Operations and Supply Chain Management (OSCM) Overview

Overview of Operations and Supply Chain Management (OSCM)

• OSCM involves designing, operating, and improving systems for creating and delivering a firm's products/services
• The key functions are planning, sourcing, making, delivering, and returning goods/services
• Focus is on optimizing efficiency, cost, and quality throughout the entire production and delivery system

Elements of OSCM

• Operations Strategy aligns production with business goals
• Processes transform activities that convert inputs into outputs
• Supply Chain Management coordinates material, information, and financial flows
• Analytics uses data-driven decision-making for efficiency

Key Process Activities in OSCM

• Planning involves managing resources for efficient production
• Sourcing is selecting suppliers for raw materials and services
• Making includes manufacturing the product or delivering the service
• Delivering entails managing logistics and distribution networks
• Returning handles returns, defects, and customer service

Differences Between Services and Goods

• Goods are tangible, while services are intangible
• Customer interaction is limited for goods but high for services
• Standardization is homogeneous for goods and heterogeneous for services
• Perishability: goods can be stored, services are perishable and time-dependent
• Evaluation: goods are based on features and durability, services are based on customer experience

The Goods-Services Continuum

• Pure Goods: Physical items include raw materials and chemicals
• Core Goods: These include services with products such as automobiles, appliances with warranties
• Core Services: Physical goods play a supporting role, example is hotels and airlines
• Pure Services: There are no tangible goods involved, financial consulting, and teaching are examples

Servitization Strategies

• Servitization integrates service components into product offerings
• Examples include maintenance, training, spare parts, and software updates
• Servitization improves customer retention and revenue

Careers in OSCM

• Roles include Plant Manager, Supply Chain Manager, Purchasing Manager, and Logistics Coordinator
• Specialist areas are Product Design, Manufacturing, Service Operations, and Logistics and Distribution

Major Concepts in OSCM

• Lean Manufacturing & Just-in-Time (JIT) reduces waste and improves efficiency
• Total Quality Management (TQM) & Six Sigma ensures high-quality production
• Supply Chain Management (SCM) manages supplier relationships
• Business Process Reengineering (BPR) radically redesigns processes
• Sustainability & the Triple Bottom Line balances economic, social, and environmental goals

Efficiency, Effectiveness, and Value in OSCM

• Efficiency involves performing tasks at the lowest cost
• Effectiveness involves doing the right things to create the most value
• Value is defined as Quality ÷ Price and perception increases when high quality is offered at a low cost

Current Issues in OSCM

• Global Supply Chain Disruptions from pandemics, trade wars, and shipping delays
• Changing Regulations & Tariffs necessitates adaptability to evolving trade policies
• Workforce Challenges are due to skilled labor shortages and retention issues
• Technological Adaptation requires implementing AI, automation, and digital transformation in supply chains

Key Takeaways for OSCM

• OSCM integrates strategy, process management, and analytics to optimize production and distribution
• Understanding supply chain relationships is vital for competitive advantage
• Balancing efficiency and effectiveness is necessary for sustainable growth
• Emerging challenges need for adaptability and innovation in operations management

Introduction to Strategy in OSCM

• Strategy defines how a firm creates and sustains value for shareholders and stakeholders

Operations and Supply Chain Strategy

• Broad policies and plans for using a firm’s resources
• Alignment with corporate strategy ensures consistency
• Its goal is to coordinate operational objectives with business goals

Sustainable Strategy and the Triple Bottom Line

• Sustainable Business Strategy meets present needs without compromising future generations' ability to meet their own needs
• The Triple Bottom Line Approach includes:
  • Social (People): Focus on ethical labor practices and community development
  • Economic (Profit): Focus on business viability and financial performance
  • Environmental (Planet): Focus on reducing carbon footprint and sustainable sourcing

Competitive Dimensions in OSCM

• Companies compete on Cost/Price which delivers products at the lowest possible cost
• Companies compete on Quality which requires high product quality and service reliability
• Companies compete on Delivery Speed which means fast production and order fulfillment
• Companies compete on Delivery Reliability which ensures products are delivered on time
• Companies compete on Flexibility which is the ability to change volume or product mix
• Companies compete on New Product Introduction Speed which is the ability to develop and launch products quickly

