Notes: Introduction to Operations and Supply Chain Management - Key Concepts
Process Management and Process Types
Key idea: A process is an action that transforms inputs into outputs.
Classic example of a process chain: transform wheat into flour, flour into bread, and so on.
There are three different types of processes:
Upper level: organizational strategy (the big-picture direction)
Operational (the converting or adding value part): the process of transformation
Supporting: activities that enable the process (people, administrative tasks, etc.)
A process consists of a series of smaller subprocesses that contribute to the overall good or service.
Using a process perspective helps management meet its goals.
In operations and supply chain, processes are used to meet supply and demand and to deal with variability.
Process perspective example: mapping the full chain from inputs to outputs helps identify bottlenecks and opportunities for improvement.
Foundational idea: operations management is about designing, overseeing, and improving the processes that produce goods and deliver services.
Supply and Demand: Relationships and Balance
Supply vs. demand definition:
Supply: how much of a product or service is available.
Demand: how much customers want or need.
Balance between supply and demand drives performance and costs.
Notation: compare supply ($S$) and demand ($D$).
Three possible relationships:
If $S > D$ (supply greater than demand): end result tends to be wasteful and costly for the company.
Example: Amazon Fire Phone – money spent on development and production for a demand that did not materialize; failed product launch.
If $S < D$ (supply less than demand): end result is opportunity loss and customer dissatisfaction.
Example: If customers can’t buy your product, sales are lost and customers may switch to competitors.
Real-world illustration: 2020 bicycle sales surged; manufacturers couldn’t meet the surge in demand.
If $S \,\approx\, D$ (supply roughly equal to demand): ideal, but approximate in practice, not exact.
Important caveat: exact equality is rare; plans must account for deviations and uncertainties.
Safety stock concept:
Definition: extra inventory held to buffer against variability and to keep supply close to demand when disruptions occur.
Purpose: ensure that supply remains as close to demand as possible despite variability.
Note: safety stock will be explored further in the course.
The overarching goal for most businesses: meet demand as closely as possible, while managing costs and risks.
Variations in Supply and Demand
Variability is the driver of mismatch between supply and demand; four types of variation:
Variety: the assortment or number of different items offered.
Structural variation: predictable, time-based changes in demand or supply (e.g., seasonality, promotions, or events).
Random variation: unpredictable, stochastic fluctuations (e.g., weather events like hurricanes).
Assignable variation: identifiable, actionable causes that can be reduced or eliminated via corrective action.
Examples:
Variety: a restaurant menu with many items can lead to oversupply of some ingredients because not all menu items are equally demanded.
Structural variation: wrapping paper production in December or making T-shirts around major events (e.g., Super Bowl, a team’s playoff run).
Random variation: a hurricane changes demand or supply timing/path unpredictably; cannot be precisely controlled.
Assignable variation: a supplier that is cheap but unreliable; analyzing sales data may show it’s better to switch to a more reliable (possibly costlier) supplier.
Impacts of variations on operations and supply chains:
Variability can cause costs, delays, storage issues, shortages, poor quality, and inefficient work systems.
Managing variability is essential to balance supply and demand and to keep performance within acceptable ranges.
Roles and Scope of Operations Management
Operations includes many interrelated activities across the organization.
Example: an airline as a demonstration of operational scope.
Key operational positions or activities typically include:
Forecasting
Capacity planning
Facilities and layouts
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more
All of these activities fall under the umbrella of the operations function.
Primary function of an operations manager: guide the system by making decisions.
These decisions can be categorized into two broad areas:
System design (long-term, strategic decisions)
System operations (tactical/day-to-day decisions)
A concrete airline example shows how many tasks fit under the operations function and contribute to producing services or goods.
System Design vs System Operations
System design (long-term decisions):
Capacity issues: how much can be produced or served?
Facility locations: where should facilities be placed?
Layout: how should space and flow be arranged within facilities?
Product and service planning: what products/services to offer and how to structure them?
Acquisition and placement of equipment: what to buy and where to place it?
These are strategic decisions with long-term resource commitments and must align with overall operational parameters.
Practical example: facility layout in an Amazon fulfillment center – how far a worker can reasonably walk; implications for efficiency and throughput.
System operations (tactical/operational decisions):
Day-to-day management activities to run the system efficiently.
Examples include: managing personnel, inventory control, scheduling, project management, and quality management.
Consequences of poor operations: if quality dips even for one day, there can be financial impacts (e.g., meals comped, negative reviews).
The two decision domains (design vs operations) work together to run, adapt, and improve the system.
Decision Making in Operations and Supply Chain Management
Focus of decision-making discussions in this module:
How to make informed decisions across design and operations to balance cost, service level, and risk.
Worked example (conceptual): the marketing group develops a new product using focus groups and market research, then delivers the design concept to the operations team for implementation.
Key idea: align cross-functional decisions from product concept through supply chain execution to achieve the desired performance.
Note about this module: decision making will be explored in detail in the next lecture, including methods and frameworks used in operations and supply chain decision problems.
Key Takeaways and Connections
A process perspective links inputs to outputs through subprocesses, enabling better management of the entire value chain.
Supply-demand balance is central: misbalance leads to waste, lost opportunities, or unmet demand.
Variability is a central challenge in operations; understanding its sources helps in designing buffers and control strategies.
Operations management spans strategic design decisions and tactical day-to-day operations; both are essential for delivering goods and services.
Effective decision making in operations requires integrating information across the supply chain, anticipating variability, and aligning with organizational strategy.
Note: This set of notes mirrors the transcript content and emphasizes the concepts, examples, and implications discussed, with explicit definitions, relationships, and practical illustrations to aid exam preparation.