2024-2025 Y1B2 Operations & Supply Chain Management PDF

IBPEEN123R1 The External Environment (Year 1-Block 2, 2024- 2025) Operations & Supply Chain Management (OPS & SCM) LESSON 1 (a) Lesson 1: Demand & Procurement Chapters: Demand Management (Chapter 7) and Procurement Management (Chapter 12) Learning Obj...

IBPEEN123R1 The External Environment (Year 1-Block 2, 2024- 2025) Operations & Supply Chain Management (OPS & SCM) LESSON 1 (a) Lesson 1: Demand & Procurement Chapters: Demand Management (Chapter 7) and Procurement Management (Chapter 12) Learning Objectives To understand the importance of demand management To discuss what external environmental factors impact demand To understand the difference between procurement, sourcing & purchasing To discuss the procurement objectives of an organization To apply Kraljic’s Portfolio Matrix 3 For the group assignment - Product list Team Holding company + Product Website (product) number Team 1 “Stanley Black & Decker” (originated in USA) https://www.blackanddecker.com/products/bhfea640wg/summitseries%E2%84%A2- select-cordless-stick-vacuum-cleaner-led-lights SUMMITSERIES Select Cordless Stick Vacuum Cleaner (2 models available: “for-pets” and/or “LED-lights”) Team 2 “AB InBev” (originated in Belgium) https://www.corona.com/es/corona-cero Corona Cero Team 3 “Inditex” (originated in Spain) https://www.massimodutti.com/gb/wool-blend-knit-zipup-cardigan- l05753641?pelement=43505782 Massimo Dutti collection; If needed, can focus on only Wool Blend Knit Zip-up Cardigan Team 4 “NIO Inc” (originated in China) https://www.nio.com/es8?&noredirect= NIO EL8 Flagship SUV Team 5 “Shiseido” (originated in Japan) https://www.shiseido.com/us/en/ultimune-power-infusing-serum-9990000000213.html Serum Power Infusing Concentrate collection Team 6 “Apple Inc” ( originated in USA) https://www.apple.com/apple-vision-pro/ Vision Pro A Look Back at Block 1: SCOR model – plan, source, make, distribution, return Source: Peatix 1) How would you describe Power Glass’s supply chain? Which of the 4 performance dimensions would Power Glass prioritize (Quality, Time, Cost, Flexibility)? 2) How were you able to advise Amit where to build the new Power Glass facility? 3) Who and where are the key suppliers in Power Glass’s upstream supply chain? 4) What methods of transportation could be involved in moving the products / raw materials from the origin to the final destination? 5) Would you advise Amit to manage the whole new supply chain in-house or outsource? 5 IBPEEN123R1 ‘External Environment’ OPS&SCM Block 2 1. Operations & Supply Chain Management (OP&SCM). Having an effective supply chain is key for any business to maintain a competitive advantage and be successful. You will learn how companies strategically manage and handle the flow of goods starting from the raw material components all the way to distributing the final product to the consumer. You will be exposed to a broad range of activities and the process involved in the distribution of a final product, which include demand planning, procurement, manufacturing, inventory and warehouse management, and transportation. You will understand and analyse the supply chain of one product from one of the 6 large corporations. Integrated Learning Goal(s). Interpret quantitative and qualitative data concerning the external environment of a multinational in a country Justify the (potential) success or failure of a product of a multinational in a country using an applied model/framework (STEEP or PESTLE) Analyse the supply chain of a large corporation; the overall supply chain and the individual elements within its operations IBPEEN123R1 Operations & Supply Chain Management Topics (Block 2) Lesson 1: Lesson 2: Demand & Procurement Manufacturing & Packaging Lesson 3: Lesson 4 (online): Warehouse & Inventory Q&A: Calculations for inventory management Exam Preparation Operations & Supply Chain Management: Theories Lesso Topics Reading material (TBD) n Demand & Procurement Book: , Chapter 7, Pages 166 – 168; L1 Chapter 12, Page 258 - 265 Manufacture & Packaging Book: , Chapter 11, Page 239 – 252; L2 Downloadable PDF on BrightSpace folder week 3&4 (a chapter from another book on manufacture) Warehouse & Inventory Book: , Chapter 10, 222 - 226 Book: , Chapter 8, 184 - 198 L3 Q&A: Self-study materials on BrightSpace and online Q&A consultancy via L4 - Inventory Management – Teams W7 formulas  IBPEEN123R1 Operations & Supply Chain Management Project time set-up (w1 to w6; Biweekly) Lesson 1 Kraljic Matrix Students will do preliminary research to understand the upstream of the chosen company from where the supplies’ raw materials are sourced (point of origin). Students will analyse the suppliers' strategic position of leverage to the operations based on its scarcity and financial impact. Lesson 2 Unitization design Students will lay out the main activities within a company's operations and understand its downstream flow, including transportation and facility location, to the customer / end-user (point of distribution in your chosen country). Students will calculate to establish the unitization process for a TL transportation. Lesson 3 + 4 (online) Inventory calculations Students will work on the 2 formulas taught in the lesson for inventory management. 