Trade-Offs in Strategy

• Trade-offs occur when improving one dimension negatively affects another
• Example: A company focusing on low cost may struggle to offer fast delivery
• Straddling Strategy means trying to match a successful competitor while maintaining an existing strategy
• Straddling Strategy is risky because it spreads resources thin

Order Winners and Order Qualifiers

• Order Winners distinguish a company from competitors (e.g., Tesla’s innovation, Amazon’s delivery speed)
• Order Qualifiers are minimum requirements for a product to be considered by customers (e.g., basic safety standards for cars)

Kano Model for Customer Satisfaction

• Developed by Noriaki Kano to categorize product features:
  • Must-Have Features: Basic expectations, absence causes dissatisfaction
  • Performance Features: These increase satisfaction proportionally
  • Delight Features: Unexpected features create high satisfaction

Risk Management in OSCM Strategy

• Supply Chain Coordination Risks are day-to-day operational disruptions
• Disruption Risks are unexpected events like natural disasters and supplier failures
• Risk Mitigation Framework:
• Identify Disruptions to assess impactful risks that are unlikely to occur
• Assess Risk Impact, especially financial, environmental, and operational risks
• Develop Risk Mitigation Plans to implement proactive strategies

Common Risk Mitigation Strategies

• Natural Disaster: Contingency planning and alternate sites must be put in place
• Supplier Failure: Use multiple suppliers
• Regulatory Risk: Compliance and legal advisory must be sought
• Logistics Failure: Safety stock and multiple transport options should be considered
• Cybersecurity Threats: Data encryption and backup systems must be used

Productivity Measurement

• Productivity measures how efficiently a company uses resources to produce goods/services
• Productivity = Output ÷ Input
• Types of Productivity Measures:
  • Partial Productivity measures output vs. a single input (e.g., labor hours, raw materials)
  • Multifactor Productivity measures output vs. a combination of inputs
  • Total Productivity measures output vs. all inputs used

Productivity Measurement Examples

• Restaurant: Customers per labor hour
• Retail Store: Sales per square foot
• Utility Plant: Kilowatt hours per ton of coal
• Chicken Farm: Pounds of meat per pound of feed

Summary & Key Takeaways for Strategy in OSCM

• A sustainable strategy must create value while considering social, economic, and environmental impact
• Competitive dimensions define a firm’s market strategy
• Trade-offs exist when prioritizing different strategic goals
• Risk mitigation strategies help firms avoid supply chain disruptions
• Productivity measurement is essential for evaluating operational efficiency

Introduction to Global Sourcing and Procurement

• Sourcing and procurement is the process of acquiring goods and services from external sources to meet business needs
• Strategic Sourcing develops and manages supplier relationships to ensure long-term value
• Modern sourcing is more complex due to globalization and the need for cost efficiency and sustainability

Strategic Sourcing Considerations

• Specificity determines how common or specialized a product is and its availability
• Request for Proposal (RFP) is used when sourcing complex or high-cost items from many vendors
• Vendor-Managed Inventory (VMI) lets suppliers control stock levels for customers

The Bullwhip Effect in Supply Chains

• Definition: A small change in customer demand makes for larger fluctuations upstream in the supply chain
• Causes:
  • Demand forecast updating contributes to errors moving up the chain
  • Batch ordering where are large, infrequent orders that create instability
  • Price fluctuations cause unnecessary spikes in orders because of forward buying
  • Rationing and gaming occurs when suppliers overcompensate when demand spikes
• Solutions:
  • Continuous replenishment systems are adopted
  • Demand smoothing using real-time sales data is adopted

Product Categories in Procurement

• Functional Products exhibit stable demand with predictable sales patterns

  • They have low margins (~5-20%) and long product life cycles (>2 years).
  • Examples include household goods and food staples

• Innovative Products exhibit unpredictable demand, and short life cycles (a few months)

  • They have high margins and rapid obsolescence
  • Examples include fashion items and high-tech gadgets

Supply Chain Strategies

• Efficient Supply Chains focus on minimizing costs (e.g., commodity goods)
• Risk-Hedging Supply Chains pool resources to mitigate uncertainty (e.g., utilities, agriculture)
• Responsive Supply Chains emphasize speed and flexibility (e.g., fashion, electronics)
• Agile Supply Chains combine risk-hedging and responsiveness (e.g., customized manufacturing)

