Study guide for Exam, Supply Chain Management - Operations Management | MGT 301 | Study notes Production and Operations Management

Chapter 4: Supply Chain Management

Definition of Supply Chain Management

Supply chain management is defined as the way a firm works with its suppliers so that they

provide it with high quality materials, components, and services that are competitively priced.

Supply chain management emphasizes the integration both among the functional areas

within an organization as well as among the independent members of the supply chain.

Inbound logistics: the issues associated with the delivery of products to the firm.

Outbound logistics: the issues associated with the delivery of products to the firm’s customers

and/or distributors.

A supply chain involves a group of organizations that perform the various processes that

are required to take raw materials and turn them into a finished product.

The evolution of Supply Chain Management

Previously, management theory suggested that overall efficiency of the technical core

or production function could be significantly improved if the core could be isolated or

buffered to the greatest extent possible from an often erratic and uncertain external

environment.

Today, companies are working more closely with their suppliers so that they can be

more responsive to the changing needs of their customers.

Just in time (JIT) concept: inventory strategy that reduces inventory costs by eliminating on

hand inventory and having raw materials arrive as needed.

Choosing a Successful Supply Chain Strategy

Companies must carefully plan their capacity and demand forecasting in order to avoid

the bullwhip effect.

Functional products: commodity type products with stable demand and low profit margins.

Innovative products: have an inherent high degree of innovation. Also has unstable

demand and high profit margins.

A product with a stable supply process can be produced in a predictable way whereas the

opposite is true for product with an evolving supply process.

Efficient supply chains are appropriate for functional products with stable supply processes.

Supply chain strategy should then focus on cost reduction. Products typically exist in a

competitive environment where a low cost competitive strategy dominates.

Risk hedging supply chains are most appropriate for functional products with unstable

supply processes. Focus of the supply chain should be ensuring product availability.

Responsive supply chains are appropriate for innovative products with stable supply

processes. Must be flexible to react to changing demands of the market.

Agile supply chains are well suited for innovative products with evolving supply processes.

Must be agile with respect to both ends of the supply chain (both demand and supply side).

The Bullwhip Effect

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Chapter 4: Supply Chain Management

Definition of Supply Chain Management

Supply chain management is defined as the way a firm works with its suppliers so that they

provide it with high quality materials, components, and services that are competitively priced.

 Supply chain management emphasizes the integration both among the functional areas

within an organization as well as among the independent members of the supply chain.

Inbound logistics: the issues associated with the delivery of products to the firm.

Outbound logistics: the issues associated with the delivery of products to the firm’s customers

and/or distributors.

 A supply chain involves a group of organizations that perform the various processes that

are required to take raw materials and turn them into a finished product.

The evolution of Supply Chain Management

 Previously, management theory suggested that overall efficiency of the technical core

or production function could be significantly improved if the core could be isolated or

buffered to the greatest extent possible from an often erratic and uncertain external

environment.

 Today, companies are working more closely with their suppliers so that they can be

more responsive to the changing needs of their customers.

Just in time (JIT) concept: inventory strategy that reduces inventory costs by eliminating on

hand inventory and having raw materials arrive as needed.

Choosing a Successful Supply Chain Strategy

 Companies must carefully plan their capacity and demand forecasting in order to avoid

the bullwhip effect.

Functional products: commodity type products with stable demand and low profit margins.

I nnovative products: have an inherent high degree of innovation. Also has unstable

demand and high profit margins.

 A product with a stable supply process can be produced in a predictable way whereas the

opposite is true for product with an evolving supply process.

 Efficient supply chains are appropriate for functional products with stable supply processes.

Supply chain strategy should then focus on cost reduction. Products typically exist in a

competitive environment where a low cost competitive strategy dominates.

 Risk hedging supply chains are most appropriate for functional products with unstable

supply processes. Focus of the supply chain should be ensuring product availability.

 Responsive supply chains are appropriate for innovative products with stable supply

processes. Must be flexible to react to changing demands of the market.

 Agile supply chains are well suited for innovative products with evolving supply processes.

Must be agile with respect to both ends of the supply chain (both demand and supply side).

The Bullwhip Effect

Bullwhip effect: amplified order variability as orders move upstream in the supply chain.

