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Fundamentals of Operations Management BUS 3 – 140 Supply Chain Management Nov 6, 2007
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Page 1: Supply Chain Management

Fundamentals ofOperations Management

BUS 3 – 140

Supply Chain Management

Nov 6, 2007

Page 2: Supply Chain Management

Page 2 2

Agenda

– Exam Recap and Review

– Process Alternatives and Selection

– Work Design

– Supply Chain Management

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Exam Review

Page 4: Supply Chain Management

Page 4 4

27

15

10 10

0

5

10

15

20

25

30

A B C D/F

`

Grade Distribution – Exam 2

Count % of Total Cum %A+ 10 16.1% 16.1%A 15 24.2% 40.3%A- 2 3.2% 43.5%B+ 4 6.5% 50.0%B 6 9.7% 59.7%B- 5 8.1% 67.7%C+ 3 4.8% 72.6%C 3 4.8% 77.4%C- 4 6.5% 83.9%D+ 4 6.5% 90.3%D 1 1.6% 91.9%D- 3 4.8% 96.8%F 2 3.2% 100.0%Total 62

Grade

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Grade Distribution Comparison (Exam 1 to 2)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

A+ A A- B+ B B- C+ C C- D+ D D- F First Second

First SecondA+ 4.6% 16.1%A 16.9% 24.2%A- 10.8% 3.2%B+ 9.2% 6.5%B 9.2% 9.7%B- 15.4% 8.1%C+ 3.1% 4.8%C 9.2% 4.8%C- 7.7% 6.5%D+ 3.1% 6.5%D 4.6% 1.6%D- 3.1% 4.8%F 3.1% 3.2%

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Grade Change per Student – Exam 1 to 2

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35-3

0

-27

-24

-21

-18

-15

-12 -9 -6 -3 0 3 6 9 12

15

18

21

24

27

30

33

Change Count-1 2-2 2-3 2-5 3-6 2-7 2-9 1

-11 1-12 4-13 2-17 4-23 1-30 1

Change Count0 11 22 33 24 15 36 27 19 2

10 112 313 114 115 416 117 218 220 122 135 1

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Semester to Date Grade Distribution (Exams 1 & 2)

25

1615

5

1

0

5

10

15

20

25

30

A B C D F

Count % of Total Cum %A+ 1 1.6% 1.6%A 15 24.2% 25.8%A- 9 14.5% 40.3%B+ 3 4.8% 45.2%B 4 6.5% 51.6%B- 9 14.5% 66.1%C+ 2 3.2% 69.4%C 6 9.7% 79.0%C- 7 11.3% 90.3%D+ 4 6.5% 96.8%D 0 0.0% 96.8%D- 1 1.6% 98.4%F 1 1.6% 100.0%Total 62

Grade

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Process Alternatives and Selection

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Inputs and Outputs when Selecting a Process

Capacity planning is focused on How Many (Quantity) that will be produced.Process planning is focused on HOW the items will be produced

Forecasting

Product andService Design

TechnologicalChange

CapacityPlanning

ProcessSelection

Facilities andEquipment

Layout

WorkDesign

INPUTSOUTPUTS

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

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Key Elements of Process Strategy

– Capital Intensity (does the output come more from machines or more from human labor?)

– Process flexibility required

– Technology

– Likelihood of Changes Product Design Volumes Technology

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Uses of Technology and Automation

Three (3) basic kinds of technology

Product or service innovation (Cell Phones, Computers, etc..)

Process technology (increasing quality and productivity, lowering costs)

Information Technology (speed, data storage and retrieval, complex and high-volume processing, process support)

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Process Types

Job Shop Batch Repetitive Assembly Continuous

Customized goods or services

Semi-standardized goods or services

Standardized goods or services

Highly standardized goods or services

Able to handle a wide variety of work

Flexibility Low unit cost (efficient) Very efficient

High Volume Very high volume

Slow, high cost per unit Moderate cost per unit Low flexibilityVery rigid (lack of variety)

Complex planning and scheduling

Moderate scheduling complexity

High cost of downtime Costly to change

Very high cost of downtime

Process Types

Description

Advantages

Disadvantages

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

Table 6.1

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Key Characteristics of different Process Types

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

Table 6.2Job Shop Batch Repetitive Assy Continuous Project

Cost Estimation Difficult Somewhat routine Routine Routine Simple to Complex

Cost per Unit High Moderate Low Low Very high

Equipment used General purpose General purpose Special purpose Special purpose Varied

Fixed costs Low Moderate High Very high Varied

Variable costs High Moderate Low Very low High

Labor skills High Moderate Low Low to High Low to High

MarketingPromote

"capabilities"

Promote capabilities, semi-standardized goods & services

Promote standardized goods

& services

Promote standardized goods

& servicesPromote capabilities

Scheduling Complex Moderately complex Routine RoutineComplex, subject to

change

Work Authorization

Work Order Work OrderBuild Plan / Material

movementBuild Plan / Machine

utilizationManagement

Work-In-Process (WIP) inventory

High High Low Low Varied

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Work System Design

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Considerations in Work System Design

Observe actual performance and then establish a BASIS for any estimates

Sandwiches made per hour

Sales closed per quarter

Design changes per model

Other

Be careful to distinguish between “busy” and “valuable”