Outsourcing in Supply Chains

• Outsourcing transfers internal business activities to external providers
• Advantages are reducing costs by leveraging specialized suppliers
• Advantages include increased flexibility and focus on core competencies
• Advantages also include improved access to advanced technology
• Disadvantages are loss of direct control over quality and delivery
• Disadvantages also include risks of supply chain disruptions
• Disadvantages also include potential ethical concerns (labor conditions, and environmental impact)

Logistics and Supply Chain Management

• Logistics manages the movement of goods, information, and finances across the supply chain
• Third-Party Logistics (3PL):
  • Companies outsource warehousing, transportation, and inventory management to logistics specialists
  • Examples are DHL, FedEx, and Amazon Logistics

Green Sourcing and Sustainability

• Green Sourcing integrates environmental considerations into procurement decisions
• Benefits:
  • Cost savings by reducing waste and energy use
  • Enhanced brand reputation by promoting sustainable practices
  • Regulatory compliance with environmental laws

Green Sourcing Process

• Assess internal usage of resources
• Identify areas for sustainability improvements
• Develop eco-friendly supplier partnerships

Total Cost of Ownership (TCO)

• Definition: The comprehensive evaluation of the cost of a product, including:
  • Acquisition Costs (purchase price, shipping, taxes)
  • Ownership Costs (maintenance, energy, compliance)
  • Post-Ownership Costs (disposal, recycling, resale value)
• Application: Helps companies make informed sourcing decisions beyond just purchase price

Key Takeaways for Global Sourcing and Procurement

• Strategic sourcing is essential for competitive advantage
• The Bullwhip Effect can disrupt supply chains if not managed effectively
• Different supply chain strategies exist based on demand and supply uncertainty
• Outsourcing offers benefits but comes with risks
• Sustainable sourcing is growing in importance due to environmental concerns
• Total Cost of Ownership helps firms evaluate long-term costs rather than just purchase price

Introduction to the Theory of Constraints (TOC)

• Definition: A methodology that identifies the most critical limiting factor (constraint) in a process, systematically improves until no longer a bottleneck
• Developed by Eliyahu Goldratt and introduced in The Goal (1984)
• Core Idea: Every complex system has at least one constraint that limits overall performance

The Five Focusing Steps of TOC

• Identify the Constraint by finding the bottleneck in the system
• Exploit the Constraint by improving efficiency at the bottleneck using existing resources
• Subordinate Everything Else by aligning all processes to support the constraint
• Elevate the Constraint by investing in additional resources if the constraint remains
• Repeat the Process and when one constraint is broken, move to the next one

Goldratt's Rules of Production Scheduling

1. Do not balance capacity, balance flow and focus on overall system, not individual machine capacities
2. Utilization of a non-bottleneck is determined by system constraints and not potential output
3. Utilization ≠ Activation and a running machine does not guarantee output
4. An hour lost at a bottleneck is lost for the entire system
5. An hour saved at a non-bottleneck does not help the system
6. Bottlenecks control both throughput and inventory
7. Batch sizes should be variable and based on process needs
8. Priorities must be set by system constraints, not arbitrary deadlines

Bottlenecks & Capacity-Constrained Resources (CCR)

• Bottleneck: A resource whose capacity is less than demand
• Non-bottleneck: A resource with more capacity than demand
• Capacity-Constrained Resource (CCR): A resource operating close to its capacity limit

Time Components in TOC

1. Setup Time: Time spent preparing equipment
2. Process Time: Time taken for actual production
3. Queue Time: Time waiting before processing
4. Wait Time: Time waiting for assembly or shipment
5. Idle Time: Lost time when no work is being done

Drum-Buffer-Rope (DBR) System

• Drum: The bottleneck sets the pace of production
• Buffer: Inventory placed before the bottleneck to avoid idle time
• Rope: A signal that releases work when capacity is available at the bottleneck
• Goal: Synchronize production to minimize work in process (WIP) inventory and increase efficiency

Throughput Accounting (TOC vs Traditional Accounting)

• Traditional Accounting considers Inventory an Asset but Throughput Accounting (TOC) considers Inventory a Liability
• Traditional Accounting’s focus is Cost reduction, while Throughput Accounting’s (TOC) focus is Throughput maximization
• Traditional Accounting’s goal is to Reduce expenses, while Throughput Accounting (TOC) is to Increase throughput
• Traditional Accounting’s aim is to Cut costs, while Throughput Accounting (TOC) is to Maximize output at constraints