Causes of the Bullwhip effect

 Demand forecast updating: when each supply chain member develops its forecast

based only on the orders of its immediate customer, then higher order fluctuation are

typically observed as one moves up in the supply chain.

 Order Batching: supply chain members often elect to reduce fixed ordering costs and to

take advantage of transportation discounts by ordering in large batches, regardless of

actual demand.

 Price fluctuations: manufacturers that occasionally offer price discounts to distributors

encourage a “forward buy” behavior (similar to how customers buy more of a product

when it is on sale).

 Rationing and Shortage Gaming: when there is a supply shortage, retailers and

distributors often tend to exaggerate their orders to ensure that they will receive at

least some merchandise from the manufacturer. This behavior leads to multiple

problems because the manufacturer experiences unrealistic demand volumes and must

decide how to ration its limited supply of products among its customers.

Counteracting the Bullwhip Effect

 Share information across supply chain members (including POS data) to improve

accuracy of forecasts.

 Reduce the time and cost of placing an order, thus encouraging smaller order

batches.

 Allow vendors to manage their inventories.

 Manufacturer can stabilize prices by instituting an everyday low price strategy thus

eliminating forward buying behavior.

Current Trends in Supply Chain Management

Reduced Number of Suppliers

 As part of their supply chain programs, companies have significantly reduced the

number of vendors they buy from.

Increase in Competition

 The emergence of a global economy has dramatically increased the number of

competitors that offer similar products.

Shorter Product Life Cycles

 Product life cycles continue to shorten as competition introduces new products. As a

result, companies need to have flexible processes that can be converted easily to new

product requirements.

Increase in Supplier-Managed Inventories (SMI)

 In order to decrease purchasing costs and record-keeping costs, many firms now use a

concept known as supplier managed inventories for many of their low-cost components

 Long-Term Relationships: evergreen contracts are established which means that

contracts are automatically renewed as long as the vendors perform as agreed.

 Information Sharing: includes everything from new product design specifications to

capacity planning and scheduling, and even access to a customer’s entire database.

 Individual Strengths of Organizations: each vendor should have some unique

operational or engineering strength with respect to the products it makes and delivers.

The Role of Logistics in the Supply Chain

 Globalization has caused the supply chain to become longer in terms of time and

distance.

 The lengthening runs counter to the firms need for flexibility to provide customers with

a wide variety of products that can be delivered quickly.

 Partnering: establishing a strategic alliance or partnership with a firm that specializes in

transportation or logistics.

 Disintermediation: refers to the growing trend of companies and organizations to try to

get closer to both suppliers and customers by eliminating many of the intermediate

steps that currently exist in the supply chain.

JIT II

 The objective of JIT II is for the vendor and the customer to work much closer together,

thereby eliminating many of the intermediate steps that now exist.

 Two elements for successfully implementing JIT II are A) the physical presence of the

vendor’s representative inside the customer’s manufacturing facility and at the same

time, B) the ability to provide the direct data linkage between the customer’s planning

function and the vendor’s manufacturing facility.

CHAPTER 9

-total quality management process focuses on improving product and service quality, on time delivery, and customer satisfaction -quality plays an important role in the success of both manufacturing and services -the level of quality in goods and services increases due to global competition and increasing knowledge of computers -quality and cost are closely related -the quality movement began in the 1920s when Walter Shewhart developed the concept of statistical process control for measuring and monitoring the quality of a process Quality Gurus: individuals who have been identified as making a significant contribution to improving the quality of goods and services

