Real MGMT 4000 Test

Introduction to Operations

• The design, operation, and improvement of the systems that create and delivery the firm's primary products and services

• Operations and supply chain management (OSCM) is

  • A functional field of business

  • Clear lines management responsibilities

  • Concerned with the management of the entire productions/delivery system

• End-to-End supply chain

Process Activities

• Planning- processes needed to operate an existing supply chain

• Sourcing- Selection of suppliers that will deliver the goods and services needed to create the firm's product

• Making- Producing the major product or service

• Delivering- Logistics processes such as selecting carriers, coordinating the movement of goods and information, and collecting payments from customers

• Returning- Receiving worn out, excess and or defective products back from customers

• Operations: manufacturing and service processes used to transform resources into products

• Supply chain: Processes that move information and material to, through, and from the firm

Service or Good?

• “If you drop it on your foot, it will hurt you”?

• It can be stored as inventory…

• Customer is more directly involved in the production process

• Longer response time…

• Quality is difficult to measure

Differences between services and goods

• A service is an intangible process that cannot be weighed or measured, whereas a good is a tangible output of a process that has physical dimension

• A service requires some degree of interaction with the customer for it to be a service

• Services are inherently heterogeneous

  • With the big exception of hard technologies and information technologies

• Services as a process is perishable and time dependent, and unlike goods, can’t be stored

• The specifications of a service are defined and evaluated as a package of features the affect customer perceptions

Categorization of Service Businesses

1. Businesses impacting human bodies

2. Businesses that are directed at physical products

3. Businesses that are directed at people’s minds

4. Business directed at risk and money management

The goods services continuum

Pure goods -> Core goods -> Core services -> Pure services

Efficiency:

• Doing something at the lowest possible cost

Effectiveness:

• Doing the right things to create the most value

Value (quality divided by price)

• Quality= the attractiveness of a product, considering its features and durability 

Strategy

• The firm’s strategy describes how it will create and sustain value for its current shareholders

  • Shareholders- owners

  • Stakeholders- influenced by the actions of the firm

Sustainability 

• Adding a sustainability requirement means meeting value goals without compromising the ability of future generations to meet their own needs

Operations and Supply chain strategy

• OSCM Strategy: policies and plans for using the resources of a firm- must be integrated with corporate strategy

• Operations effectiveness: Performing activities in a manner that best implements strategic priorities at a minimum cost

Operations Strategy - 3 C’s

• Customers

  • Get to know- team up with next and final customer

  • Continual, rapid improvement in lead time, quality, cost, flexibility, and variability

• Company

  • Achieve unified purpose via information, team involvement in planning and implementing change

• Competitors

  • Get to know the competition and world class leaders

Operations Strategy

• Strategy process: Customer needs -> corporate strategy -> operations strategy -> decisions on processes and infrastructure

• Example: More product -> increased organizational size -> increase production capacity -> build new factory

Competitive dimensions

• Price

  • Make the product or deliver the service for a fair price

• Quality

  • Make a great product or delivery of a great service

• Delivery speed

  • Make the product or deliver the service quickly

• Delivery reliability

  • Deliver it when promised

• Coping with changes in demand

  • Changes its volume

• Flexibility and new product introduction speed

  • Change it

Trade-Offs

• Management must decide which parameters of performance are critical and concentrate resources on those characteristics

• For example, a firm that is focused on low cost production may not be capable of quickly introducing new products

• Straddling- seeking to match a successful competitor by adding features, services, or technology to existing activities

  • Often a risky strategy

Order qualifiers and order winners

• Order qualifiers are those dimensions that are necessary for a firm’s products to be considered for purchase by customers

  • Features customers will not forego

• Order winners are criteria used by customers to differentiate the products and services of one firm from those of other firms

  • Features that customers use to determine which product to ultimately purchase

What if productivity?

• A measure of the effective use of resources, usually expressed as the ratio of output to input

• Productivity is a relative measure

What is a product/service?

