Chapter 1 - Introduction
Key Terms, Ideas & Concepts
Operations and supply chain management (OSCM)
The design, operation, and improvement of the systems that create and deliver the firm's primary products and services.
Key Idea, pg. 4
A good starting point for understanding a supply chain is to sketch out the network from start to finish.
Key Idea, pg. 4
Things are made using operations processes. Things are moved and stored using supply chain processes. Supply chain management is the integrated management of operations and supply chain processes.
Questions Answered in each Section of OSCM
I. Strategy, Products, and Capacity: How does the firm's strategy impact its products and processes?
II. Manufacturing and Service Processes: How are processes that transform resources into products designed?
III. Supply Chain Processes: How are products
Process
One or more activities that transform inputs into outputs
Key Idea, pg. 7
Companies are positioned in different places in the supply chain. Within the context of their position, they all require planning, sourcing, making, delivering, and returning processes.
Key Idea, pg. 8
The things produced by a service are intangible. Service processes tend to be highly variable and time dependent compared to goods-producing processes.
Product-service bundling
When a firm builds service activities into its product offerings to create additional value for the customer.
Key Idea, pg. 9
OSCM jobs focus on delivering the goods on-time and at low cost.
Key Idea, pg. 10
OSCM jobs are hands-on, people-oriented jobs.
Identify the elements of operations and supply chain management (OSCM).
OSCM involves the integration of strategy processes to implement the strategy, and analytics to support the ongoing decisions needed to manage the firm.
Know the potential career opportunities in operations and supply chain management.
OSCM people specialize in managing the production of goods and services. OSCM jobs are hands-on, and require working with others and figuring out the best way to do things. The chief operating officer (COO) works with the CEO and company president to dete
Chapter 2 - Strategy
Key Terms, Ideas & Concepts
Sustainability
The ability to meet current resource needs without compromising the ability of future generations to meet their needs.
Triple bottom line
Evaluating the firm against social, economic, and environmental criteria.
Operations and supply chain strategy
The setting of board policies and plans that will guide the use of the resources needed by the firm to implement its corporate strategy.
Operations effectiveness
Performing activities in a manner that best implements strategic priorities at minimum cost.
Formulating an Operations and Supply Chain Strategy
1. Develop/Refine the Strategy (Yearly)
- Define vision, mission, and objectives
- Conduct strategic analysis
- Define strategic competitive priorities
2. Translate the Strategy to Operations and Supply Chain Initiatives (Quarterly)
- Product design/revis
Key Idea, pg. 27
Competing based on cost can be difficult unless the firm has some unique advantage over the competition. For example, an inexpensive source of raw material or access to low-cost labor may create the necessary advantage.
Key Idea, pg. 28
Same-day delivery of items ordered from the Internet is now an important competitive feature for some companies. Keep in mind that competitive priorities may change over time.
Key Idea, pg. 29
Often the services that are included with a product are key differentiators in the marketplace.
Straddling
When a firm seeks to match what a competitor is doing by adding new features, services, or technologies to existing activities. This often creates problems if trade-offs need to be made.
Order winner
A specific marketing-oriented dimension that clearly differentiates a product from competing products.
Order qualifier
A dimension used to screen a product or service as a candidate for purchase.
Activity-system maps
Diagrams that show how a company's strategy is delivered through a set of supporting activities.
Supply chain risk
The likelihood of a disruption that would impact the ability of a company to continuously supply products or services.
Productivity
A measure of how well resources are used.
Know what a sustainable business strategy is and how it relates to operations and supply chain management.
A strategy that is sustainable needs to create value for the firm's shareholders and stakeholders. The shareholders are equity owners in the company. The stakeholders are those individuals and organizations that are influenced by the actions of the firm.
Define operations and supply chain strategy.
This involves setting the broad policies and plan for using the resources of a firm. The operations and supply chain strategy coordinates operational goals with those of the larger organization. A firm's operational capabilities should match the changing
Explain how operations and supply chain strategies are implemented.
Strategies are implemented through a set of activities designed to deliver products and services in a manner consistent with the strategy.
