Operation Management

The strategies in which service and manufacturing organizations are engage in are part of
the Operations Management (OM) activities.

The course will empower you with skills to address important aspects of business operations including
capacity, productivity, quality, and supply chain.

Intro: Operation Management

The business function responsible for planning, coordinating, and controlling the resources needed to
produce products and services for a company

What is Role of OM?

OM Transforms inputs to outputs

 Inputs are resources such as

• People, Material, and Money

 Outputs are goods and services

OM’s Transformation Role

 To add value

Increase product value at each stage

 Provide an efficient transformation

Efficiency – means performing activities well for least possible cost

Examples of Various Operations

Operations Examples

Goods Producing Farming, Mining, Construction Manufacturing, Power Generation.

Storage/Transportation Warehousing, Trucking, Mail Service, moving, Taxes, Busses, Airlines

Exchange Retailing, whole selling, Banking Renting, Leasing, and Library Loans

Entertainment Film Radio Television concert recording

Communication Newspaper radio television newscasts telephone satellites

 Operation Management- Productivity

Productivity is defined as the efficient use of resources, labour, capital, land, materials, energy,
information, in the production of various goods and services.

Higher productivity means accomplishing more with the same amount of resources or achieving higher
output in terms of volume and quality from the same input.

• Very broadly productivity captures our ability to transform our physical and human resources to
generate the desired outputs.

• It is important to note that productivity improvement or the effective use of available resources
is the only way for future development in the society.

This is usually expressed as output/ Input = productivity.

Competitiveness

Possession of a strong desire to be more successful than others.

An example of competitive is a student who wants to be number one in his/her class.

Competitiveness in business

For the company, competitiveness is the ability to provide products and services as or more effectively
and efficiently than the relevant competitors

Strategy

A plan of action designed to achieve a long-term or overall Goal.

The art and science of planning and marshalling resources for their most efficient and effective use. The
term is derived from the Greek word for general ship or leading an army

Operation Management – Strategy

• A method or plan chosen to bring about a desired future, such as achievement of a goal or
solution to a problem by adding value thru certain operations.

The Role of Operations Strategy

 Provide a plan that makes best use of resources which;

 Specifies the policies and plans for using organizational resources

Importance of Operations Strategy

 Companies often do not understand the differences between operational efficiency and
strategy
 a) Operational efficiency is performing tasks well, even better than competitors

b) Strategy is a plan for competing in the marketplace

 Operations strategy is to ensure all tasks performed are the right tasks

Developing a Business Strategy

 A business strategy is developed after taking into many factors and following some strategic
decisions such as;

a) What business is the company in (mission)

b) Analyzing and understanding the market (environmental scanning)

c) Identifying the company’s strengths (core competencies)

Examples from Strategies

 Mission: Dell Computer- “to be the most successful computer company in the world”

 Environmental Scanning: political trends, social trends, economic trends, market place trends,
global trends

 Core Competencies: strength of workers, modern facilities, market understanding, best

technologies, financial know-how, logistics

Developing an Operations Strategy

 Operations Strategy is a plan for the design and management of operations functions

 Operation Strategy developed after the business strategy

 Operations Strategy focuses on specific capabilities which give it a competitive edge –

competitive priorities

Competitive Priorities- The Edge

 Four Important Operations Questions: Will you compete on –

Cost?

Quality?

Time?

Flexibility?

 All of the above? Some? Tradeoffs?

 Competing on Cost?

 Offering product at a low price relative to competition

 Typically high volume products

 Often limit product range & offer little customization

 May invest in automation to reduce unit costs

 Can use lower skill labor

 Low cost does not mean low quality

Competing on Quality?

1. Quality is often subjective

2. Quality is defined differently depending on who is defining it

3. Two major quality dimensions include

 High performance design:

 Superior features, high durability, & excellent customer service

 Product & service consistency:

 Meets design specifications

 Close tolerances

 Error free delivery

4. Quality needs to address

 Product design quality – product/service meets requirements

 Process quality – error free products

Competing on Time?

1. Time/speed one of most important competition priorities

2. First that can deliver often wins the race

3. Time related issues involve

 Rapid delivery:
  Focused on shorter time between order placement and delivery

 On-time delivery:

 Deliver product exactly when needed every time

Competing on Flexibility?

