LOG 202 SU 1 - Summary Managing Operations PDF

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LOG 202 SU 1 Operations: The manufacturing and service processes of transforming resources into products. Supply Chain: Processes that move information and material to and from firm. 5 stages of Operations and SCM Planning o Processes needed to operate an existing supply chain Sourcing o Selection o...

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LOG 202 SU 1 Operations: The manufacturing and service processes of transforming resources into products. Supply Chain: Processes that move information and material to and from firm. 5 stages of Operations and SCM -

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Planning o Processes needed to operate an existing supply chain Sourcing o Selection of suppliers that deliver goods and services needed to create a firm’s product Making o Producing the major product/service Returning o Receiving worn out, excess, and/or defective products from customers Delivery o Logistics process such as selecting carriers, coordinating movement of goods and information, and collecting payment from customers

Five Essential Differences between Goods and Services - Tangibility - Degree of Interaction with Customer - Level of variability (low VS high) - Service as perishable and time-dependent - Service as a package of features o Supporting facility (layout, location) o Facilitating goods (variety, quantity of physical goods that go with the service) o Explicit Services (training of service personnel/availability and access to the service) o Implicit Services (attitude of staff, waiting time, privacy) Goods (Pure Goods and Core Goods) - Tangible - Less interaction with Customer - Often homogeneous - Not perishable – can be inventoried Services (Core Services and Pure Services) - Intangible - Interaction with customer required - Inherently heterogeneous - Perishable/time-dependent - Defined and evaluated as package of features Operations and Supply Chain Management Issues

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Coordinating relationships between members of supply chain Optimising global networks of suppliers, distributors etc Managing customer touch points Sustainable and triple bottom line (economic, employee and environmental viability of firm)

Management of business typically concerned with: 1. Efficiency a. Doing something at the lowest possible cost 2. Effectiveness a. Doing the right things to create the most value for customer 3. Value a. Attractiveness of a product relative to its cost To evaluate efficiency of company, calculate their asset and labour productivity ratios. Receivable turnover ratio = total credit sales/average receivables Inventory turnover ratio = COGS/average inventory Asset Turnover ratio = net income/total assets Formulating an OSCM Strategy 1. Develop/Refine Strategy a. Define mission, vision and objectives b. Conduct strategic analysis c. Define strategic competitive priorities 2. Translate strategy to Operations and Supply Chain Initiative a. Product design b. Sourcing/Localisation of facilities initialisation 3. Major Focus Points and Projects a. Major operations, logistics and distribution initiatives Competitive Dimensions* 1. Price a. Make product or deliver service cheap 2. Quality a. Make great product or delivery 3. Delivery Speed a. Make/deliver product/service quickly 4. Delivery Reliability a. Deliver when promised 5. Coping with Changes in Demand a. Change its volume 6. Flexibility and New-Product introduction speed a. Change it

*Take note there are trade-offs, cannot excel simultaneously on all competitive dimensions. Need to decide which parameters will affect company’s success the most, and dedicate more resources to it. Features of product/service - Straddlers o Seeking to match successful competitor by adding features, services or technology to existing activities (seen as a risky strategy) - Order Qualifiers o Features deemed necessary by customers, ones that they will not forego (without these features, customers will not consider purchasing) - Order Winners o Criteria used by customers to differentiate offerings of different companies, and help determine which to purchase Risk Management Framework 1. Identify sources of potential risk/disruptions and assess type of vulnerability 2. Evaluate potential impact of risk, to assess probability and impact 3. Develop plans to mitigate risk, including strategy etc Productivity = Output/Input

SU 2 Core competency: The main thing a company can do better than competitors 3 Characteristics of core competency: 1. Provides potential access to a wide variety of markets 2. Increases perceived customer benefits 3. Hard for competitors to imitate Ideal Customer Product has: - Quality Function Deployment (QFD) o Listening to customer through market research etc -> customer preferences are defined and broken down into customer requirements - House of Quality o QFD forms basis for matrix for House of Quality which translates them into engineering or operating goals - Value Analysis/Value Engineering o Purpose is to simplify products and processes o Achieve better performance at lower cost while maintaining functional requirements defined by customer 6 Phases of Generic Product Development Process