Understand why strategies have implications relative to business risk.
Operations and supply chain strategies need to be evaluated relative to their riskiness. Supply chain disruptions are unplanned and unanticipated events that disrupt the normal flow of goods and materials. Risks can be categorized along two dimensions: su
Evaluate productivity in operations and supply chain management.
Productivity measures are used to ensure that the firm makes the best use of its resources. Since these are relative measures they are only meaningful if they are compared to something else. Often the comparison is to another company.
Shell Oil Company's motto "People, Planet and Profit" is a real-world implementation of what OSCM concept?
Triple bottom line
A strategy that is designed to meet current needs without compromising the ability of future generations to meet their needs.
Sustainable
The three criteria included in a triple bottom line.
Social, economic, environmental
The eight operations and supply chain competitive dimensions.
Cost, quality, delivery speed, delivery reliability, coping with changes in demand, flexibility and speed of new product introduction, other product-specific criteria
It is probably most difficult to compete on this major competitive dimension.
Cost
This occurs when a company seeks to match what a competitor is doing while maintaining its existing competitive position.
Straddling
A criterion that differentiates the products or services of one firm from those of another.
Order winner
A screening criterion that permits a firm's products to be considered as possible candidates for purchase.
Order qualifier
A diagram showing the activities that support a company's strategy.
Activity-system map
A measure calculated by taking the ratio of output to input.
Productivity
Chapter 7 - Manufacturing Processes
Key Terms, Ideas & Concepts
Lead time
The time needed to respond to a customer order.
Customer order decoupling point
Where inventory is positioned in the supply chain.
Make-to-stock
Assemble-to-order
Make-to-order
Engineer-to-order
These terms describe how customers are served by a firm.
Lean manufacturing
To achieve high customer service with minimum levels of inventory investment.
Project layout
For large or massive products produced in a specific location, labor, material, and equipment are moved to the product rather than vice versa.
Workcenter
A process with great flexibility to produce a variety of products, typically at lower volume levels.
Manufacturing cell
Dedicated area where a group of similar products are produced.
Assembly line
An item is produced through a fixed sequence of workstations, designed to achieve a specific production rate.
Continuous process
A process that converts raw materials into finished product in one contiguous process.
Product-process matrix
A framework depicting when the different production process types are typically used depending on product volume and how standardized the product is.
Understand what a manufacturing process is.
Manufacturing processes are used to make tangible items. At a high level these processes can be divided into three steps: (1) sourcing the parts needed, (2) making the item, and (3) sending the item to the customer. In order to allow parts of the process
Explain how manufacturing processes are organized.
Manufacturing layouts are designed based on the nature of the product, volume needed to meet demand, and cost of equipment. The trade-offs are depicted in the product-process matrix, which depicts the type of layout relative to product volume and the rela
A firm that makes predesigned products directly to fill customer orders has this type of production environment.
Make-to-order
A point where inventory is positioned to allow the production process to operate independently of the customer order delivery process.
Customer order decoupling point
A firm that designs and builds products from scratch according to customer specifications would have this type of production environment.
Engineer-to-order
This is a production layout where similar products are made. Typically it is scheduled on an as-needed basis in response to current customer demand.
Manufacturing cell
The relationship between how different layout structures are best suited depending on volume and product variety characteristics is depicted on this type of graph.
Product-process matrix
Chapter 9 - Service Processes
Key Terms, Ideas & Concepts
service package
A bundle of goods and services that is provided in some environment.
high and low degrees of customer contact
The physical presence of the customer in the system and the percentage of time the customer must be in the system relative to the total time it takes to perform the service.
Key Idea, pg. 205
When reflecting on the effectiveness of service encounters, consider your experiences with servers who try to sell you something in addition to what you are already purchasing. Additionally, consider "self-service" where the customer does the work.
Key Idea, pg. 206
Variability is the major problem with services that require direct customer contact. Innovative approaches are needed to manage this variability.
