Supply Chain
Network of manufacturers and service providers that work together to convert goods from raw material to end user. Linked through physical flows, information flows, and monetary flows.
Operations function
The collection of people, process, technology, and systems within an organization that has primary responsibility for providing products or services.
Inputs
-Materials
-Intangible Needs
-Information
Outputs
-Tangible Goods
-Fulfilled Needs
-Satisfied Customers
Operations Management
Planning, scheduling, and control of the activities that transform inputs into finished goods and services.
Upstream
Activities or firms positioned earlier in the supply chain relative to another activity or firm of interest.
Downstream
Activities or firms positioned later in the supply chain relative to another activity or firm of interest.
First-Tier Supplier
Supplier that provides products or services directly to a particular firm.
Second-Tier Supplier
Supplier that provides products or services to the firm that directly supplies your firm.
Supply Chain Management
Active management of supply chain activities and relationships in order to maximize customer value and achieve a sustainable competitive advantage.
SCOR Model
A comprehensive model of the core management processes and individual process types that together define the domain of supply chain management.
Process Selection
Design and implement the transformation processes that best meet the needs of customers and the firm.
Forecasting
Develop the planning numbers needed for effective decision making.
Capacity Planning
Establish strategic capacity levels (bricks and mortar) and tactical capacity levels (workforce, inventory).
Inventory Management
Manage the amount and placement of inventory within the company and the supply chain.
Planning and Control
Schedule and manage the flow of work through an organization and the supply chain; match customers demand to supply chain activities.
Purchasing
Identify and quantify suppliers of goods and services; manage the ongoing buyer-supplier relationships.
Logistics
Manage the movement of physical goods throughout the supply chain.
Structural Elements
Includes tangible resources such as buildings, equipment, and computer systems.
Infrastructural Elements
Includes the policies, people, decision rules, and organizational structure choices made by a firm.
Mission Statement
This describes what's important to the organization, called its core values, and identifies the organization's domain.
Business Strategy
The strategy that identifies the firms targeted customers and sets time frames and performance objectives for the business.
Core Competencies
Organizational strengths or abilities, developed over a long period, that customers find valuable and competitors find impossible to copy.
Functional Strategy
Translates a business strategy into specific actions for the functional areas such as marketing, human resources, and finance. Should align with overall business strategy.
Operations and Supply Chain Strategy
Functional Strategy that indicates how structural and infrastructural elements will be acquired ad developed to support the overall business strategy.
Quality
Characteristics of a product or service that bear on its ability to satisfy stated or implied needs.
Time
-Delivery Speed
-Delivery Reliability
Flexibility
A performance dimension that considers how quickly operations and supply chains can respond to the unique needs of different customers.
Four Performance Dimensions
1. Quality
2. Time
3. Flexibility
4. Cost
Stages of Business Strategy Alignment
1, Internally Neutral
2. Externally Neutral
3. Internally Supportive
4. Externally Supportive
Sales and Operations Planning
Business process that helps firms plan and coordinate operations and supply chain decisions over a tactical time horizon.
Strategic Planning
Planning that takes place at the highest levels of firm, addressing needs that might not arise for years into the future.
Tactical Planning
Planning that covers a shorter period, usually four months to a year out.
Detailed Planning and Control
Planning that covers time periods ranging from weeks, down to just a few hour into the future.
Top-Down Planning
Approach to S&OP where a single, aggregated sales forecast drives planning process. Product mixes and resource requirements must be similar period-to-period.
Bottom-Up Planning
Approach to S&OP where product/service mix is unstable and requirements vary. Managers add up requirements for each product/service separately and then total to get an overall picture.
Level Capacity Strategy
Maintaining a steady rate of regular-time production, building up inventory when demand is low, and using built up inventory when demand is high.
Chase Demand Strategy
Increase and Decrease the rate of production to match the expected demand.
Mixed Capacity Strategy
A Sales and Operations plan that varies both production and inventory levels in an effort to develop the most effective plan.
Forecast
An estimate of the future level of some variable, such as demand levels, supply levels, and prices.
Laws of Forecasting
1. Forecasts are almost always wrong
2. Forecasts for Near Term tend to be more accurate
3. Forecasts for groups of products are more accurate
4. Forecasts aren't substitutes for calculated values
Time Series Model
Quantitative forecasting models that use time series to develop forecasts.
Moving Average Model
A time series forecasting model that derives a forecast by taking an average of recent demand values.
Forecast Error
(Actual Value - Forecasted Value)
Production Line
Type of manufacturing process used to produce a narrow range of standard items with identical or highly similar designs.
Product-Based Layout
A type of layout where resources are arranged sequentially according to the steps required to make a product.
Cycle Time
For a line process, the actual time between completions of successive units on a production line.
Continuous Flow Process
Type of manufacturing process that is similar to a production line however, the product cannot be broken into discrete units.
Job Shop
Type of manufacturing process used to make a wide variety of highly customized products in quantities as small as one. General-purpose equipment and broadly-skilled workers.
Functional Layout
Type of layout where resources are physically grouped by function.
Batch Manufacturing
Type of manufacturing process where items are moved through the different manufacturing steps in groups.
Fixed-Position Layout
Type of Manufacturing layout in which the position of the product is fixed. Materials, equipment, and workers are transported to and from the product.
Four Levels of Customization
-Make-to-Stock
-Finish-to-Order
-Make-to-Order
-Engineer-to-Order
Make-to-Stock products
Products that require no customization. General products and are produced in large enough volumes to justify keeping finished goods inventory.