Designing Service Products - Direct customer involvement, so there is high variability in process e.g time taken to serve customers and level of knowledge needed Three Factors for Determining Fit 1. Service Experience Fit (Similarity to current service) 2. Operational Fit (Similarity to current process) 3. Financial Fit (should be financially justified) Measuring Product Development Performance - Time to market o Frequency of new product o Percentage of sales from new product - Productivity o Engineering hours per project o Cost of materials and tooling per project - Quality o Customer Satisfaction o Number of defects Capacity Management - The ability to store, hold, receive or accommodate. - Needs to consider both resource input and product outputs. Capacity Planning Time 1. Long term (Strategic) e.g infrastructure 2. Intermediate (Tactical) e.g resources 3. Short term (Operational) e.g how to optimise current capacity Strategic Capacity Planning helps determine level of resources needed to support company’s long-term competitive strategy Capacity Utilisation Rate: Measure of how close the firm is to best possible operating level (capacity used/best operating level) Capacity Flexibility consists of: 1. Flexible Plants a. Ability to adapt quickly to change b. Zero changeover time 2. Flexible Processes a. Flexible manufacturing systems b. Simple, easily set up equipment 3. Flexible Workers a. Ability to switch from one kind of task to another quickly b. Multiple skills (cross training)

Considerations in Changing Capacity/Capacity Planning Analysis 1. Maintaining system balance a. Manage bottlenecks and ensure good distribution of system capacity b. To manage bottlenecks, can add buffer inventories in front of that stage, or duplicate/increase the facilities of one department, or use temporary measures like OT or subcontracting 2. Frequency of Capacity Additions a. Cost of upgrading too frequently b. Cost of upgrading too infrequently 3. External Sources of Capacity a. Outsourcing b. Sharing capacity 4. Decreasing Capacity a. Temporary reductions such as scheduling fewer hours or extended shutdown period b. Permanent reductions such as selling of equipment or liquidation of factories Determining Capacity Requirements - Use forecasting to predict sales within each product line - Calculate labour and equipment requirements to meet product line forecasts - Project labour and equipment availability over the planning horizon Planning Service Capacity* *Goods and services differ due to time, location, and volatility of demand Manufacturing Capacity (Goods) - Goods can be stored for later use - Goods can be shipped to other locations - Volatility of demand is relatively low VS Service Capacity (Services) - Capacity must be available when service is needed (cannot be stored) - Service must be available at customer demand point - Higher volatility is expected Process Analysis - Process o Activities performed by organisation that takes inputs and transforms them into outputs - Cycle Time o Average time between completion of units - Utilisation o Ratio of the time that a resource is actually activated, relative to the time that it is available for use

Process Characterisations - Make-to-order o Only activated in response to actual order o Both work in process and finished goods kept to a minimum - Make-to-stock o Process activated to meet expected or forecasted demand o Customer orders are served from target stocking level - Hybrid o Combines features of both make-to-order and make-to-stock Process Flows have: - Buffering o Storage area between stages where output of stage is placed prior to being used in another stage - Blocking o Occurs when activities in a stage must stop because there is no place to deposit items - Starving o Occurs when activities in a stage must stop because there is no work - Bottleneck o Resource that limits the capacity of the process Production Process Mapping - Total average value of inventory o Sum of value of raw materials, WIP (work in progress), and finished goods inventory - Inventory Turns o COGS/average inventory value - Days-of-supply o Inventory on hand divided by -> COGS/number of days in that period (this gives you inventory per day) - Flow time o Average time it takes a unit to move through the entire process - Throughput o Output rate that process is expected to produce over a period of time - Little’s Law o Long term relationship among inventory, throughput and flow time o Inventory (WIP) = Throughput rate x Flow time

