Operations and Supply Chain Management, Chapter 1 &2

1. What is Operations and Supply Chain Management?

What is Operations and Supply Chain Management?

Operations and Supply Chain Management (OSCM) is the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. OCSM is concerned with the management of the entire system that produces a product or delivers a service.

What are supply networks?

For every product/service a supply network can be made. Think of a supply network as a pipeline through which material and information flow.

Success in today’s global markets requires a business strategy that matches the preferences of customers with the realities imposed by complex supply networks.

Operations

Operations refers to manufacturing and service processes that are used to transform the resources employed by a firm into products desired by customers.

Supply Chain

Supply Chain encompasses all activities and information associated with the flow and transformation of goods and services from the raw materials stage through to the end-user.

From what do Operations and Supply Chain processes consist?

A process is made up of one or multiple activities that transform inputs into outputs. Operations and Supply Chain processes can be categorized as follows:

  • Plan: Involves the processes that are needed to operate an existing supply chain strategically;
  • Source: The selection of suppliers that will deliver the goods and services needed to create the firm’s product;
  • Make: Where the product is produced or the service is provided;
  • Deliver: Also logistics processes. Delivering products to warehouses and customers, contact with customers and information systems need to be managed;
  • Return: Involves the processes for receiving worn-out, defective, and excess products back from customers and processes for supporting customers who have problems with the delivered product.

What are the differences between goods and services?

The are five essential differences between goods and services:

  • Intangibility: A service cannot be weighed or measured. This means that services innovations cannot be patented and customers cannot try the service beforehand;
  • Interaction with the customer: To be a service, the process requires a degree of interaction with the customer;
  • Heterogeneity: Services vary day to day between the customer and the servers, whereas variation in producing goods can be almost zero;
  • Perishability and time dependency: services can’t be stored;
  • Specification of a services can be defined as a package of features that affect the five senses, existing of supporting facility like location and layout, facilitating goods like variety, consistency and quantity, explicit services like training of the personnel and availability to the service, and implicit service like attitude of the personnel, waiting time and privacy.

In which ways can a firm focus?

Almost every product offered is a combination of goods and services. The Goods-Services Continuum demonstrates the focus of firms and spans firms that only produce products to firms that provide services only (pure products – core products – core services – pure services).

What is Product-Service Bundling?

Product-service bundling refers to when a firm builds service activities into its product offerings to create additional value for the customer.

Efficiency, effectiveness and value

Efficiency is doing something at the lowest possible cost.
Effectiveness is doing the things that will create most value for the customer.
Value is the attractiveness of a product relative to its cost.

How do you calculate efficiency?

An interesting relation between OCSM functions and profit is the direct impact of a cost reduction in one of these functions on the profit margin.

There are two ratios that relate to the productivity of labour employed by the firm: net income per employee and revenue (or sales) per employee.

The receivables turnover ratio measures the efficiency of a company in collecting its sales on credit:
Receivable turnover = annual credit sales / average account receivable
The lower the ratio, the longer receivables are being held and the higher the risk of them not being collected.

Another ratio is the inventory turnover, which measures the average number of times inventory is sold and replaced during the fiscal year. This ratio measures how efficient the company turns its inventory into sales.
Inventory turnover = costs of goods sold / average inventory value

The asset turnover ratio is the amount of sales generated for every dollar’s worth of assets. This measures how efficient a firm is using its assets in generating sales revenue.
Asset turnover = revenue (or sales) / total assets

How has OCSM developed?

The historical development of OCSM:

  • The Manufacturing Strategy Paradigm was developed in the late 1970s and early 1980s by researchers at the Harvard Business School;
  • Lean manufacturing, Just-In-Time and Total Quality Management became popular by the Japanese in the 1980s;
  • Standardized service quality and productivity became popular by McDonalds;
  • Total Quality Management and Quality Certification (e.g., ISO 9000) developed in the late 1980s and 1990s by Deming, Juran and Crosby;
  • Business Process Reengineering (revolutionairy instead of evolutionairy changes) was necessary in the economic recession in the 1990s and was described by Michael Hammer. Taylor (scientific management) and Frank and Lilian Gilbreth were also important in this field;
  • Six Sigma Quality tools were extended in the 1990s and can be used in many different organisations;
  • Supply Chain Management is a total system approach to managing the flow of information, materials and services from material suppliers through factories and warehouses to the end customer. Mass customization is the ability to produce a unique product exactly to a particular customer’s requirements;
  • Electronic Commerce became popular in the late 1990s because of the rise of the Internet and the use of it as an essential element of business activity;
  • Service science was a direct response to the growth of services;
  • Business analytics is the use of current business data to solve business problems using mathematical analysis.

