Key Concepts in Operations Management and Supply Chain

Operations Management

the management of processes that transforms inputs into the goods and services that add value to the customer

Operations Management Goal

OM's Goal is to maximize efficiency while adding value to the customer

Ultimate goal of operations management

maximize efficiency through the transformation model inputs(raw material)-output(service)

Transformation model

Inputs(raw materials)-Transformation process-Output(finished product or service)

Types of inventory

7 types: supplies, Safety stock, Raw materials, Work-in-process, Finished goods, Replacement parts, and Transportation

Inventory

A list of items a company owns or controls that will be sold or used in the production process

Supplies

materials consumed during production

Replacement Parts

used to fix broken equipment

Work in process

Work-in-process inventory is within the production facility being or ready to be used

Transportation pipeline

inventory is on the move then become finished goods

Safety Stock

Buffer, extra just in case they run out of the stock

Stock Out

Ran out of stock

Risk of a stock out

Go to competitor

Capacity Planning

Do we have the space for the inventory

Shelf Life

Depreciation of inventory

ABC Analysis

A items Tight control accurate records >B>C (A=most important)

Pareto Principle

80% of revenue is driven by 20% of inventory

EOQ (Economic Order Quantity Model)

used for finished goods

EPQ (Economic Production Quantity)

Model used for raw materials or production

Vendor managed inventory example

Walmart and Coke and Frito-Lay. Must share POS data with vendor

Just In Time I

JIT I is VMI on retail side

Just In Time II

JIT II is VMI (strengthened) on production side

Lead Time

Time it takes from ordering supply to delivery

Reorder Point

trigger level of inventory based on lead time and average usage

Ordering cost

Incurred to acquire the product or materials

Carrying cost

Cost incurred to hold/store inventory

Demand planning

estimating how much of a product the customers will buy from you

Types of Demand

Peak Demand, Seasonal Demand, Unexpected Demand, Chase Demand

Periodic Inventory System

Random Time (physical count-small business-cheap-order window)

Perpetual Inventory System

Continuously monitored (input required-large business-expensive-accurate)

Principles of Sustainability

Transparency, Employee Development, and Resource efficiency

Sustainability

Economy/Society/Environment(costly)

SWOT

Strengths, Weaknesses, Opportunities, Threats

Supply Chain

Connect activities related to the creation of a product or service up through the delivery of the product to the customer

Agile Supply Chain

Agile focuses on flexibility and responsiveness to change.

Lean Supply Chain

Lean focuses on efficiency and waste reduction.

Focal Firm

A focal firm is a company that integrates vertically by controlling multiple stages of its supply chain.

Backward Integration

Backward integration involves acquiring suppliers.

Forward Integration

Forward integration involves acquiring distributors or retailers.

Inbound Logistics

Inbound logistics focuses on receiving materials.

Outbound Logistics

Outbound logistics focuses on distributing finished goods.

Logistics

The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from their point of origin to point of consumption for the purpose of satisfying customers.

Third-Party Logistics (3PL)

Third-party logistics manages a company's supply chain.

Reverse Logistics

Reverse logistics manages the return of goods.

Strategic Alliance

A strategic alliance is a long-term partnership between two or more companies to achieve specific business goals.

Benchmarking

Measuring performance metrics against other companies.

Demand Constraint

Demand constraint refers to shortages related to demand, such as those caused by COVID-19.

Supply Constraint

Supply constraint refers to supplier lead time.

Process Constraint

Process constraint refers to internal production capacity.

Constraint

A constraint is a limitation or restriction.

Bottleneck

A bottleneck is a type of constraint that significantly slows down an entire process.

Bottleneck Types

Bottleneck types include physical, process, and demand-based constraints.

Process Bottleneck

Process bottleneck is the supply chain part that requires the longest time/slowest rate.

Theory of Constraints

A 5 step process to identify and overcome bottleneck.

Steps of Theory of Constraints

Identify, Exploit, Subordinate, Elevate, Repeat.

Forecasting

Prediction of future based on past.

Quantitative Forecasting Methods

Quantitative forecasting methods include time series analysis and causal methods.

Qualitative Forecasting

Qualitative is based off expert opinions when no reliable data is available.

Simple Moving Averages

Simple moving averages give equal weight to all data points.

Weighted Moving Averages

Weighted moving averages assign different weights to each data point.

Independent Demand

Demand for final products.

Dependent Demand

Demand for unfinished goods (raw material).

Master Production Schedule

A detailed production plan that outlines the production schedule.

Materials Requirements Planning (MRP)

Determines the materials needed based on the Master Production Schedule.

Planning Horizon

Medium is 6-18 months and Long term is 5-10 years.

Time fence

A boundary on the planning horizon.

Time bucket

The actual time period used for planning and analysis.

MRP vs MPRII vs. ERP

MRP is a production planning system, MPRII extends it to encompass the entire enterprise, and ERP integrates all business functions.

MRP inputs

Include the master production schedule, bill of materials, and inventory records.

Product Scheduling

Includes Continuous Flow, Assembly line, and Batch Flow.

Scheduling Planning vs Capacity Planning

Scheduling is assigning resources to tasks over time vs. Capacity Planning is optimizing space.

Capacity

The ability to produce quality products and meet demand.

Throughput vs. System Capacity

Throughput is maximum output per unit of time vs. System Capacity considers the efficiency of the system.

System Capacity Maximum Output

Determined by the department with the slowest time or least throughput.

Design Capacity

The maximum output a process can achieve under ideal conditions.

Effective Capacity

Accounts for realistic limitations like downtime and maintenance.

Design Capacity formula

Units per... x time x stations = Design Cap.

Capacity Utilization formula

Actual output divided by Design Capacity x 100%.

Efficiency Rate

Actual Output divided by Effective Capacity x 100%.

Capacity Planning Strategies

Include Lead (proactive), Lag (reactive), Match (matching customer demand), and Adjustment (a change to meet demand).

Location analysis

Regional serves a region, Product serves the world.

Location Analysis Factors

Quantitative (costs) and Qualitative (proximity/climates).

Facility Layout factors

Include Product/Sequential Oriented layout, Process/Functional Oriented layout, and Fixed Position layout.

Process Selection considerations

Volume and variety.

Process Selection types

Include Continuous flow, Assembly Line, Batch Flow, and Job shop.

Total Cost Equation

TC = Variable cost x number of units + Fixed cost.

Economies of Scale vs. Economies of Scope

Economies of scale are cost advantages from increased production volume, while economies of scope are cost advantages from producing multiple products.

Quality vs. Quality Management System

Quality is a characteristic of a product or service, while a QMS is a system to manage and improve that quality.

ISO 9000 vs. ISO 14000

ISO 9000 focuses on quality management systems, while ISO 14000 focuses on environmental management systems.

ISO

The International Organization for Standardization, founded on 2/23/1945, promulgates worldwide proprietary, industrial and commercial standards.

Internal vs. External Orientation/Aspect of Quality

Internal orientation focuses on the company's perspective, while external orientation focuses on the customer's perspective.

Quality Function Deployment

A systematic approach to translating customer requirements into specific design and manufacturing specifications.

Statistical Product Control tools

Has seven tools.

Data Collection Tools

Instruments used to gather and record information for analysis in real-time.

Check sheet

Manually entered data.

Control Chart

Has an upper and lower control limit.

Run Chart

Control chart's child; it has more central tendency data.

Histogram

Shows bar chart form of how many times something happened (e.g., injuries).

Pareto Chart

Putting data in descending order (worse to best).

Scatter Plot

Shows how one variable affects another variable.