-Walter A. Shewhart studied industrial processes and developed a system that permitted workers to determine whether the variability of a process was truly random or due to assignable causes -he also developed the “plan-do-check-act” (PDCA) cycle to emphasize the need for continuous improvement (activities have identifiable beginning and end points) Statistical Process Control (SPC): methods, such as control charts, that signal shifts in a process that will likely lead to products and/or services not meeting customer requirements -W. Edwards Deming created SPC as his approach to quality -he went to Japan after World War II in 1947 and emphasized the importance of having an overall organizational approach for quality management -he disproved the fallacy that it costs more to make better quality products (he said that a high quality process is less costly than a low quality one because when products are made right the first time, savings occur) -see page 275 for his 14 points -Joseph M. Juran also visited Japan to assist in rebuilding its industrial base and emphasized the importance of producing quality products -he focused his efforts on teaching quality concepts and their application to the factory floor -his approach focused on quality planning, quality control, and quality improvement -fitness for use has five components (quality of design, quality of conformance, availability, safety, field use) -he divided the cost of quality into cost of prevention, cost of detection/appraisal, and cost of failure -Armand Feigenbaum proposed the idea of total quality control in 1956 where quality is the responsibility of everyone in the organization -he stressed interdependent mental communication and the power of the cost of quality framework was important -he emphasized careful measurement and reporting of quality costs and believed that the quality control engineer who would oversee cross functional elements was needed -Philip Crosby was an engineer and began his career in manufacturing and founded his own “Quality College” in Florida in 1979 -his philosophy stated that any organization can reduce its total overall costs by improving the quality of its processes (he preached that quality is free)

Tangibles (the physical aspects of a service, include appearances)
Responsiveness (the willingness of service providers both to help customers and to provide prompt service)
Assurance (the knowledge and courtesy of employees and their ability to convey trust and confidence)
Empathy (the ability to show caring, individualized attention to customers) -reliability is concerned with the service outcome and the other four dimensions are concerned with the service process -technical quality relates to the core element of the good or service -functional quality relates to the customers’ perception of how the service is delivered -the inability of most customers to properly assess technical quality makes functional quality all the more important -customers’ satisfaction with service is related to both their prior expectations about the service and their perception of how well the service was provided Satisfaction = (Perception of Performance) – (Expectation) -the two ways to increase satisfaction are by improving the customers’ perception of performance or to decrease their expectations Cost of Quality: framework for identifying quality components that are related to producing both high quality products and low quality products, with the goal of minimizing the total cost of quality -three major cost of quality categories are cost of prevention, cost of detection/appraisal, and cost of failure (internal failure costs and external failure costs) -the total cost of poor quality can range from 15 to 25% of the total cost of a product Cost of Prevention: costs associated with the development of programs to prevent defectives form occurring in the first place (training, qualified supply chain, procedures followed), this is the lowest cost Cost of Detection/Appraisal: costs associated with the test and inspection of subassemblies and products after they have been made Cost of Failure: costs associated with the failure of a defective product Internal Failure Costs: costs associated with the producing defective products that are identified prior to shipment

External Failure Costs: costs associated with producing defective products that are delivered to the customer (most costly) Quality Assurance: achieved through process management, prevent error by building quality into products Quality Control: inspecting quality in a product/part after the fact -when defective products or services are eliminated, there are more good units produced (capacity increases) and each unit produced costs less -there are two approaches to achieving total customer satisfaction:

Service Recovery (strong relationship between a customer’s intention to repurchase and a provider’s ability to resolve a customer’s problem on the spot)
Service Guarantees (must be unconditional, easy to understand and communicate, meaningful, easy and painless to invoke, and easy and quick to collect on) Christopher Hart suggested that guarantees for services can be powerful tools for obtaining feedback Total Quality Management: approach for integrating quality at all levels of an organization -two of the more successful quality initiatives that have been adopted by many firms are total quality management and Six Sigma -there are four elements for a successful TQM program:
Leadership (requires vision, planning, and communication, responsibility of top management)
Employee Involvement (management is able to receive inputs from those nearest to the problems)
Product/Process Excellence (involves the quality of the product’s design and analysis of field failures, process control is concerned with monitoring quality while the product is being produced or the service is being performed, continuous improvement)
Customer Focus (translating customer quality demands into specification requirements, design quality, conformance quality) Continuous Improvement: concept that recognized that quality improvement is a journey with no end and that there is a need for continually looking for new approaches for improving quality) -in Japanese companies, the concept of continuous improvement is referred to as kaizen