9 Warm-up Activity : What would you like to drink? Before we begin, let’s do a mini poll to gauge the beverage preferences in your class. Picture yourself at a social event with 5~10 of your friends – Who are they? Where would you be? And most importantly, what would be your go-to drink from the list below? 10  Changing Requirements of Consumers After analysing and discussing the results of the activity that you have just done and think about the following: Source: Linkedin Source: Heineken.com Due to the changing lifestyles of consumers and their desire for new beer styles and experiences, the craft beer industry is becoming increasingly popular and the demand for new flavours (including alcohol-free beers) is on the rise making it more complex for both local and international brewers to manage their demand planning and distribution networks. Brewers, like other businesses, don’t want to lose out on revenue nor customers to a competitor, but at the same time they don’t want to incur costs from overproduction and unused inventory. Therefore, it is critical that brewers are constantly analysing trends in the market in order to respond to changes in demand for their products. 11 IBPEEN123R1 Operations & Supply Chain Management Introduction to demand management Demand (sales) forecasting Refers to an effort to project future demand / customers’ needs Is a key component in demand management Is helpful in deciding whether to produce large-scale and carry large inventory or to produce only what is needed and carry less inventory There are three basic types of forecasting models: judgmental, time series, and cause and effect. Proper demand forecasting not only results in less supply chain costs and higher profit margins, but also gives organizations a competitive Source: Erpinnews advantage (Source: Murphy, 2018). IBPEEN123R1 Operations & Supply Chain Management Importance of Demand Management Demand management is important because effective and efficient supply chains need to match both supply and demand; failure to do so can result in oversupply (more supply than demand) or undersupply (less supply than demand) of products (Source: Murphy, 2018). Demand management allows business leaders to stay up to date on changes in the market, which enables them to make better decisions. Understanding demand enables organizations to determine the quantity of the product that needs to manufactured to meet the supply and allows for synchronization across the supply chain. Kelloggs | Brands of the World™ | Download vector logos and logotypes Fun fact: demand planning failure During the late 1980s, Kellogg’s experienced a peak in sales, commanding a 40% market share in the U.S. and operating across 18 countries. Motivated by India's vast market size, potential market share, and relaxed regulations resulting from economic liberalization, Kellogg’s made the strategic decision to venture into the Indian market. Despite this, India presented a challenge from a broader perspective. Indian breakfast traditions predominantly favored hot, freshly cooked regional dishes, not aligning with the cultural norm of consuming ready-to-eat meals. IBPEEN123R1 Operations & Supply Chain Management Demand Forecasting Challenges While demand forecasting is the driving force for almost all supply chain related decisions and undeniably important, it’s also one of the most difficult aspects of supply chain planning. Demand is often volatile making demand forecasting both an art and a science. (Arkieva, 2021) Selection of forecasting technique(s) depends on many factors (Think about the Peloton exercise bikes for the previous slide. What factors will be taken into consideration next year when determining the demand of the product). Selecting an inappropriate technique will reduce forecast accuracy Forecast accuracy can have important logistical implications Computer forecasting software unable to completely eliminate (Source: eLearning Industry) forecast errors (example: Nike) In 2001, Nike spent $400 million on a system to help them manage their forecasts as their business was expanding rapidly, increasing the complexity of their supply chain. They wanted to forecast demand by style, color, size, etc., but this required the system to make thousands of forecasts quickly. They rushed the development of the software, which led to the system either overestimating or underestimating the demand of many products. By they end of 2001, the company reported a loss of over $100 million.  