SU 3 Service Package 1. Supporting facility (layout, location) a. Physical resources that must be in place for the service to be offered 2. Facilitating goods (variety, quantity of physical goods that go with the service) a. Material purchased by buyer or items provided to customer 3. Information a. Data provided by customer 4. Explicit Services (training of service personnel/availability and access to the service) a. Benefits that are observable by the senses 5. Implicit Services (attitude of staff, waiting time, privacy) a. Psychological benefits that the customer may only sense vaguely Differences between service process and manufacturing process - Customer contact o Physical presence of customer in process - Creation of the service o Work process involved in providing the service itself - Extent of contact o Degree of customer involvement in creation of service Service-System Design Matrix* 1. Buffered Core a. Service system physically separated from customer, has minimal degree of customer contact 2. Permeable Core a. Service system penetrated by customer through phone call or face to face, medium degree of customer contact 3. Reactive System a. Penetrable and reactive to the customer’s requirements. This system has the maximum degree of customer contact. *Higher extent of customer contact has greater sales opportunity, because needs will be better understood, hence can customise product/service to customers’ needs Five Types of Variability 1. Arrival Variability a. E.g customers arriving at times when there are not enough service providers 2. Request Variability a. Requesting for a variety of things 3. Capability Variability a. Ability of customers to explain/convey what they want 4. Effort Variability a. Some people may not do what they are supposed to i.e returning library books 5. Subjective Preference Variability

a. Customers interpret different service actions differently Strategies for managing variability 1. Classic Accommodation a. Uses extra resources or additional employee skills to compensate for variation amongst customers 2. Low-Cost Accommodation a. Uses low-cost labour, outsourcing, and self-service to cut the cost of accommodation 3. Classic Reduction a. Requires customer to engage in more self-service, use reservation system, or adjust their expectations 4. Uncompromised Reduction a. Uses knowledge of customer to develop procedures that enable good service, while minimising variation impact on service delivery system Developing Quality Specifications - Design Quality o Inherent value of product in marketplace - Conformance Quality o Degree to which product or service design specifications are met - Quality at the Source o Person in charge of a production or service process is responsible for the conformance quality of the process’s outputs Quality Dimensions 1. Performance 2. Features 3. Reliability/Durability 4. Serviceability 5. Aesthetics 6. Perceived Quality Costs of Quality* 1. Appraisal Costs a. Costs of inspection and testing to ensure product/process is acceptable 2. Prevention Costs a. Sum of all costs incurred to prevent defects (e.g identifying problem, corrective actions to eliminate cause etc) 3. Internal Failure Costs a. Costs for defects incurred within the system e.g scrap, rework, repair (moments you fail to check/prevent, costs related to solving defect) 4. External Failure Costs a. Costs for defects that pass through the system e.g customer warranty replacements, product repair etc *Assumptions needed to justify cost of quality: - Failures are caused

- Prevention is cheaper Performance can be measured SIX SIGMA Methodology DMAIC - Define o Identify customers and their priorities - Measure o Measure process and its performance - Analyse o Determine the most likely causes of defects - Improve o Identify means to remove causes of defects - Control o Determine how to maintain improvements

SU 4 Lean Production - Integrated activities designed to achieve high-volume production using minimal inventories 1. Focus on delivering customer value and minimise waste 2. Involves elimination of waste in production effort 3. Involves timing of production resources (e.g JIT (Just In Time)) 4. Value chain – each step in the supply chain should create value Lean supply chain components 1. Lean supplier a. Can respond to changes b. Lower prices due to lean processes c. Inspection not needed because quality has improved d. Deliver on time and culture of continuous improvement 2. Lean procurement a. Automation and visibility b. Supplier can see customer’s operations and vice versa c. Maximising the overlap of the processes above helps maximise value from end-customer perspective 3. Lean warehousing a. Eliminate waste in product storage processes 4. Lean logistics a. Optimised mode selection, backhaul minimisation, cross docking etc 5. Lean customers a. Have a great understanding of business needs and specify meaningful requirements b. Value speed and flexibility and expect high levels of delivery performance c. Interested to establish effective partnerships with supplier Functional Products Staples that people buy from a wide range of places - Product life cycle of more than 2 yrs - Limited product variations - Contribution margin of 5-20% - Average forecast error of only 10% Innovative Products Includes electronics and fashion with life cycle of a few months - Newness of innovative products makes demand for them unpredictable - Short life cycles - Imitators quickly erode competitive advantage that innovative products enjoy - Forced to produce steady stream of innovative products, so there is big variety - Short life cycles + variability increase unpredictability

