Operations and Supply Chain Management PDF

Preview

Summary

Download Operations and Supply Chain Management PDF

Description

Class Notes Operations and Supply Chain Management: ←

What is Operations:

←



Operations can be strategic, tactical, and operational o 1. Strategic (CEO, CFO, etc)  Long-term, how is this operation going to work  Where is the factory going to be, etc o 2. Tactical (middle managers) 

Short-term (6 months to a year)



Design, store goods (warehouse), move goods, production scheduling, monitoring quality

o 3. Operational (lower level managers and workers)  Day-to-day  Staffing, shifts, etc o Internal to the organization

←



Easy to duplicate and copy a product, but difficult to copy a supply chain o Ex: iPhone and Samsung vs. Wal-mart and K-mart



Vision  execution o Operations and supply chain management work between vision and execution



Operations and supply chain management: transformation process making an input into an output



Key is to add value

Inputs:  1. Transformed o Raw material (steel, plastic, metal, etc) o Customer (ex: sick customer goes to hospital and comes out healthy – transformed) o Finished good 

2. Transforming

o Information (do this for that to happen, get this before that, etc) o Staff o Facilities o Capital (money, equipment, etc) o The transformed and transforming inputs work together to make an output ←

←

Outputs:  1. Good (tangible – easier to see it happen)  2. Service (intangible – harder to see the output effects) What is Supply Chain:

←



Flow of the products and services from raw material manufacturers to the customers



External to the organization o Operations (internal): design, scheduling, factory o Supply Chain (external): purchasing, storage, movement to floor, warehouse, distribution, customer

←



The supply chain can also be internal

 

Supply chain is sequencing the facilities, function, and activities Concern the with the flow of the goods (internal and external) o In the transformation process

Operations and Supply Chain Process:  1. Planning  

2. Sourcing 3. Making

 

4. Delivering 5. Returning

 

Ideal for a company to balance the supply and demand to be successful Demand comes from marketing and sales

←

 

Supply comes from operations and supply chain management Excess supply is bad – idle money and goods



Systems approach: looking at everything inside and outside the company and seeing how there are dependant and reliant on each other

←

←

Competitive Dimensions:  1. Cost o Ex: dollar store o Reduce internal, operational costs in order to succeed o Reduce labour, automation (ex: self-checkout, computer inventory) 



2. Quality o 3 types of quality: 

Process quality – product quality, making something good

 

Design quality – BMW vs. Honda Civic Use quality inspection point during manufacturing (costs money – labour and time)



Customer service

3. Delivery speed o How fast is the product/service available o Need inventory on hand, people wages (this is why delivery speed is more costly)

←



4. Delivery reliability o Infrastructure costs (computer systems, production schedules) o More costly



5. Coping with changes in demand o Need to have an efficient operations and supply chain strategy, communication system (internal and external), forecasting system (sales, marketing)



6. New product introduction and innovation o Need new technology, good supplier relationship, invest in equipment (equipment dedicated to certain individual functions), skilled workers

Operations and Supply Chain Management Goals:

←

←



1. Improve efficiencies o Doing things right (what you say you're going to do, do it right and once)



2. Effectiveness o Doing the right things



3. Value o As perceived by the customer

 These three goals are not a strategy, they are the means to achieve a strategy Level Of Success Of A Company Depend On:  

Quality Design

 

Price Customer service

 Availability Two Types of Supply Chain Strategies:  1. Horizontal o Strategy across the entire company o Unified understanding of what we want to be 

2. Vertical o Where we look at the external to the organization o Where the supply chain comes in o The organization and the supplier need to have the same goals and objectives in creating a product in order to succeed o Idea in supply chain management that all suppliers and the organization are an interconnected web of communication – all need the same objective

← ←

Process Fundamentals and Capacity:

←

Competitive Dimensions:  

1. Cost or price 2. Quality



3. Delivery speed



←

4. Delivery reliability

 5. Coping with changes in demand  6. New product introduction/innovation Transformation Process:

←

←

Process Analysis:  

←

What you have How you do it

 How to improve  These three questions are all interrelated Process Map:

←

←

Process Mapping:  Describes the process  

←

Tasks/transformation process (blue rectangle) Flow of material or information (black arrow)

 Storage: RM, WIP, FG (green triangle) Measuring the Process:  Capacity: how much can be produced within a specific amount of time o Measured as units/time o Ex: pieces/hour 

Cycle time: average time for a product to be completed o 1. Per task/activity/operation o 2. Per entire process o Measured as time/ unit o Determines capacity

←

Measuring the Process:



Bottleneck: slowest running activity

 

Idle time: waiting time Set-up time: time to set up for each activity



Throughput time: total time to make a product/service o Includes idle time, set-up time, move time, etc

← ←

The Goal:

←

Capacity Planning:

←

 

Huge financial impact Determine how much capacity is needed

 