General Types of Demand Variation How to describe quantitative sales data to plan demand? Trend – up or downwards; constant growth or shrinking market; Seasonality / Seasonal / Cyclical / Pattern – summer/ winter; beginning / end of month; etc; Randomn / Noise – fluctuations with no logic to be found; no pattern; without specific cause. 15 Question: How would you describe the 2 demand variations shown above? Judgmental Forecasting This method involves using judgment or intuition and is preferred in situations where there is limited or no historical data; for example, with a new product introduction. (Murphy, 2018) What techniques can be used to learn about customer preference in this situation? Source: The Telegraph Source: Survey Monkey Source: Smallville Survey or poll Interview Analog forecasting is using a similar product (analog) to the product that is being forecast and then using the analog’s demand history as a basis to forecast demand. The challenge is to find the right analog. (Murphy, 2018)  Source: Olderhood Time Series Forecasting Time Series: The underlying assumption is that future demand is solely dependent on past demand (Murphy, 2018) However, when planning its production for the coming year, Peloton can’t look at the sales of its exercise bikes and determine the demand for 2021 from the same time period in 2019 and 2020 due to the COVID pandemic resulting in the lockdown in the US. How is that related to the lockdown? Which other products’ demand was influenced by the pandemic? What other factors can influence a time series pattern? Demand for PELOTON exercise bikes 660 640 620 600 580 560 540 jan-21 feb-21 mrt-21 apr-21 mei-21 jun-21 Source: BBC  Cause and Effect Forecasting Also known as associative forecasting; assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand. For example: The demand for backpacks is higher before the start of the new academic/school year. Give an answer for the below examples. The demand for ice-cream is higher when….. The demand for Ice Skates is higher when….. Source: skatedoctor.nl The demand for a football club’s shirt is higher when…… Source: voetbalzone.nl Can you think of other such examples? Demand and procurement A day in the procurement department…..is never slow. The sales of hot tubs increased as well during the lockdown. Bullfrog Spa’s factory in Herriman, Utah takes delivery of 40,000 gallons of chemicals, 400 sheets of plastic and up to 60,000 additional components, some from as close as 80 miles away but many from far-flung suppliers. (Wall Street Journal, 2021) For its M9 model, parts come from seven countries and 14 U.S. states, and the company estimates they travel a cumulative 887,776 miles to make one hot tub. (Wall Street Journal, 2021) 19 What is Procurement? Refers to the raw materials, component parts, supplies and services bought from outside organizations to support a company’s operations. Procurement costs often range between 60-80% of an organization’s revenues. (Source: Murphy 2018) Purchasing refers to buying a product or service from a supplier. Sourcing is finding the best supplier for goods and services. Procurement is the umbrella under which both sourcing and purchasing fall under; it refers to all of the activities shown in the left image. Source: LT supply & Purchasing 20 Strategic Objectives of Procurement: Source: Genpact Supporting organizational goals and objectives Managing the purchasing process effectively and efficiently Managing relationships with suppliers Developing strong relationships with other functional groups Supporting operational requirements (Source: Murphy, 2018) Source: Council of Europe “Good Procurement means good planning & having good suppliers.” 22-10-2024 Selection Criteria What should you look for in a supplier? Quality of the Product Discuss in groups of 2 which three criteria you feel are most important for your company / product. Delivery Speed Source: Empleo Futuro Value for money Level of Customer Service Capabilities (Versatile) Good Communication Financial Security Sustainability Experience 22 Procurement Strategy: Near Sourcing (locavore strategy) vs Off-shoring (globalization) Near-Sourcing is a term used to describe a business placing some of its operations close to where its end-products are sold. This is in contrast to offshoring, which is a trend of many companies, who outsource manufacturing operations to developing nations far away, in order to lower labor costs. Advantages: Disadvantages: More expensive Shorter delivery & lead times Undesirable publicity can arise Time Zone Compatibility Ethical Supplier Selection Cultural Closeness Availability of high quaity Infrastructure Quality Near-sourcing goods and material Source: LMA-Consulting Group 23 Procurement Strategy: Single Sourcing vs Multi-Sourcing On 11th March 2011, a 9.0 magnitude