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- 1. Operations Management PBSB 813 Contact 5 Johan Jordaan [email protected]
- 2. Note on the use of these slides These slides provide the basic theory that I would like you to know. There are many more techniques on the slides that came with the textbook, which are also available on eFundi. As I talk you through this slide show, please stop where you don't understand, go to either the textbook (Heizer and Render) or the Heizer & Render slides and make sure you understand them. If you still do not understand, on the first page that you have to submit is space for you to tell me what you do not understand so that I can cover it in class. Once you have gone through the slides, go to the template on eFundi and prepare your submissions for the next contact session.
- 3. Operations & productivity (1) Topics covered: Contact 5 Global envi- ronment & strategy (2) Managing projects (3) Forecasting demand (4) Product design (5) Quality management (6) Process design (7) Location decisions (8) Layout decisions(9) Job design & work mea- surement (10) Supply chain management (11) Inventory management (12) Scheduling (13 & 15) MRP & ERP (14) JIT & Lean operations (16) Maintenance & reliability (17) Study school Contact 1 Contact 2 Contact 3 Contact 4 Contact 5 Contact 6 Contact 7
- 4. Outcomes for today's contact OUTCOMES OF THEME K Demonstrate a thorough understanding of supply chains by plotting the supply chain of a real-life organisation Investigate and critically analyse the strategic benefits of strategic supply chain design. Effectively distinguish between the different methods of determining the optimal facility positions. Critically discuss the concept of mass customisation Demonstrate a thorough understanding of the concepts by applying the theory to a real- life organisation. OUTCOMES OF THEME L Understand service levels and be able to the theory to real-life organisations Demonstrate a thorough understanding of inventory management concepts by applying the theory to a real-life organisation
- 5. Chapter 11 Theory Supply chain management
- 6. What is a Supply Chain?
- 7. Bullwhip Effect Time Retailers Orders Time Wholesalers Orders Time Manufacturers Orders The magnification of variability in orders in the supply-chain A lot of retailers each with little variability in their orders. can lead to greater variability for a fewer number of wholesalers, and can lead to even greater variability for a single manufacturer.
- 8. The Bullwhip Effect Consumer sales are predictable and steady. Retailer orders start to show variability as lot sizes and other factors have an impact. Farther up the supply chain variability increases.
- 9. Supply Chain Management 1. Transportation vendors 2. Credit and cash transfers 3. Suppliers 4. Distributors 5. Accounts payable and receivable 6. Warehousing and inventory 7. Order fulfillment 8. Sharing customer, forecasting, and production information Important activities include determining
- 10. A Supply Chain for Beer Figure 11.1
- 11. Global Supply Chain Issues React to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates Use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out Staff with local specialists who handle duties, freight, customs and political issues Supply chains in a global environment must be able to
- 12. How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Suppliers goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly to changing requirements and demand to minimize stockouts (e.g., Dell Computers) Share market research; jointly develop products and options (e.g., Benetton) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills Table 11.1
- 13. Make-or-Buy Decisions 1. Maintain core competence 2. Lower production cost 3. Unsuitable suppliers 4. Assure adequate supply (quantity or delivery) 5. Utilize surplus labor or facilities 6. Obtain desired quality 7. Remove supplier collusion 8. Obtain unique item that would entail a prohibitive commitment for a supplier 9. Protect personnel from a layoff 10. Protect proprietary design or quality 11. Increase or maintain size of company Reasons for Making Table 11.4
- 14. Outsourcing Transfers traditional internal activities and resources of a firm to outside vendors Utilizes the efficiency that comes with specialization Firms outsource information technology, accounting, legal, logistics, and production
- 15. Ethics in the Supply Chain Opportunities for unethical behavior are enormous and temptations are high Many companies have strict rules and codes of conduct that define acceptable behavior Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior
- 16. Supply Chain Strategies Negotiating with many suppliers Long-term partnering with few suppliers Vertical integration Keiretsu Virtual companies that use suppliers on an as needed basis