1. Company environment changes rapidly

2. Company must accommodate change by being flexible

 Product flexibility:

 Easily switch production from one item to another

 Easily customize product/service to meet specific requirements of a customer

 Volume flexibility:

 Ability to ramp production up and down to match market demands

Examples

 e.g. Southwest Airlines competes on (cost)

McDonald’s competes on consistency (Quality)

FedEx competes on speed (Time)

Custom tailors compete on (flexibility)

Strategic Role of Technology

 Technology has positive and negative potentials

 Positive

 Improve processes

 Maintain up-to-date standards

 Obtain competitive advantage

 Negative

 Costly

 Promotes dependency
Technology for Competitive Advantage

 Technology should

 Support competitive priorities

 Can require change to strategic plans

 Can require change to operations strategy

 Technology is an important strategic decision

Measuring Productivity

 Productivity is a measure of how efficiently inputs are converted to outputs

Productivity = output/input

 Total Productivity Measure:

Total Productivity = (total output)/(total of all inputs)

 Partial Productivity Measure:

Partial Productivity = (total output)/(single input)

 Multifactor Productivity Measure:

Multi-factor Productivity = (total output)/ (several inputs)

Interpreting Productivity Measures

 Raw productivity calculations do not tell the complete story unless there are no major structure
differences.

 Productivity measures must be compared to something, i.e. another year, a different company

Productivity and the Service Sector

 Measuring service sector productivity is a unique challenge

 Traditional measures focus on tangible outcomes

 Service industries primarily produce intangible outcomes

 Measuring intangibles is challenging

 Operations Strategy across the Organization

 Business strategy defines long-term plan

 Operations strategy support the business strategy

 Marketing strategy needs to fully understand operations capability

 Financial plans in effect support operations activities.

Review of Learning Objectives

 Define the role of Business Strategy

 Explain how a Business strategy is developed

 Explain the role of Operations Strategy in the organization

 Explain the relationship between business strategy and operations strategy

 Describe how an operations strategy is developed

 Identify competitive priorities for of the operations function

 Explain the strategic role of technology

 Define productivity and identify productivity measures

 Compute productivity measures

Chapter 2 Highlights

 Business Strategy is a long range plan and vision. Each individual business function develop
needs to support the business strategy

 An organization develops its business strategy by doing environmental scanning and considering
its mission and its core competencies.

 The role of operations strategy is to provide a long-range plan for the use of the company’s
resources in producing the company’s primary goods and services.

 The role of business strategy is to serve as an overall guide for the development of the
organization’s operations strategy.

 The operations strategy focuses on developing specific capabilities called competitive priorities.

 There are four categories of competitive priorities: cost, quality, time, and flexibility
  Technology can be sued by companies to gain a competitive advantage and should be acquired
to support the company’s chosen competitive priorities

 Productivity is a measure that indicates how efficiently an organization is using its resources

 Productivity is computed as the ratio or organizational outputs divided by inputs

Example: Nestle

Brabeck (former chairman & CEO of Nestle) transformed Nestle from a set of far-flung operations into a
single global machine. He has inked a $200 million deal with SAP to link its five e-mail systems and
permit Nestlé’s headquarters in Vevey, Switzerland, to know for the first time how many raw materials
its subsidiaries buy, in total, from around the world. The company then will be able to negotiate better
contracts with suppliers and centralize production. Last year alone, Brabeck closed 38 different
factories. All told, he has slashed $1.6 billion in costs, without labor strife.

Product and Service Design

 Major factors in design strategy

 Cost

 Quality

 Time-to-market

 Customer satisfaction

Reasons for Product or Service Design

 Economic

 Social and demographic

 Political, liability, or legal

 External Competition

 Technological
Objectives of Product and Service Design

 Main focus

 Customer satisfaction

 Secondary focus

 Function of product/service

 Cost/profit

 Quality

 Appearance

 Ease of production/assembly

 Ease of maintenance/service

Legal, Ethical, and Environmental Issues

 Legal

 No legal violations

 Ethical

 Not to release products with defects

 Environmental

 Environmental friendly

Regulations & Legal Considerations

 Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty
product.

 Products carry an implication of fitness.

Designers Adhere to Guidelines

 Produce designs that are consistent with the goals of the company

 Give customers the value they expect

 Make health and safety a primary concern

 Consider potential harm to the environment

Other Issues in Product and Service Design

 Product/service life cycles

 How much standardization

 Product/service reliability

 Range of operating conditions

Example

Introduction Stage: 3D Television

Growth Stage: Blue Ray Player

Maturity: DVD Player

Decline: Video Recorders

Standardization

 Standardization

 Extent to which there is an absence of variety in a product, service or process

 Standardized products are immediately available to customers

Advantages of Standardization

 Fewer parts to deal within inventory & manufacturing

 Design costs are generally lower

 Reduced training costs and time

 More routine purchasing, handling, and inspection procedures

 Cost efficient

Disadvantages of Standardization

 High cost of design changes increases resistance to improvements.

