LECTURE 1 Introduction to Operations and Supply Chain Management Why Operations(and Supply Chain) Management *Pervasiveness(广泛性; 普遍性): Every organization must make a product or provide a service valued by someone. *Interdependence(互相依赖): Most organizations function as part of a larger supply chain. *Profitability and survival(盈利与生存): Organizations must carefully manage their operations and supply chains to prosper, and indeed, survive. A business is run to be profitable! Operations Function The collection of people, technology, and systems within a company that has primary responsibility for providing the organization’s products or services. Operations as a Transformation Process Operations Management The planning, scheduling, and control of the activities that transform inputs into finished goods and services. Supply Chain *Networks of manufacturers and service providers that work together to produce product or deliver services to satisfy end users. *Linked through physical, information, and monetary flows. Supply chain –schematic presentation (I) Supply chain –schematic presentation (II) Supply Chain: Manufacturing Example Supply Chain: Service Example Supply Chain Management Active management of supply chain activities and relationships in order to maximize customer value and achieve a sustainable competitive advantage. SCOR Model: A framework providing standard description of the processes, relationships and metrics that define the supply chain management. Cross Functional Linkages Trends in SCM *IT (E-commerce) *Competition and Globalization *Relationship management: competition between chains; trust and coordination *Advances in Technologies (manufacturing and transport) *Shorter product life cycles Operations and SC strategies Business Elements *Structural: Tangible resources, e.g., buildings equipment, and information technology, requiring large capital investments that are difficult to reverse. Classrooms, labs, dormitories, and athletic facilities. Infrastructural: Intangible resources, e.g., people and expertise, policies, decision rules, and organizational structure. Administrative and academic staff, policies and procedures, e.g., for hiring, assignment of grades, tenure review, and administration of grants. Strategies Mechanisms by which businesses coordinate their decisions regarding structural and infrastructural elements. A Top-Down Model of Strategy Business Strategy Identifies firms targeted customers, sets time frames and performance objectives for the business, and supports the development of core competencies. Core Competencies Organizational strength or ability, developed over a long period, that customers find valuable and competitors find difficult or impossible to copy. Functional Strategies Translate a business strategy into specific actions for functional areas such as marketing, HR, finance, and operations and supply chain. Should align with the overall business strategy and across various functional areas. O&SC Strategy A functional strategy indicating how structural and infrastructural business elements in the area of operations and supply chain will be acquired and developed to support the overall business strategy. O&SC Strategy: Objectives Help choose the right mix of structural and infrastructural elements (based on performance dimensions and other involved trade-offs), Ensure the chosen elements are strategically aligned with the firm’s business strategy, Support the development of core competencies in the firm’s operations and supply chain. Decisions regarding Structural elements Decisions regarding Infrastructural elements Customer value and performance measures Performance Dimensions Quality (performance, conformance, reliability) Time (delivery speed and reliability, time to market) Flexibility (mix, changeover, volume) Cost (labor, material, engineering, quality-related) Trade-off among Performance Dimensions (I) Performance against: Customer needs; Business objectives Comparisons to competitors Comparisons to ‘the best in class’ Trade-off among Performance dimensions (II) Order winners Differentiators — performance not yet duplicated by competitors Competitive advantage — performance better than all or most of the competitors Order qualifiers Minimum acceptable level of performance Alignment Aligning O&SCM Strategy with Business strategy Four stages of strategic alignment: *Internally neutral (eliminate negative effect) *Externally