earthquake hit north eastern Japan (Honshu Island), which then caused a massive tsunami. Other than the tragic loss of thousands of lives, the earthquake caused over 120,00 buildings to collapse, severe damage to roads, railways & harbour areas. There was flooding and fires in many areas. JAPANESE. JAPAN MAP AND FLAG." Poster by TOMSREDBUBBLE | Redbubble Source: Reuters Source: AP Source: Redbubble What would you do if your one and only supplier was based on Honshu Island and their operation was affected by the earthquake & tsunami? How could your organization have benefited from having more than one supplier in such circumstances? Click on the flag/map of Japan above and read the article in order to understand the advantages & disadvantages of single sourcing vs multiple sourcing. 24  Procurement Portfolio Strategy Procurement managers must continually be aware of the supply and demand characteristics of: Raw materials Component parts Source: Barite World Purchased supplies For example: Today, millions of products - cars, washing machines, smartphones, and more - rely on computer chips, also known as semiconductors. Presently, there just aren't enough of them to meet industry demand. As Murphy: Figure 6.1 Supplier Selection Framework a result, many popular products are in short supply Source: BBC (BBC,2021). 26  Kraljic’s Portfolio Matrix High Bottleneck Strategic / Critical High level Strategy: Multiple suppliers supply risk, low High financial importance, Strategy: Partnership financial high level supply importance risk Level of Supply Risk / Complexity Routine / Noncritical Leverage Low financial Strategy: Reduce buying effort importance, High financial Strategy: Preferred Suppliers importance, low level low level supply risk supply risk Low Low Financial Importance and/or High Intangible Value to the Organization Kraljic’s Portfolio Matrix is used by many managers to classify corporate sourcing in terms of their importance and supply complexity with a goal of minimizing supply vulnerability and getting the most out of the firm’s buying power. (adapted from Murphy, 2018) 27 In Class Activity: Procurement Strategy & Kraljic Matrix You are the proud owner of a quirky bubble tea shop in Markthal called "Bubble Bliss”. Your shop is a hit with both locals and tourists, known for its fun flavors and colorful toppings. One employee has suggested that focusing purely on getting ingredients at the lowest cost isn't enough anymore, but also a smarter procurement strategy to ensure you never run out of those essential tapioca pearls or trendy popping boba, while also managing inventory costs. Source: ad.nl You agree with this insight and want to take your procurement to the next level. To do this, you ask your employee to categorize the various ingredients and supplies you buy using the Kraljic Portfolio Matrix. This will help you create a more strategic plan— one that balances costs, ensures consistent supply, and keeps your customers happy with fresh, delicious drinks. 28 In Class Activity : Procurement Strategy Use the below Procurement Strategy Portfolio Matrix to categorize the following products/suppliers: 1) Tapioca pearls; 2) Popping boba (fruit-flavored); 3) Milk and specialty tea leaves; 4) Machinery (custom built), 5) Disposable cups and paper straws 6) Flavored Syrups (e.g., Mango, Lychee, Taro) Explain/justify your reason(s) for categorizing each product in the way that you have. (Critical) (Routine) Source: Fresh Plaza (Financial Importance) 29 “The ability to ask questions is the greatest resource in learning the truth.” – Carl Jung QUESTIONS? IBPEEN123R1 Operations & Supply Chain Management Project time and assignment (60 minutes) Watch a video on BrightSpace IBPEEN123R1 Operations & Supply Chain Management Project time and assignment (60 minutes) For your own product, research and answer the questions: 1. What is the demand potential and the influential factors for this product in your country? (can relate to the research lesson if had) 2. What are some of the key raw materials / parts / components used in the production of your chosen company’s product? (Define Tier 2 / 3 / 4 / …… suppliers up until the final raw materials for 3 to 5 of the materials used in the product.) 3. Which activities occur upstream in the supply chain? (preparation of materials, warehousing, inbound transportation, sourcing, processing, etc.) 4. Who are some of the company’s key suppliers? 5. Where do the suppliers fit in the Kraljic matrix? Why? (Show them in the matrix) Source: Boston Private 22-10-2024 *If you are unable to find any of the above information on your company, use the key terms & concepts from the lesson to make your own deduction and/or analysis. IBPEEN123R1 Operations & Supply Chain Management Project time and assignment (60 minutes) Review book ‘External Environment’ Chapter 7 and Chapter 12 33