• Need-satisfying offering of an organization

  • Example

    • P&G does not sell laundry detergent 

    • P&G sells the benefit of clean clothes

• Customers buy satisfaction, not parts

• Need may be supplied as a product or a service

New product opportunities

• Understanding the customer

• Economic change

• Sociological and demographic change

• Technological change

• Political/legal change

• Market practice, professional standards, suppliers, distributors

Six phases of the generic development process

0. Planning

1. Concept development

2. System-level design

3. Design detail

4. Testing and refinement

5. Production ramp-up

Human/customer behavior

• Identify issues/problems

• Drives innovation

• Strong indication of majority of customer needs 

• Real feedback

House of quality

• Quality function deployment:

  • Cross-functional teams from marketing, design engineering and manufacturing

  • Begins with listening to the customer- use market research

  • Converts the expectations and demands of customers into clear objectives- these are then translated into specifications

  • Customer requirements forms the basis for the house of quality 

Product life cycles

• May be any length from a few hours to decades 

• The operations function must be able to introduce a new products successfully

• Provide products to the customer as the product evolves through its life cycle

• Introduction: Fine tuning product

  • Research 

  • Product development

  • Process modification and enhancement

  • Supplier development

• Growth 

  • Product design begins to stabilize 

  • Effective forecasting of capacity becomes necessary

  • Adding or enhancing capacity may be necessary 

• Maturity

  • Competitors now established

  • High volume, innovative production may be needed

  • Improved cost control, reduction in options, paring down of product line

• Decline

  • Unless product makes a special contribution to the organization, must plan to terminate offering

Organizing for product development

• Historically- distinct departments

  • Duties and responsibilities are defined 

  • Difficult to foster forward thinking

• Today- team approach 

  • Cross functional- representatives from all disciplines or functions

  • Concurrent engineering- cross functional team

Concurrent engineering 

• Concurrent engineering can be defined as the simultaneous development of project design functions, with open and interactive communication existing among all team members for the purposes of:

  • Reducing time to market

  • Decreasing cost, and

  • Improving quality and reliability

  • Dangerous if not well organized 

Value Analysis/Value engineering 

• Purpose is to simplify products and processes

• Objective is to achieve better performance at a lower cost while maintaining all functional requirements defined by the customer

• Involves brainstorming such questions as:

  • Does the item have any design features that are not necessary?

  • Can two or more parts be combined into one?

  • How can we cut down the weight

Supply Chain

• Consists of a interconnected network that includes organizations, activities, and people working together to achieve efficient flow of inventory, information, and finances to deliver products and services

• Supply chain management involves overseeing and managing the flow of inventory, information and finances as products move from origin to consumer

Types of supply chains

• Agile supply chain

  • A supply chain designed to operate efficiently while optimizing speed and adaptability 

• Lean supply chain

  • A supply chain designed to operate efficiently while focusing on eliminating waste and minimizing cost

Vertical integration strategy

• Owning multiple assets within a supply chain

  • Backward vertical integration: own supplier

  • Forward vertical integration: Own distribution

Types of inventory 

• Raw materials: These parts and materials are obtained from suppliers are used in the production process

• Work-in-process: These are partly finished parts, components, subassemblies, or modules

• Finished goods: Items are ready to ship to the customer. No more work is required 

• Replacement parts: these are maintained to replace other parts in machinery or equipment as those parts wear out

• Transportation: The portion of inventory that is in the process of being shipped through the distribution system

Strategic Sourcing

• The development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business

• In the past, sourcing was another name for purchasing

• As a result of globalization, sourcing implies a more complex process suitable for products that are strategically important 

• Request for proposal: Used for purchasing items that are more complex or expensive and where there may be a number of potential vendors

• Vendor-managed inventory: When a customer actually allows for the supplier to manage an item or group of items for them

Suppliers and procurement

• Role of suppliers: suppliers are the crucial in the supply chain, delivering essential raw materials and components for production

• Importance of procurement: Effective procurement strategies ensure that quality products are sourced while maintaining cost efficiency

• Quality and cost-efficiency: Balancing quality and cost is essential for successful procurement, impacting the overall supply chain performance 

Outsourcing/insourcing

• Insourcing: Goods and services produced by the company itself

• Outsourcing: Goods and services obtained from outside providers

  • Allows a company to create a competitive advantage while reducing cost

  • An entire function may be outsourced, or some elements of an activity may be outsourced, with the rest kept in house

Supplier evaluation and certification

• A process to identify best and most reliable suppliers

  • Sourcing decisions are made on facts and not on perception

  • Frequent feedback can help avoid surprises and maintain good relationships

  • Suppliers should be allowed to provide constructive feedback to the customer

  • Supplier certification refers to an organization’s processes for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections

Procurement process

1. Material requisition/purchase requisition 

   1. Stating product, quantity, and delivery date. May originate as a planned order release from the MRP system

2. The request for quotation

   1. Buyer identifies suppliers and issues a request for quotation for routine items or a request for proposal for highly technical products. Supplier development is used to develop supplier capabilities

3. Buyer reviews, requisition, assigns qualified suppliers to bid

   1. Product description, closing date and conditions are given

4. Buyer reviews closed bids and selects a supplier

Reasons to outsource

• Financial 

• Improvement

• Organizational 

Strategic Alliances

• An agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. 

Green Sourcing

• Being Environmentally responsible has become a business imperative

• Many firms are looking to their supply chains to deliver “green” results

• Financial results can be often improved through going green

• A comprehensive green sourcing effort should assess how a company uses items that are purchased internally 

• It is also important to reduce waste

Sourcing performance measures

• Inventory (inventory turns): how often inventory is replaced during the year 

  • Cost of goods: the annual cost for a company to produce the goods or services provided to customers

  • Average aggregate inventory value: The total value of all items held in inventory

  • Weeks of supply: how many weeks worth of inventory is in the system at a particular point in time

• Inventory turnover: COGS/Inventory = X turns per year

• Weeks of supply: Inventory/COGS x 52 = X weeks

Logistics

• The art and science of obtaining, producing and distributing material and product in the proper place and in the proper quantities 

  • The flow of information

  • The flow of money

• International logistics: Managing these functions when the movement is on a global scale

• Third party logistics: An outside company used to manage all or part of another company’s logistic functions and warehouse fulfillment 

Transportation Modes

• Truck: great flexibility

• Common Carrier: A company that is in the business of transporting goods for any other companies

• Private: the company uses its own trucks to pick up and deliver the goods (amazon)

• Ship: High capacity and low cost but slow

  • Primary form for imports and exports

• Plane: fast but expensive

• Rail: low cost but slow and variable

• Pipeline: highly specialized and limited to liquids, gases, and solids in slurry form. No packaging is needed and the costs per mile are low

• Hand delivery: last step in many supply chains

Distribution Facilities

• Warehouse: A facility where goods are stored for future use

• Distribution center: a warehouse that performs additional services for processing orders

• Cross docking: an approach where large incoming shipments are broken down into small shipments for local delivery

• Fulfillment center: A distribution center designed to hand small, individual orders that are prepared for shipment to individual retail customers

Distribution Facility Processes

• The common processes within distribution facilities are inventory tracking, receiving, stowing, picking, packing and shipping

• The distribution facility must be able to accurately receive inventory delivered at receiving and loading docks

• Item storage in a distribution facility can be based on a locator system

• Items may be stored in a fixed or random location 

• On The outbound side of the facility, picking and packing are the common functions performed

Locating Logistics Facilities 

• Proximity to customers: makes rapid delivery easier.

• Business climate: can include presence of similar-sized businesses, businesses in the same industry, and other foreign companies

• Total costs: objective is to minimize overall cost

• Tariffs: a special type of tax on imports or exports of a country that is used by governments to generate revenue 

• Infrastructure: adequate road, rail, air, and sea transportation along with energy and telecommunications 

• Quality of labor: educational and skill levels must match needs 

• Suppliers: proximity of important suppliers supports lean production 

• Clustering: location of other facilities can influence a location 

• Political risk: risks in both the country of location and the host country influence the decision

• Government barriers: barriers in many countries are being removed 

• Environmental regulation: these impact a certain industry in a given location and must be included in the decision

• Host community: host community’s interest is part of the evaluation process

• Competitive advantage: the location should be provide the company with a competitive advantage

Plant location methods: 

1. Factor-rating system 

2. Centroid method

Factor rating system

• Is the most widely used 

• List of factors is developed 

• Range of possible points is assigned to each factor 

• Each site is rated against each factor

• The sums of assigned points for each site are computed

• The site with the most points is selected

Centroid method

• Uses for locating single facilities 

• Considers existing facilities, the distance between them, and the volumes of goods to be shipped between them

