Department of Business Administration
Operations Management: A
supply chain approach
Dr. Patricia Deflorin
3/12/2012
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Department of Business Administration
Overview
1.
Operation Strategy: Origins and New Directions
2.
Supply Chain Management
3.
Creating an Edge through New Process Development
4.
Sharpening the Edge: Driving Operations Improvement
5.
Designing and Managing Operating Networks
3/12/2012
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Department of Business Administration
Todays topics
• The Supply Chain: Introduction
• Supply Chain Management (SCM)
• Supply Chain Management Enablers
• Process Control and SCOR
• Green Supply Chain
• Managing Disintegrated Supply Chains: An Example
• Summary
3/12/2012
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Department of Business Administration
The Supply Chain: Introduction
•
All facilities, functions, and activities associated with flow and
transformation of goods and services from raw materials to
customer, as well as the associated information flows
•
An integrated group of processes to “source,” “make,” and “deliver”
products
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Department of Business Administration
The Supply Chain: Introduction
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
The Supply Chain: Introduction
Processes
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
The Supply Chain: Introduction
Processes and Interfaces
Operations and supply
chain activities
Purpose
Key Interfunctional
Participants
Key Interorganizational
Participants
Process selections
Design and implement the transformation
processes that best meet the needs of the
customer and the firm.
Engineering,
Marketing, Finance,
Human resources, IT
Customers
Forecasting
Develop the planning numbers needed for
effective decision making.
Marketing, Finance,
Accounting
Suppliers, Customers
Capacity planning
Establish strategic capacity levels (bricks
and mortar) and tactical capacity levels
(workforce, inventory).
Finance, Accounting,
Marketing, Human
resources
Suppliers, Customers
Inventory management
Manage the amount and placement of
inventory within the company and the
supply chain.
IT, Finance
Suppliers, Customers
Planning and control
Schedule and manage the flow of work
through an organization and the supply
chain; match customer demand to supply
chain activities.
Marketing, IT
Suppliers, Customers
Purchasing
Identify and qualify suppliers of goods and
services; manage the ongoing buyersupplier relationships.
Engineering, Finance,
Marketing
Suppliers
Logistics
Manage the movement of physical goods
throughout the supply chain.
Marketing, Engineering
Suppliers, Customers
3/12/2012
(Bozarth and Handfield, 2005)
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Department of Business Administration
The Supply Chain: Introduction
Job descriptions
Analyst
Uses analytical and quantitative methods to understand , predict, and improve processes within the
supply chain.
Commodity manager
Acquires knowledge in a specific market in which the organization purchases significant quantities
of materials and services. Helps formulate long-term commodity stragies and manage long-term
relationships with selected suppliers.
Customer service manager
Plans and directs customer service teams to meet the needs of customers and support company
operations. Works closely with marketing and sales, logistic, and transportation departments.
International logistics manager
Works closely with manufacturing, marketing, and purchasing to create timely, cost-effective
import/export supply chains.
Logistics services salesperson
Markets transportation, warehousing, and specialized services to other companies.
Production manager
Supervises production in a manufacturing setting. Responsible for a wide range of personnel.
Sourcing analyst
Identifies global sources of materials, selects suppliers, arranges supplier’s contracts, and manages
ongoing supplier’s relationships.
Sourcing manager
Measures supplier performance, identifies suppliers requiring improvement, and facilitates efforts to
imporve supplier’s processes.
Logistics and Material Planner
Reviews existing procedures and examines opportunities to streamline production, purchasing,
warehousing, distribution, and financial forecasting to meet product distribution needs.
Systems support manager
(Management Information Systems)
Provides analytical support in the management of logistics information, supplier performance data,
materials requirements, and scheduling processes.
Transportation manager
Manages private, third-party, and contract carriage systems to assure timely and cost-efficient
transportation of all incoming and outgoing shipments.
3/12/2012
(Bozarth and Handfield, 2005)
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Department of Business Administration
The Supply Chain: Introduction
Value Chain versus Supply Chain
Value chain
–
–
every step from raw materials to the eventual end user
ultimate goal is delivery of maximum value to the end user
Supply chain
–
–
activities that get raw materials and subassemblies into manufacturing
operation
ultimate goal is same as that of value chain
Terms are used interchangeably
Value: creation of value for customer is important aspect of
supply chain management
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Department of Business Administration
Supply Chain Management (SCM)
Managing flow of information through supply chain in order to
attain the level of synchronization that will make it more
responsive to customer needs while lowering costs
Keys to effective SCM
– information
– communication
– cooperation
– trust
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Department of Business Administration
Supply Chain Management (SCM)
Supply Chain Uncertainty and Inventory
Inventory
– insurance against supply chain uncertainty
A major objective of SCM:
– respond to uncertainty in customer demand without creating costly
excess inventory
Factors that contribute to uncertainty
– ……
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Department of Business Administration
Supply Chain Management (SCM)
Bullwhip Effect
Occurs when slight demand variability is magnified as information moves
back upstream
(Copyright 2011 John Wiley & Sons, Inc.)
