Chapter 11: Operations & Supply Chain Management

Operations Management, Operation’s Value Chain, Operation’s Cycle

What are ‘JIT’ Inventory Practices?

Just-In-Time inventory is a productivity improvement practice of only having a strict appropriate amount of equipment in inventory for short-term production to ensure that nothing is being wasted. Making only what is needed, when it is needed & in the amount needed.

What is Jidoka?

If equipment malfunctions or a defective part (quality is not up to par) is detected, the affected machine automatically stops. This forces operators to cease production & correct the problem. Machine automatically communicate issues via the andon (problem display board).

What is the Toyota Production System (TPS)?

It’s a production philosophy which incorporates the practices of JIT & jidoka.

Responsibilities of Operations Managers

What is Operations Management?

The effective design, development & management of the processes, procedures & practices within an organization’s business system for the purpose of achieving its strategic intent.

3 Categories of Responsibilities for Operations Management

  • Process Management: Design/development of work flow & connectivity of the transformation requirements (processes) needed to ensure that an organization’s products are efficiently produced & delivered to market. Basically, you look at specific tasks that need to be achieved & order them to result in effective work flow!
  • Supply Chain Management: Management of interdependencies among suppliers, manufacturers & distributors. It seeks to develop terms & conditions that will enable all parties to efficiently meet their obligations to one another due to their business relationships. Basically, it’s all about relationship management to ensure efficient flow of products, information & costs.
  • Product/Service Management: Refers to variety of activities from design/development of new products in R&D to post-purchase support of customers. Includes supporting product modifications, enhancement & other changes. Includes decisions relating to functionality, durability & performance. Involves assessing competitor products & emerging technologies that could affect the market.

The organization’s Value Chain

What is Value Chain Analysis?

It is a business concept first proposed by Michael Porter of Harvard Business School. Basically, it seeks to help managers make decisions that add more value to the chain. Value maximization, by maximizing the benefits (either via price or quality) customers receive.

What are the 5 Primary Activities of Business Systems?

Specific & direct activities where development/transformation of a product occurs.

  1. Inbound Logistics: Management (scheduling, shipping & warehousing) of supplier parts/components/products that are brought into the organization to produce finished products.
  2. Operations: Manufacturing (product transformation processes) set up to ensure final product is ready for market. Involves packaging, process application, labour, product management activities, labeling, combining parts, etc.
  3. Outbound Logistics: Getting final product to customers via distribution channels that are accessible, convenient & minimize sales impediment factors (such as stock outs). Such as warehouse needs, distribution, inventory management activities, transportation/routing activities, shipping, determine which retailer has the authority to sell.
  4. Marketing/Sales: Activities to raise awareness for products & brand, and promote benefits of their products. Like advertising, sales promotion, packaging, point of sales (where transactions occur; cashier) communication.
  5. Customer Service: Support provided to customers before, during & following the purchase. Such as technical & repair support, warranties, installation, replacement parts management, upgrading & customer training.

What are some Supporting Activities of Business Systems?

Activities not directly associated with the actual processes the organization uses to produce.

  • IT Department: Collaborates with the operations department on the development & application of tech.
  • Research & Development / Engineering Departments: New products, product enhancements or process design/development.
  • Human Resources: Assists in recruiting, employee development & support services for employees.
  • Other Departments: Such as finance, accounting, legal & environmental safety.

The Operations Cycle

What is the Operations Cycle?

The alignment of the organizational tasks to meet the strategic outcomes defined in the organization’s business strategy.

What is Process Standardization? What is Process Simplification?

Process Standardization is the design & use of common platforms & common tasks sequencing for production. Process Simplification is minimizing number of tasks when producing.

Process Management

4 Core Decision Areas That Managers Need to Examine

  1. Process Design, Layout & Execution: Assessment & implementation of tasks necessary to get work done, and how such tasks will be grouped/sequenced to ensure efficiency. Like a road map or flow chart of production.
  • Define the tasks & activities required
  • Identify the sequencing needed to maximize efficiency
  • Create the process-layout & fine tuning
  • Execute the process & then evaluate

2. Materials Management: Management of inputs required in order to develop products.

3. Facility Design & Layout: The infrastructure layout & related facility components that are required to house & support the processes & materials used in the organization. Decisions about capacity, locations, storage & size.

  • Capacity: Maximum amount of product that can be produced given facility, equipment & process constraints

4. Capital Asset Evaluation & Acquisition: Assessing the state of current capital assets & determining their applicability to meeting the needs of the organization. Deciding whether to replace/modernize/discard equipment.

What is Project Management Analysis? What are Some Tools For It?

Project management is the management of outcome-specific & short-term projects. This falls into the first core decision area; processing design, layout & execution.