Key Metrics in Throughput Accounting

1. Throughput (T) = Sales revenue - Direct costs
2. Investment (I) = Money tied up in equipment, inventory, etc.
3. Operating Expense (OE) = All other costs besides raw materials
4. Profitability Formula: Net Profit = Throughput - Operating Expense

Identifying & Resolving Constraints

• Finding Bottlenecks
• Capacity Resource Profile – Evaluate workloads across resources
  • Observation & Employee Feedback – Identify delays and inefficiencies

Resolving Bottlenecks

• Rearrange workflow to minimize idle time
  • Reduce setup time to increase output
  • Increase capacity at bottlenecks through investments

TOC & Lean Manufacturing Integration

• TOC aligns with Lean principles by removing waste and improving manufacturing flow
• Key Differences:
  • TOC focuses on bottlenecks, while Lean focuses on eliminating all waste
  • Lean seeks continuous improvement, while TOC follows the Five Focusing Steps

Key Takeaways for TOC

• TOC is a structured approach to identifying and eliminating bottlenecks
• Drum-Buffer-Rope ensures smooth production without excess inventory
• Throughput Accounting focuses on maximizing production at constraints rather than cutting costs
• TOC & Lean work together to create efficient, constraint-free manufacturing systems

Introduction to ERP Systems

• Definition: ERP (Enterprise Resource Planning) is a software system that integrates and manages core business processes across departments
• Key Features:
  • Centralized data management
  • Real-time information sharing
  • Automation of business processes
  • Improved decision-making through analytics
• Core Benefit: Gives a single source of data for an organization, ensuring efficiency and streamlined operations

Components of an ERP System

• Finance manages accounts, budgeting, and financial reporting
• Manufacturing & Logistics handles production planning, inventory, and quality control
• Sales & Marketing tracks customer orders and forecasts demand
• Human Resources (HR) handles payroll, recruitment, and employee management
• Procurement & Purchasing manages supplier relationships and procurement activities
• Customer Relationship Management (CRM) enhances customer interactions and service

How ERP Integrates Business Functions

• Single Database eliminates duplicate data entry and ensures consistency
• Real-time Updates show changes in one department reflecting instantly across the system
• Process Automation reduces human errors and speeds up workflows
• Decision Support provides analytics for better forecasting and strategy

Supply Chain Planning & ERP

• ERP in Supply Chain Management (SCM):
  • Manages inventory, production schedules, and supplier relationships
  • Ensures demand and supply planning align with production needs
  • Reduces waste and stockouts through automated tracking

SAP’s ERP Supply Chain Modules:

• Planning: Forecast demand and optimize resources
  • Execution: Automates order fulfillment and logistics
  • Collaboration: Enhances communication between vendors and customers
  • Performance Monitoring: Tracks supply chain efficiency using KPIs

ERP Data Integration & Warehousing

• ERP works on a single database, ensuring consistency across all functions
• Data Warehouse stores historical data for advanced analytics and forecasting
• Real-time processing ensures decision-makers have up-to-date insights

Performance Metrics in ERP

• Key Performance Indicators (KPIs) for ERP Success:
  • Operational Efficiency – Time saved in data processing
  • Order Fulfillment Rate – Percentage of on-time deliveries
  • Inventory Turnover – How quickly inventory is sold and replenished Cost Savings – Reduction in procurement and operational costs
  • Customer Satisfaction – Measured through CRM data

ERP System Challenges & Risks

• Vendor Dependency: Many companies struggle with reliance on ERP vendors for changes and updates
• High Initial Costs: ERP implementation can be expensive and time-consuming
• Customization Issues: Standard ERP modules may not fit all business needs, requiring costly modifications
• Data Migration & Integration: Transitioning from legacy systems can be complex
• Training Requirements: Employees need proper training to maximize ERP benefits

ERP Landscape in South Africa

• Challenges in ERP Implementation:
  • Shortage of skilled professionals for ERP system maintenance
  • Reliance on external vendors for updates and system modifications
  • Difficulty in business visibility and reporting due to fragmented data
• Adoption Trends:
  • Increasing shift towards cloud-based ERP solutions for scalability and flexibility
  • Integration with mobile and IoT devices for real-time monitoring
  • Focus on business intelligence and analytics for competitive advantage