 Decreased variety results in less consumer appeal.

Standardization Design Types

• Mass customization:

 A strategy of producing standardized goods or services, but incorporating some degree

of customization

Delayed Differentiation

• Delayed differentiation is a postponement tactic

 Producing but not quite completing a product or service until customer preferences or
specifications are known.

Example 01: Automotive

 Automobile manufacturers that mass produce base models and add minor customizations when
the car is actually ordered. In many cases, customizations such as audio systems may be
installed at the dealership.

Example 02: Fashion

 Clothing companies may produce certain items in white and not perform the final colouring
process until they know what colours are selling. Base items may be manufactured on a global
basis and colouring steps may occur at regional locations.

Modular Design

Modular design is a form of standardization in which component parts are subdivided into modules that
are easily replaced or interchanged. It allows:

Example: A computer is one of the best examples of modular design. Typical modules include power
supply units, processors, main boards, graphics cards, hard drives, and optical drives. All of these parts
should be easily interchangeable.

Benefits:

 easier diagnosis and remedy of failures

 easier repair and replacement

 Simplification of manufacturing and assembly

 Reliability/Failure

 Reliability: The ability of a product, part, or system to perform its intended function under a
prescribed set of conditions

 Failure: Situation in which a product, part, or system does not perform as intended or as per the
standard.

Phases in Product Development Process

1. Idea generation

2. Feasibility analysis

3. Product specifications

4. Process specifications

5. Prototype development

6. Design review

7. Market test

8. Product introduction

9. Follow-up evaluation

Reverse Engineering

Reverse engineering is the Dismantling and inspecting of a competitor’s product to discover product
improvements. It is basically the reproduction of another manufacturer's product following detailed
examination of its construction or composition.

Concurrent engineering
also known as simultaneous engineering is a method of designing and developing products, in which the
different stages run simultaneously, rather than consecutively.

It decreases:

 Product development time

 Fast delivery to market

 Leading to improved productivity and reduces costs.

Shorten Time to Market

1. Use standardized components

2. Use technology

3. Use concurrent engineering

Service Design

 Service is an act

 Service delivery system

 Facilities

 Processes

 Skills

 Many services are bundled with products

 Service

 Something that is done to or for a customer

 Service delivery system

 The facilities, processes, and skills needed to provide a service

 Product bundle

 The combination of goods and services provided to a customer

 Service package

 The physical resources needed to perform the service

Differences between Product and Service Design

 Tangible – intangible

 Services created and delivered at the same time

 Services cannot be inventoried

 Services highly visible to customers

 Services have low barrier to entry

 Characteristics of Well Designed Service Systems

1. Consistent with the organization mission

2. User friendly

3. Easy to sustain

4. Cost effective

5. Value to customers

6. Effective linkages between back operations

7. Ensure reliability and high quality

Challenges of Service Design

 Variable requirements

 Difficult to describe

 High customer contact

Chapter 4 - Process Selection

Concurrent Engineering

Old “over-the-wall” sequential products design process

 Each function did its work and passed it to the next function

Improved: Concurrent Engineering process

All functions form a design team that develops specifications, involves customers early, solves potential
problems, reduces costs, & shortens time to market

Benefit

This way, errors and redesigns can be discovered early in the design process when the project is still
flexible.
 The Product Design Process

Idea development: all products begin with an idea whether from:

 Customers

 Market

 Environmental factors

Reverse engineering: Analyzing competitor’s product

Product Design Process

 Idea development consider:

 Customer satisfaction

 Product quality

 Product cost

 Overall manufacturability – the ease with which the product can be made

The Product Design Process

Step 1 - Idea Development - customers, marketing, engineering, competitors, benchmarking, reverse

engineering

Step 2 - Product Screening - Every business needs a formal/structured evaluation process: fit with facility
and labor skills, size of market, contribution margin, break-even analysis, return on sales

Step 3 – Preliminary Design and Testing - Technical specifications are developed, prototypes built,
testing starts

Step 4 – Final Design - Final design based on test results, facility, equipment, material, & labor skills
defined, suppliers identified

Process Types

 Project process – make a one-at-a-time product exactly to customer specifications

E.g. Construction, some medical procedures, custom built home, and tailor made suit

 Batch process – small quantities of product in groups or batches based on customer

orders or specifications

E.g. Print shop, computers (Dell), and education classes

  Line process – large quantities of a standard product

E.g. Cars, scheme built houses

 Continuous process – very high volumes of a fully standard product, process types exist
on a continuum

 E.g.

