Operations and Supply Chain Management

Study Notes

Goods are tangible products, like steel, while services are intangible and often involve a direct interaction, like teaching.

Operations management involves managing the processes of creating goods and services.
Aims for efficiency (using minimal resources) and effectiveness (meeting customer needs).
Ensures supply aligns with demand.

The supply chain encompasses the chain of organizations and activities involved in producing and delivering a good or service.

Absolute Measures: Focus on quantifiable financial performance:
- Revenues: Total income from sales.
- Costs: Total expenses associated with production.
- Operating Income: Revenue minus operating expenses.
- Net Income: Operating income minus financial expenses (like interest and taxes).
- Cost Types:
  - Fixed Costs: Remain constant regardless of production volume.
  - Variable Costs: Vary directly with production volume.
  - Total Costs: Sum of fixed and variable costs (TC = FC + (Q * VC)).
  - Average Costs: Total costs divided by production quantity (TC / Q).

Cost vs. Quality: Higher quality often requires advanced technology and skilled labor, increasing costs.
Cost vs. Variety: Variety offers market segmentation benefits (reaching more customers) and competitive advantage. Factors influencing variety:
- Market Segmentation: Targeting specific customer groups for increased sales.
- Competition: Offering diverse products to stand out.
- Technology: Enabling greater product customization.
- International Differences: Adapting to varying consumer preferences and regulations.
- Government Requirements: Complying with local laws and regulations.
Balancing Variety and Costs:
- High variety leads to higher complexity and costs (e.g., more parts, frequent changeovers).
- High variety also improves customer satisfaction (more options).
Trade-offs and Optimization: Shifting between production strategies can lead to optimal production, better offers, and increased sales.

Financial Ratios: Provide a broader perspective on operational performance:
- Return on Investment (ROI): Measures profitability based on investment.
- Return on Equity (ROE): Measures profitability based on shareholder equity.
- Return on Assets (ROA): Measures profitability based on assets. Indicates how efficiently assets generate income.
- ROA Calculation: ROA = (Operating Profit / Total Assets) = ((Sales - Costs) / Total Assets).

Aggregate Measure: Difficult to isolate the impact of operations on overall performance.
Insufficient Detail: May not provide specific insights into operational efficiencies.
Lack of Transparency: Hard to directly see the connection between operations and performance.
Interdependencies: Multiple factors affect performance making it challenging to isolate the effect of operations.
External Factors: External market conditions can influence company performance.

Cash Flow: Represents the difference between a company's cash inflows (receipts) and outflows (payments) in a period. Essential for short-term liquidity.

Make-to-Order (MTO): Production begins only after receiving an order.
- Advantages: Lower lead times, higher customization.
- Disadvantages: Less inventory, higher skilled labor.
Assemble-to-Order (ATO): Pre-built modules allow for faster assembly upon order.
- Advantages: Moderate lead times, flexible production.
- Disadvantages: Requires inventory management, moderate skill level.
Make-to-Stock (MTS): Entire product is manufactured and stocked for immediate delivery.
- Advantages: Shortest lead times, lower labor skills.
- Disadvantages: Requires significant inventory, less flexibility.

Work Center / Job Shop:
- Uses general-purpose equipment and flexible production systems to handle diverse orders.
- Suitable for low-volume, highly customized products (e.g., luxury cars).
Manufacturing Cell / Batch Flow:
- Intermediate between work centers and continuous flow, allowing for batch production and some customization.
- Offers some flexibility but not as customizable as job shops.
Continuous Flow / Assembly Line:
- Specialized equipment and standardized production for high volumes of standardized products (e.g., mass-produced goods).
- Offers high efficiency and lower unit costs.