Determine when to start making a product Involves scheduling jobs and manpower (shifts)

 Involves strategic decisions  Tied in with the objectives of the company Capacity Measurements: 

Throughput: the amount of time to get a product started and completed including wait time and set up time o The rate the system generates money



Inventory: the money the system has invested in purchasing/making things which it intends to sell



Operational expenses: amount of money the system to turn inventory into throughput o Labour, RM, etc

←

Production Planning Rules:   

1. Productivity does not guarantee profitability 2. The slowest operation should regulate the flow 3. Utilization and activation are not the same thing

 

4. An hour lost at a bottleneck is an hour lost for the total system 5. An hour saved at a non-bottleneck is a mirage



6. Balance the flow – not the capacity

←

Rush Orders:  

3 orders in the system 1st one is 5 minutes into the bottleneck (paint – 15 minutes)

 

Safety margin – 2 minutes 4 orders x bottleneck (15 minutes) – 5 minutes (already in prod.) + 2 minutes (safety margin) o = 55 minutes + 2 minutes

← ←

Quality Management: 

When pressure is put on your system to make more than you can optimally make (demand > supply), quality of your product decreases

 “You cants manage what you don’t measure” Cost of Quality: 

Appraisal Costs: o 1. Incoming inspection o 2. In-process inspection o 3. Calibration of tools o 4. Dock audits



Prevention Costs: o 1. Maintaining equipment o 2. Quality planning o 3. Supplier capabilities o 4. Corrective actions o 5. Training o 6. Team meeting

 

←

External factors are huge and detrimental to a company Focus should be on prevention (and appraisal) which makes your company better o Rather than on internal and external because that is just fighting fire

←

Six Σ Concepts: 

1. Critical to quality: attributes most important to the customers o Ex: pizza in 30 minutes or free

 

2. Defect: failing to deliver what the customer wants 3. Process capability: what your process can deliver



4. Variation: what the customer sees and feels o Variation is bad (inconsistency)



5. Stable operation: consistent and predictable process to improve what the customer sees and feels o Take out any variation

 ←

6. Design for Six Σ: designing to meet customer needs and process capability o Design you system to achieve all of these things

DPMO: Defect Per Million Opportunities:  Used when an item can have more than one defect o Defect: anything outside of a customer’s specifications o Opportunity: total quantity of chances for a defect o Σ: standard deviation of the process (variation from average)  

Six Σ goal = 3.4 defects per million opportunities DPMO = total defects observed / total opportunities X 1,000,000

←

←

Statistical Process Control:  Process: set of people, equipment, procedures, and conditions that work together to produce a result 

←

Control chart: a graph of the performance of a process over time, arranged to emphasize process variation

 P-charts: charts items that are “good” or “bad” SPC: P Charts:  

1. Used in Yes or No decisions 2. Assumed that the inspection process is consistent between samples



3. Make defects visible

 

4. Determine what process adjustments needs to be made 5. Determine is process is “in control” or “out of control”

←

←

How To Make An SPC Chart:  P = total number of defects from all samples / number of samples X sample size  Sample standard deviation = sp o Square root of [P(1 – P) / n] 

3 σ (99.7% confidence) o UCL = p + σ(sp) o LCL = p – σ(sp)

←

“In Control” & “Out of Control” Process:

←

← ←

Demand Management and Forecasting:

←

Characteristics of Demand:  

←

1. Independent and dependant demand 2. Sources of demand

 3. Demand patterns Independent Versus Dependent Demand:  Independent: o Basis for demand planning o What the customer orders and is forecasted o Not related to the demand for any other product 

Dependent: o Demand that is related to the demand for another product o It is calculated



Ex: making a car

o Level 0 – Car (independent)  Make 1000 cars (forecasted) o Level 1 – Tires (dependant) 

←

Need 4000 tires – cannot be forecasted, instead it is calculated based on the independent demand item

 Ex: 4 tires per car = 1000 x 4 = 4000 Impact on Operations and Supply Chain: 

1. Allocating resources o Ex: employees – hiring/laying off



2. Investing in equipment



3. Information sharing o If customers communicate with the company and the company communicates with the supplier, etc, then operations and supply chain will run more smoothly with less inventory left at the end

←

Sources of Demand:  1. Customer orders o Actual demand o External to the organization 

2. Forecasts o Prediction of future demand  Ask customers, do market research, etc o Forecasting is always for the independent item

←

Forecasting Techniques:  Qualitative

o Good for long-term planning o Very subjective o More popular among companies o Ex: IBM, Blackberry – both go from the top to the bottom of the chain because they couldn’t predict future demand and couldn’t see past their current success 