 Oil refinery

 Water purification plant

 Liquid chemicals

Product Life Cycle also affects decisions

 Product life cycle – series of changing product demand

 Consider product Life cycle stages

 Introduction

 Growth

 Maturity

 Decline

Linking Product Design & Process Selection

 Type of product selected defines type of operation required

 Type of operation available defines broader organizational aspects such as

 Equipment required

 Service arrangement

 Organizational structure

 Labor required
 E-manufacturing

 Web-based environment creates numerous business opportunities to include;

 Product design collaboration

 Process design collaboration

 Computer-aided design – uses computer graphics to design new products

E.g.

Textile

Packaging

Cards, logos, symbols

Design of Services

 Service design is unique in that the service and entire service concept are being designed

 must define both the service and concept

Such as: promptness, friendliness, and ambiance

E.g. Hotels, Restaurants, Ice cream parlor, Hospitals, Hair salon, theater, Cyber cafe.

Product and service design must match the needs

And preferences of the targeted customer group

Designing Services vs Products?

 Services are different from manufacturing as they;

 Produce intangible products

 Involve a high degree of customer contact

 Whereas service is more about feeling the amenities.

Service Design Matrix

 Service Characteristics

 Pure services – Direct contact to customers

E.g. Restaurants, Hospitals, Schools

 Mixed services – Operations with direct contact

E.g. Offices, Banks, Insurance firms

 Service Characteristics

 Quasi Services – Low customer contact

E.g. Ware houses, Distribution centers, Environmental testing labs, Back office facilities

Chapter 5 : Design of Work Systems

Job Design/Work Design

Job design The job design specifies the contents and procedures of performing the task in the
organization..

 What will be done

 Who will do the job

 How the job will be done

Where the job will be done

Job Design Success

Successful Job Design brings:

1. Satisfaction

2. Motivation

3. Commitment

4. Loyalty

5. Reduces Employee Turnover

Design of Work Systems

1. Specialization

2. Behavioral Approaches to Job Design

3. Teams

4. Working conditions
 1. Specialization

a) The term specialization refers to work that concentrates on some aspect of a product or service.

b) Jobs that have a narrow scope

E.g. Medical specialties, Law program, MBA

2. Behavioral Approaches to Job Design

a) Job Enlargement

 Is an increase of tasks and responsibilities in the same job? It is a horizontal expansion.

 E.g. John creates financial statements for smaller companies now added some more
small companies in his checklist.

b) Job Enrichment

 Is a management concept that involves redesigning jobs so that they are more
challenging to the employee and have less repetitive work. It is a vertical expansion.

c) Job Rotation

 Workers periodically exchange jobs within same organization

 To get the more insights

 Succession planning

 To evade monotony

 To avoid tediousness and boredom

 To give comfort, peace, relief

3. Motivation and Trust

a) Motivation

 Influences quality and productivity

 Contributes to work environment

b) Trust

 Influences productivity and employee-management relations

 4. Teams

a) The teamwork includes increased efficiency, the ability to focus different minds on the same
agenda/problem and mutual support.

b) When a team is able to work well together they accomplish more than individuals can do alone

c) Benefits of teams

 Higher quality

 Higher productivity

5. Working Conditions

a) Working conditions are affected by factors including health and safety, security
and working hours.

b) Poor working conditions can damage your health and put your safety at risk.

c) Your employer is legally responsible for ensuring good working conditions, but you also have a
responsibility to work safely.

d) E.g. properly maintained equipment, tools, or machines.

Maintained working warning systems (such as fire alarms or even warning posters)

Ergonomics:

1. Ergonomics is the process of designing or arranging workplaces, products and systems so that
they fit the people who use them.

2. Ergonomics aims to improve workspaces and environments to minimise risk of injury or harm.

E.g. Chair need to be equal to the desk

Avoid upward slopping keyboard

Compensation

1. Time-based system

Time rates are used when employees are paid for the amount of time they spend at work.

For example: The usual form of time rate is the weekly wage or monthly salary.

