Study Notes on Operations Management and Supply Chain Management

Introduction to Operations Management and Supply Chain Management

This document addresses key concepts, principles, and practices related to operations management (OM) and supply chain management (SCM) based on the provided transcript. The notes cover definitions, functional areas, process management, decision-making, ethical considerations, as well as current issues impacting these domains.

Learning Objectives

LO 1.1 Define the terms operations management and supply chain.
LO 1.2 Identify similarities and differences between production and service operations.
LO 1.3 Explain the importance of learning about operations management.
LO 1.4 Identify the three major functional areas of organizations and explain how they interrelate.
LO 1.5 Summarize the two major aspects of process management.
LO 1.6 Describe the operations function and the nature of the operations manager’s job.
LO 1.7 Explain the key aspects of operations management decision making.
LO 1.8 Briefly describe the historical evolution of operations management.
LO 1.9 Describe current issues in business that impact operations management.
LO 1.10 Explain the importance of ethical decision making.
LO 1.11 Explain the need to manage the supply chain.

What is Operations Management?

Operations: The part of a business organization responsible for producing goods or services.

Operations Management: The management of systems or processes that create goods and/or provide services.

Goods vs. Services

• Goods: Physical items including raw materials, parts, subassemblies, and final products (Examples: Automobile, Computer, Oven, Shampoo).

• Services: Activities that provide a combination of time, location, form, or psychological value (Examples: Air travel, Education, Haircuts, Legal counsel).

Supply Chain

Supply Chain: A sequence of activities and organizations involved in producing and delivering a good or service. Key components include:

• Suppliers’ suppliers

• Direct suppliers

• Producer

• Distributor

• Final customers

The Transformation Process

The transformation process includes the following components:

• Feedback: Measurements taken at various points in the transformation process.

• Control: The comparison of feedback against previously established standards to determine if corrective action is needed.

Goods-Service Continuum

• Products are typically neither purely service- nor purely goods-based.

Table 1.2: Illustrations of the Transformation Process

• Food Processor:
  Output: Canned vegetables
  Inputs: Raw vegetables, Metal sheets, Water, Energy, Labor, Building, Equipment, Doctors, nurses, medical supplies.

• Hospital:
  Output: Treated patients
  Inputs: Laboratory, Examination, Surgery, Monitoring, Medication, Therapy.

Typical Differences Between Production of Goods and Provision of Services

Why Learn about Operations Management?

• Every aspect of business affects or is affected by operations which include various service jobs (e.g., Financial services, Marketing services, Accounting services, Information services).

• Learning about operations and supply chains provides insights into:

  • The world we live in

  • The global dependencies of companies and nations

  • Reasons that companies succeed or fail

  • The importance of collaboration and teamwork

Basic Functions of the Business Organization

1. Marketing

2. Finance

3. Operations

Function Overlap

• Finance & Operations:

  • Budgeting and economic analysis of investment proposals

  • Provision of funds

• Marketing & Operations:

  • Demand data

  • Product and service design

  • Competitor analysis

  • Lead time data

OM and Supply Chain Career Opportunities

• Operations manager

• Supply chain manager

• Production analyst

• Schedule coordinator

• Production manager

• Industrial engineer

• Purchasing manager

• Inventory manager

• Quality manager

OM-Related Professional Societies

• Association for Operations Management (APICS)

• American Society for Quality (ASQ)

• Institute for Supply Management (ISM)

• Institute for Operations Research and the Management Science (INFORMS)

• The Production and Operations Management Society (POMS)

• The Project Management Institute (PMI)

• Council of Supply Chain Management Professionals (CSCMP)

Process Management

Process: One or more actions that transform inputs into outputs.

Process Hierarchy

• Level 1: Strategic processes (overall business process area)

• Level 2: Core business processes (specific processes within business areas)

• Level 3: Support processes (sub-processes and individual tasks)

Supply & Demand Overview

Operations and supply chains focus on managing supply relative to demand. The ideal situation is when supply equals demand, while wasteful or costly mismatches can lead to lost opportunities and customer dissatisfaction.