Cash-to-Cash Cycle Time (ERP Metric):

• Measures how long it takes a company to convert investments in inventory back into cash
• Formula: Inventory Days + Receivable Days - Payable Days

Future Trends in ERP Systems

• Cloud-Based ERP: Lower costs, scalability, and remote access
• AI and Machine Learning: Predictive analytics for smarter decision-making
• Blockchain for Security: Ensures transparent and tamper-proof transactions
• Internet of Things (IoT) Integration: Real-time monitoring of inventory and logistics
• BYOD (Bring Your Own Device): More ERP systems are mobile-friendly for field access

Key Takeaways for ERP Systems

• ERP integrates all business functions for improved efficiency
• Data consistency and automation reduce errors and improve decision-making
• Supply chain planning is enhanced through real-time updates and tracking
• South African businesses face ERP adoption challenges, but cloud-based solutions are increasing
• Emerging technologies such as AI, IoT, and blockchain will shape the future of ERP

Introduction to Process Analysis

• Definition: The systematic study of manufacturing, service, and logistics processes to improve efficiency and competitiveness
• Key Goals:
  • Identify bottlenecks
  • Optimize cycle times
  • Improve throughput and efficiency
  • Reduce waste and process variability

Pacing in Process Flow

• Paced Process: Items move through the process at a fixed time interval
• Non-Paced Process: Items move as work is completed

Cycle Time Calculation:

• Formula: Cycle Time = (Total Available Time) ÷ (Customer Demand)
• Example: 1,000 automobiles in 420 minutes → Cycle Time = 25.2 seconds per car

Production Process Mapping & Little’s Law

• Little’s Law: A fundamental formula in process analysis says Inventory = Throughput Rate × Flow Time

Key Metrics:

• Total Inventory Value = Raw Materials + Work-in-Progress + Finished Goods
• Inventory Turnover = Cost of Goods Sold ÷ Average Inventory Value
• Days-of-Supply = (1 ÷ Inventory Turnover) × 365

Bottlenecks and Capacity Constraints

• Bottleneck: The slowest part of a process that limits overall output
• Capacity-Constrained Resource (CCR): A process operating close to its capacity limit

Ways to Improve Bottleneck Efficiency:

1. Increase capacity at the bottleneck
2. Reduce non-value-added activities
3. Balance workload to improve flow

Process Flow Examples

• Car Batteries:
  • Average battery cost = $45
  • 12-hour car production cycle
  • 200 cars per 8-hour shift
  • Inventory: 8,000 batteries

Car Batteries Calculations

Work-In-Process (WIP) = 25 batteries × 12 hours = 300 batteries Total Inventory = 8,300 batteries Inventory Value = $373,500 Flow Time = Inventory ÷ Throughput = 40 days

Bread Making Steps

1. Baking Bread: Bottleneck process with 1-hour cycle time
2. Packaging: Takes 0.75 hours per batch

Bread Making Production Setup

• Two bread-making lines create 3,200 loaves per day
  • Packaging runs three shifts to match production

Restaurant Capacity Analysis

• Key Inputs:
  • 40 tables which can seat 4 people each
  • Customers spend 30 minutes eating
  • Capacity per table = 2.5 people per party

Restaurant Capacity Analysis Findings:

• The restaurant can handle 80 customer parties per hour
  • Cycle time = 45 seconds per party
  • If demand exceeds seating, waiting lines form

Public Transport (Tourist Bus in Paris)

• Given Data:
  • 60 stops, 2-hour route, with 50 seats per bus
  • One bus: Max wait time = 2 hours
  • If two buses: Max wait time = 1 hour
  • To reduce wait time to 2 minutes, need 30 buses

Public Transport - Capacity Considerations:

• 40 buses are needed for peak demand
  • Seat Utilization: 107.8%, which means passengers are required to stand

Process Flow Time Reduction Strategies

1. Parallel Processing is running multiple activities simultaneously
2. Change Process Sequence means reordering steps for efficiency
3. Reduce Interruptions is eliminating delays in the process

Key Takeaways from Process Flow Analysis

• Little’s Law links inventory, flow time, and throughput
  • Cycle time and bottlenecks determine overall process efficiency
• Process flow analysis helps businesses optimize performance and reduce waste
• Understanding bottlenecks allows for targeted improvements to maximize capacity