2. Output-based system

Compensation based on the amount of output an employee produces during a pay period
  For example in the transformer making industry, the employer set to sell 15 transformer in a
month and if the employee sell only 10 transformers in a month then the employer rate the
performance below the expectations and pay compensation according to it. This compensation
system is also called as pay for performance (P4P) system

Form of Incentive Plan

1. Accurate

2. Easy to apply

3. Consistent

4. Easy to understand

5. Fair

CHAPTER 6: Management of Quality

Quality Management

 What does the term quality mean?

 Quality is the ability of a product or service to consistently meet or exceeded from customer’s
expectations.

Quality Assurance vs. Strategic Approach

1. Quality Assurance

 Emphasis on finding and correcting defects before reaching market

2. Strategic Approach

 Proactive, focusing on preventing mistakes from occurring

Dimensions of Quality

1. Aesthetics - appearance, feel, smell, taste

2. Special Features - extra characteristics

3. Conformance - how well product/service conforms to customer’s expectations

4. Reliability - consistency of performance

5. Durability (well lasting) - useful life of the product/service

6. Perceived Quality - indirect evaluation of quality (e.g. reputation)

7. Serviceability - service after sale

E.g. Hive’s USP: Indian Mobile brand - Hive offers 2 year manufacturer warranty, 1 year complimentary
insurance against damage, and complimentary.

Service Quality

1. Convenience

2. Reliability

3. Responsiveness

4. Time

5. Assurance

6. Courtesy

E.g. Courier service, online shopping, Cellular services, utility companies, hotels, hospitals etc.

Examples of Service Quality

Dimension Examples

Convenience Was the service center conveniently located?

Reliability Was the problem fixed?

Responsiveness Were customers service personnel willing and able to answer questions?

Time How long did the customer wait?

Assurance Did the customer service personnel seem knowledgeable about the repair?

Courtesy Were customer service personnel was friendly and courteous?

The Consequences of Poor Quality

1. The buyer will not buy the product again.

2. The buyer will not buy any other product from the company.

3. The buyer will tell their friends and relatives about their bad experience.
 The Consequences of Poor Quality

1. Loss of sale

2. Loss of profit

3. Loss of Productivity

Responsibility for Quality

1. Top management

2. Design

3. Procurement

4. Production/operations

5. Quality assurance

6. Packaging and shipping

7. Marketing and sales

8. Customer service

Total Quality Management

A philosophy that involves everyone in an organization in a continual effort to improve quality and
achieve customer satisfaction.

Philosophy that seeks to make never-ending improvements to the process of converting inputs into
outputs.

Example

 Tesco (Retail Industry): Tesco is one of the most successful retail supermarket chains in the UK
since 1920’s. It is listed among world’s largest companies in retail industry. The main focus in
quality assurance for the company is to provide customers with products and services that will
meet their needs as well as providing products and services that are free from defects.

 Apple (Focused on employees)

“Diversity is more than anyone gender, race or ethnicity. It’s richly representative of all people, all
backgrounds and all perspectives
 Elements of TQM

1. Continual improvement

2. Competitive benchmarking

3. Employee empowerment

4. Team approach

5. Decisions based on facts

6. Knowledge of tools

7. Quality of the source

8. Supplier quality

9. Timely delivery

Costs of Quality

1. Failure Costs - costs incurred by defective parts/products or faulty services.

2. Internal Failure Costs

 Costs incurred to fix problems that are detected before the product/service is delivered
to the customer.

3. External Failure Costs

 All costs incurred to fix problems that are detected after the product/service is delivered
to the customer.

4. Appraisal Costs

 Costs of activities designed to ensure quality or uncover defects

5. Prevention Costs

 All TQ training, TQ planning, process control, and quality improvement costs to prevent
defects from occurring
 Chapter 7 : Quality Control and Quality Assurance

Quality control

A system of maintaining standards in manufactured products by testing a sample of the output against
the specification.

OR

Quality control (QC) is a procedure or set of procedures intended to ensure that a manufactured
product or performed service adheres to a defined set of quality criteria or meets the requirements of
the client or customer.

Quality Assurance

The maintenance of a desired level of quality in a service or product, especially by means of attention to
every stage of the process of delivery or production.

Quality Control & Quality Assurance

QA vs. QC
END OF MIDTERM
 Chapter 8

Inventory Management

Inventory

Inventory is the raw materials, work-in-process products and finished goods that are considered
to be the portion of a business's assets that are ready or will be ready for sale

Inventory represents one of the most important assets of a business because the turnover of
inventory represents one of the primary sources of revenue generation and
subsequent earnings for the company's shareholders.