Process Variation

Process Variation: Deviation of a process's output from its intended or expected value, which can disrupt operations and supply chains resulting in increased costs, delays, shortages, and poor quality.

Four Sources of Process Variation

1. Variety of goods or services being offered: Greater variety leads to greater variation in production/service requirements.

2. Structural variation in demand: Typically predictable and important for capacity planning.

3. Random variation: Natural and present in all processes, usually cannot be managed.

4. Assignable variation: Variation with identifiable sources that can potentially be reduced or corrected through analysis and action.

The Scope of Operations Management

The operations function encompasses a wide range of interrelated activities including:

• Forecasting

• Capacity planning

• Facility location

• Facility layout

• Scheduling

• Managing inventories

• Assuring quality

• Motivating employees

• And more…

Role of the Operations Manager

The operations function includes all activities related to the production of goods or provision of services. The operations manager guides the system through decision-making regarding:

• System design decisions: Overall architecture including capacity, location, layout, product/service planning, and equipment placement.

• System operation decisions: Tactical and operational decisions involving personnel management, inventory control, scheduling, project management, and quality assurance.

System Design Decisions

Strategic decisions requiring long-term commitment include:

• Capacity

• Facility location

• Facility layout

• Product and service planning

• Acquisition and placement of equipment

System Operation Decisions

Involves tactical decisions where managers spend significant time, including:

• Personnel management

• Inventory management and control

• Scheduling

• Quality assurance

Operations Management and Decision Making

Operations decisions often involve multiple alternatives that significantly impact costs and profits. Typical decisions include:

• What: Resources needed and quantity required

• When: Scheduling resources and ordering materials

• Where: Location of work

• How: Nature of product/service design and execution

• Who: Assigning tasks to individuals

General Approach to Decision Making

Modeling: A key tool for decision-makers, defined as an abstraction of reality that simplifies real-life scenarios. Common types include:

• Physical Models (miniature airplanes)

• Schematic Models (city drawings)

• Mathematical Models (inventory optimization)

Benefits of Models

1. Easier to use and cheaper than real systems.

2. Require organization and quantification of information.

3. Enhance understanding of problems.

4. Enable what-if analysis.

5. Provide consistent evaluation and standardized analysis tools.

6. Leverage mathematical solutions for problem-solving.

Model Limitations

• Potential overemphasis on quantitative data at the expense of qualitative factors.

• Risk of misapplication and misinterpretation of results from complex computerized models.

• The use of models does not ensure effective decision-making.

Quantitative Approaches

Focus on seeking optimal solutions supported by calculations, often in conjunction with qualitative approaches.

Performance Metrics and Trade-Offs

• Performance metrics such as profits, costs, quality, productivity, flexibility, inventories, schedules, and forecast accuracy are crucial for operational management.

• Trade-off: Involves sacrificing one aspect to gain another, illustrated through carrying more inventory for improved customer service.

Establishing Priorities

Certain issues or items demand higher priority based on their significance, utilizing the Pareto Phenomenon, where a few factors account for a majority of occurrences.

Operations Today

Key areas include:

• Technology management

• Global competition

• Resource management

• Revenue management

• Agility

Key Issues for Operations Managers Today

• Economic conditions

• Innovating

• Quality control issues

• Risk management

• Cyber-security

• Competing in a global economy

Environmental Concerns

• Sustainability: The responsible use of resources, preventing harm to ecological systems supporting human life, and measures extending beyond environmental concerns to include social criteria in decision-making.

• Implications for product/service design, consumer education, disaster response, waste management, and outsourcing strategies.

Ethical Issues in Operations

Potential ethical dilemmas include:

• Financial manipulation

• Worker and product safety

• Quality of outputs

• Environmental impact

• Community relations

• Employment practices

• Facility closures

The Need for Supply Chain Management

Historical neglect of supply chain management has led to complications such as:

• Oscillating inventory levels

• Stockouts

• Delivery delays

• Quality issues

Supply Chain Issues

1. Need for operational improvements

2. Rising outsource levels

3. Escalating transportation costs

4. Competitive pressures

5. Increasing globalization

6. Growth of e-business

7. Supply chain complexities

8. Inventory management necessities

Competitiveness, Strategy, and Productivity

Learning Objectives in Chapter 2

• LO 2.1: List business competition methods.