-during the 1980s and 1990s, organizations became more concerned about efficiently and effectively meeting the needs of their customers -in 1987, the International Organization for Standardization (ISO) published its first standards for quality management (ISO is headquartered in Geneva, Switzerland) ISO 9000 Series Quality Standards: international set of standards for documenting the processes that an organization uses to produce its goods and services -its purpose is to satisfy the customer organizations’ quality assurance requirements and to increase the level of confidence -the steps to obtain certification are as follows: submit an application to a registrar, have preliminary assessment, full audit is performed -ISO 9000 recognized processes, not products -the European Quality Award (EQA) is sponsored by the European Foundation for Quality Management (EFQM), and was founded in 1988 -its mission is to stimulate and assist organizations and to support the managers of European organizations in accelerating processes -developed a framework in the form of an “Excellence Model” with nine criteria (five of which are enablers, and four of which are results) -Japan initiated the Deming Prize in 1951 to recognize the importance of producing high quality products (three categories for it are individuals, application, and quality control award for operations/business units) Chapter 13 Planning activities

Long range planning- focuses on strategic issues relating to capacity, process selection and plant location o Begins with a statement of organizational objectives and goals for the next 2- years
Intermediate range planning- focuses on tactical issues pertaining to aggregate workforce and material requirements for the coming year o Aggregate production planning- process for determining most cost effective way to match supply and demand over the nest 12-18 months o Master production schedule (MPS)- short term schedule of specific end-product requirements for the next several quarters
Short range planning addresses day-to-day operational issues of scheduling workers on specific jobs at assigned work stations

Aggregate production planning

Production rate- capacity of output per unit of time
Workforce level-number of workers required to provide a specified level of production
Inventory on hand- the surplus of unit that results when production exceeds demand in a give time period
Backlog (stockout)- the deficit in units that results when demand exceeds the number of units produced in a given time period
Open order backlog- receiving an order in advance, and producing the orders over several months Production planning strategies
**Chase strategy- matching the production rate to meet the order rate by hiring and laying off employees as the order rate varies
**Stable workforce- varying the output by varying the number of hours worked though flexible work schedules of overtime
**Level strategy- maintain a stable workforce working at a constant output rate Relevant cost
Basic production cost
Cost associated with changes in the production rate EX| hiring, training, firing personnel
Inventory holding cost
Backlog (stockout) cost KNOW THE PROBLEM!!!!! Chapter 14 Definition of Inventory  Raw Material – Vendor supplied items that have not had any labor added.  Finished goods- Completed products still in the possession of the firm.  Work in Process (WIP)- Items that have been partially processed but are still incomplete. Reasons for Maintaining Inventory  To protect against uncertainty o 3 types of uncertainty  Lead time can vary due to unexpected delays and amount of material received can vary due to supplier issues.  Uncertainty in the transformation process.  Uncertainty about the demand for a firms finished goods.  To support a strategic plan  To take advantage of economies of scale. Inventory Costs  Holding or carrying costs o 3 components  Storage costs  Capital costs  Obsolescence/ shrinkage

Plan capacity to load the production systems a. Plan for a complete work load for both machines and workers b. Plan an accurate load- make only what is needed c. Plan for an adequate time to view future loads Real-time-finite capacity scheduling systems- He mentioned this in class -it’s a part of an ERP system *its cheap, quick set-up, effective system for scheduling Theme of MRP: “getting the right materials to the right place at the right time Objective of inventory management under an MRP system are to improve customer service, minimize inventory investment, and maximize production operating efficiency Philosophy of MRP: materials should be hurried when their lack would delay the overall production schedule and delayed when the schedule falls behind and postpones their needs Benefits of MRP:
Lowering selling price due to increased scheduling efficiency
Lower inventory levels due to more accurate record keeping
Improved customer service because products are made and delivered as needed
Faster response to market demand outside of the time fences
Increased flexibility to change the master schedule outside of the time fences
Reduced idle time due to more efficient shop floor loading Look at P. 559 (546) at the MRP system structure Bill of Materials File (BOM)- a list of subassemblies, components, and raw materials, and their respected quantities, required to produce a given # of a unique or specified end item *BOM is a “parts list” *Each unique product has a separate BOM, even if only the color is different BOM is also known as the product structure or product tree file because it shows how a product is assembled, Kind of like a recipe Inventory Records File- computerized record-keeping system for the inventory status of all sub- assemblies, components, and raw materials. Each item in inventory is carried as a separate file, and the range of details carried about each item is limitless MRP 2 system- new and improved MRP system. In takes into consideration the equipment capacities and other resources that are associated with a manufacturing facility

Study guide for Exam, Supply Chain Management - Operations Management | MGT 301, Study notes of Production and Operations Management

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Download Study guide for Exam, Supply Chain Management - Operations Management | MGT 301 and more Study notes Production and Operations Management in PDF only on Docsity!