Key Idea, pg. 207
The customer's perception related to a poor encounter may be changed if the problem is addressed quickly.
service guarantees
A promise of service satisfaction backed up by a set of actions that must be taken to fulfill the promise.
service blueprint
The flowchart of a service process, emphasizing what is visible and what is not visible to the customer.
poka-yokes
Procedures that prevent mistakes from becoming defects. They are commonly found in manufacturing but also can be used in service processes.
Key Idea, pg. 213
Good employee training, information systems and processes, and a supportive reward structure are essential to exemplary service.
Understand the characteristics of service processes.
A service package is the bundle of goods and services that is provided to the customer in some environment. Services can be conveniently classified according to the degree of "contact" or physical presence of the customer in the system. In some cases, the
Explain how service systems are organized.
Service systems differ from manufacturing systems in a number of significant ways including: (1) typically services cannot be placed in inventory for later use, (2) the process is the product, (3) patents and copyrights typically cannot be obtained, (4) a
Analyze simple service systems.
Service blueprints are a special type of flowchart tool that places special emphasis on identifying the high customer contact and low customer contact aspects of a service. The distinction is made with a "line of visibility" on the flowchart.
Contrast different service designs.
Contrasting service designs include: (1) the production-line approach used by McDonald's, (2) the self-service approach used by gas stations, and (3) the personal-attention approach used by Nordstrom's Department Stores and the Ritz-Carlton Hotel Company.
What is the term used for the bundle of goods and services that are provided in some environment by every service operation?
Service package
A ride at an amusement park is an example of a service operation where there is direct contact between the customer and server, but little variation in the service process--neither the customer nor server has much discretion in how the service will be pro
Face-to-face tight specs
Service systems can generally be categorized according to this characteristic that relates to the customer.
Customer contact
A service triangle consists of these four features.
Service strategy, support systems, employees, customer
This framework relates to the customer service system encounter.
Service-system design matrix
This is the key feature that distinguishes a service blueprint from a normal flowchart.
Line of visibility
Having your luggage arrive on time and when you land at an airport is what type of service in the service package?
Implicit service
SecondLife would be this type of virtual service.
Pure virtual customer contact
These procedures are done to make a system mistake-proof.
Poka-yokes
These are the three steps of service at Nordstrom.
Warm Welcome, Anticipation and Compliance, Fond Farewell
What are the four strategies for managing customer-induced variability?
Classic accommodation, low-cost accommodation, classic reduction, uncompromised reduction
The front end and the back end of a service encounter are referred to as what?
Service bookends
Chapter 11 - Process Design and Analysis
Key Terms, Ideas & Concepts
process
Any set of activities performed by an organization that takes inputs and transforms them into outputs ideally of greater value to the organization than the original inputs.
cycle time
The average time between completions of successive units in a process (this is the definition used in this book).
utilization
The ratio of the time that a resource is actually activated relative to the time that it is available for use.
Key Idea, pg. 265
Drawing a picture is always the first step in analyzing a process. Keep the drawing simple to start with.
buffering
A storage area between stages where the output of a stage is placed prior to being used in a downstream stage.
blocking
The activities in the stage must stop because there is no place to deposit the item just completed.
starving
The activities in a stage must stop because there is no work.
bottleneck
A resource that limits the capacity or maximum output of the process.
make-to-order
A process that is activated only in response to an actual order.
make-to-stock
A process that produces standard products that are stored in finished goods inventory.
hybrid
Combines the features of both make-to-order and make-to-stock.
pacing
Movement of items through a process is coordinated through a timing mechanism.
productivity
The ratio of output to input.
efficiency
A ratio of the actual output of a process relative to some standard.
run time
The time required to produce a batch of parts.
setup time
The time required to prepare a machine to make a particular item.
operation time
The sum of the setup time and run time for a batch of parts that are run on a machine.
flow time
The average time that it takes a unit to move through an entire process.
throughput rate
The output rate that the process is expected to produce over a period of time.
process velocity (throughput ratio)
The ratio of the value-added time to the flow time.
value-added time
The time in which useful work is actually being done on the unit.
total average value of inventory
The total average investment in raw material, work-in-process, and finished goods inventory.
inventory turn
The cost of goods sold divided by the total average value of inventory.
days-of-supply
The number of days of inventory of an item.
Little's law
States a mathematical relationship between throughput rate, flow time, and the amount of work-in-process inventory.
job design
Specification of the work activities of an individual or group.
specialization of labor
Simple, repetitive jobs are assigned to each worker.
job enrichment
Specialized work is made more interesting by giving the worker a greater variety of tasks.
work measurement
Setting time standards for a job.
Exemplify a typical business process and how it can be analyzed.
Companies get things done with processes. A process takes inputs and transforms them into outputs that create value for the organization. Everything from ordering material from vendors on the supply side and fabricating a product in a factory to shipping
Compare different types of processes.
In the case of a multistage process that has a sequence of activities that must be done in a specific order, it is often useful to buffer the activities by placing inventory between the activities. This allows the activities to operate relatively independ
Explain how jobs are designed.
Designing each task that must be performed in a process is important. Each task takes time and must be performed by either a person or a machine. Job design is the study of how work activities are designed for individuals or groups of workers. A key desig
Analyze manufacturing, service, and logistics processes to ensure the competitiveness of a firm.
There are many different types of processes. This chapter provided examples of a bread making operation, a restaurant, and a transit bus operation. There are many "tricks" for speeding up a process. A fundamental concept is that what goes into a process m
This is a part of an organization that takes inputs and transforms them into outputs.
A process
This is the ratio of the time that a resource is activated relative to the time it is available for use.
Utilization
This is when one or more activities stop because of a lack of work.
Starving
This is when an activity stops because there is no place to put the work that was just completed.
Blocking
This is a step in a process that is the slowest compared to the other steps. This step limits the capacity of the process.
Bottleneck
What is the difference between McDonald's old and current processes?
Make-to-stock versus make-to-order
This refers to the fixed timing of the movement of items through a process.
Pacing
This is when one company compares itself to another relative to operations performance.
Benchmarking
This is the time that it takes a unit to travel through the process from beginning to end. It includes time waiting in queues and buffers.
Flow time
The relationship between time and units in a process is called this.
Little's law
What is the mathematical relationship between time and units in a process?
Inventory = Throughput rate x Flow time
What is the major assumption about how a process is operating for Little's law to be valid?
Process is operating in steady state
The two-edged sword of job design.
Specialization
This is when a job is increased vertically or horizontally.
Job enrichment and enlargement
What are the four basic work measurement techniques?
Time study, work sampling, predetermined motion-time data systems, elemental data
Chapter 5 - Strategic Capacity Management
Key Terms, Ideas & Concepts
strategic capacity planning
Finding the overall capacity level of capital-intensive resources to best support the firm's long-term strategy.
capacity
The output that a system is capable of achieving over a period of time.
best operating level
Output level where average unit cost is minimized.
capacity utilization rate
Measure of how close the firm's current output rate is to its best operating level (percent).
economies of scale
Idea that as the plant gets larger and volume increases, the average cost per unit drops. At some point, the plant gets too large and cost per unit increases.
focused factory
A facility designed around a limited set of production objectives. Typically the focus would relate to a specific product or product group.
plant within a plant (PWP)
An area in a larger facility that is dedicated to a specific production objective (for example, product group). This can be used to operationalize the focused factory concept.
economies of scope
When multiple products can be produced at lower cost in combination than they can be separately.
capacity cushion
Capacity in excess of expected demand.
Key Idea, pg. 120
Typically a firm can run a factory at a much higher capacity utilization rate than a service facility such as a call center. Less predictable demand requires a lower capacity operating point for good service.
Explain what capacity management is and why it is strategically important.
An operations and supply chain management view of capacity emphasizes the time dimension of capacity. Three time horizons are generally used: long range (greater than a year), intermediate range (next 6 to 18 months), and short range (less than a month).
Exemplify how to plan capacity.
From a strategic, long-term view, capacity additions or reductions come in chunks (fixed amounts). For example, an additional machine of a certain type is added to the existing pool of machines. Issues than involve how frequently and how much capacity is
Evaluate capacity alternatives using decision trees.
A useful technique for analyzing capacity problems is the decision tree. With this format the sequence of decisions are organized like branches in a tree. The potential consequences of the decisions are enumerated and evaluated based on their probability
Compare capacity planning in services to capacity planning in manufacturing.
Often services require that capacity be available immediately and that it be near where the customer resides. For example, a bank needs automated teller machines (ATMs) close to where customers want immediate cash, and enough of them so customers will not
The level of capacity for which a process was designed and at which it operates at minimum cost.
Best operating level
A facility has a maximum capacity of 4,000 units per day using overtime and skipping the daily maintenance routine. At 3,500 units per day, the facility operates at a level where average cost per unit is minimized. Currently, the process is scheduled to o
85.7%
The concept that relates to gaining efficiency through the full utilization of dedicated resources, such as people and equipment.
Economies of scale
A facility that limits its production to a single product or a set of very similar products.
Focused factory
Term that describes when multiple (usually similar) products can be produced in a facility less expensively than a single product.
Economies of scope
We have this when we have the ability to serve more customers than we expect to have to serve.
Capacity cushion
In considering a capacity expansion we have two alternatives. The first alternative is expected to cost $1,000,000 and has an expected profit of $500,000 over the next three years. The second alternative has an expected cost of $800,000 and expected profi
Alternative 1 Present Value = 500,000 x (.909 + .826 + .751) - 1,000,000 = $243,000;
Alternative 2 Present Value = 450,000 x (.909 + .826 + .751) - 800,000 = $318,700;
Alternative 2 is best
In a service process such as the checkout counter in a discount store, a good target for capacity utilization is about this percent.
70%
Chapter 23 - Theory of Constraints
Key Terms, Ideas & Concepts
Goldratt's Theory of Constraints (TOC)
1. Identify the system constraints. (No improvement is possible unless the constraint or weakest link is found.)
2. Decide how to exploit the system constraints. (Make the constraints as effective as possible.)
3. Subordinate everything else to that decis
synchronous manufacturing
A production process coordinated to work in harmony to achieve the goals of the firm.
throughput
The rate at which money is generated by the system through sales (Goldratt's definition).
inventory
All the money that the system has invested in purchasing things it intends to sell (Goldratt's definition).
operating expenses
All the money that the system spends to turn inventory into throughput (Goldratt's definition).
productivity
All the actions that bring a company closer to its goals (Goldratt's definition).
bottleneck
Any resource whose capacity is less than the demand placed upon it (Goldratt's definition).
Explain the Theory of Constraints (TOC).
Eli Goldratt developed his Theory of Constraints as an alternative way to think about improving processes. His ideas have stimulated thought by practitioners due to their applicability to many areas including production, distribution, and project manageme
According to Goldratt, the goal of the firm is to do what?
Make money
At the operational level, Goldratt suggests these three measures that should guide decisions.
Throughput, inventory, operating expenses
The goal related to these three measures is this.
Increase throughput while simultaneously reducing inventory and reducing operating expense
Goldratt argues that, rather than capacity, this should be balanced.
Flow
This is any resource whose capacity is less than the demand placed on it.
Bottleneck
Chapter 10 - Waiting Line Analysis
Key Terms, Ideas & Concepts
queues
A line of waiting persons, jobs, things, or the like.
Key Idea, pg. 223
Predicting when a rush of customers will arrive can be difficult when a factor such as the weather has an impact.
queuing system
A process where customers wait in line for service.
arrival rate
The expected number of customers that arrive each period.
exponential distribution
A probability distribution associated with the time between arrivals.
Poisson distribution
Probability distribution for the number of arrivals during each time period.
service rate
The number of customers a server can handle during a given time period.
Understand what a waiting line problem is.
The study of waiting in line is the essence of this problem. Queuing theory is the mathematical analysis of the waiting line. A queuing (or waiting line) system is decomposed into three major parts: (1) the customers arriving to the system, (2) the servic
Random service times can be modeled by this.
Exponential distribution