• LO 2.2: Identify reasons for organizational failures.

• LO 2.3: Define mission and strategy, and articulate their importance.

• LO 2.4: Discuss the relation between organizational strategy and operations strategy.

• LO 2.5: Describe time-based strategies with examples.

• LO 2.6: Define productivity and its importance to organizations and nations.

• LO 2.7: Describe factors affecting overall productivity.

Competitiveness

Competitiveness: The effectiveness of an organization in meeting the wants and needs of customers against alternative providers of similar goods/services, with customers' satisfaction serving as the core metric.

Marketing’s Influence on Competitiveness

Marketing plays a pivotal role in:

• Identifying consumer needs

• Pricing and quality considerations

• Advertising and promotions

Competition through Operations

Methods include:

• Product/service design

• Cost management

• Geographic location

• Quality assurance

• Quick response mechanisms

• Flexibility initiatives

• Inventory management strategies

• Effective supply chain management

• Service quality

• Managerial practices

Reasons for Organizational Failure

1. Neglecting operations strategy

2. Failure to capitalize on strengths and opportunities, neglecting competitive threats

3. Short-term financial focus vs. long-term investments in R&D

4. Overemphasis on product/service design ignoring process design

5. Underinvestment in capital and human resources

6. Poor internal communication and collaboration

7. Inadequate consideration of customer opinion and data

The Hierarchical Planning Process

Includes mission, goals, organizational strategies, functional strategies, tactics, and operations, forming a structured decision-making framework.

Mission and Strategy

• Mission: The foundational reason for an organization’s existence, often articulated in a mission statement. The mission statement addresses the question, “What business are we in?”

Examples of Mission Statements

• Microsoft: To help people and businesses throughout the world to realize their full potential.

• Starbucks: To inspire and nurture the human spirit—one cup and one neighborhood at a time.

• US Dept. of Education: To promote student achievement and preparation for global competitiveness while fostering educational excellence and ensuring equal access.

Goals

The goals derived from the mission statement clarify the mission and provide specific outcomes toward achieving it. They can be viewed as organizational destinations supporting strategies.

Strategies

A strategy is a plan for achieving organizational goals and serves as a roadmap for reaching desired outcomes. Organizations develop overarching and functional strategies for coherence in operations.

Tactics and Operations

Tactics refer to specific actions taken to execute strategies, whereas operations signify the actual implementation of such actions.

Core Competencies

Core competencies are unique organizational capabilities that confer a competitive advantage. They must be aligned with overall strategies for effectiveness.

Sample Operations Strategies

• Low Price: Cost leadership exemplified by companies like Wal-Mart

• Responsiveness: Quick processing times and reliable delivery exemplified by McDonald’s and FedEx

• High Quality: Premium performance design from brands like Sony and Coca-Cola

• Innovation and Service: Seen in 3M, Apple, and Disney focusing on customer service excellence

Strategy Formulation Considerations

This process requires accounting for core competencies, environmental scanning (SWOT), order qualifiers, and order winners.

Environmental Scanning

Essential for identifying internal (strengths and weaknesses) and external (opportunities and threats) factors impacting the organization.

Key External Factors

1. Economic conditions

2. Political landscape

3. Legal framework

4. Technological advancements

5. Competitive forces

6. Consumer behavior

7. Supplier relations

8. Market dynamics

Key Internal Factors

1. Human resources

2. Facilities and equipment

3. Financial means

4. Customer base

5. Product/service portfolio

6. Technology infrastructure

7. Other resources

Operating Strategy Components

Effective operational strategies encompass decisions regarding:

• Product/service design

• Capacity building

• Process selection and layout

• Work design

• Facility and location planning

• Quality assurance

• Inventory management

• Maintenance scheduling

• Supply chain management

Chapter 3: Forecasting

Learning Objectives

• LO 3.1: List features common to all forecasts.

• LO 3.2: Explain why forecasts are generally wrong.

• LO 3.3: List elements of a good forecast.

• LO 3.4: Outline the steps in the forecasting process.

