OM Week 1

Operations management

The design and control of business processes that transform inputs into outputs

The Transformation Process

Inputs → Process → Outputs

Inputs

• Materials

• Labor

• Energy

• Capital

Process

Collection of activities connected by flows

Outputs

• Goods

• Services

• Information

Process

A collection of activities (or tasks) connected by a flow of goods and information that transforms various inputs into useful outputs

Process Components

• Activities

• Flows

• Storage/Delays

• Decisions

Activities

• Tasks performed

• Add value (or not)

Flows

• Materials

• Information

• People

Storage/Delays

• Inventory

• Waiting queues

• Buffers

Decisions

• Branch Points

• Routing Logic

• Quality Checks

Process Flow Diagram Building Blocks

• Activity

• Flow

• Storage

• Decision

• Swim Lane

• Start/End

Activity (Process Flow Diagram)

Include what the shape is as well

A task that transforms inputs - where work happens

Flow (Process Flow Diagram)

Include what the shape is as well

Movement of materials, information, or people between activities

Storage (Process Flow Diagram)

Include what the shape is as well

Inventory, buffer, or queue where items wait

Decision (Process Flow Diagram)

Include what the shape is as well

A branch point based on a condition

Ex: approved? yes/no

Swim Lane (Process Flow Diagram)

Include what the shape is as well

Divider separating responsibilities by department or role

Start/End (Process Flow Diagram)

Include what the shape is as well

Marks where the process begins or terminates

Three Core Business Processes

(Suppliers)

1. Procurement

2. Production

3. Fulfillment

(Customers)

Procurement

Sourcing materials

• Create purchase requisition

• Send purchase order

• Receive materials

• Process invoice/payment

Production

Making products

• Authorize production

• Issue raw materials

• Create product

• Store finished goods

Fulfillment

Delivering to customers

• Receive customer order

• Pick and pack

• Ship order

• Invoice and collect

Value-Adding Activities

Activities that the customer is willing to pay for

• Manufacturing the product

• Assembling components

• Customizing to specifications

• Quality inspection

• Delivering to customer

Non-Value Adding Activities

Activities that consume resources but don’t add value

• Waiting in queue

• Moving materials. between locations

• Rework due to defects

• Excessive inventory storage

• Unnecessary approval steps

Goal of Operations Management

Maximize value-adding activities, minimize waste

What drove Dell’s supply chain transformation?

• Changing customer expectations for better speed, reliability, customization, and price

• More competitive landscape in all markets

• Managing a global footprint (increases complexity and risk)

• The need to leverage data and generate insights from this asset for competitive advantage using AI, advanced analytics, and other emerging technologies

• Merger of Dell/EMC opening a new market segment (storage and virtualization) but requiring integration of different cultures and supply chains

Why was it important that Dell shifted its focus from digital technologies to stakeholder experiences?

Who were the stakeholders and what were the five stakeholder experiences?

Which were the first two stakeholder experiences prioritized? Why?

Digitization needed to be linked to Dell’s value proposition, rather than simply “providing a solution in search of a problem.” Instead, Dell focused on transforming stakeholder experiences through digitization and became more value chain/supply chain oriented.

Stakeholders:

• Customer

• Supplier

• Dell Workforce

Five Stakeholder experiences:

• Make the right commitments

• Ensure parts supply

• Keep the customer informed

• Manage the supply ecosystem

• Drive operational efficiency

“Make the right commitments” and “Ensure parts supply” were prioritized because they focused on the customer and were necessary for the other experiences. Additionally, these two experiences were synergistic and supported each other.

What was a prerequisite to digital transformation?

What impediments did Dell face in this regard?

How were these impediments addressed?

A prerequisite to digital transformation was a solid data layer.

Dell had disparate data in sepertae systems and lacked a “single point of truth.”

As a result, Dell GO instituted two data foundations for all the stakeholders' experiences to harmonize and visualize data. It was managed by a dedicated data analytics group that worked cross-functionally to break down silos and transform the culture toward managing and maintaining data as a single point of truth.

What role did supply chain processes play in making digital transformation a reality?

At first, what mistake was the planning team making in digitizing the process?

What did they decide to do instead?

Using the 5 stakeholder experiences, the Dell GO team mapped, analyzed, and redesigned processes for digital transformation.

At first, the planning team made the mistake of digitizing existing processes

Later, they realized that they had an opportunity to redesign processes for improvement that took full advantage of the opportunities afforded by digital transformation

To address the unavailability of storage devices at Dell, which process (procurement, production, or fulfillment) is used at Dell and which resources are involved?

Process: procurement

Resources: warehouse, purchasing, accounting

To address the unavailability of storage at Dell, which process (procurement, production, or fulfillment) is used at Samsung and which resources are involved?

Process: fulfillment

Resources: sales, warehouse, accounting

The original Dell model":

1. Customer calls Dell directly

2. Specifies exactly what they want

3. Dell build the PC to order

4. Ships directly to customer

Dell’s Traditional Supply Chain Flow

Dell’s New Supply Chain Flow

What did Dell’s new supply chain method eliminate?

What was the result?

• Middlemen and the inventory

• Lower prices, faster delivery, and exactly what the customer wanted

Cash Conversion Cycle (CCC)

Net days your cash is stuck in the business

• Days between cash OUT and cash IN

Cash Conversion Cycle Equation

CCC = DIO + DSO - DPO

DIO: Days Inventory Outstanding - How long inventory sits before you sell it

DSO: Days Sales Outstanding - How long until customers pay you

DPO: Days Payables Outstanding - How long until you pay your suppliers

What does the following formula intuitively mean?

DIO + DSO

How long until cash comes in?

What does the following intuitively mean?

DPO

How long until cash goes out?

What is the CCC?

CCC = 45 + 30 - 60 = 15 days

You pay on Day 60 but don’t get paid until Day 75

What does it mean to have a positive CCC?

Your cash is locked in inventory and receivables

What does it mean to have a negative CCC?

Suppliers finance your operations

What does a high/positive CCC entail?

Growth consumes cash → Need banks to grow

The faster you grow, the more cash you burn.

Many profitable businesses fail because they grow too fast and run out of cash.

What does a low/negative CCC entail?

Growth generates cash → Customers fund your growth

More sales = More cash collected upfront = More free cash

Who is financing your operations?

You, your customer, or your suppliers

Someone always pays to keep goods moving

Smart operations shift that burden to others

What technology did Dell implement first, and how much labor did it save per year?

Robotic Process Automation (RPA)

• 200K hours of manual work saved per year

How many different systems was Dell using to track supplier data?

6 different systems tracking supplier data