2 Tools to assist in estimating time, money & people required for a project

  • Program Evaluation & Review Technique (PERT) Chart: A scheduling methodology that focuses on task sequencing & identifying steps that must be taken or delays will occur. Also known as Critical Path Analysis.
  • Gantt Chart: Methodology to schedule steps associated with a project & the time required to complete each step.

Supply Chain Management

What is Supply Chain Management?

Management of the flow of materials, information, costs through the front end of an organization’s value chain. This means planning, sourcing, delivering components & delivering final product either via Business-to-Business (B2B) or Business-to-Customer (B2C). It also involves dealing with defective or excess products.

What are 3 Areas of Responsibilities in Supply Chain Management?

  • Supply Chain Planning: Development of the supply chain structure & accumulation of necessary information needed to make effective supply chain decisions. Examples of Activities that form a core part of planning:
  • Deciding whether to outsource supply chain functions or keeping them in-house.
  • Assess various software & e-business services that will be required to effectively manage supply chain tasks.
  • Analyze sales forecasts to determine appropriate product quantities to purchase.
  • Design transportation & warehouse networks to effectively manage flow of products through the value chain.
  • Supply Chain Operating Execution: Execution of the specific tasks necessary to ensure key performance results are achieved. Examples of Activities:
  • Management of inventory levels
  • Efficient utilization of the organization’s transportation fleet
  • Effective use of technology systems in place
  • Accurate & timely invoicing/collection
  • Ensuring that products reach the market in a timely fashion
  • Supply Chain Performance Evaluation: The critical outcomes the supply chain must achieve. Two Critical Outcomes:
  • Maximum utilization of the capital asset base by minimizing unnecessary & wasteful expenses due to inefficient transportation flows, poor inventory management & warehouse inefficiencies, poor capacity management due to inaccurate sales forecasting & demand interpretation.
  • Minimization of the time involved within the cash operating cycle because time is money.
  • Cash Operating Cycle: Amount of time it takes to recover cash that has been paid out for the development, production & distribution of products.

Product/Service Management

What are the 3 Specific Areas of Product/Service Management?

  • Existing Product/Service Changes: Assessment of the current value of an existing product & the additions/adjustments/deletions required to maintain/grow its market position.
  • New Product Opportunities: Development of new products for market opportunities that exist today & have a near-term revenue potential.
  • Long-Reach Opportunities: Investments in, & development of, a new product for emerging markets in the future through R&D. This allows the organization to obtain a first mover advantage when the market emerges.

Establishing Quality Standards

Operations managers must continually protect & enhance the quality of products. They must look to improving efficiency, reduce costs, develop & maintain measurable product standards, curate a culture focused on preserving quality, and maintain product consistency.

What is the International Organization for Standardization (ISO)?

It is the world’s largest develop & publisher of more than 18,000 international product standards in industries such as agriculture, construction, engineering, manufacturing, distribution & IT. They want to make manufacturing of products safer, more efficient & more socially responsible. They provide certification to organizations who meet their standards. The most popular categories of standards cover general management practices & quality standards (ISO 9000 Series) and environmental management standards (ISO 14000 Series).

What is Six Sigma?

A methodology that focuses on a philosophy of total improvement, via an organized approach for process analysis with the intent of minimizing & eliminating the occurrences of defects. It is based on a methodology of DMAIC for existing operations (define, measure, analyze, improve, control) and DMADV for new operations (define, measure, analyze, design, verify).

What is Total Quality Management (TQM)?

A broad-based approach to managing quality. It challenges organizations to be customer focused and to strive for employee involvement to ensure quality.

What is Business Processing Engineering (BPR)?

Focuses on how organizations transform production & manufacturing processes to improve the way that people work.

Summary of Core Fundamentals of Quality Success

  • Quality initiatives are successful if they have strong management support & commitment.
  • Quality initiatives are successful if it’s supported by a well-structured approach & deployment process. Includes clear identification of roles/responsibilities of those involved. Specific, measurable, actionable & controllable (SMAC) objectives must be identified.
  • Quality initiatives require a team-based approach. Involvement, input, rewards & recognition must be shared with all involved.
  • Progress & results must be communicated to all involved, to develop a culture of quality.

Operations Management in Small Businesses

Due to limited resources & expertise, small businesses often don’t have abilities or finances to take advantage of technologies & practices available to minimize costs. Still, small businesses should understand customer expectations & translate this into processes to support customer at key interaction points (where businesses & customers interact). They should think in terms of product consistency and take time to plan their business layout (this can be done to take on a customer’s perspective). They should make decisions based on facts & analytical processes. They should get their small employee base involved.

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