- 17. Managing the Supply Chain Mutual agreement on goals Trust Compatible organizational cultures Integrating supply chains There are significant management issues in controlling a supply chain involving many independent organizations
- 18. Technology in supply chain management RFID E-procurement Google E-Bay, Amazon, Kalahari, Bid-or-buy,
- 19. Different distribution systems Rail Road Water Air Pipeline Third-party logistics Outsourcing
- 20. Chapter 12 Theory Inventory management
- 21. The trade-off Risk of being out- of-stock Cost to carry inventory
- 22. Inventory One of the most expensive assets of many companies representing as much as 50% of total invested capital Operations managers must balance inventory investment and customer service
- 23. Functions of Inventory 1. To decouple or separate various parts of the production process 2. To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers 3. To take advantage of quantity discounts 4. To hedge against inflation
- 24. Types of Inventory Raw material Purchased but not processed Work-in-process Undergone some change but not completed A function of cycle time for a product Maintenance/repair/operating (MRO) Necessary to keep machinery and processes productive Finished goods Completed product awaiting shipment
- 25. The Material Flow Cycle Figure 12.1 Input Wait for Wait to Move Wait in queue Setup Run Output inspection be moved time for operator time time Cycle time 95% 5%
- 26. Inventory Management How inventory items can be classified How accurate inventory records can be maintained
- 27. ABC Analysis Divides inventory into three classes based on annual dollar volume Class A - high annual dollar volume Class B - medium annual dollar volume Class C - low annual dollar volume Used to establish policies that focus on the few critical parts and not the many trivial ones
- 28. ABC Analysis A Items B Items C Items Percentofannualdollarusage 80 70 60 50 40 30 20 10 0 | | | | | | | | | | 10 20 30 40 50 60 70 80 90 100 Percent of inventory items Figure 12.2
- 29. ABC Analysis Policies employed may include More emphasis on supplier development for A items Tighter physical inventory control for A items More care in forecasting A items
- 30. Cycle Counting Items are counted and records updated on a periodic basis Often used with ABC analysis to determine cycle Has several advantages Eliminates shutdowns and interruptions Eliminates annual inventory adjustment Trained personnel audit inventory accuracy Allows causes of errors to be identified and corrected Maintains accurate inventory records
- 31. Control of Service Inventories Can be a critical component of profitability Losses may come from shrinkage or pilferage Applicable techniques include 1. Good personnel selection, training, and discipline 2. Tight control on incoming shipments 3. Effective control on all goods leaving facility
- 32. Reordering points R = Reorder point Q = Economic ordering quantity L = Lead time L L Q QQ R Time #Unitsin stock 0
- 33. Minimizing Costs Objective is to minimize total costs Table 11.5 Annualcost Order quantity Curve for total cost of holding and setup Holding cost curve Setup (or order) cost curve Minimum total cost Optimal order quantity (Q*)
- 34. Production Order Quantity Model Inventorylevel Time Demand part of cycle with no production Part of inventory cycle during which production (and usage) is taking place t Maximum inventory Figure 12.6
- 35. Your assignment Step 1: Make sure you understand the concepts that are covered in this slide show. If necessary, go through it again or study the textbook. The slides by Heizer & Render (available on eFundi) also give valuable extra information. Step 2: Prepare a one-page summary of the theory. Make sure it fits into the template in the study guide. Remember to make a note of those issues that you want explained in class. Step 3: Find out how your organisation manages its supply chain and inventory. Give a one-page summary on the template. Step 4: Critique the way supply chain and inventory management take place in your organisation. Where necessary, suggest improvements. Give a one-page summary on the template. (If there are diagrams, you are allowed a fourth page for them). Step 5: Submit your three-page report on efundi before Thursday night 23:59. This counts towards your individual assignment and your final pass mark! Step 6: For your group assignment, prepare a three-slide PowerPoint show: Slide 1: Briefly present the essence of supply chain and inventory management to your community organisation. (Decide in conjunction with them to what extent the two topics are important to them). Slide 2: Explain whether/how they presently do supply chain and inventory management. Slide 3: Give them advice on how to improve their supply chain and inventory management. Use the template that is on eFundi. One group member must submit on efundi before Thursday night 23:59 as well! Names of both documents must be as indicated in your study guide.
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