What are the issues global enterprises have to deal with nowadays?

As operations and supply management is a dynamic field, a global enterprise challenges nowadays different issues:

  • Coordination between mutually supportive but separate organizations (existence of contract manufacturers that are specialized in performing focused manufacturing activities);
  • Optimization of global supplier, production, and distribution networks;
  • Management of customer touch points (the recognition that making resource utilization decisions must capture the implicit costs of lost customers as well as the direct costs of staffing);
  • Raising seniormanagement awareness of operations as a significant competitive weapon.

Bulletpoints:

  • Operations and Supply Chain Management (OSCM) is the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services. OCSM is concerned with the management of the entire system that produces a product or delivers a service.
  • A process is made up of one or multiple activities that transform inputs into outputs. Operations and Supply Chain processes can be categorized as follows:
    Plan: Involves the processes that are needed to operate an existing supply chain strategically;
    Source: The selection of suppliers that will deliver the goods and services needed to create the firm’s product;
    Make: Where the product is produced or the service is provided;
    Deliver: Also logistics processes. Delivering products to warehouses and customers, contact with customers and information systems need to be managed;
    Return: Involves the processes for receiving worn-out, defective, and excess products back from customers and processes for supporting customers who have problems with the delivered product.
  • The are five essential differences between goods and services:
    Intangibility: A service cannot be weighed or measured. This means that services innovations cannot be patented and customers cannot try the service beforehand;
    Interaction with the customer: To be a service, the process requires a degree of interaction with the customer;
    Heterogeneity: Services vary day to day between the customer and the servers, whereas variation in producing goods can be almost zero;
    Perishability and time dependency: services can’t be stored;
    Specification of a services can be defined as a package of features that affect the five senses, existing of supporting facility like location and layout, facilitating goods like variety, consistency and quantity, explicit services like training of the personnel and availability to the service, and implicit service like attitude of the personnel, waiting time and privacy.
  • Efficiency is doing something at the lowest possible cost.
    Effectiveness is doing the things that will create most value for the customer.
    Value is the attractiveness of a product relative to its cost.
  • An interesting relation between OCSM functions and profit is the direct impact of a cost reduction in one of these functions on the profit margin.
  • There are two ratios that relate to the productivity of labour employed by the firm: net income per employee and revenue (or sales) per employee.
  • The receivables turnover ratio measures the efficiency of a company in collecting its sales on credit:
    Receivable turnover = annual credit sales / average account receivable
    The lower the ratio, the longer receivables are being held and the higher the risk of them not being collected.
  • Another ratio is the inventory turnover, which measures the average number of times inventory is sold and replaced during the fiscal year. This ratio measures how efficient the company turns its inventory into sales.
    Inventory turnover = costs of goods sold / average inventory value
  • The asset turnover ratio is the amount of sales generated for every dollar’s worth of assets. This measures how efficient a firm is using its assets in generating sales revenue.
    Asset turnover = revenue (or sales) / total assets

 

2. How do sustainable business strategies relate to operations and supply chain management?

What is the connection between strategy and sustainability?

Strategy describes how a firm creates and sustains value for its current shareholders. By adding sustainability, future generations are taken into account.

Shareholders own one or multiple shares in the company.
Stakeholders are indirectly and directly influenced by the activities of the firm.
Firms focus more and more on stakeholders.

What is the Triple Bottom Line?

The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:

  • Social Responsibility: Pertains to fair and beneficial business practices toward labour, the community, and the region in which a firm conducts its business;
  • Economic Prosperity: The firm’s obligation to compensate shareholders who provide capital via competitive returns on investment;
  • Environmental Stewardship: The firm’s impact on the environment and society.

What is Operations and Supply Chain Strategy?

Operations and Supply Chain Strategy is the setting of broad policies and plans for using the firm’s resources optimally. This must be integrated with corporate strategy. Operations effectiveness is performing activities in a manner that best implements strategic priorities at minimum cost.

How do you integrate a Operations and Supply Chain Strategy with a firm’s operations capabilities?

If you want to integrate a Operations and Supply Chain Strategy with the operations capabilities of a firm, you must make decisions about the design of the process and infrastructure needed to support these processes.

Process design is selecting the right technology, arranging the process over time, determining the role of inventory in the process and determining the location of the process.

Infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structure and organization of the operations and supply functions.

Operations capabilities is a portfolio best suited to adapting to the changing product and/or service needs of a firm’s customers.

Which competitive dimensions form the competitive position of a firm?

