Business Driven Information Systems 2e
CHAPTER 8
OPERATIONS MANAGEMENT
AND
SUPPLY CHAIN MANAGEMENT
McGraw-Hill/Irwin
©2009 The McGraw-Hill Companies, All Rights Reserved
8-2
Chapter Eight Overview
SECTION 8.1 – OPERATIONS MANAGEMENT
• Operations Management Fundamentals
• OM in Business
• IT’s Role in OM
• Competitive OM Strategy
• OM and the Supply Chain
•
SECTION 8.2- SUPPLY CHAIN MANAGEMENT
• Supply Chain Fundamentals
• IT’s Role in the Supply Chain
• Supply Chain Management Success Factors
• Supply Chain Management Success Stories
• Future Supply Chain Trends
•
SECTION 8.1
OPERATIONS
MANAGEMENT
McGraw-Hill/Irwin
©2009 The McGraw-Hill Companies, All Rights Reserved
8-4
LEARNING OUTCOMES
1. Define the term operations management
2. Explain operations management role in
business
3. Describe the correlation between
operations management and information
technology
8-5
LEARNING OUTCOMES
4. Describe the five characteristics of
competitive priorities
5. Explain supply chain management and
its role in a business
8-6
OM FUNDAMENTALS
• Production - is the creation of goods and
services using the factors of production
• Production management - describes all the
activities managers do to help companies
create goods
• Operations management (OM) - the
management of systems or processes that
convert or transform resources into goods
and services
8-7
OM FUNDAMENTALS
• Transformation process - the actual
conversion of inputs to outputs
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OM FUNDAMENTALS
8-9
OM FUNDAMENTALS
• Value-added - the term used to describe
the difference between the cost of inputs
and the value of price of outputs
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OM IN BUSINESS
• How does an airline service organization’s
OM team adds value?
– Forecasting
– Capacity planning
– Scheduling
– Managing inventory
– Assuring quality
– Motivating and training employees
– Locating facilities
8-11
IT’S ROLE IN OM
• Managers use IT to heavily influence OM
decisions including :
– What: What resources will be needed and in
what amounts?
– When: When should the work be scheduled?
– Where: Where will the work be performed?
– How: How will the work be done?
– Who: Who will perform the work?
8-12
OM Strategic Business Systems
• Operations strategy addresses broad questions
about using major resources to achieve corporate
objectives
• Major long-term issues addressed in operations
strategy include:
– How big to make the facilities?
– Where to locate the facilities?
– When to build additional facilities?
– What type of process(es) to install to make the
products?
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OM Strategic Business Systems
• Strategic planning - focuses on long range
planning
• Strategic business units (SBUs) - consist
of several stand-alone businesses
• Materials requirement planning (MRP) use sales forecasts to make sure that
needed parts and materials are available at
the right time and place
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OM Strategic Business Systems
• Tactical planning - focuses on producing
goods and services as efficiently as
possible within the strategic plan
• Global inventory management system provides the ability to locate, track, and
predict the movement of every component
or material anywhere upstream or
downstream in the production process
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OM Strategic Business Systems
• Operational planning and control
(OP&C) - deals with the day-to-day
procedures for performing work, including
scheduling, inventory, and process
management
– Inventory management and control
system
– Transportation planning system
– Distribution management system
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COMPETITIVE OM STRATEGY
• Five key competitive priorities which a
company can add value to its OM
decisions including:
1.
2.
3.
4.
5.
Cost
Quality
Delivery
Flexibility
Service
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COMPETITIVE OM STRATEGY
1. Cost: there can be only one lowest-cost
producer, and that firm usually establishes
the selling price in the market
2. Quality: is divided into two categories
product and process quality
–
–
–
–
Six Sigma Quality
Malcolm Balridge National Quality Awards
ISO 900, ISO 14000
CMMI
8-18
COMPETITIVE OM STRATEGY
3. Delivery: a firms ability to provide
consistent and fast delivery
4. Flexibility: a firms ability to offer a wide
variety of products
5. Service: high-quality customer service
adds tremendous value to an ordinary
product
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OM AND THE SUPPLY CHAIN
• Supply Chain Management (SCM) –
involves the management of information
flows between and among stages in a
supply chain to maximize total supply
chain effectiveness and profitability
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OM AND THE SUPPLY CHAIN
•
Four basic components of supply chain
management include:
1. Supply chain strategy – strategy for managing all
resources to meet customer demand
2. Supply chain partner – partners throughout the
supply chain that deliver finished products, raw
materials, and services.
3. Supply chain operation – schedule for production
activities
4. Supply chain logistics – product delivery process
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OM AND THE SUPPLY CHAIN
• Typical manufacturing supply chain
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OM AND THE SUPPLY CHAIN
• Typical service supply chain
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OM AND THE SUPPLY CHAIN
• Wal-Mart and Procter & Gamble (P&G) SCM
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OM AND THE SUPPLY CHAIN
• Effective and efficient SCM systems can
enable an organization to:
– Decrease the power of its buyers
– Increase its own supplier power
– Increase switching costs to reduce the threat of
substitute products or services
– Create entry barriers thereby reducing the threat
of new entrants
– Increase efficiencies while seeking a competitive
advantage through cost leadership
8-25
OM AND THE SUPPLY CHAIN
• Effective and efficient SCM systems effect
on Porter’s Five Forces
8-26
OPENING CASE QUESTIONS
DELL’S FAMOUS SUPPLY CHAIN
1. How would operations management be a
critical component to a company like Dell?
2. How would Dell use each of the three OM
planning strategies to improve its
operations?
3. How might Dell use each of the five
competitive priorities to increase value to its
goods and services?
4. Illustrate Dell’s potential supply chain
management system
SECTION 8.2
SUPPLY CHAIN
FUNDAMENTALS
McGraw-Hill/Irwin
©2009 The McGraw-Hill Companies, All Rights Reserved
8-28
LEARNING OUTCOMES
6.
List and describe the components of a typical
supply chain
7.
Define the relationship between information
technology and the supply chain
8.
Identify the factors driving supply chain
management
9.
Summarize the best practices for implementing
a successful supply chain management system
8-29
SUPPLY CHAIN FUNDAMENTALS
• The average company spends nearly half
of every dollar that it earns on production
• In the past, companies focused primarily
on manufacturing and quality
improvements to influence their supply
chains
8-30
SUPPLY CHAIN FUNDAMENTALS
•
The supply chain has three main links:
1. Materials flow from suppliers and their
“upstream” suppliers at all levels
2. Transformation of materials into
semifinished and finished products through
the organization’s own production process
3. Distribution of products to customers and
their “downstream” customers at all levels
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SUPPLY CHAIN FUNDAMENTALS
• Organizations must embrace technologies
that can effectively manage supply chains
8-32
SUPPLY CHAIN FUNDAMENTALS
8-33
IT’S ROLE IN THE SUPPLY CHAIN
• IT’s primary role is to create integrations or tight process and
information linkages between functions within a firm
8-34
IT’S ROLE IN THE SUPPLY CHAIN
Factors Driving SCM
8-35
Visibility
• Supply chain visibility – the ability to
view all areas up and down the supply
chain
• Bullwhip effect – occurs when distorted
product demand information passes from
one entity to the next throughout the
supply chain
8-36
Consumer Behavior
• Companies can respond faster and more
effectively to consumer demands through
supply chain enhances
• Demand planning software – generates
demand forecasts using statistical tools
and forecasting techniques
8-37
Competition
• Supply chain planning (SCP) software–
uses advanced mathematical algorithms to
improve the flow and efficiency of the supply
chain
• Supply chain execution (SCE) software –
automates the different steps and stages of
the supply chain
8-38
Competition
• SCP and SCE in the supply chain
8-39
Speed
8-40
SCM SUCCESS FACTORS
8-41
SCM SUCCESS FACTORS
• Segment customers
• Customize the logistics network
• Listen to signals of market demand and
plan accordingly
• Differentiate products closer to the
customer
• Strategically manage sources of supply
• Develop a supply chain IT strategy
• Adopt performance evaluation measures
8-42
SCM SUCCESS FACTORS
•
SCM industry best practices include:
1. Make the sale to suppliers
2. Wean employees off traditional business
practices
3. Ensure the SCM system supports the
organizational goals
4. Deploy in incremental phases and measure
and communicate success
5. Be future oriented
8-43
SCM SUCCESS FACTORS
• Top reasons why more and more executives are turning to
SCM to manage their extended enterprises
8-44
SCM SUCCESS FACTORS
• Numerous decision support systems (DSSs) are
being built to assist decision makers in the design
and operation of integrated supply chains
• DSSs allow managers to examine performance
and relationships over the supply chain and
among:
–
–
–
–
Suppliers
Manufacturers
Distributors
Other factors that optimize supply chain performance
8-45
FUTURE SUPPLY CHAIN TRENDS
•
Fastest growing SCM components
–
–
–
–
Supply chain event management (SCEM)
Selling chain management
Collaborative engineering
Collaborative demand planning
8-46
OPENING CASE QUESTIONS
Dell’s Famous Supply Chain
5. How might Dell use each of the five basic
SCM components?
6. How had Dell influenced visibility, consumer
behavior, competition, and speed though the
use of IT in its supply chain?
7. Explain the seven principles of SCM in
reference to Dell’s business model
8-47
CLOSING CASE ONE
BudNet
1. Describe the five competitive priorities of
operations management and how Budweiser can
use each one to streamline production
2. How can an SCM system help a distributor such
as Anheuser-Busch make its supply chain more
efficient and effective?
8-48
CLOSING CASE ONE
BudNet
3. SCM is experiencing explosive growth. Explain
why this statement is true using BudNet as an
example
4. Evaluate BudNet’s effect on each of the five
factors that are driving SCM success
5. List and describe the components of a typical
supply chain along with its ability to help
Budweiser make effective decisions
8-49
CLOSING CASE TWO
Listerine’s Journey
1. Explain the role of operations management
for Warner-Lambert
2. Summarize SCM and describe WarnerLambert’s supply chain strategy. Diagram
the SCM components
3. Detail Warner-Lambert’s three operations
management strategies and identify
systems it could use to help make strategic
decisions
8-50
CLOSING CASE TWO
Listerine’s Journey
4. What would happen to Warner-Lambert’s
business if a natural disaster in Saudi Arabia
depletes its natural gas resources?
5. Assess the impact to Warner-Lambert’s
business if the majority of the eucalyptus crop
was destroyed in a natural disaster
8-51
CLOSING CASE THREE
Levi’s
1. How did Levi Strauss achieve business success
through the use of supply chain management?
2. What might have happened to Levi’s if its top
executives had not supported investments in
SCM?
3. David Bergen, Levi’s CIO, put together a crossfunctional team of key managers from IT, finance,
and sales to transform Levi’s systems to meet
Wal-Mart’s requirements. Analyze the
relationships between these three business areas
and OM and SCM systems. How can OM and
SCM systems help support these three critical
business areas?
8-52
CLOSING CASE THREE
Levi’s
4. Describe the five basic SCM components in
reference to Wal-Mart’s business model
5. Explain RFID and provide an example of
how Levi’s could use the technology to
increase its business operations
6. Identify any security and ethical issues that
might occur for a company doing business
with Wal-Mart
8-53
BUSINESS DRIVEN BEST
SELLERS
• Built to Last, by Jim Collins
8-54
BUSINESS DRIVEN BEST
SELLERS
• Good to Great, by Jim Collins