1. MBA 8503: Operations and Supply Chain Management
Matthew J. Liberatore
Spring 2011
Welcome!

2. Introduction to Operations and Supply Chain Management
Class 1: 1/12/11

3. What is Operations and Supply Chain Management?
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What is Operations and Supply Chain Management?
Operations and Supply Chain Management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services

4. Operations and Supply Chain Management Supply Chain Processes
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Operations and Supply Chain Management
Supply Chain Processes
Manufacturing
Processes
Sourcing
Processes
Distribution
Processes
Logistics
Processes
Logistics
Processes
Service
Processes

5. Introduction to Operations Management

6. Kmart Versus Wal-Mart Both chains started in 1962
In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198.
Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion
By 1991, Wal-Mart’s sales exceeded Kmarts
Kmart still had more stores

7. Kmart Versus Wal-Mart continued
In year ending January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s $34.6 billion.
During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns).
Wal-Mart was investing millions in its operations to lower cost.

8. Kmart Versus Wal-Mart continued
Wal-Mart developed sophisticated distribution system that integrated its computer system with its distribution system.
Kmart’s employees lacked skills needed to plan and control inventory.

9. Importance of Operations
Improvements in operations can simultaneously lower costs and improve customer satisfaction.
Improving operations often dependent on advances in technology.
Can obtain competitive advantage by improving operations.

10. Heart of every organization Operations are the tasks that create value
Operations management uses resources to transform inputs into desired outputs

11. The Production System

12. Systems Perspective Inputs Transformation System Outputs Environment
Alter
Transport
Store
Inspect
Outputs
Environment

13. Automobile Factory Primary Inputs Resources
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Automobile Factory
Primary Inputs
Sheet steel, engine parts
Resources
Tools, equipment, workers
Primary Transformation Function
Fabrication and assembly of cars
Desired Output
High quality cars

14. Hospital Primary Inputs Resources Primary Transformation Function
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Hospital
Primary Inputs
Patients
Resources
MDs, nurses, drugs, equipment
Primary Transformation Function
Health care (diagnosis and treatment)
Primary Output
Healthy individuals

15. Characteristics of Products and Services

16. Facilitating Good Concept
Often confusion in trying to classify organization as manufacturer or service
Facilitating good concept avoids this ambiguity
All organizations defined as service
The tangible part of the service is defined as facilitating good
Pure Services

17. The Range From Services to Products

18. Introduction to Supply Chain Management

19. What Is a Supply Chain? Flow of products and services from:
Raw materials manufacturers
Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers
Connected by transportation and storage activities
Integrated through information, planning, and integration activities
Cost and service levels

20. What Is Supply Chain Management?
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

21. Two Other Formal Definitions
The design and management of seamless, value- added process across organizational boundaries to meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer
The Supply Chain Council

22. PC Industry Supply Chain
Tracing back the screen you stare at for the bulk of your time.

23. Cisco’s Value Network

24. Reuse/Maintenance/After Sales Service Flow
SCM Definition
Source
Supplier
Distributor
Retailer
End-User
Converter
Consumers
Information Flow
Funds/Demand Flow
Value-Added Services
Material Flow
Reuse/Maintenance/After Sales Service Flow

25. The SCM Network
FIGURE 1 The logistics network

26. Key Observations
Every facility that impacts costs need to be considered
Suppliers’ suppliers
Customers’ customers
Efficiency and cost-effectiveness throughout the system is required
System level approach
Multiple levels of activities
Strategic – Tactical – Operational

27. Other Related Observations
Supply chain strategy linked to the Development Chain
Challenging to minimize system costs and maximize system service levels
Inherent presence of uncertainty and risk

28. The Development Chain
Set of activities and processes associated with new product introduction. Includes:
product design phase
associated capabilities and knowledge
sourcing decisions
production plans

29. The Development Chain
Figure 2 The enterprise development and supply chain

30. Global Optimization Geographically dispersed complex network
Conflicting objectives of different facilities
Dynamic system
Variations over time
Matching demand-supply difficult
Different levels of inventory and backorders
Recent developments have increased risks
Lean production/Off-shoring/Outsourcing