There are seven major competitive dimensions forming the competitive position of a firm:

  • Cost or price: The choice to either make the product or deliver the service cheap;
  • Quality: The firm’s definition of how the product or service is to be made;
  • Delivery speed: The firm’s ability to make the product or deliver the service quickly;
  • Delivery reliability: The firm’s ability to deliver the product when promised;
  • Coping with changes in demand: The firm’s ability to respond to the change in demand;
  • Flexibility and New-Product introduction speed: The firm’s ability to be flexible in order to offer a wide variety of production to its customers in a given time;
  • Other product-specific criteria relate to specific products or situations: Special services can increase sales of manufactured products such as technical liaison and support, meeting a launch date, supplier after-sale support, environmental impact and other dimensions (e.g. color, size, weight).

When does a trade-off occur?

Companies cannot be good in everything. A trade-off occurs when activities are incompatible so that more of one thing necessitates less of another (e.g. high quality is viewed as a trade-off to low cost).

Straddling occurs when a company seeks to match the benefits of a successful position while maintaining its existing position.

What is the difference between order winners and order qualifiers?

An order winner is a specific marketing-orientated dimension that clearly differentiates a product from competing products. This dimension can be price, quality or reliability.

An order qualifier is a dimension used to screen a product or service as a candidate for purchase, for example the battery life of a new computer.

What are Activity-System Maps?

All activities that make up a firm’s operation relate to one another. Activity-System Maps are diagrams that show how a company’s strategy is executed by a set of supporting activities.

How can the risk associated with Operations and Supply Chain Strategies be assessed?

The management of risk is crucial for OCSM. Supply chain risk is the likelihood of a disruption that would impact the ability of a company to continuously supply products or services. Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials within a supply chain.

We can categorize risk along two dimensions:

  • Supply chain coordination risks that are associated with the day-to-day management of the supply chain;
  • Disruption risks which are caused by natural or manmade disasters, such as earthquakes, hurricanes and terrorism.

How does the risk management process work?

There are the three steps in the risk management process that can be applied to situations where disruptions are possible:

  • Identify the sources of potential disruptions;
  • Assess the potential impact of the risk;
  • Develop plans to mitigate the risk.

How can productivity be measured?

Productivity is a measure of how well resources are used. The formula:
Productivity = outputs / inputs
To increase productivity, this ratio must be as large as practical. However, productivity is a relative measure and should always be compared to something else. This could be competitors or the process over time.

Bulletpoints:

  • Strategy describes how a firm creates and sustains value for its current shareholders. By adding sustainability, future generations are taken into account.
    Shareholders own one or multiple shares in the company.
    Stakeholders are indirectly and directly influenced by the activities of the firm.
    Firms focus more and more on stakeholders.
  • The Triple Bottom Line captures an expanded spectrum of values by evaluating a firm against the following criteria:
    Social Responsibility: Pertains to fair and beneficial business practices toward labour, the community, and the region in which a firm conducts its business;
    Economic Prosperity: The firm’s obligation to compensate shareholders who provide capital via competitive returns on investment;
    Environmental Stewardship: The firm’s impact on the environment and society.
  • If you want to integrate a Operations and Supply Chain Strategy with the operations capabilities of a firm, you must make decisions about the design of the process and infrastructure needed to support these processes.
    Process design is selecting the right technology, arranging the process over time, determining the role of inventory in the process and determining the location of the process.
    Infrastructure decisions involve the logic associated with the planning and control systems, quality assurance and control approaches, work payment structure and organization of the operations and supply functions.
  • Operations capabilities is a portfolio best suited to adapting to the changing product and/or service needs of a firm’s customers.
  • There are seven major competitive dimensions forming the competitive position of a firm:
    Cost or price: The choice to either make the product or deliver the service cheap;
    Quality: The firm’s definition of how the product or service is to be made;
    Delivery speed: The firm’s ability to make the product or deliver the service quickly;
    Delivery reliability: The firm’s ability to deliver the product when promised;
    Coping with changes in demand: The firm’s ability to respond to the change in demand;
    Flexibility and New-Product introduction speed: The firm’s ability to be flexible in order to offer a wide variety of production to its customers in a given time;
    Other product-specific criteria relate to specific products or situations: Special services can increase sales of manufactured products such as technical liaison and support, meeting a launch date, supplier after-sale support, environmental impact and other dimensions (e.g. color, size, weight).
  • There are the three steps in the risk management process that can be applied to situations where disruptions are possible:
    Identify the sources of potential disruptions;
    Assess the potential impact of the risk;
    Develop plans to mitigate the risk.
  • Productivity is a measure of how well resources are used. The formula:
    Productivity = outputs / inputs
    To increase productivity, this ratio must be as large as practical. However, productivity is a relative measure and should always be compared to something else. This could be competitors or the process over time.
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