Chapter 4: Supply Chain Management

Definition of Supply Chain Management

Supply chain management is defined as the way a firm works with its suppliers so that they

provide it with high quality materials, components, and services that are competitively priced.

 Supply chain management emphasizes the integration both among the functional areas

within an organization as well as among the independent members of the supply chain.

Inbound logistics: the issues associated with the delivery of products to the firm.

Outbound logistics: the issues associated with the delivery of products to the firm’s customers

and/or distributors.

 A supply chain involves a group of organizations that perform the various processes that

are required to take raw materials and turn them into a finished product.

The evolution of Supply Chain Management

 Previously, management theory suggested that overall efficiency of the technical core

or production function could be significantly improved if the core could be isolated or

buffered to the greatest extent possible from an often erratic and uncertain external

environment.

 Today, companies are working more closely with their suppliers so that they can be

more responsive to the changing needs of their customers.

Just in time (JIT) concept: inventory strategy that reduces inventory costs by eliminating on

hand inventory and having raw materials arrive as needed.

Choosing a Successful Supply Chain Strategy

 Companies must carefully plan their capacity and demand forecasting in order to avoid

the bullwhip effect.

Functional products: commodity type products with stable demand and low profit margins.

I nnovative products: have an inherent high degree of innovation. Also has unstable

demand and high profit margins.

 A product with a stable supply process can be produced in a predictable way whereas the

opposite is true for product with an evolving supply process.

 Efficient supply chains are appropriate for functional products with stable supply processes.

Supply chain strategy should then focus on cost reduction. Products typically exist in a

competitive environment where a low cost competitive strategy dominates.

 Risk hedging supply chains are most appropriate for functional products with unstable

supply processes. Focus of the supply chain should be ensuring product availability.

 Responsive supply chains are appropriate for innovative products with stable supply

processes. Must be flexible to react to changing demands of the market.

 Agile supply chains are well suited for innovative products with evolving supply processes.

Must be agile with respect to both ends of the supply chain (both demand and supply side).

The Bullwhip Effect

Bullwhip effect: amplified order variability as orders move upstream in the supply chain.

Causes of the Bullwhip effect

 Demand forecast updating: when each supply chain member develops its forecast

based only on the orders of its immediate customer, then higher order fluctuation are

typically observed as one moves up in the supply chain.

 Order Batching: supply chain members often elect to reduce fixed ordering costs and to

take advantage of transportation discounts by ordering in large batches, regardless of

actual demand.

 Price fluctuations: manufacturers that occasionally offer price discounts to distributors

encourage a “forward buy” behavior (similar to how customers buy more of a product

when it is on sale).

 Rationing and Shortage Gaming: when there is a supply shortage, retailers and

distributors often tend to exaggerate their orders to ensure that they will receive at

least some merchandise from the manufacturer. This behavior leads to multiple

problems because the manufacturer experiences unrealistic demand volumes and must

decide how to ration its limited supply of products among its customers.

Counteracting the Bullwhip Effect

 Share information across supply chain members (including POS data) to improve

accuracy of forecasts.

 Reduce the time and cost of placing an order, thus encouraging smaller order

batches.

 Allow vendors to manage their inventories.

 Manufacturer can stabilize prices by instituting an everyday low price strategy thus

eliminating forward buying behavior.

Current Trends in Supply Chain Management

Reduced Number of Suppliers

 As part of their supply chain programs, companies have significantly reduced the

number of vendors they buy from.

Increase in Competition

 The emergence of a global economy has dramatically increased the number of

competitors that offer similar products.

Shorter Product Life Cycles

 Product life cycles continue to shorten as competition introduces new products. As a

result, companies need to have flexible processes that can be converted easily to new

product requirements.

Increase in Supplier-Managed Inventories (SMI)

 In order to decrease purchasing costs and record-keeping costs, many firms now use a

concept known as supplier managed inventories for many of their low-cost components