Chapter 1: Introduction to Operations Management Across the Supply Chain

Environmental Scanning

A research process that is used to collect all types of relevant information that helps businesses make decisions regarding surviving, expanding, or entering new markets.

• Simply, it can be described as keeping a close eye on external or internal events and analyzing this information to know how it can be detrimental or beneficial for the business.

Why is environmental scanning important?

• It helps in making well-informed decisions at the right time

• Gain a strategic competitive advantage by spotting opportunities (or threats) before competitors

What are the components of the organizational environmental scan according to the Baldrige Criteria?

1. Product Offerings

2. Vision and Mission

3. Workforce Profile

4. Assets

5. Regulatory Requirements

Product Offerings

Your main product offerings, its relative importance to success, mechanisms used to deliver products

Vision and Mission

Stated purpose, vision, values, and mission, core competencies and their relationship to your mission

Workforce Profile

Employee groups and segments, educational requirements, key elements of employees that engage them in achieving mission and vision, workforce diversity, job diversity, organized bargaining units, special health and safety requirements

Assets

Major facilities, technologies, and equipment

Regulatory Requirements

Applicable occupational health and safety regulations, accreditation, certifications, or registration requirements, industry standards, and environmental financial, and product regulations

What are the components of the competitive environmental scan according to the Baldrige Criteria?

1. Competitive Position

2. Competitiveness Changes

3. Comparative Data

Competitive Position

Relative size and growth, how many competitors, what types of competitors

Competitiveness Changes

Key changes affecting competitive situation including changes that create opportunities for innovation, and collaboration

Comparative Data

Key sources of comparative and competitive data from within your industry and outside your industry, what limitations that affect your ability to obtain or use these data

SWOT Analysis

The tool used to assess a firm’s strengths, weaknesses, and market opportunities.

• Can offer powerful insight into the potential and critical issues affecting a venture

• Useful tool in developing and confirming goals and strategies

What are the 2 internal elements of a SWOT analysis?

Strengths and weaknesses

What are the 2 external elements of a SWOT analysis?

Opportunities and threats

What is the primary purpose of a SWOT analysis?

To identify and assign each significant factor, positive and negative, to one of the four categories, allowing you to take an objective look at the business.

TOWS Matrix

Variation of the SWOT analysis, which is used to develop strategic options from an external-internal analysis.

What is the main difference between a SWOT analysis and a TOWS matrix?

The SWOT analysis emphasizes the internal environment where the TOWS matrix emphasizes the external environment.

Strengths and Opportunities (SO)

“Maxi-Maxi” Strategy: strategies that use strengths to maximize opportunities

• How can you use your strengths to take advantage of the opportunities?

Strengths and Threats (ST)

“Maxi-Mini” Strategy: strategies that use strengths to minimize threats

• How can you take advantage of your strengths to avoid real and potential threats?

Weaknesses and Opportunities (WO)

“Mini-Maxi” Strategy: strategies that minimize weaknesses by taking advantage of opportunities

• How can you use your opportunities to overcome the weaknesses you are experiencing?

Weaknesses and Threats (WT)

“Mini-Mini” Strategy Retrenchment: strategies that minimize weaknesses and avoid threats

• How can you minimize your weaknesses and avoid threats?

What is operations management?

The set of activities that creates good and services through the transformation of inputs into outputs.

Inputs

Raw materials, human assets, and energy

Activities

Design, supply, production, and delivery of valuable goods and services to the customers

Productivity

• Measures the effective utilization of resources within a country, industry, or business unit.

• Outputs / inputs

How can you increase productivity?

1. Increase outputs while keeping inputs constant

2. Reduce inputs while maintaining consistent outputs

What is supply chain management?

The global network of organizations and activities involved in designing, transforming, consuming, and disposing of goods and services.

What is the role of the supply chain manager?

Not only are they responsible for all the activity within the factory, shop, or office and within the supply chain, but they are also responsible for the development of processes that will lead to the organization’s future success.

What are the 5 features of services that make them fundamentally different from manufacturing goods?

1. Intangibility

2. Heterogeneity

3. Perishability

4. Simultaneity / Inseparability

5. Customer Participation in the Service Process

Service Segment

Any portion of the process where the customer, the customer’s belongings, or the customer’s ideas are involved.

• It is difficult to find a product that is sold that does not have a service segment included as part of the process.

Front Office

Areas where the customer has interaction with an employee of the company

Back Office

Areas where the customer normally does not see

Pre-purchase activities

Being responsive to customer inquiries and the ability to demonstrate technical expertise.

Purchase activities

Actual sale and delivery of the product and collecting payment.

Post-purchase activities

After-sales service and product warranties.

