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Logistics

19.04.18

What do Operations Managers DO? -

Production system: = system that transforms inputs into outputs of greater value to the customer Transformation process: = series of activities along a value chain, from supplier to customer which deliver a G/S to the customer Topics of operations management: design + management and improvement of the production

History of Operations Management

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Operations management is a discipline that was born at the end of the 19th century, Ford company was the first example of organization of activities. Large volumes required by Ford required activities to be organized as the environment was difficult as everything was new. The problem was solved by Ford and Taylor à they had to divide the total production of cars into many steps so that the individual worker is responsible for one activity only and can specialize in it, even if initially they were unskilled 2 principles: standardization and specialization

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During the 20’s service companies was carried out à = insurance companies It was a failure à difficult to standardize a service which isn’t repetitive In the 70’s new application to service company à Mc Donald à this turned out to be effective

Origin of the discipline

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The Output of a Production System -

Application to service industry must be careful: there are structural differences between physical products and services which can have serious implications Products Services Tangible Intangible Minimal contact with the customer Extensive contact with the customer (Especially for commodities there’s no contact) Minimal participation by customer in the delivery Extensive participation by customer in the delivery (ex. no interaction between me and Barilla) Delayed consumption Immediate consumption (There can be a long-time lag between production of product and its consumption ex. Barilla) Equipment -intense production Labor-intense production Quality easily measured Quality difficult to be measured The Range from Services to Products -

It’s important to talk about operation management in services, because when buying you don’t just buy a product or a service à that there can be many intermediate services (ex. auto repair) Technological innovation is enabling the process of servitization Servitization: consists of enriching the product offering with value added services (ex. maintenance of capital equipment) These systems are also called product-service systems

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It’s possible for physical products to be replaced by the offering of a service à from the ownership of the product to selling its availability through a leasing solution)

The Operations Department in the Organization -

Under a traditional functional organizationà the operations (production or plant) manager, marketing & sales and finance manager can be found just under the CEO

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Under a traditional functional organization based on the value chain approach à more specialized

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Inbound logistics: deals with the relationship of the company with suppliers Operations manager: in charge of managing the internal production process Outbound logistics: is the area that concerns the management of material flow from the company to the customer (= transportation). (Logistics in real life usually refers to outbound logistics)

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The issue of coordination was highlighted in the 90’s, companies decided to focus on managing processes which are inter-functional, rather than on single products Sales forecast must be accurate otherwise production process will be affected Stock out problem: less stock than what is actually required To overcome problems related to stock levels à introduce the figure of the supply chain manager Supply chain manager: responsible for the coordination of the three industrial areas

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Under a process-centered structure à just under the CEO you can have process owners divided into two: supply chain manager and customer process. This implies high level of specialization

Production Typologies -

Production system typologies are based on 3 dimensions:

1. Production planning: how much to produce and when to produce it On the basis of this typologies we can have 3 items -

a. Sales catalogue items or Made to stock Production of standard products on the basis of sales forecast b. Customer specific design to repeat orders or Made to order Standard product that isn’t in stock but is produced for you c. Unique customer specific design or Engineer to order Tailored item which will be produced for the individual only, highest degree of customization.

2. Nature of the production flow a. One-piece flow - Every piece coming out of the system is different one from another (ex. artisans). Also possible in companies producing large volumes such as automotive companies. b. Lot/Bach flow - The alternation of production of different products (ex. small jar candles and large jar candles) c. Continuous flow - Situation in which the product released by the system is always assembled à there’s no variation - Example: Ferrero’s department of Nutella cream 3. Nature of the transformation activity: how is the product physically produced a. Process products

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You cannot disassemble product or go back to the direct material Discrete products Those products that can be disassembled into the original parts Example: Cars

Production System Design: The Levers -

There are several decisions/ choices that must be taken when designing plants

A. Hardware Choices i. Location à where to establish the factory ii. Vertical integration/ outsourcing iii. Automation/ technology à the same activity can be automated or by workers iv. Production capacity B. Software Choices à managerial aspects, you have the plant now you must make it work - Production planning and control - Stock management - Quality management Production System Design: The Resource Based View -

First you must identify the core capabilities à secondly you must develop a competitive strategy Competitive strategy: the way in which core capabilities can be transformed into competitive advantage

Production System Design and Manufacturing Performance § § -

Manufacturing Performances Cost à competing with the lowest possible prices, minimizing costs, could also negatively affect other dimensions Quality Time à speed and dependability (on time) Flexibility Each market can have specific: Order qualifiers: they’re performance attributes required for the product to be considered by the client. They’re prerequisite for entering the business. Order winners: they’re performances thanks to which the company will win the bid (ex. cost). On the basis of this outcome we can understand were to focus our attention, keeping always into consideration the existence of trade-offs.

Production System Design: The Focused approach Strategic alignment: principle of consistency amongst these three building blocks Functional strategy: how every function of a factory can be managed to reach the strategic objective

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Zara Case Study -

Demand: 1200 pieces Inventory 1000 pieces 𝐼𝑛𝑣𝑒𝑛𝑡𝑖𝑟𝑦)𝑇𝑢𝑟𝑛𝑠 =

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𝐷𝑒𝑚𝑎𝑛𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)𝑙𝑒𝑣𝑒𝑙

You can satisfy demand with a rather low inventory level The goal for every factory is to increase inventory turns à higher inventory turn = lower inventory level Zara is able to produce higher volumes of make-to-order à it’s better as it’s less costly and likely to be wrong about a trend etc. Flexible manufacturing system (FMS): form of highly flexible automation Not only quantitative info (cashier) but also qualitative à if you don’t find your size or colour you want, the shop assistants record that info and send it to the headquarters à this allows them to not lose info due to a missed sale If you only record quantitative data à you just have sales data

Competitive Strategy -

Is based on providing up-to-date apparel that is fashionable at the moment a. Market sensing à = understand the market Directly operated stores (DOS) à data collection is given directly to the manufacturer Feedback collection: downstream vertical integration, IT + trained staff to collect both quantitative and qualitative data à = direct approach with customers b. Fast production à capability to deliver a product in one week

Functional objectives -

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a. Flexibility à adapt to changes required by the market Excess capacity: volume can vary on a weekly basis, internalize production (opposite of competitors) à HARDWARE Flexible manufacturing system (FMS): automation that is flexible, high investment in the beginning, also if it isn’t cost effective, but higher flexibility à HARDWARE Raw materials: Zara buys fabric that is raw = no color à by buying colored fabric they’re anticipating a trend, but their business model aims at postponing decisions à SOFTWARE b. Speed Location of factories: costly to have them in Europe but aligned with their strategy à HARDWARE Vertical integration: opposite of outsourcing à no waste of time transportation wiseà HARDWARE Transportation: trucks is Europe are costly but high speedà SOFTWARE...