• LO 3.5: Describe four qualitative forecasting techniques.

• LO 3.6-3.10: Cover different forecasting methods such as naive forecasting, moving average, weighted-average, exponential smoothing, and linear trend forecasting.

What is a Forecast?

A forecast is a predictive analytics statement about the future value of a variable of interest, important for informed decision-making regarding aspects like weather and demand resource availability.

Importance and Characteristics

• Forecasts should be timely, accurate, reliable, thorough in meaningful units, documented in writing, simple to use, and cost-effective.

Common Features:

1. Assumption of persistence in the underlying causal system.

2. Imperfect accuracy due to inherent randomness.

3. Greater accuracy for groups of items vs. individual forecasts.

4. Declining accuracy correlating with extended forecast horizons.

Reasons for Forecast Errors

Actual results frequently deviate from predicted values due to randomness, requiring allowances for error.

Elements of a Good Forecast

1. Timeliness

2. Accuracy

3. Reliability

4. Expression in meaningful units

5. Written documentation

6. Understandability and simplicity

7. Cost-effectiveness

Forecasting Process Steps

1. Define the forecast's purpose.

2. Determine time horizon.

3. Collect and analyze relevant data.

4. Select forecasting technique.

5. Generate the forecast.

6. Track forecast errors.

Qualitative vs Quantitative Forecasting Techniques

• Qualitative Forecasting: Incorporates soft information, human factors, and subjective opinions.

• Quantitative Forecasting: Relies on hard data for prediction, utilizing historical projections or associative methods employing causal variables.

Qualitative Forecasting Techniques

1. Executive Opinions: Collective assessment by upper management.

2. Salesforce Opinions: Insights from sales/customer service teams with direct customer contact.

3. Consumer Surveys: Gathering consumer feedback and opinions.

4. Expert Opinions: Consultation with managerial staff or specialists to develop forecasts. ( ext{Delphi Method} ): An iterative process aimed at achieving consensus.

Time-Series Forecasting

Forecasts based on objectively identified patterns in historical data. Key behaviors include:

1. Trend: Long-term movements.

2. Seasonality: Short-term, regular variations based on external factors.

3. Cycles: Wavelike variations over extended periods.

4. Irregular Variations: Unpredictable changes typically resulting from external disturbances.

Naive Forecasting

Utilizes a single preceding value for forecasting future trends and works well for stable or seasonal data.

Averaging Techniques

Include moving averages, weighted moving averages, and exponential smoothing, focusing on smoothing variations within data for forecasts.

Moving Average Method

An averaging approach over recent periods to predict future values, adaptable based on needs for responsiveness versus stability in projections.

Weighted Moving Average

Assigns different weights to varying data points to emphasize more recent values for forecasting. The formula is given by:
[ Ft = w1 A{t-1} + w2 A{t-2} + … + wn A_{t-n} ] where w represents the weight for each time period.

Exponential Smoothing

An adaptive approach to forecasting that employing a smoothing constant (( 0 < \alpha < 1 )) to prioritize recent observations, significantly influencing accuracy while discounting older data.
[ F{t+1} = \alpha At + (1 - \alpha)F_t ]

Trend-Adjusted Exponential Smoothing

Forecasting method combining the smoothed error and trend factor to rapidly adapt to changing data trends.
[ TAF{t+1} = St + T_t ] where S denotes smoothed error and T accounts for current trend estimates.

Seasonal Forecasting

Identifying periodic movements in data, with methods such as additive and multiplicative approaches for incorporating seasonal variations into forecasts.

Forecasting Accuracy and Control

Monitoring errors is critical for ensuring accuracy in forecasts and adjustments may be made; notable metrics include:

• Mean Absolute Deviation (MAD): Average absolute errors without regard to direction.

• Mean Squared Error (MSE): Average of the squared errors, introducing higher penalties for large deviations.

• Mean Absolute Percentage Error (MAPE): Expresses forecast deviations as percentages of actual values.

Conclusion

This comprehensive overview synthesizes various fundamental aspects of operations management and supply chain processes, coupled with the significance of understanding and applying effective forecasting techniques, providing a critical grounding for students in the field.