Finish-to-Order products
Products that are customized only at the very end of the manufacturing process.
Make-to-Order products
Products that use standard components, but the final configuration of those components is customer-specific.
Engineer-to-Order products
Products that are designed and produced from the start to meet unusual customer needs or requirements. Represents highest level of customization.
Business Process
Set of logically related tasks or activities performed to achieve a defined business outcome.
Primary Process
Process that addresses the main value-added activities of an organization.
Support Process
Process that performs necessary, albeit non-value added activities.
Development Process
Process that seeks to improve the performance of primary and support processes.
Process Map
Detailed map that identifies the specific activities that make up the informational, physical, and/or monetary flows of a process.
Productivity
A measure of process performance; ratio of outputs to inputs.
Efficiency
A measure of process performance; the ratio of actual outputs to standard outputs.
Capacity
The capability of a worker, machine, work center, plant or organization to produce output per time period.
Lead Capacity Strategy
Capacity strategy in which capacity is added in anticipation of demand.
Lag Capacity Strategy
Capacity strategy in which capacity is added only after demand has materialized.
Match Capacity Strategy
Capacity strategy that strikes balance between lead and lag by avoiding periods of high under- or overutilization.
Break-Even Point
Volume level for a business at which total revenues covers total costs.
Inventory
Stock or items used to support production (raw-materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies) and customer service (finished goods and spare parts)
Cycle Stock
Components or products that are received in bulk by a downstream partner, gradually used up, and then replenished again in bulk by an upstream partner.
Safety Stock
Extra inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time.
Hedge Inventory
Form of inventory buildup to buffer against some event that may not happen. Involves speculation of labor strikes, price increases, and unsettled governments.
Transportation Inventory
Inventory that is moving from one link in the supply chain to another.
Smoothing Inventories
Inventories used to reduce difference between upstream production levels and downstream demand.
Independent Demand Inventory
Inventory items with demand levels that are beyond a company's complete control.
Dependent Demand Inventory
Inventory items whose demand levels are tied directly to the company's planned production of another item.
Economic Order Quantity
Order quantity that minimizes annual holding and ordering costs for an item.
Master Scheduling
Detailed planning process that racks production output and matches it to actual customer orders.
Forecasted Demand
In context of master scheduling, the company's best estimate of the demand in any period.
Master Production Schedule
The amount of product that will be finished and available for sale at the beginning of each week. This schedule drives more detailed planning activities, such as material requirements planning.
Material Requirements Planning
A planning process that translates the Master Production Schedule into planned orders for the actual parts and components needed to produce the master schedule items.
Bill of Materials
Listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly showing the quantity of each required.
Lead Time
In context of the Material Requirements Plan, the time from when a component is ordered until it arrives and is ready to use.
Functional Area Problems
1. Loyalty to Functional Group
2. Processes span multiple functional areas
3. No single group has complete view or control over supply chain process
Transformation Process
All businesses associated with the flow and transformation of goods from the raw materials stage, through the end user, that have value to the end user.
SCOR Model
Plan
Source
Make
Deliver
Return
Plan
Demand/Supply Planning and Management.
Source
Sourcing stocked, make-to-order and engineer-to-order products.
Make
Make-to-stock, make-to-order, and engineer-to-order production execution.
Deliver
Order, Warehouse, Transportation & Installation Management for stocked, make-to-order and engineer-to-order products.
Return
Return of raw materials to supplier and receipt of returns of finished goods from customers: defective, excess, and MRO products.
Supply Chain Responsiveness
Ability of SC to respond to wide range of quantities demanded, meet short lead times, handle wide variety of products, and respond to demand/supply uncertainty.
Supply Chain Drivers
-Quality & Customer Value
-Information Systems
-Inventory
-Facilities/Capacity--Nodes
-Transportation--Links
Nodes
Include facilities such as plants and warehouses.
Links
Includes the transportation to and from each node.
Qualitative Forecasting
Forecasting used when situation is vague and little data exists-new products, new technology-it involves intuition and experience.
Quantitative Forecasting
Forecasting used when situation is stable and historical data exists-existing products, current technology-it involves heavy use of mathematical techniques.
Manufacturing Transformation Process
Grouping of activities that converts inputs into outputs and have value to the end user.
Works-in-Progress
Inventory that is sitting somewhere active in process of becoming a final product.
Disconnected Line Flow
Assembly line but has low volume output.
Examples of Continuous Flow
-Sugar Refinery
-Brewery
-Coal Handling
-Electric Power Generation
-Paper Manufacturing
Efficiency
Actual Output / Effective Capacity
Utilization
Actual Output / Design Capacity
Bottleneck
Operation that has the lowest effective capacity of any operation in the facility and limits a system's output.
Stages of Bottlenecks
1. Identify Constraint
2. Exploit (focus on Constraint
3. Work the Constraint
4. Elevate the Constraint
5. Find new Constraint and repeat
Holding Costs
Cost of keeping inventor on the shelf.
Ordering Costs
Cost of the purchase agent, information system, receiving labor and transportation costs.
Set-Up Costs
Process costs associated with making change over to different product in manufacturing.
Reorder Point
When the quantity on hand of an item drops to this amount, the item is reordered.
Product Structure Tree
Visual depiction of the requirements in a bill of materials, where all components are listed by levels and lead times.