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Department of Business Administration
Supply Chain Management (SCM)
Effective SCM
Keys to effective SCM
– Information
– Communication
– Cooperation
– Trust
Enablers to effective SCM:
-
Risk pooling
-
Information Technology
-
Supply Chain integration and collaboration
3/12/2012
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Department of Business Administration
Supply Chain Enabler
Risk Pooling
Risks are aggregated to reduce the impact of individual risks
– Combine inventories from multiple locations into one
– Reduce parts and product variability, thereby reducing the number of
product components
– Create flexible capacity
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Department of Business Administration
Supply Chain Enablers
Information Technology
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
E-Business
• Savings due to lower transaction costs
• Reduction of intermediary roles
• Shorter supply chain response times
• Wider presence and increased visibility
• Greater choices & more info for customers
• Improved service
• Collection & analysis of huge amounts of customer data &
preferences
• Access to global markets, suppliers & distribution channels
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
Electronic Data Interchange (EDI)
• Computer-to-computer exchange of documents in a standard
format
• Purchasing, shipping and receiving
• Improve customer service
• Reduce paperwork
• Increase productivity
• Improve billing and cost efficiency
• Reduce bullwhip effect through information sharing
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
Bar Codes
• Automated data collection system
• Bar code contains identifying information
• Provide instantaneous tracking information
• Checkout scanners create point-of-sale data
–
Update inventory records
–
Identify trends
–
Order material
–
Schedule orders
–
Plan deliveries
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
Radio Frequency Identification (RFID)
• Use radio waves to transfer data from chip to a reader
• Provides complete visibility of product location
• Continuous inventory monitoring
• Reduce labor to manage inventory
• Reduce inventory costs
• ….
• RFID is not standardized yet
• Data protection issues
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
Radio Frequency Identification (RFID)
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
Radio Frequency Identification (RFID)
Copyright 2011 John Wiley & Sons, Inc.
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Department of Business Administration
Supply Chain Enablers
RFID
3/12/2012
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Department of Business Administration
Supply Chain Enablers
Supply Chain Integration
Share information among supply chain members
–
–
–
–
Reduced bullwhip effect
Early problem detection
Faster response
Builds trust and confidence
Collaborative planning, forecasting, replenishment, and design
–
–
–
–
Reduced bullwhip effect
Lower costs (material, logistics, operating, etc.)
Higher capacity utilization
Improved customer service levels
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Department of Business Administration
Supply Chain Enablers
Collaborative Planning, Forecasting, and Replenishment (CPFR)
•
•
Two or more companies in a supply chain to synchronize their
demand forecasts into a single plan to meet customer demand
Parties electronically exchange
– past sales trends
– point-of-sale data
– on-hand inventory
– scheduled promotions
– forecasts
(Bozarth and Handfield, 2005)
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Department of Business Administration
Process Control and SCOR
Process Control
– not only for manufacturing operations
– can be used in any processes of supply chain
Supply Chain Operations Reference (SCOR)
– a cross industry supply chain diagnostic tool maintained by the
Supply Chain Council
(Bozarth and Handfield, 2005)
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Department of Business Administration
Process Control and SCOR
SCOR Model Processes
Plan
Develop a course of
action that best meets
sourcing, production
and delivery
requirements
Source
Procure goods and
services to meet
planned or actual
demand
Make
Transform product to a
finished state to meet
planned or actual
demand
Deliver
Provide finished goods
and services to meet
planned or actual
demand, including
order management,
transportation and
distribution
Return
Return products, postdelivery customer
support
(Bozarth and Handfield, 2005)
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Department of Business Administration
Process Control and SCOR
SCOR Performance Metrics
Customer Facing
Performance
Attribute
Performance Metric
Definition
Supply chain
delivery reliability
Delivery performance
Percentage of orders delivered on time
and in full to the customer
Fill rate
Percentage of orders shipped within 24
hours of order receipt
Perfect order fulfillment
Percentage of orders delivered on time
and in full, perfectly matched with order
with no errors
Supply chain
responsiveness
Order fulfillment lead
time
Number of days from order receipt to
customer delivery
Supply chain
flexibility
Supply chain response
time
Number of days for the supply chain to
respond to an unplanned significant
change in demand without a cost penalty
Production flexibility
Number of says to achieve an unplanned
20% change in orders without a cost
penalty
(Bozarth and Handfield, 2005)
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Department of Business Administration
