 Degree of Customization
 A Systems Approach
 Establishing Priorities
 Models

An abstraction of reality; a simplified representation

of something.
 They are simplifications of real-life phenomena
 They omit unimportant details of the real-life
systems they mimic so that attention can be
focused on the most important aspects of the real-
life system
 Physical models – miniature airplane
 Schematic models – drawing of a city
 Mathematical models – Inventory optimization
 Quantitative Approaches

Problem solving often embody an attempt to

obtain mathematically optimal solutions to
managerial problems.
• Linear programming
• Queuing techniques
• Inventory models
• Project models
• Forecasting techniques
• Statistical models …
 Performance Metrics

All managers use metrics to manage and

control operations:
 Profits
 Costs
 Quality
 Productivity
 Flexibility
 Assets
 Inventories
 Schedules
 Forecast accuracy….
 Analysis of Trade-Offs

 Listing the advantages and disadvantages—the

pros and cons—of a course of action to better
understand the consequences of the decisions
they must make.

=> “net out” the potential impacts of the trade-offs

on their decision
 Degree of Customization

Production of customized products :

 Requires more time consuming
 Requires more highly skilled people
 Involves more flexible equipment
 Have a much lower volume of output
 Carries a higher price tag.
 A Systems Approach

• A system can be defined as a set of interrelated

parts that must work together.
• The systems perspective
 Emphasizes interrelationships among subsystems
 Main theme is that the whole is greater than the sum of its parts
 The output and objectives of the organization take precedence
over those of any one subsystem

• A systems approach is essential whenever

something is being designed, redesigned,
implemented, improved, or otherwise changed.
 Establishing Priorities

 In nearly all cases, certain issues or items

are more important than others
 Recognizing this allows managers to focus
their attention to those efforts that will do the
most good
• Ex: Pareto phenomenon
A few factors account for a high percentage of the
occurrence of some event(s).
THE HERITAGE OF
OPERATIONS
MANAGEMENT
 THE HISTORICAL EVOLUTION

 The Industrial Revolution

 Scientific Management
 The Human Relations Movement
 Decision Models and Management Science
 The Influence of Japanese Manufacturers
 THE HISTORICAL EVOLUTION

THE INDUSTRIAL REVOLUTION

 Pre-Industrial Revolution
Craft production - System in which highly skilled workers use
simple, flexible tools to produce small quantities of customized
goods
 Some key elements of the industrial revolution
 Began in England in the 1770s
 Division of labor - Adam Smith, 1776
 Application of the “rotative” steam engine, 1780s
 Cotton gin and interchangeable parts - Eli Whitney, 1792
 Management theory and practice did not advance
appreciably during this period
Division of labor - The breaking up of a production process into small
tasks, so that each worker performs a small portion of the overall job
 Eli Whitney

¨ Born 1765; died 1825

¨ In 1798, received
government contract to
make 10,000 muskets
¨ Showed that machine tools
could make standardized
parts to exact specifications

 Interchangeable parts - Parts of

a product made to such precision
© 1995 Corel Corp.
that they do not have to be
custom fitted.
 THE HISTORICAL EVOLUTION

SCIENTIFIC MANAGEMENT
 Movement was led by efficiency engineer, Frederick
Winslow Taylor
 Believed in a “science of management” based on
observation, measurement, analysis and improvement of
work methods, and economic incentives
 Management is responsible for planning, carefully
selecting and training workers, finding the best way to
perform each job, achieving cooperation between
management and workers, and separating management
activities from work activities
 Emphasis was on maximizing output
 Frederick W. Taylor

¨ Born 1856; died 1915

¨ Known as ‘father of scientific
management’
¨ In 1881, as chief engineer for
Midvale Steel, studied how
tasks were done
¨ Began first time & motion studies
¨ Created efficiency
principles © 1995 Corel Corp.
 Frederick W. Taylor

Management should take more

responsibility for:
 Matching employees to right job
 Providing the proper training
 Providing proper work methods and
tools
 Establishing legitimate incentives for
work to be accomplished
 Frank & Lillian Gilbreth

¨ Frank (1868-1924); Lillian

(1878-1972)
¨ Husband-and-wife
engineering team
¨ Further developed work
measurement methods
¨ Applied efficiency methods
to their home & 12 children!
¨ (Book & Movie: “Cheaper
by the Dozen,” book:
“Bells on Their Toes”
© 1995 Corel Corp.
 Henry Ford

¨ Born 1863; died 1947

‘Make them all
¨ In 1903, created Ford alike!’
Motor Company
¨ In 1913, first used
moving assembly line
to make Model T
¨ Unfinished product © 1995 Corel
Corp.

moved by conveyor
past work station
 Mass production - System in which low-skilled
workers use specialized machinery to produce
high volumes of standardized goods.
 The historical evolution

THE HUMAN RELATIONS MOVEMENT

 The human relations movement emphasized the
importance of the human element in job design
 Lillian Gilbreth – Applications of psychology
 Elton Mayo – Hawthorne studies on worker
motivation, 1930
 Abraham Maslow – Motivation theory, 1940s;
hierarchy of needs, 1954
 Frederick Hertzberg – Two Factor Theory, 1959
 Douglas McGregor – Theory X and Theory Y, 1960s
 William Ouchi – Theory Z, 1981
 The historical evolution

DECISION MODELS AND

MANAGEMENT SCIENCE

 F.W. Harris – Mathematical model for inventory

management, 1915
 Dodge, Romig, and Shewart – Statistical procedures
for sampling and quality control, 1930s
 Tippett – Statistical sampling theory, 1935
 Operations Research (OR) Groups – OR
applications in warfare
 George Dantzig – Linear programming, 1947
W. Edwards Deming

¨ Born 1900; died 1993

¨ Engineer & physicist
¨ Credited with teaching
Japan quality control
methods in post-WW2
¨ Used statistics to analyze
process
¨ His methods involve
workers in decisions
 The historical evolution

THE INFLUENCE OF JAPANESE

MANUFACTURERS

 Refined and developed management practices

that increased productivity
 Credited with fueling the “quality revolution”
 Just-in-Time production
 The Heritage of
Operations Management

Division of labor (Adam Smith 1776 and Charles Babbage 1852)

Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford, Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922
Quality control (Shewhart 1924; Deming 1950)
Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

 The Heritage of Operations
Management (con’t)

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization(1992)
Internet (1995)

Applications service providers and

outsourcing Social media, YouTube,
and others. (2000s)
SIX ERAS OF OM
 CURRENT
CHALLENGES IN
OPERATIONS
MANAGEMENT
 OPERATIONS TODAY

Technology Management
Global competition
Working with fewer resources
Revenue management
Agility
 Key Issues for Operations
Managers Today

Economic conditions
Innovating
Quality problems
Risk management
Cyber-security
Competing in a global economy
 Key Issues for Supply Chain
Managers Today

 Coordinating the relationships between

mutually supportive but separate
organizations.
 Optimizing global supplier, production, and
distribution networks.
 Managing customer touch points.

 Raising senior management awareness of

OSCM as a significant competitive weapon.
LOGO