Track your own output and trends and see how you can improve your individual performance

Watch your boss

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Supply Chain Management

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Operations is a Key Element of a Supply Chain

Revenue

Utilization of Assets

(People, Plant, Equip)

Cash

Inventory

BALANCING keeping Customers completely satisfied and Resourcesoptimally utilized ……. against spending the least amount of Cash

and carrying the least amount of Inventory

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Supply Chain Scope (this course shaded)

CustomerDemand

ProductionScheduling

MaterialsMgmt

Production ShippingCustomerService

• Forecasting

• Aggregate Planning

• Strategic Capacity Planning

• Demand & Supply Matching

• Scheduling

• Just In Time (JIT)

• Project Mgmt

• Inventory Mgmt

• MRP

• ERP

• Process Layout

• Work System Design

• Lean Operations

• Quality

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Example of Supply Chain Strategy

Responsiveness to Market opportunities Speed to react Credibility of commits Assurance of delivery

Optimum utilization of resources Manufacturing Product life cycle Suppliers Transportation and Logistics

Scalability for growth and increased complexity

Secure collaboration and visibility among customers, suppliers, and the enterprise

MAXIMIZE PROFITABLE REVENUE

Optimal Inventory Company owned Supplier owned Customer owned

Optimal headcount Manufacturing Support Worldwide indirect

Lean optimization for entire Supply Chain Optimized Supply Chain Network (including

integrating Mergers & Acquisitions) Automation whenever possible and supported

by business case

MINIMIZE TOTAL COST

Assured Supply and best value Accurate and timely exchange of demand and supply data Shared savings from continuous improvement Other Other

MAXIMIZE CUSTOMER SATISFACTION

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The Increasing Emphasis on Supply Chain Management

Improve operations

Opportunities and Risks of outsourcing

Rising transportation costs

Competitive pressures

Globalization

e-commerce

Complexity of supply chains

Manage inventories

Supply Chain Management is not simply a cost / efficiencydiscipline. It is a key differentiator in gaining

customer satisfaction, market share and loyalty

Several factors are driving this trend:

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Benefits of Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the world

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

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Benefits of Supply Chain Management

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

Lower inventories

Higher productivity

Greater agility

Shorter lead times

Higher profits

Greater customer loyalty

Integrates separate organizations into a cohesive operating system

Monitoring Inventory is CRITICALat virtually every step in the Chain

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Selected Supply Chain Metrics

Perspective Metrics

On-Time delivery

Order fulfillment lead time

Fill Rate (% of demand met from stock)

Perfect order fulfillment

Supply Chain response time

Upside (and downside) production flexibility

Supply chain management cost

Warranty cost as a % of Revenue

Value add per employee

Total inventory days of supply

Cash-to-cash cycle time

Net asset turns

Assets / Utilization

Reliability

Flexibility

Expenses

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

Table 11.4

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Logistics

The management of inventory at motion and at rest

Logistics *

That part of the supply chain that plans, implements, andcontrols the efficient, effective flow and storage of goods,

services, and related information from the point of origin to thepoint of consumption in order to meet customers’ requirements

Logistics – from the Council of Logistics Management (CLM)

The movement of goods from the point of origin to the point ofconsumption: a subset of the overall Logistics process

Transportation

* Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

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Services provided by Third Party Logistics providers (3PL)

– Economies of Scale

– Professional focus and expertise

– Warehousing

– Outbound and Inbound transportation

– Freight bill auditing and payment

– Freight consolidation

– Distribution

– Order Fulfillment

– Cross-docking

– Packaging

– Returns

Major Carriers enable their customers to focus on core competencies,while the carrier drives efficiencies and increased services in

transportation and logistics

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Reverse Logistics

Processing returned goods Sorting, examining/testing, restocking, repairing Reconditioning, recycling, disposing

Gatekeeping Providing Return Material Authorization (RMA) screening goods to prevent incorrect acceptance of goods

Avoidance finding ways to minimize the number of items that are returned

Good career opportunityfor an entry level job

The backward flow of goods

returned to the supply chain

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Example of Reverse Logistics

CustomerReturns

DamagedProduct

ProductReceivedat Local

Service Center

ProductCollected

and Forwardedto Repair Center

ProductRepaired toRefurbished

Status

RefurbishedProduct sent to

DistributionCenter(s)

RefurbishedProduct shippedFrom FGI at DC

Damaged Units

Repaired Units

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Distribution Requirements Planning (DRP)

Expansion of MRP principles to plan and coordinate: Transportation

Warehousing

Regional allocations

Equipment

Financial flows

The right amount of inventory,at the right place, at the right time

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Supply Chain Metrics

Perspective Metrics

On-Time delivery

Order fulfillment lead time

Fill Rate (% of demand met from stock)

Perfect order fulfillment

Supply Chain response time

Upside (and downside) production flexibility

Supply chain management cost

Warranty cost as a % of Revenue

Value add per employee

Total inventory days of supply

Cash-to-cash cycle time

Net asset turns

Assets / Utilization

Reliability

Flexibility

Expenses

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Supply Chain Challenges

Barriers to integration of organizations

Top management support

Dealing with trade-offs

Small businesses

Variability and uncertainty

Long lead times