• Assumes inbound and outbound transportation costs are equal

• Does not include special shipping costs for less than a full load

• This methodology involves formulas used to compute the coordinates of the two dimensional point that meets the distance and volume criteria stated, above

Locating service facilities

• New service facilities are far more common than new factories and warehouses 

• Much less expensive 

• Multiple sites close to customers

• Location decision closely tied to the market selection decision

• Decision more about maximizing profits than minimizing costs

Determining location cost

• Overhead costs: all costs incurred to produce the product or service

• Fixed costs: costs that remain the same regardless of utilization or production volume 

• Variable costs: costs that fluctuates based on utilization and production volume 

• Total costs: the total sum of fixed costs and variable costs based on production volume 

TC = VC(x) + FC

TC= Total cost

VC= Variable Cost 

X = Number of units 

FC = Fixed costs

Capacity Management in operations and supply chain management

• Capacity: the ability to hold, receive, store and accommodate

• In business: Amount of output that a system is capable of achieving over a specific period of time

  • Capacity management needs to consider both inputs and outputs

  • Many industries measure and report capacity in terms of output

  • Industries whose product mix is very uncertain, like hospitals, often express capacity in terms of inputs

Strategic capacity planning 

• Determining the overall level of capacity-intensive resources that best supports the company’s long range competitive strategy

  • Facilities

  • Equipment

  • Labor force size

• Capacity has a critical impact on response rate, cost, inventory policies, and management and staff support requirements 

Capacity planning

• The process of determining the appropriate level of capacity that a company needs to meet customer demand while maintaining an optimal balance between production costs, inventory levels, and customer service levels.

• Basic questions in capacity planning are:

  • What type of capacity is needed?

  • How much is needed?

  • When is it needed?

Planning horizons

• A period of time over which a company or organization plans its production or operations. The planning horizon can vary depending on the type of plan and the organization’s goals and objectives

• Long range: 5-10 years

• Intermediate: Monthly or quarterly plans covering the next 6 to 18 months

• Short range: Less than one month

Types of capacity

• System Capacity

  • The measure of an organization's ability to sustainably produce quality products and or services to meet customer demand with consideration of efficiency for each aspect within the system. Your maximum output is determined by the department with the slowest time or at least amount of throughput

• Throughput

  • The maximum output achievable within a system

• Design capacity

  • The maximum designed service capacity or output rate

• Effective capacity 

  • The maximum service capacity or output rate with consideration to situations and circumstances

Measures of capacity 

• Capacity Utilization

  • A measure of the degree to which a system, process or resource is being used to its full capacity

  • Formula: Capacity utilization = Actual output / design capacity x 100

• Efficiency rate

  • A measure of how effectively a system, process, or resource is being used to produce output

  • Formula: Efficiency rate = actual output / effective capacity x 100

Capacity Cushion

• Level of capacity in excess of the average utilization rate or level of capacity in excess of the expected demand 

• Cushion = (1/average utilization rate) - 1

• Large capacity cushion: required to handle uncertainty in demand

• Service industries

• High level of uncertainty in demand

• Small capacity cushion: unused capacity still incurs the fixed costs

  • Highly capital intensive businesses

  • Time perishable capacity 

Capacity planning strategy

• LEAD strategy

  • This proactive strategy involves increasing capacity ahead of anticipated demand. 

• LAG strategy

  • This reactive strategy involves increasing capacity only after demand has already exceeded current capacity 

• Match Strategy

  • This strategy aims to incrementally MATCH capacity with demand by utilizing resources in response to changes in customer demand patterns

• Adjustment strategy

  • This strategy aims to ALIGN capacity with demand through a system of processes change in response to increases or decreases in demand 

Economies of Scale

• Cost advantages that a business or organization can achieve by increasing the number of units produced to decrease the cost per unit by utilizing the same fixed costs

Diseconomies of scale

• At some point, the plant becomes too large and average cost per unit begins to increase 

Economies of Scope

• Economies of scale through product line diversification

Using decision Trees

• A decision tree is a schematic model of the sequence of steps in a problem – including the conditions and consequences of each step

• Decision trees help analysts understand the problem and assist in identifying the best solution

• Decision tree components include the following 

  • Decision nodes- represented with squares 

  • Chance nodes- represented with circles

  • Paths- links between nodes