Supply Chain Strategies - Efficient supply chains o Utilise strategies aimed at creating the highest cost efficiency - Risk hedging supply chains o Use strategies aimed at pooling resources in a supply chain to share risk - Responsive supply chains o Utilise strategies aimed at being responsive and flexible - Agile supply chains o Utilise strategies that combine the strength of “hedged” and “responsive” supply chains Hau Lee’s Uncertainty Framework

Outsourcing: allows company to create competitive advantage while reducing cost. It is the act of moving some of a firm’s internal activities and decision responsibility to outside providers. 1. Financial a. Improve return on asset by reducing inventory and selling unnecessary assets b. Generate cash by selling low return entities c. Gain access to new markets, particularly in developing countries d. Reduce costs e. Turn fixed costs into variable costs 2. Improvement a. Improve quality and productivity b. Shorten cycle time c. Obtain expertise, skills and tech that are otherwise unavailable d. Improve risk management e. Improve credibility and image by associating with superior providers 3. Organisational a. Improve effectiveness by focusing on what the firm does best b. Increase flexibility to meet changing demand for products and services c. Increase product and service value by improving response to customer needs Total Cost of Ownership - An estimate of the cost of an item, that includes all the costs related to procurement and disposal of item. It consists of: 1. Acquisition Costs a. Purchase planning costs b. Quality costs c. Taxes d. Purchase price e. Financing costs 2. Ownership Costs a. Energy costs b. Maintenance and repair costs c. Financing d. Supply chain/supply network costs 3. Post-ownership costs a. Disposal b. Environmental costs c. Warranty costs d. Product liability costs e. Customer dissatisfaction costs Sourcing Performance Supply chain efficiency can be measured through inventory turnover and weeks of supply turnover

Weeks of supply = average inventory value/COGS x 52 SU 5 Forecasting affects every significant management decision – financing and accounting, marketing and production. There are strategic forecasts (for decisions on overall directions) and tactical forecasts (day to day decisions). Four types of forecasts: 1. Qualitative 2. Time Series Analysis a. Based on the idea that data related to past demand can be used to predict future demand 3. Causal relationships 4. Simulation Time Series Analysis - Short term – forecasting less than 3 months (tactical) o Used mainly for tactical decisions - Medium term – forecasting 3 months to 2 years (strategic) o Used to develop a strategy that will be implemented over the next 6-18 months (e.g meeting demand) - Long term – forecasting greater than 2 years (strategic) o Useful for detecting general trends and identifying major turning points Choosing an appropriate forecasting model depends on: 1. Time horizon to be forecast 2. Data availability 3. Accuracy required 4. Size of forecasting budget 5. Availability of qualified personnel Qualitative Forecasting Techniques - Used to take advantage of expert knowledge - Useful when judgement is required, or product is new (no prior data available to analyse), or if firm has no experience in new market Sales and Operations Planning - Also known as aggregate operations planning - Translates long term business plans into broad labour and output plans for the intermediate term - Meant to capture the importance of cross-functional work - Aggregation on the supply side is done by product families, and done by groups of customers on the demand side Aggregate Operations Planning - Specifies the optimal combination of production rate, workforce level and inventory on hand

Production Planning Strategies - Chase strategy o Match production rate by hiring/laying off employees o Must have pool of easily trained applicants to draw on - Level strategy o Demand changes are absorbed by fluctuating inventory levels, order backlogs and lost sales - Stable workforce – variable work hours o Vary the number of hours worked through flexible work schedules or overtime - Sub-contracting o Hiring and laying off are translated into subcontracting

SU 6 Purpose of inventory - To maintain independence of operations - To meet variation in product demand - To allow flexibility in production scheduling - To provide a safeguard for variation in raw material delivery time - To take advantage of economic purchase order size Inventory Costs - Holding/Carrying Costs o Costs for storage, handling, insurance etc - Setup/Production Change Costs o Costs for arranging specific equipment setups etc - Ordering Costs o Costs of placing an order - Shortage Costs o Costs of running out Inventory Control Systems 1. Single-period model 2. Multi-period model: Fixed-order quantity model 3. Multi-period model: Fixed time period model Q model (Fixed Order Quantity) Inventory remaining must be continuously monitored Smaller average inventory Favours more expensive items More appropriate for important items Requires more time to maintain – but is usually more automated More expensive to implement

P model (Fixed time p...