Inventory Management

Inventory management is all about having the right inventory at the right quantity, in the right
place, at the right time, and at the right cost.

In inventory management, goods are delivered into the receiving area of a warehouse in the
form of raw materials or components and after processing are put into stock areas or shelves.
Types of Inventories

Raw materials (cement, wood, iron, cotton, coal)

Partially completed goods called

work in progress (vehicle base models, white fabric, partially constructed home)

Finished-goods inventories
(milk pack, tang, Vaseline, chair, door, finished home)

Functions of Inventory

To meet anticipated demand

To smooth production requirements

To decouple operations

To protect against stock-outs

Accurate planning (always have the right amount of inventory in hand)

To help hedge against price increases

To take advantage of quantity discounts

Inventory management techniques

Inventory management uses several methodologies to keep the right amount of goods on hand
to fulfil customer demand and operate profitably.

Stock Review

Simplest inventory management methodology

Generally more appealing to smaller businesses

Regular analysis of stock on hand versus projected future needs

Mainly manual effort

Mostly labor intensive and prone to errors

i.e. Maintaining registers/lists

Just-in-time

Goods arrive only for production as when are ordered by customers

Researching buying patterns, seasonal demand, time based needs (forecast demand accurately)

Customer demand can be met without needing to keep quantities of products on hand

Example:

The Bailey Seat Company supplies GM with all the seats it needs for the production of its full-
size trucks. The Bailey Seat Company and GM work closely together so that the seats arrive at
the assembly plant as they are needed for each truck being built. The seats are never stored at
GM's assembly plant, waiting to be installed onto the trucks. The seats are delivered to the plant
and are immediately installed into the new trucks.

Construction in progress (wooden doors later to be supplied, when needed)

White fabric (coloring later to be supplied, when needed)

Honey/butter (seasonal)

ABC analysis

Classifies inventory into three categories that represent the cost and quantity of the goods

Category A - represents high-cost and low-quantity goods (PMTs, Trafos, heavy vehicle engines)

Category B - represents moderate-cost and moderate-quantity goods (

Category C - represents low-cost and high-quantity goods

For example, more expensive category A items may take longer to sell, but they may not need to
be kept in large quantities

Provides better control over high-value goods

Require a considerable amount of resources to continually analyse the inventory levels of all the
categories.

Inventory Control

Inventory control is the area of inventory management that is concerned with:

minimizing the total cost of inventory (cost)

maximizing the ability to provide customers with products in a timely manner (customer
satisfaction)
Objective of Inventory Control

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable
bounds

Effective Inventory Management

A system to keep track of inventory

A reliable forecast of demand

Knowledge of lead times

Key Inventory term

Lead time: time interval between ordering and receiving the order

Organizations make sure to keep stock while in lean period

Ensure availability of inventory between new order placing and receiving.

Inventory maintaining cost

◦ Holding costs

◦ Ordering costs

◦ Shortage costs

Holding (carrying) costs: cost to carry an item in inventory for a length of time that can be:

Storage space

Damage

Spoil

Insurance

Security for the location

Inventory moving cost (loading)

Ordering costs: costs of ordering and receiving inventory

Example:

Time Spent finding suppliers and expediting orders

Clerical cost of preparing purchase orders/purchase requisitions

 Transportation costs

Cost of onward goods, unloading and inspection

Shortage costs: costs when demand exceeds supply

Example:

o Lost customer

o Lost sales

o Stock out hit

o Disputes in contract

Chapter 9

Just-In-Time System

Goods arrive only for production as when are ordered by customers

Or maybe when ordered or paid..

 Just-in-time (JIT): is an inventory strategy that companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process, thereby
reducing inventory costs.

Example: Ford Australia only produces cars when they have been ordered by customers.

(Parts): Car manufacturer that operates with very low inventory levels. The parts needed to
manufacture the cars do not arrive before or after they are needed; instead, they arrive just as
they are needed.

Advantages

This method reduces costs by eliminating warehouse:

 Storage needs

 Insurance

 Longer Security.

Companies also spend less money on raw materials because they buy just enough to make the products
and no more.
Benefits of JIT Systems

 Reduced inventory levels

 Increased equipment utilization

 Reduced scrap and wastage

 Reduced space requirements

 Good vendor relationships

 Reduced need for support labor (e.g.; extra labor required for handling and securing the
inventory)

Disadvantages

The disadvantages of just-in-time inventories involve disruptions in the supply chain:

If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can
shut down the entire production process.