Moment of Truth

An interaction with the customer that “defines the quality of the service in the mind of the customer”

Trends in Operations Management

• Local or National focus to a Global Focus to reduce costs

• Large Shipments to Just-In-Time shipments to reduce inventory costs

• Low Bid Purchasing to Supply Chain Partners

  • Suppliers need to be involved in the design, quality, and delivery process

• Long Lead-Time to Shorter Lead-Time in product development due to shorter product life cycles and in delivery times due to customer demands

• Standardized Products to Mass Customization driven by flexible production processes and increasing affluence

• Job Specialization to Teams and Empowered Employees

  • Due to increase in knowledge and information

• Manufacturing to Service based

  • As manufactured products become cheaper and disposable income increases, consumers spend more money on services

• Manual Processes to Automation and Artificial Intelligence

• Conventional Operations to Sustainability and Green Operations

• Traditional Project Management to Agile and Lean Methodologies

  • Increases flexibility, reduces waste, and improves overall efficiency in operations

• Reactive Maintenance to Predictive Maintenance

  • Reduce downtime and improve operational efficiency

Competitive Advantage

The advantage a company has over its rivals in attracting customer and defending against competitors. Sources of the advantage include characteristics that a competitor cannot duplicate without substantial cost and risk, such as manufacturing technique, brand name, or human skill set.

• Synonym: competitive edge

Core Competencies

Bundles of skills or knowledge sets that enable a firm to provide the greatest level of value to its customers in a way that is difficult for competitors to emulate and that provides for future growth. Core competencies are embodied in the skills of the workers and in the organization. They are developed through collective learning, communication, and commitment to work across levels and functions in the organization and with the customers and suppliers.

• Example: a core competency could be the capability of a firm to coordinate and harmonize diverse production skills and multiple technologies

Economy of Scale

A phenomenon whereby larger volumes of production reduce unit cost by distributing fixed costs over a larger quantity.

Economy of Scope

Using one versatile plant to produce many different products at a lower cost than making each product in different plants at a higher cost.

Expert System

A type of artificial intelligence computer system that mimics human experts by using rules and heuristics rather than deterministic algorithms.

Just in Time (JIT)

A philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity. It encompasses the successful execution of all manufacturing activities required to produce a final product, from design engineering to delivery, and includes all stages of conversion from raw material onward.

• The primary elements of just in time are:

  • To have only the required inventory when needed

  • To improve quality to zero defects

  • To reduce lead times by reducing setup times, queue lengths, and lot sizes

  • To incrementally revise the operations themselves

  • To accomplish these activities at minimum cost

• In a broad sense, it applies to all forms of manufacturing — job shop, process, and repetitive — and to many service industries as well.

• Synonyms: Short-cycle manufacturing, stockless production, zero inventories

Lean Manufacturing

• Synonym: Lean Production

Lean Production

A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves identifying and eliminating non-value-adding activities in design, production, supply chain management, and dealing with customers. Lean producers employ teams of multiskilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. It contains a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all manufacturing and support processes.

• Synonyms: lean, lean manufacturing

Malcolm Baldrige Quality Award Program

An award established by Congress in 1987 to raise awareness of quality management and to recognize U.S. companies that have implemented successful quality management systems. Up to four awards may be given annually in each of the three categories: manufacturing company, service company, and small business. The award is named after the late Secretary of Commerce, Malcolm Baldridge, a proponent of quality management. The U.S. Commerce Department’s National Institute of Standards and Technology manages the award, and the American Society for Quality (ASQ) administers it.

• Synonym: Baldrige Award

Mass Customization

The creation of a high-volume product with large variety so that a customer may specify an exact model out of a large volume of possible end items while manufacturing cost is low due to large volume.

• Example: A personal computer order in which the customer may specify processor speed, memory size, hard disk size and speed, removable storage device characteristics, and many other options when PCs are assembled on one line and at low cost.

Material Requirements Planning (MRP)

A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. Time-phased MRP begins with the items listed on the MPS and determines

1. The quantity of all components and materials required to fabricate those items

2. The date that the components and material are required

Time-phased MRP is accomplished by exploding the bill of material, adjusting for inventory quantities on hand or on order, and offsetting the net requirements by the appropriate lead times.

Mission

The overall goal(s) for an organization set within the parameters of the business scope.

Mission Statement

The company statement of purpose.

Operations Management

• The planning, scheduling, and control of the activities that transform inputs into finished goods and services.

• A field of study that focuses on the effective planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the operation.

Substitution

The use of a nonprimary product or component, normally when the primary item is not available.

Supply Chain Management

The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.

Vision

The shared perception of the organization’s future — what the organization will achieve and a supporting philosophy. This shared vision must be supported by strategic objectives, strategies, and action plans to move it in the desired direction.

Vision Statement

An organization’s statement of its vision.