Process Control and SCOR
SCOR Performance Metrics
Internal Facing
Performance
Attribute
Performance Metric
Definition
Supply chain cost
Supply chain
management cost
The direct and indirect cost to plan,
source and deliver products and services
Cost of goods sold
The direct cost of material and labor to
produce a product or service
Value-added
productivity
Direct material cost subtracted from
revenue and divided by the number of
employees, similar to sales per
employee
Warranty/returns
processing cost
Direct and indirect costs associated with
returns including defective, planned
maintenace and excess inventory
Cash-to-cash cycle time
The number of days that cash is tied up
as working capital
Inventory days of supply
The number of days that cash is tied up
us inventory
Asset turns
Revenue divided by total assets
including working capital and fixed
assets
Supply Chain Asset
Management
Efficiency
3/12/2012
(Bozarth and Handfield, 2005)
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Department of Business Administration
“Green” Supply Chains
• Sustainability
• Meeting present needs without compromising the ability of
future generations to meet their needs
• Sustaining human and social resources
• It can be cost effective and profitable
• Can provide impetus for product and process innovations
• Impulse comes from downstream in the supply chain and
moves upstream to suppliers
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Department of Business Administration
“Green” Supply Chains
Early success using Green SCM principles
Texas Instruments: Saves $8
million each year by reducing its
transit packaging budget for its
semiconductor business through
source reduction, recycling, and
use of reusable packaging
systems (20% annual savings).
Commonwealth Edison: Produced
$50 million in financial benefits
from managing materials and
equipment with a life-cycle
management approach.
Pepsi-Cola: Saved $44 million by
switching from corrugated to
reusable plastic shipping
containers for one liter and 20ounce bottles conserving 196
million pounds of corrugated
material.
Dow Corning: Saved $2.3 million
by using reconditioned steel
drums in 1995. Also conserved
7.8 million pounds of steel.
3/12/2012
(LMI, Supply Chain World Conference, 2005)
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Department of Business Administration
Green Supply Chain
Potential for cost savings
3/12/2012
(LMI, Supply Chain World Conference, 2005)
Page 31
Department of Business Administration
Green Supply Chain
Classification based on problem context
3/12/2012
Source: Srivastava, S.K. (2007), Green supply-chain management: A state-of theart literature review, International Journal of Management Reviews, p.53-80.
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Department of Business Administration
Managing Disintegrated Supply Chains
An Example
• Powertrain Cooling
• Engine Cooling
Modules
• Radiators
• Condensers
• Charge-Air-Coolers
• …
• Passenger Thermal Management
(HVAC-Heating, Ventilating and AirConditioning)
• HVAC Modules (Underdash)
• Center Stack HVAC Module
• Evaporators
• Heater Cores
• ….
Department of Business Administration
Managing Disintegrated Supply Chains
Supply Chain Collaboration
Key Facts:
• Number of key suppliers: 25
• Area: Europe
• Supply frequency: from multiple times per day to monthly
Department of Business Administration
Managing Disintegrated Supply Chains
Supplier Distribution
Department of Business Administration
Managing Disintegrated Supply Chains
Supply Chain Collaboration-Tools
Daily
Monthly
Logistics
Quality
Variation-Management
Delay monitoring for each product
Analysis of PPM* monitoring
Analysis of problems of the variation
management
If discrepancies occur:
• Entry into respective database
• Analysis of impact
• Initiation of special deliveries
• Request of an action plan
If discrepancies occur:
• Entry into respective database
• Product-Leader meeting
• Initiation of special actions
• Request of an action plan
If discrepancies occur:
• Entry into respective database
• Initiation of special actions
• Request of an action plan
•
•
•
•
•
•
Evaluation of volume-dependability
(Red-Light Monitoring)
Initiation of the escalation
procedure
Charging of costs (additional
expenses)
•
•
ppm analysis (top 3)
Analysis of external quality occurrences
Analysis of quality problems based on
distinctive categories
Check of action plan and its effectiveness
Initiation of the escalation procedure
Top 3 List – worst supplier
Quarterly
•
Analysis of supplier performance
Supplier evaluation
Definition of further escalation procedures:
• Request of an 8D Report
• Supplier site visit
Invitation of the supplier for the performance discussion
• Supplier audit
*(problems identified/delivered goods)*parts per million
Department of Business Administration
Managing Disintegrated Supply Chains
Elements of the collaboration management
Input
Logistic
Monitoring and analysis
Plan
Implementation
Quality
Database
Supplier Management
Escalation procedure
Special audit
Charge of costs
Workshops
Supplier meetings
Supplier audits
Variation
Department of Business Administration
Managing Disintegrated Supply Chains
Claim management – Problem list
• Data transfer from SAP
• Actions are effective if problem isn’t repeated within 90 days
• Summary of the problems and graphical display
• Monthly notification of the data of the supplier creating problems
• Worst suppliers in terms of quality are displayed monthly within the plant
Problem suppliers (max. 100%)
First Quarter 2006
•
•
•
Modine Pliezhausen GmbH
Gate S.r.l.