A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.

“No spare product to meet unexpected order”

Traditional Supplier Network

Comparison of JIT and Traditional method

Factor Traditional JIT

Inventory forecast errors, huge orders Minimal necessary only that

required

Deliveries Large Small

Vendors Long-term connections Partners

Workers Necessary to do the work Assets

JIT in Services

The basic goal of the demand flow technology in the service organization is to provide optimum
response to the customer with the highest quality service and lowest possible cost.

 Eliminate disruptions

 Simplify the process

 Make system efficient

 Remove grievances

 Attend queries on time

JIT – Not for Everyone

 JIT concepts work best when goods can be produced in response to consumer demand (e.g.
automobiles, other technology, gadgets etc.)

 JIT is less effective for the production of fast moving consumer goods (e.g. basic clothing,
confectionaries, soft drinks, etc.)
Chapter 9 Just-In-Time System

Goods arrive only for production as when are ordered by customers

Or maybe when ordered or paid...

 Just-in-time (JIT): is an inventory strategy that companies employ to increase efficiency and
decrease waste by receiving goods only as they are needed in the production process, thereby
reducing inventory costs.

Example: Ford Australia. Ford Australia only produces cars when they have been ordered by customers.

(Parts): Car manufacturer that operates with very low inventory levels. The parts needed to
manufacture the cars do not arrive before or after they are needed; instead, they arrive just as they are
needed.

Advantages

This method reduces costs by eliminating warehouse:

 Storage needs

 Insurance

 Longer Security.

Companies also spend less money on raw materials because they buy just enough to make the products
and no more.

Benefits of JIT Systems

 Reduced inventory levels

 Increased equipment utilization

 Reduced scrap and wastage

 Reduced space requirements

 Good vendor relationships

 Reduced need for support labor (e.g.; extra labor required for handling and securing the
inventory)
Disadvantages

The disadvantages of just-in-time inventories involve disruptions in the supply chain:

If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can
shut down the entire production process.

A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.

“No spare product to meet unexpected order”

JIT in Services

The basic goal of the demand flow technology in the service organization is to provide optimum
response to the customer with the highest quality service and lowest possible cost.

 Eliminate disruptions

 Simplify the process

 Make system efficient

 Remove grievances

 Attend queries on time

JIT – Not for Everyone

 JIT concepts work best when goods can be produced in response to consumer demand (e.g.
automobiles, other technology, gadgets etc.)

 JIT is less effective for the production of fast moving consumer goods (e.g. basic clothing,
confectionaries, soft drinks, etc.)
CHAPTER 10 Supply Chain Management

Supply Chain

A supply chain is a system of organizations, people, activities, information, and resources involved in
moving a product or service from supplier to customer.

Supply chain management (SCM) is the management of the flow of goods and services, involves the
movement and storage of raw materials, of work-in-process inventory, and of finished goods from point
of origin to point of consumption.

Basic components of Supply Chain Management

Plan

 Efficient

 Cost less

 Delivers high quality

 Value to customers

Develop (Source)

 Suppliers

 Reliable suppliers

 Shipping, delivery, payment

Make

 Testing

 Packaging

 Preparing for delivery

Deliver

 Logistics (delivery to required facility)

Functions and Activities

 Forecasting

 Purchasing

 Inventory management

 Information management

 Quality assurance

 Scheduling

 Delivery

Typical Supply Chain for a Manufacturer

Benefits of Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the

world
Benefits of Supply Chain Management

 Lower inventories

 Higher productivity

 Higher profits

 Greater customer loyalty

Elements of Supply Chain Management

Logistics

 Logistics

 It refers to the movement of materials within a facility and to incoming and outgoing
shipments of goods and materials in a supply chain

 The resources managed in logistics can include physical items such as food, materials,
animals, equipment, and liquids.
E-Commerce

 E-Commerce: the use of electronic technology to facilitate business transactions

 Applications include

 Internet buying and selling

 E-mail

 Order and shipment tracking

 Easy access

 Cost effective

Electronic Data Interchange

 No physical movement

 Increased productivity

 Reduction of paperwork

 Facilitation of just-in-time systems

 Electronic transfer of funds

 Improved control of operations (systematic)

 Reduction in clerical labor

 Increased accuracy

Advantages E-Commerce

 Companies can:

 Have a global presence

 Improve competitiveness and quality

 Analyze customer interests

 Collect detailed information

 Shorten supply chain response times

 Realize substantial cost savings

 Create virtual companies

Centralized vs Decentralized Purchasing

 Centralized purchasing

 Purchasing is handled by one special department

 Decentralized purchasing

 Individual departments or separate locations handle their own purchasing requirements

Suppliers

A party that supplies goods or services.