Quantitative

o Time series data 

Assumptions:  1. What happened in the past will happen in the future

 2. That past information is available  3. Patterns of demand should be an element of the forecast o Moving average – take a certain number of time periods in the past, take an average of them, and from that predict what will happen in the future o Exponential smoothing = forecasted demand + a (actual – forecasted)   ←

a = smoothing constant Use lower a for stable/continuous demand

 Use higher a for changing demand (trend fluctuations) Forecasting Principles:

1. Always wrong – never the same as actual demand 2. Must include an estimate of error 3. More accurate for product groups o Family of the product (ex: all of Pepsi products is more accurate than forecasting for cans vs. 2L vs. 1L. etc) Demand Patterns:   



Trend

o Easiest forecast to make 

Seasonal

o Predictable o Ex: reading week flight prices increase 

Cyclical

o Things that happen in wave like formats o Ex: demand during a recession 

Fluctuate from low inventory  high inventory  low inventory, etc

Random o Forest fires, tsunamis, earthquakes, etc o Random demand – cannot predict anything o Ex: alcohol brands demand rising during recession because everyone was sad (couldn’t have predicted this) Stable Versus Dynamic Demand: 



Stable = consistent o Called a functional product o Ex: Campbell’s soup



Dynamic = fluctuate o Called an innovative product o Ex: technology – when a new product is introduced, no one knows what demand will be like



Mitigating forecast errors – collaborative planning, forecasting, and replenishment o 1. Customer’s production schedule and future demand requirements are shared  Big problem is people don’t trust each other o 2. Inventory strategies are mutually agreed upon o 3. Complete transparency 

Everyone knows what’s going on – no secrets, no waiting

 Share software to see what’s happening online o 4. Customer/supplier objectives are the same o 5. Based on high levels of trust o 6. Companies become strategically aligned 

Going to do this for the loyal customers who are worth it

← ←

Aggregate Production Planning:



Concerned with planning overall production of all products combined over a planning horizon (6 months to a year) for a given (forecast) demand schedule o Called an aggregate plan rather than production plan because it takes everything into consideration (looking at it as a complete whole) o “Overall production of all production combined” – ex: tones of steel, liters of paint, etc) o Every month it is looked at and another month is added to the end o We want to take forecasted demand and determine our



 

Capacity (short-term) – workforce allocation, machine allocation Costs – every decision we make has a cost associated to it



Commitment – everybody in the planning process needs to be committed to what they are going to do

Planning horizon: o Long-term  strategic o Short-term  day-to-day



Business plan Aggregate plan o Finances o Sales and marketing o Operations o Purchasing – critical: actually able to tell you what you can do o Engineering (new products)

←

Options to Meeting Fluctuating Demand:  Level production strategy: o “Every month I am going to make the same amount based on an average” o Advantages: 

No fluctuations in labour and capacity costs

 Lower production cost per item because we can plan o Disadvantages:  

Excess/short inventory  Excess inventory isn’t as bad if carrying costs are low Forecasts are always wrong

 

Tolerate backorders/lost sale

Chase production strategy: o “Chasing the demand” – every month we are going to make exactly what it says were doing 

Results in hiring and firing

 Can implement over and under time based on demand o Advantages: 

Stable inventory

 Good for environments where demand fluctuates o Disadvantages:   ←

Cost of human resources Employee moral

 Availability of skilled employees Level or Chase Strategy?:

←



Production mix predictability: o High – predictable: functional product o Low – unpredictable: innovative product



Each option involves costs (qualitative and quantitative)

 

Aim is to choose optimum strategy Looking for optimal combination of the following three criteria to choose a production planning strategy: o 1. Production rate o 2. Workforce (# of people) o 3. Inventory dollars (unused inventory that we are sitting on)

←

Kinds of Costs Involved:  Production costs – labour, overtime, set-ups  

Procurement costs – economies of scale, receiving goods into warehouse Inventory holding costs – how much is it costing to sit on these goods?

←



Back orders and lost sales – how do you calculate how much is costs to expedite to a customer, lose a sale, etc



Costs of hiring and firing

Example of How an Aggregate Production Planning Schedule:  Neither of these are optimal



o Care about the cumulative amount of products we are making



o Cumulative forecast for 3 months added and divided by three for an average inventory for 3 month periods Company Policy: 

1. Are shortages okay? o If someone doesn’t get the product, will they come back and get it



2. Are we going to be doing subcontracting? o Outsourcing



3. What is our maximum overtime? o Maximum we are going to have our employees work



4. Inventory policy o How long are we allowing ourselves to sit on inventory? How are we going to store it?



5. Are the people available? o Are there always going to be the people there to make the product we want? Are there always going to be people there to save us in times of need?

← ←

Materials Requirement Planning:

←

Master Production Schedule:

←

←

Goals:  1. Manage resources o How are you going to manage employees and equipment 

2. Inventory o Match projected inventory in aggregate plan



3. Customer service levels



“On these dates, were going to make this many products”

←

←

Formula:  For level and chase strategies  Ending Projected Available ...