neutral (do what competitors do) *Internally supportive (align structural and infrastructural elements with business strategy) *Externally supportive (business strategy seeks core competencies in these areas) Alignment: Example O&SCM: Responsibility Planning: Capacity, utilization; Location; Choosing products or services; Make or buy; Layout; Projects; Scheduling; Plan for risk reduction Forecasting Controlling: Inventory; Production; Quality; Costs Staffing: Hiring/lay off; Use of overtime; Incentive plans A Simple Strategy Model Product customization Product Customization (I) Customer-specific input at some point in the supply chain Levels of product customization: *Make-to-stock (MTS) products *Assemble-to-order (ATO) or finish-to-order products *Make-to-order (MTO) products *Engineer-to-order (ETO) products Product Customization (II) When customization occurs early in the supply chain: *Greater flexibility in response to unique customer needs (flexibility); *Longer lead times to customer (time); *Product will tend to be more costly product (cost). Introduction to Decision Modelling What is Decision Modeling? *Modeling real-world scenarios *Scientific approach to managerial decision making *Often mathematical approach *Often use of IT-tools *What is a model used for? Finding optimal/acceptable solution; Sensitivity analysis; Evaluation of alternative courses of actions; Study behavior of an existing system Type of Models: Deterministic vs Probabilistic Deterministic: All relevant data known with certainty; Mathematical models Probabilistic: Some data uncertain; Use of probability and statistics Type of Models: Quantitative vs Qualitative Quantitative: Numerical estimates Qualitative: Some factors can’t be quantified Should be combined in decision making Steps in Decision Modeling Business Analytics LECTURE 2 Forecasting (Demand) Forecast – Why *Assess long-term capacity needs *Develop budget and hiring plans, etc. *Plan production or order materials *Get agreement within firm and across supply chain partners Forecast Laws *almost always wrong by some amount *(tend to be) more accurate for the near term *(tend to be) more accurate for groups or families of products/services *forecasts are no substitute for calculated values Forecasting Approaches Quantitative: work with measurable historical data *Time series models *Causal models Qualitative: work with intuition and informed opinion *Market survey *Build-up forecast *Life cycle analogy method Time Series A time series consists of observations arranged in chronological order Examples: Pressure of a gas container in every 10-seconds over last 4 hours; Number of the earthquakes detected in a specific region over the past 200 days; Number of arriving patients to a clinic over the past 15 weeks; Shoes sold every month over the past 10 years; Time Series – Components of Demand (I) Time series forecasting models *Last Period *Moving Average *Weighted Moving Average *Exponential Smoothing *Adjusted Exponential Smoothing *Linear Regression Last Period *Simplest method *Only based on one (the last) observation Moving Average *Based on a set of recent observations *Smoothed model, i.e., Less susceptible to random swings *Delayed reaction 2-period moving average forecast (n=2) F3=(D1+D2)/2=(84+81)/2=82.5 F4=(D2+D3)/2=(81+89)/2=85.0 F5=(D3+D4)/2=(89+90)/2=89.5 Weighted Moving Average The moving average model is a special case of the weighted moving average. F4=W1D1+W2D2+W3D3 =0.2×84+0.3×81+0.5×89=85.6 F5=W2D2+W3D3+W4D4 =0.2×81+0.3×89+0.5×90=87.9 F6=W3D3+W4D4+W5D5 =0.2×89+0.3×90+0.5×99=94.3 Exponential Smoothing *Special form of the weighted moving average model *Rolls up the current period’s actual and forecasted values *Control how reactive the model is by controlling α *The higher the randomness, the lower the α value should be Exponential smoothing forecast (α=0.2) F2=αD1+(1−α)F1 =0.2×10+(1−0.2)×10.00=10.00 F3=αD2+(1−α)F2 =0.2×11+(1−0.2)×10.00=10.20 F4=αD3+(1−α)F3 =0.2×9+(1−0.2)×10.20=9.96 Exponential smoothing forecast (α=0.8) F2=αD1+(1−α)F1 =0.8×10+(1−0.8)×10.00=10.00 F3=αD2+(1−α)F2 =0.8×11+(1−0.8)×10.00=10.80 F4=αD3+(1−α)F3 =0.8×9+(1−0.8)×10.80=9.36 Linear Regression – Data with Seasonality Measuring forecast accuracy Forecasting quality *To assess a forecasting model’s performance *To compare different forecasting models Accuracy measures: Forecast error (FE); Mean forecast error (MFE); Tracking signal (TS) Mean absolute