Good Relationship with supplier:

You need to keep a good relationship with your supplier so they will make sure to help you when you
need it.

Good Supplier:

The supplier was contacted as we wanted to make a change to our order and fortunately they were kind
and willing to help.

Factors in Choosing a Supplier

 Quality and quality assurance

 Supplier reputation

 Product or service changes

 Flexibility (order high/low)

 Meeting lead times and on-time delivery

 Location

 Price

Evaluating Sources of Supply

 Vendor analysis - evaluating the sources of supply in terms of

 Price

 Quality

 Services

 Location

 Flexibility
CHAPTER 11 PROJECT MANAGEMENT

 Project management is the discipline of, planning, leading, executing, controlling, and closing
the work of a team to achieve specific goals and meet specific success criteria at the specified
time.

 The object of project management is to produce a complete project which complies with the
client's objectives.

 Client can be internal or external

1. Internal – Management

I.e. Internal survey on employee turnover, employee satisfaction

2. External – (Marketers, clients)

I.e. Research, market study, Global HRS

The primary challenge of project management is to achieve all of the project goals within the given
constraints.

The primary constraints are:

Scope

Time

Quality

Budget

I.e. Burberry (Made in Malaysia, China or Taiwan)

 How is it different from routine?

 Narrow focus, specific objectives, timelines

 Why is it used?

 Special needs

 Client’s requirement

 Pressures for new or improves products or services

 What are the Key Success Factors?

 Top-down commitment

 Having a capable project manager

 Having time to plan

 Good communications

 Careful tracking and control

Key Decisions

 Deciding which projects to implement (Priority)

 Selecting a project manager

 Selecting a project team

 Planning and designing the project

 Managing and controlling project resources

 Deciding if and when a project should be terminated

Project Manager Responsible for:

 Work
 Human Resources
 Communications
 Quality
 Time
 Costs

Ethical Issues

 Temptation to overstate costs

 Withhold information

 Misleading status reports

 Falsifying records

 Comprising workers’ safety

 Approving substandard/second-rate work

PM Software

 Imposes a methodology

 Provides logical planning structure

 Enhances team communication

 Flag constraint violations

 Automatic report formats

 Multiple levels of reports

 Enables what-if scenarios

 Generates various chart types

Examples

 Old meter replacement, Faulty meter replacement

 Recovery project

 Construction projects

 Electricity infrastructure lay down project

 DAMS construction project

 Jeans project (made in Malaysia, Taiwan, Japan)

 SAP (Abacus, supernova, IBM, Siemens)

CHAPTER 12 FORECASTING
FORECAST:

 A planning tool that helps management to cope up with the uncertainty of the future.

 Forecasting starts with certain assumptions based on the management's experience, knowledge,
and judgment.

 Since any error in the assumptions will result in a similar or magnified error in forecasting that
will affect decisions and activities throughout an organization
Principles of Forecasting

1. Forecasts are never perfect

2. Forecasts are more accurate for grouped data than for individual items

3. Forecast are more accurate for shorter than longer time periods

Types of Forecasting Methods

 Forecasting methods are classified into two groups:

Uses of Forecast

 Operations

 Accounting, finance

 Human resources

 Marketing

 MIS

 Product / service design

Uses of Forecasts

Common Forecast Techniques

 Judgmental - uses subjective inputs

 Time series - uses historical data, trends; assuming the future will be like the past

 Averaging: Getting average of sequential items assuming the future will be the average of all

Judgmental Forecasts

 Executive opinions

 Sales force opinions

 Consumer buying analysis

 Market assumption

 Delphi method (interactive forecasting method which relies on a panel of experts.

 Opinions of experts/managers and staff

 Achieves a consensus forecast

Time Series Forecasts

 Trend - long-term movement in data

 Seasonality - short-term regular variations in data

 Irregular variations - caused by unusual circumstances

What if we use a 3-month simple moving average?

What if we use a 5-month simple moving average?

Naive Forecasts

The forecast for any period equals the recent previous period’s actual value.

Naïve Forecasts

 Simple to use

 Practically no cost

 Quick and easy to prepare

 Data analysis is nonexistent

 Easily understandable

 Cannot provide high accuracy

What is forecasting all about?