31. Global Apparel Value Chain Tracing back the dress you are wearing

33. An Illustration: How Li & Fung Limited Might Make a Dress
Globally Dispersed Manufacturing
An Illustration: How Li & Fung Limited Might Make a Dress
QC & Shipping
[Hong Kong]
Product Design
Zippers+…
[Japan+…]
Stitching
[Indonesia]
Weaving
[Taiwan]
Yarn Spinning
[Korea]

34. Matching Supply and Demand a Major Challenge
REASONS
EXAMPLES
Raw material shortages
Internal and supplier parts shortages
Productivity inefficiencies
Boeing Aircraft’s inventory write-down of $2.6 billion
Sales and earnings shortfall
Larger than anticipated inventories
Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million
Stiff competition
General slowdown in the PC market
Intel reported a 38 percent decline in quarterly profit
Higher than expected orders for new products over existing products
EMC Corp. missed its revenue guidance of $2.66 billion for the second quarter of 2006 by around $100 million

35. Uncertainty and Risk Factors
Forecasting is not a solution
Demand is not the only source of uncertainty
Recent trends make things more uncertain
Lean manufacturing
Outsourcing
Off-shoring

36. Uncertainty and Risk Factors
August 2005 – Hurricane Katrina
P&G coffee supplies from sites around New Orleans
Six month impact
2002 West Coast port strike
Losses of $1B/day
Store stock-outs, factory shutdowns
1999 Taiwan earthquake
Supply interruptions of HP, Dell
2001 India (Gujarat state) earthquake
Supply interruptions for apparel manufacturers

37. Evolution of Supply Chain Management
Beyond
Traditional Mass Manufacturing
Inventory Management/Cost
Optimization
JIT, TQM, BPR,
Alliances
SCM Formation/
Extensions
Further Refinement of
SCM Capabilities

38. Progression of Logistics Costs
FIGURE 1-4: Logistics costs’ share of the U.S. economy

39. Logistics Costs Trends
After rising over 50 percent in the five years leading up to the recession, total logistics costs have fallen the past two years.
Logistics costs in 2009 were equal to about $1.1 trillion – a drop of $244 billion (or 18.2) over 2008

40. Composition of Logistics Costs
Transportation costs were down more than 20 percent last year
Transportation costs now account for 4.9 percent of GDP, well below the 6 percent share in 2008.
Carrying costs accounted for 2.5 percent of GDP in 2009, down from 2.9 percent in 2008 and well off the 8.3 percent of GDP in 1981

41. Complexity: The Magnitude
The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies
A typical box of cereal spends 104 days getting from factory to supermarket.
A typical new car spends 15 days traveling from the factory to the dealership.

42. Complexity: The Magnitude
Compaq computer’s loss of $500 million to $1 billion in sales in one year
Laptops and desktops were not available when and where customers were ready to buy them
Boeing’s forced announcement of write-downs of $2.6b
Raw material shortages, internal and supplier parts shortages….
Cisco’s multi-billion ($2.2b) dollar write-off of inventories in
Customers balked on orders due to market meltdown

43. Transactional Complexity
National Semiconductors:
Production:
Produces chips in six different locations: four in the US, one in Britain and one in Israel
Chips are shipped to seven assembly locations in Southeast Asia.
Distribution
The final product is shipped to hundreds of facilities all over the world
20,000 different routes
12 different airlines are involved
95% of the products are delivered within 45 days
5% are delivered within 90 days.

44. Magnitude of Supply Chain Costs Cost Elements of a Typical Trade Book

45. Magnitude of Supply Chain Costs Example: The Apparel Industry
Manufacturer
Distributor
Retailer
Customer
Cost per Percent
Shirt Saving
$ %
$ %
$ %

46. Supply Chain: The Potential
P&G’s estimated savings to retail customers of $65 million through logistics gains
Dell Computer’s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using:
Direct business model
Build-to-order strategy
Wal-Mart transformation into the world’s largest retailer by changing its logistics system:
highest sales per square foot, inventory turnover and operating profit of any discount retailer

47. KAPLAN AND NORTON’S (2006) OPERATION S STRATEGY AND THE BALANCED SCORECARD

48. Kaplan and Norton’s (2006) strategy map templates