deviation (MAD); Mean absolute percentage error (MAPE) MFE and MAD – A Dart Board Analogy LECTURE 3 Supply Management Supply Management : Definition The broad set of activities carried out by organizations for sourcing or purchasing. *What are the sourcing opportunities? *How to develop sourcing strategies? Make or buy? *Which suppliers to buy product/service from? Why Supply Management is Critical? Global Sourcing: Global markets; Advances in IT Financial Impact: Profit leverage effect, see Ex. 7.1 on p. 212. Performance Impact: Quality; Delivery performance; Flexibility Strategic Sourcing Process Step 1: Assess Opportunities Sourcing performance assessment: Spend Analysis: *Understanding spending patterns and identify opportunities for improvement. *Spending patterns across different: Product category; Supplier; Location New need or Existing sourcing activity Step 2: Profile Internally and Externally Step 3: Develop the Sourcing Strategy Make-or-buy decision? *Make insourcing *Buy outsourcing Who? How many? How much? What are the pros and cons of each option? What about the core competencies? What about the social responsibilities? Step 3: Make-or-Buy Decision Insourcing vs. Outsourcing Step 3: Total Cost Analysis Identification and quantification of costs associated with the make-or-buy decision (different sourcing options): Direct costs: Costs that are tied directly to the level of operations or supply chain activities. Indirect costs: Costs that are not tied directly to the level of operations or supply chain activity. Step 3: Total Cost Analysis Insourcing and Outsourcing Costs Step 3: Total Cost Analysis – Example Step 3: Portfolio Analysis Step 3: Portfolio Analysis – Routine Quadrant Many alternative products and services Many sources of supply Low value, small individual transactions Everyday use, unspecified items Anyone could buy it Step 3: Portfolio Analysis – Leverage Quadrant High expenditures, commodity items Large marketplace capacity,ample inventories Many alternate products and services Many qualified sources of supply Market/price sensitive Step 3: Portfolio Analysis-Bottleneck Quadrant Complex specifications requiring cplx manufacturing or service process Few alternate productions/sources of supply Big impact on operations Step 3: Portfolio Analysis – Critical Quadrant Critical to profitability and operations Few qualified sources of supply Large expenditures Design and quality critical Complex and/or rigid specification Step 3: Portfolio Analysis Single or Multiple Sourcing? Step 4: Screen Suppliers – Selection Criteria Quantitative *Cost *On-time delivery rate etc. Qualitative *Process and design capabilities *Management capability *Financial condition and cost structure *Longer-term relationship potential Step 5: Conduct Supplier Selection Purpose *Evaluating potential suppliers *Tracking suppliers’ performance over time *Ranking current suppliers The weighted point evaluation system *Assign weights to performance dimensions *Rate the performance of each supplier with regard to each dimension *Calculate the total score Step 5: Conduct Supplier Selection Weighted-Point Evaluation System Step 6: Negotiate and Implement Agreement Does any preferred supplier(s) exist? Yes: give them the first opportunity for the new business No: Competitive bidding; Negotiating Contracting *Fixed-price contract *Cost-based contract Trends in Supply Management Sustainable Supply (also related to Corporate Social Responsibility) Supply Chain Disruptions Internet of things (watch the video on BrightSpace) Responsible sourcing Examples Corporate Social Responsibility The economic, legal and discretionary expectations that society has of organizations at a given point in time. Considerations: *Customer expectations *Governmental rules *Extension of responsibility to supply chain partners Responsible sourcing Mattel: How Bad Practices at the Suppliers May Affect the Entire Supply Chain? Philips: How to Engage Suppliers in Promoting Sustainability Principles? Unilever: How to Improve the Sustainability of the Supply Chain? Nestlé: How to Adopt Responsible Purchasing? Adopting responsible sourcing Stage I : Denial Stage II : Opportunism Stage III : Compliance to the law Stage IV : Sustainability as a driver for lower cost Stage V : Sustainability as a driver for product and business innovation Stage VI : From corporate social responsibility to creating shared value LECTURE 4
