Course Code: BAC506A

Course Title: Operations

Management
Course Leader:
Dr Shivakami Rajan
Email: [email protected]

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 Chapter 1
Introduction to Operations Management

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 Chapter 1: Learning Objectives
 You should be able to:
1. Define the term operations management
2. Identify the three major functional areas of organizations and describe how they
interrelate
3. Identify similarities and differences between production and service operations
4. Describe the operations function and the nature of the operations manager’s job
5. Summarize the two major aspects of process management
6. Explain the key aspects of operations management decision making
7. Briefly describe the historical evolution of operations management
8. Characterize current trends in business that impact operations management

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Operations Management
• What is operations?
• The part of a business organization that is responsible for producing goods or
services that PROVIDES EFFICIENT VALUE TO THE CUSTOMERS.
Wal-Mart, Southwest Airlines, General Electrics Toyota, Fedex UPS, P&G.. Very
famous of their operations management.
• How can we define operations management?
• The management of systems or processes that create goods and/or provide
services
• A transformation process which takes THE INPUTS and changes them INTO
OUTPUTS- GOODS/SERVICES which will drive some value to the customers.

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 Good or Service?
Goods are physical items that include raw materials, parts, subassemblies, and
final product
OM is important for both mfr and service
• Automobile
organization.
• Computer
1. Use avl resources-match the Design given
• Oven
by customer
• Shampoo
2. Consists of steps of converting the
resources into FP
Services are activities that provide some combination of time, location, form 3. The product/services thus produced –
or psychological value internal products/services
• Air travel 4. Interrelated with other functions.
• Education
• Haircut Thus knowledge of concepts, techniques of OM
• Legal counsel helps to perform EFFECTIVELY AND EFFICIENTLY
use of resources.

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 Operations Management
• For example a bank’s operation activities may include
• Forecasting
• Capacity planning (How any tellers? Too few or too many tellers will have a
negative impact to profit)
• Scheduling
• Inventory management
• Quality assurance
• Service design
• Waiting lines
• Location of facilities
• Employee motivation and training
• Layout
• Process selection
• More …
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 Operations Management
• PC manufacturer example APICS- American Production and Inventory Control Society- ASCM
• Forecasting Defines OM as
• Capacity planning “A field of study that focuses on the effective planning, scheduling,
• Scheduling use, and control of a manufacturing or services organization through
the study of concepts from design engineering, industrial engineering,
• Inventory management
management information systems, quality management, production
• Quality assurance management, inventory management, accounting and other functions
• Product design as they effect the organization”
• Waiting lines
• Location of facilities SIMPLE TERMS- OM is to augment the number of processes which add
Value to a given procedure. This value adding events should be
• Employee motivation and training Designed, keeping in mind the market conditions.
• Layout
• Process selection
• More …

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 Supply Chain

Supply Chain – a sequence

of activities and
organizations involved in
producing and delivering a
good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

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Supply & Demand
Operations &
Supply Chains Sales & Marketing

Wasteful
Supply
> Demand Costly

Opportunity Loss

<
Supply Demand Customer
Dissatisfaction

Supply
= Demand Ideal

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Supply Chain for Bread

a)Sourcing- Lesson learnt?

b)Streamlined production- Lesson
Learnt?
c)JIT-Delivery-Lesson learnt?

@Heart Demand- Forecasting

Production Planning-Control and QC.

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Basic Functions of the Business Organization

Organization

Marketing Operations Finance

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Organization - Finance

• Finance
• Budgeting
• Economic analysis of investment proposal
• Provision of funds
• Source
• Amount
• Timing

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Organization - Operations

• Operations
• The operations function consists of all activities that are directly related to
producing goods or providing services.
• It is the core of most business organizations because it is responsible for the
creation of an organization's goods or services

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Organization - Marketing

• Marketing
• Determine customer wants and needs and communicate those to
• Operations (for short term use)
• Designers (for long term use)
• Study the competitors/market and suggest new designs or modify design

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The Transformation Process
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital Process
•Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to

determine if corrective action is needed.

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Business Operations Overlap

Operations Synergized operations

Marketing Finance

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The OVERALL work of an organization- a conversion process
A set of inputs- RM ,people, Information and money enter the BLACK BOX- PROCESS of the
Organizations
Transforming resources- capital, buildings, equipment's, tools, technology, facilities staff etc.,
Transformed resources- Materials that ARE CONVERTED into PRODUCTS FOR SALE, INFORMATIONS, SERVICE etc.,.

Feedback- captures
Deviations from NORMS.
IT ensures the process
Performs AS IT SHOULD
MONITORED AND MEASURED
INTERNAL-Weight, temp-??
EXTERNAL-quality enjoyed by custome
Or % of market who buys.

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Example of an automobile- transformation process.

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 Operations Interfaces
Operations would work closely
• with the procurement team to
Industrial
manage inventory levels, Engineering
• with the finance department to
budget and control costs, Maintenance
• with the human resources Distribution
department to manage staffing
needs

THIS IS FOR INTERNAL PROCESS

Purchasing Public
Operations Relations
Operations must interface
effectively with multiple supporting
departments to ensure
Legal
• efficiency and
• coordination. Personnel
THIS IS FOR EXTERNAL SUCCESS OF
OBJECTIVES
Accounting MIS
Relationships between operations and these functions are vital to organizational
success, 19
Operations Organization –linkages
with other functions.
• Operations
• Operations is concerned
with the creation of goods
and services
• Finance
• Finance is concerned with
provision of funds
necessary for operation
• Marketing
• Marketing is concerned
with promoting and/or
selling goods or services.

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 When is a process NOT A PROCESS?
When randomness increases, when
underlying causes are not apparent,
Variations in physical features
changes
Hospitals- surgical procedures
THOUGH ROUTINE but not similar
to car manufacturing!!
1. Cataract operations-
2. Appendectomies MBA Graduates!

Skilled surgeon performs surgery-

with a team.

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Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.

Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

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Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented

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 Manufacturing vs. Service

1. