Operations and Total Quality Management

Course Description: This course focuses on managing complex management system and processes to produce and distribute products and
services efficiently and effectively thru the various TQM frameworks, concepts and quality improvement tools necessary for implementing the quality
culture that characterizes world-class organization of the 21st century. It will introduce concepts around the ISO standards for performance excellence
and explore the key actions necessary for transforming government and non-governmental organizations into world-class organizations that deliver
ever-improving value to their customers, clients and constituents. It emphasizes on the interplay between financial effects of quality operations to
financial performance.

Midterm Module 2.1: Supply Chain Management

Learning Objectives:

 Define what is supply chain and logistics

 Name the main aspects of Supply Chain Management
 Explain the current trend in Supply Chain
 Set out the benefits and risks associated with outsourcing
 Explain the risk of the supply chain and what can companies do to reduce risk
 Describe a number of the complexities of global supply chains
 Describe the ethical problems in supply chains, and the key steps that companies can take to avoid such
problems
 Describe the business concerns relating to the supply chain and recommend ways to manage those
concerns
 List various strategic , tactical and organizational obligations relating to supply chain management
 Discuss procurement in terms of the buying interfaces, the buying cycle, ethics and unified versus
decentralized decision-making
 Discuss problems related to maximizing returns
 Describe some of the obstacles and some of the trade-offs involved in establishing an successful supply
chain

What is Supply Chain and Logistics?

Supply Chain is a sequence of entities-their services, roles and operations-involved in the manufacture and supply
of a good or service. The supply chain elements involve all the functions that begin with the receipt of orders to
satisfy the request of the customer. Such roles entail product creation, marketing, logistics, networks of delivery,
finance, and customer service.

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Logistics focuses on the overall management process of how resources are purchased, stored, and shipped to their
destination. Management of logistics requires identifying distributors and suppliers, and assessing their
effectiveness and accessibility.

Facilities

 Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices
 Operations and Total Quality Management
Functions and Activities of Supply Chain

 Forecasting-Forecast is a technique which uses historical data input to make intelligent projections which
are predictive in determining the direction of future trends. Companies use forecasting to anticipate the
increase or decrease of sales.
 Purchasing-Is the organized buying on behalf of the purchasing entity of the goods and services.
Purchasing tasks are necessary to guarantee that the items needed are obtained in a timely manner and
at lower cost.
 Inventory management-Refers to the order entry, storage and use of an inventory of the company. This
included the monitoring of raw materials, components and finished products, and the storage and
processing of these items.
 Information management-Is the mechanism by which information is gathered, stored, handled and
preserved in all its forms.
 Quality assurance-Is defined as an activity to guarantee that customers receive the best product or
service possible from an organization. QA focuses on optimizing the method of providing Quality Goods to
the customer.
 Scheduling-Is the process of organising, regulating and optimizing the tasks and workloads in a
manufacturing or production process. Scheduling is used to allocate money for plants and equipment, to
manage human resources, to schedule production processes and to buy resources.
 Production and delivery-This refers to the creation of products and services and its timely delivery to its
consumers.
 Customer service-Is the act of taking into account the needs of the customer by providing and delivering
professional, useful, high-quality service and support services before, and even after the requirements of
the customer are met. Customer service satisfies any client's needs and desires.

Supply Chain Management

This is the strategic integration of business functions within a corporation and in the supply chain in order to
combine supply and demand management. SCM includes the coordinated preparation and execution of processes
required to maximize the flow of goods, knowledge and resources in functions that typically include demand
forecasting, procurement, development, inventory management and logistics — or transport and storage.

Benefits of Supply Chain Management

Management of the supply chain offers advantages including new efficiencies, greater profits, reduced prices and
increased cooperation. SCM helps businesses to control demand better, hold the optimum level of inventory,
manage delays, reduce costs and satisfy consumer demand in the most productive way possible.

Importance of Supply Chain Management

Management of the supply chain activities will enhance customer service. When done effectively, they have the
potential to ensure customer loyalty by making those items available at the right time, at the right place. By
increasing levels of customer satisfaction, businesses can create and boost customer loyalty.

SCM also provides businesses with a major benefit by reducing operating costs. SCM practices can reduce buying,
production costs and the overall supply chain. Reducing costs enhances the financial status of an organization by
rising income and cash flow.

SCM may also enhance the quality of life by encouraging job creation, creating a basis for economic development
and raising living standards. It offers a multitude of employment opportunities as supply chain professionals design
and manage all supply chains in a organization as well as stock management, warehousing, packaging and logistics.
 Operations and Total Quality Management
Supply Chain Managers

Supply chain managers establish and track the supply chain policy of an organization. Their aim is to improve
efficiency and productivity and cut costs while maintaining high-quality material for their business. Supply chain
managers keep logistics track and update the firm's inventory. They evaluate efficiency of the operations and solve
problems. They also work with suppliers and vendors to guarantee that all operations (e.g. shipping, delivery)
achieve the standards of quality and safety.

Key Aspects of SCM1

SCM seeks to align supply to demand in the most secure and reliable way.

Issues:

 Determining appropriate outsourcing levels

 Issues in procurement management
 Issues in managing suppliers
 Issues in managing customer relationship
 Being able to recognize and react quickly to problems

Flow Management

Flow management consists of guiding all subsequent activities undertaken during the manufacture or distribution
of the goods. This movement of materials, parts or subsets tends to work throughout the manufacturing and
distribution chain.

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3 Types of Flow Management (Stevenson 2015)

Product and Service Flow- It includes the transfer of goods and services from suppliers to consumers, the
management of customer service needs and the return of products.

Information Flow- Shares the forecasts and sales details, transmits orders, monitors shipments and updates the
order status.

Financial Flow- Includes terms of credit, payments and the arrangements for consignment and title ownership

Trends in Supply Chain Management

2
Trends that affect the design of supply chain and managemen t:

 Measuring ROI in the supply chain

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W. Stevenson(2015). 12th Edition Operations Management, Mc Graw Hill Education

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W. Stevenson(2015). 12th Edition Operations Management, Mc Graw Hill Education
 Operations and Total Quality Management

 Implementing “Greening” in the supply chain

 Re-examine outsourcing
 Incorporating Information technology
 Trying to adopt lean principles
 Risk managing

Benefits and Risks of Outsourcing(Stevenson 2015)

Benefits

 Cheap rates may come from lower labor costs

 The organisation's capacity to concentrate on its key assets
 Allows to convert some fixed costs to variable costs
 It could free up capital to meet other needs
 Risks can be passed on to the suppliers
 The capacity to tap into the expertise of a supplier
 Makes expansion outside of home country easier

Risks:

 Longer lead times cause inflexibility

 Higher transportation cost
 Cultural differences and language barriers
 Job loss
 Loss of control
 Productivity is lower
 Loss of enterprise knowledge
 Transfer of knowledge and concerns on intellectual property
 Tremendous effort is needed to manage the supply chain

Supply Chain Risks

 Factors that disrupts supply chain3:

 Natural disasters
 Problems with suppliers
 Issues on Quality are another type of disruption that could interfere with supplies and lead to
product returns, liability complaints and negative publicity that can affect the reputation of the
company.
 Failure to control sensitive information. When suppliers reveal confidential information to rivals,
this can undermine the competitive position of a firm.

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W. Stevenson(2015). 12th Edition Operations Management, Mc Graw Hill Education
 Operations and Total Quality Management
Risk Management

It requires determining risks, evaluating their probability of occurrence and their possible effects, and then
creating strategies to address those risks. For example, A company who buys insurance on its shipments, which
transfers the risk of items lost and damaged to an insurance company.

There are strategies used to minimize risks, these are:

 Risk avoidance- Is a risk management area where the aim is to eradicate a risk and not simply reduce it.
Rather than reduce current risks, it seeks to remove the source of the risk entirely and often substitute it
with a lower, easier to handle risk. For example, In bad weather, a business suspends the operations of a
construction site to avoid risk and assures the safety of their workers.
 Risk reduction- It refers to how a firm can mitigate its costs by introducing steps to avoid risks from being
actualized or to decrease the amount that will actually occur. For example, Through more strict quality
control procedures, a car maker decreases the risk of costly and damaging product recalls.
 Risk sharing- A self-insurance method to manage or reduce exposure to risk by spreading the loss burden
across multiple units of a company or business union. For example, For example, if operations and
marketing start sharing a project's risks, it might be more likely to be successful compared to the case
where operation carries all risks.

Successful risk management has the following elements(Stevenson 2015):

 Know the suppliers

 Supply Chain visibility
 Develop capability to respond to events

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Global Supply Chains

A global supply chain is a complex global system wherein a company buys or uses products or services from
abroad. It includes people, information, processes and resources engaged in the manufacturing, handling and
distribution of materials and finished goods or in offering a service to the client.

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Complexities of Global Supply Chain

 Language barriers and cultural differences

 Fluctuating currency
 Unstable Political environment
 Increasing delivery costs and lead times
 Higher need to build trust among supply chain partners
 Operations and Total Quality Management
Supply Chain Management Ethical Issues

Ethical Problems in the Supply Chain

Supply Chain does not simply involve the transfer of raw materials or goods in a coordinated flow to end the final
product distribution. This requires human contact at every stage giving rise to a variety of problems. We tend to
overlook these interacting elements most of the time, and just concentrate on the final product or results.

Examples:

 Bribing officials of the government or companies to obtain permits or a favorable status.

 Claiming that they are practicing a “Green” supply chain
 Neglecting health, safety and environmental standards
 Violating the rights of their worker

Dealing with Ethical Issues (Stevenson 2015)

 Create an ethical code of conduct for the supply chain

 Overseeing supply chain activities
 Select suppliers with a good reputation and ethical conduct
 Integrate labor standards conformance into supplier contracts
 Address ethical problems quickly.

Small Business Concerns (Stevenson,2015)

 Inventory Management
 Carry additional inventory as a way to prevent shortages due to supply chain disruption and have
supplier and customer backups for delivery.
 Reducing Risks
o Deal only with reliable suppliers
o Find out which suppliers are critical and get to know them and whatever obstacles they face
o Assess performance of the supplier
o Notice warning signs regarding supplier problems
o Create plans to manage problems in the supply chain
 International Trade
o Team up with someone who has an expertise when it comes to monitoring foreign suppliers
o Set timing and demand expectations
o Do not depend on one supplier
o Build goodwill to assist with negotiations and resolve any issues that may arise
o If the risks of working with foreign suppliers are prohibitive, consider using domestic suppliers

Management Responsibilities (Stevenson 2015)

Legal- Being familiar with the laws and regulations of the countries where supply chains exist, and complying with
laws and trying to operate in accordance with regulations.

Economic- Providing goods and services to satisfy demand in the most effective manner possible.

Ethical- Carrying out business in a way compatible with social and moral expectations.
 Operations and Total Quality Management
As stated by Stevenson, there are some strategic roles that have a significant effect on the performance of both
supply chain management and the company itself:

 Aligning supply chain strategy

 Network Configuration
 Information and Technology
 Goods and services
 Capacity Planning
 Strategic Partnerships
 Distribution Strategy
 Risk reduction and uncertainty

Responsibility of the Management(Stevenson, 2015)

Tactical Operational
Forecasting Scheduling
Sourcing Receiving
Planning the operations Transforming
Managing the company’s Inventory Order fulfilling
Transportation Planning Managing Inventory
Collaboration Shipping
Sharing of information
Controlling
Procurement

This is the responsibility of the purchasing department to procure the products, components, and equipment and
services necessary to manufacture a product and provide a service. Procurement usually applies to the final
purchasing act, but it may also involve the entire acquisition process that could be of great importance to
businesses leading up to their final buying decision. Firms can be as buyers and sellers on both sides of the
procurement process because here we focus mainly on the soliciting company side.

The goal of procurement is to develop and implement purchase plans for products and services which facilitate
strategies for operational activities.

Purchasing Interfaces (Stevenson, 2015)

 Operations and Total Quality Management
According to Stevenson below are the duties of the purchasing department:

 Determining the supply resources

 Contract negotiation
 Maintain a supplier database
 Acquiring goods and services
 Manage the suppliers

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The Purchasing Cycle

The procurement cycle (P2P) is the process by which you order, obtain and pay for the goods and services your
business needs. The buying cycle starts with needs assessment and finishes with payment and record keeping for
businesses of all sizes, from local small businesses to global megacorps. Companies produce a purchase order, pay
for the products directly, or invite tenders (also known as bids) to promote more competitive and price-efficient
competition among suppliers wishing to fulfill a particular need.

Main steps in the purchasing cycle (Stevenson, 2015)

 Requisition is received by the purchasing

 Selecting suppliers
 Order placement with the vendor
 Order monitoring
 Receive orders

Supplier Management

The need for a process of supplier management is not only exclusive to large multinational organizations.
Indeed, it is almost guaranteed that at some point every business will be buying goods, raw materials and
services for third parties. The method you take to embark, handle and interact with your suppliers is therefore
absolutely crucial to your success, and one that requires significant consideration.

Supplier Management do the following (Stevenson, 2015):

 Selecting suppliers
 Supplier Audit
 Supplier Certification
 Supplier relationship management
 Partnership with suppliers( collaborative planning, forecasting, replenishment and strategic
partnering)

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Vendor Analysis, Supplier Audits and Supplier Certification

A vendor is an enterprise or an entity that has a saleable product or service. Companies depend on the ability of a
vendor to fulfil their needs in order to execute their business functions efficiently. Hence, it is necessary for a
business to select vendors who can meet their needs. Companies use a method called vendor analysis to
determine the potential of current or prospective vendors.
 Operations and Total Quality Management
Vendor analysis defines each seller's strengths and weaknesses, and compares them to select the vendor that
better fits their firm's needs. A vendor assessment must be carried out if an organization wants to find a new
vendor or determine the efficiency of its current vendors.

Supplier Audit

This is a method of implementing the protocols and processes decided upon during an audit selection process. It
defines nonconformity in the production, engineering change process, invoicing, quality process, and processing of
supplier and shipment. Supplier audits are analyses which are performed to record the relationships among
various entities in order to verify compliance with the goods and processes of a supplier.

Supplier Certification

Supplier certification serves as part of a broader quality control plan for manufacturers. It is basically a mechanism
whereby the company can control its relationship with its suppliers and collaborate and generate value for all
stakeholders as a single entity.

Supplier Relationship Management

Supplier management is the interaction between a buyer and supplier, subject to the criticality of the products or
services purchased and provided to your company, which defines the type of relationship you will try to create
with your suppliers. The management of supplier relationships is a key soft skill for both supply and procurement
managers.

Types of relationships determined by the duration of trading relationship

Short term-According to Stevenson a short term relationship will require competitive bidding and minimal
interaction with them.

Medium term-refers to an on-going relationship with suppliers

Long term- entails greater cooperation that prospers into a strong partnership

Strategic Partnering

Strategic partnership is any relationship which can support your business with another business or person. .This
may be a partnership with a supplier or a client but it is more likely to be another supplier to your own consumer
base.

Traffic Managemen5t- Refers to monitoring of physical and cost-control phases of the receipt, handling, storage
and distribution of goods by commercial and industrial organisations.

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W. Stevenson(2015). 12th Edition Operations Management, Mc Graw Hill Education
 Operations and Total Quality Management
Monitors schedules and delivery system and times decisions, taking into account the following
(Stevenson,2015):

 Shipping Cost alternatives

 Regulations of the government
 Organizational Needs
 Delays and disruption in shipping

Tracking Goods: RFID

Radio frequency identification (RFID). According to Stevenson this is a system that detects objects using radio
waves, such as products in supply chains. This is similar to barcodes except for : it can be used to gain much more
information, it does not require line of sight reading and does not need to be read one at a time.

It has the capability to (Stevenson, 2015):

 Greater supply chain visibility

 Enhance Inventory Management
 Enhance quality control
 Improve relationship with supplier and customers

3PL Third Party Logistics

A 3PL (third-party logistics) company offers outsourced logistics services, covering everything that includes
handling one or more components of procurement and fulfilment activities. This includes warehousing and
distribution. The benefits are: expert’s knowledge, highly developed information system and capability to acquire
favourable shipping rates.

Managing Returns

Reverse Logistics-This responds to the life-cycle tracking of the goods until they hit the end user. This can include
how your item might be reused, how it should be thrown away of properly after use, and any other way your
expired product can add value. Products are handed back for a number of reasons and under various conditions to
firms or third-party handlers.

Elements of Return Management

Gatekeeping (in terms of the supply chain) refers to inspection of the returned products at the point of entry in
the consumer's reverse flow and back to the manufacturer / supplier. Gatekeeping is a crucial aspect of reverse
logistics and companies take control of returns very carefully as it directly affects the reputation of the company.

Avoidance-This refers to ways to reduce the number of returnable products or items.

Creating an Effective Supply Chain (Stevenson,2015)

 Starts with strategic sourcing

o Analyze the procurement cycle to minimize costs by eliminating waste and non-value - added
operations, raise revenues, mitigate risks and enhance the efficiency of the suppliers.
o
 Operations and Total Quality Management
There should be (Stevenson 2015) :

 Trust
 Effective Communication
 Information velocity
 Supply chain visibility
 Event management capability
 Performance Metrics

According to Stevenson these are the challenges encountered by the organization:

 Obstacles to organization integration

 Bring top executives on board
 Trade off dealings
 Small businesses
 Uncertainty and variation
 Response time

Trade Offs- This is a strategy of decreasing or ignoring one or more favourable results in exchange for boosting or
achieving other desired goals in order to optimize overall return or efficacy in the circumstances concerned.

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 Lot-size-inventory trade-off- Large lot sizes yield incentives in terms of quantity discounts and reduced
annual setup costs, but it improves suppliers' amount of security stock (and inventory carrying costs)
 Inventory-transportation cost trade-off- Suppliers tend to ship entire truckloads to spread shipping costs
over as many units as possible, instead of partial loads. It leads to higher prices for consumers to keep.
o Cross Docking-Is a logistics process where the supplier's or manufacturing plant's products are
delivered directly to a customer or retail chain with no carrying or storage time at all. Cross
docking occurs in a distribution loading terminal; usually on two (inbound and outbound) points
with limited storage space comprising of trucks and dock doors.

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 Lead time-transportation costs trade-off- Suppliers like shipping in full loads, but waiting for enough
orders and output to hit full load will increase lead time.
 Product variety-inventory trade-off-Greater product variety means typically smaller lot sizes and greater
setup costs, as well as relatively high transport and inventory management costs.
o Delayed Differentiation-Development of standard parts and components that are retained to
add distinguishing characteristics until late in the process.
 Cost-customer service trade-off- Production and shipment of big lots reduces costs but the lead time
increases
o Disintermediation-Is the method of eliminating the broker or middleman from potential
transactions. In banking, disintermediation is the removal of funds from indirect financial
institutions for direct investment, such as banks and savings and loan associations.
 Operations and Total Quality Management
Assessment: Quiz

Caselet:

ECoGlass creates sealed, colorful settings. They are composed of a hand-blown, water-filled glass sphere, one fish,
and some aquatic plants. The fish and plants work together to keep the mechanism running for as long as it's
warm. The spheres have become a popular holiday gift, so sales skew in November / December direction.
EcoGlass, headquartered in Seattle , Washington, wants the operation globalized. This year Latervia's European
country, famed for its cheap and expert glass blowing, has lifted its tariff on exports. EcoGlass also identified
another European country, Rombia, as a growing product because there are no fees for imports. Raw materials are
transported by aircraft and the end product is delivered by aircraft and then by truck. EcoGlass hires you to help
them build a strategic strategy for their production and distribution. Rubrics included below

Questions (20PTS. EACH):

 Identify and assess the risks and benefits to moving the supply chain to a global market. Be CERTAIN to
ANALYZE both the supplier and the consumer ends of the supply chain.
 Discuss how globalization will affect the various modes of transportation. What are some strengths and
weaknesses of each mode of transportation? How would a 10% increase in fuel prices affect EcoGlass's
globalization plans
 How should EcoGlass adjust its manufacturing and distribution to take into account the product's
seasonality?

Rubrics
Answer (point is clear and 5
substantial)

Reason (Answer is supported 4

and is critically observed in the
video)
Analysis (Theoretical concepts 5
and discussions are observed
and applied)
Conclusion (States a conclusion 3
with justification based on
reasonable interpretation
Grammar and usage mechanics 3
(Spelling, punctuations, proper
capitalization and sentence
construction)
Total 20pts.

References:

https://www.investopedia.com/terms/s/supplychain.asp
https://www.investopedia.com/terms/l/logistics.asp
 Operations and Total Quality Management

https://www.thebalancesmb.com/definition-of-supply-chain-management-2892749
https://www.accountingtools.com/articles/what-is-purchasing.html
https://www.techopedia.com/definition/20012/information-management-im
https://www.investopedia.com/terms/c/customer-service.asp
https://searcherp.techtarget.com/definition/supply-chain-management-SCM
https://resources.workable.com/supply-chain-manager-job-description
https://simplicable.com/new/risk-management-examples
https://www.insuranceopedia.com/definition/4007/risk-avoidance
http://www.investorwords.com/19203/risk_sharing.html
https://www.cips.org/Knowledge/Procurement-topics-and-skills/SRM-and-SC-Management/Global-
Supply-Chains/
https://www.hicxsolutions.com/supplier-management-what-is-supplier-relationship-management/
https://study.com/academy/lesson/vendor-analysis-definition-process.html
https://www.enhancequality.com/auditing/supplier-
audits/#:~:text=It%20identifies%20nonconformance%20in%20the,a%20supplier%27s%20products%20a
nd%20processes.
https://www.mbaskool.com/business-concepts/operations-logistics-supply-chain-terms/15620-supplier-
certification.html
https://smallbusiness.co.uk/what-is-a-strategic-partnership-2536190/
http://www.casestudyinc.com/glossary/gatekeeping#:~:text=Gatekeeping%20(in%20supply%20chain%2
0terms,back%20to%20the%20manufacturer%2Fsupplier.&text=Gatekeeping%20also%20helps%20in%2
0avoiding%20any%20negative%20customer%20impact.
https://www.adaptalift.com.au/blog/2011-12-23-what-is-cross-docking-understanding-the-concept-
definition
W. Stevenson(2015). 12th Edition Operations Management, Mc Graw Hill Education
Operations and Total Quality Management