Modine Austria GmbH
40%
41%
81%
Department of Business Administration
Managing Disintegrated Supply Chains
Supply Chain Coordination: Supplier Day
• Review of the last year
• Discussion of future activities and strategy
• Workshops on various topics for the joint process optimization
• Award of the supplier of the year
• Informal discussions and get together
Department of Business Administration
Managing Disintegrated Supply Chain
Study of “Successful practice”
Measuring the strategic value of sourcing:
• 44% of customers and 42% of service providers do not undertake formal
strategic reviews of the benefits to their business or sourcing contracts.
• 72% of the customers report that they do not have, or do not share with
their service providers, criteria for measuring the success or failure of
their sourcing arrangement.
Source: KPMG 2007 (sample = 650 companies in 32 countries)
Department of Business Administration
Managing Disintegrated Supply Chains
Study of “Successful practice”
Success in meeting expectations:
Bringing experience to the business
it did not have previously
47%
Ensuring SLAs are met
66%
Ensuring end users/user
departments are satisfied with the
service provided
64%
Cost targets and financial success
criteria
61%
0
20
40
60
80
Percentage of respondents
Source: KPMG 2007 (sample = 650 companies in 32 countries)
Department of Business Administration
Summary
• Supply Chain Management is an important factor within international
markets
• Supply Chain Management Enablers reduce risks and support value
generation
• Effective Supply Chain Management is based upon:
–
Information
–
Communication
–
Cooperation
–
Trust
3/12/2012
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Department of Business Administration
Next Assignments
Date
19.3.
Topic
Literature
R&D
Ellram et al (2008)
Zirger and Maidique (1990)
 Please send the handouts until
patricia.deflorin@uzh.ch until March 19th, 2012
Department of Business Administration
Definitions
Operations function
Also called operations. The collection of people, technology, and systems
within an organization that has primary responsibility for providing the
organization’s products or services.
Supply chain
A network of manufacturers and service providers that work together to
convert and move goods from the raw materials stage through to the end
user. These manufacturers and service providers are linked together
through physical flows, information flows, and monetary flows.
Operations management
The planning, scheduling, and control of the activities that transform inputs
into finished goods and services.
3/12/2012
(Bozarth and Handfield, 2005)
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Department of Business Administration
Definitions
Upstream
A term used to describe activities or firms that are positioned earlier in the
supply chain relative to some other activity or firm of interest. For example,
corn harvesting takes place upstream of cereal processing, while cereal
processing takes place upstream of cereal packaging.
Downstream
A term used of describe activities or firms that are positioned later in the
supply chain relative to some other activity or firm of interest. For example,
sewing a shirt takes place downstream of weaving the fabric, while weaving
the fabric takes place downstream of harvesting the cotton
First-tier supplier
A supplier that provides products or services directly to a particular firm.
3/12/2012
(Bozarth and Handfield, 2005)
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Department of Business Administration
Definitions
Second-tier supplier
A supplier that provides products or services to a firm’s first-tier supplier.
Supply chain management
The active management of supply chain activities and relationships in order
to maximize customer value and achieve a sustainable competitive
advantage. It represents a conscious effort by a firm or group of firms to
develop and run supply chains in the most effective and efficient ways
possible.
Supply-Chain Operations Reference (SCOR) model
A framework developed and supported by the Supply-Chain Council that
seeks to provide standard descriptions of the processes, relationships, and
metrics that define supply chain management.
3/12/2012
(Bozarth and Handfield, 2005)
Page 46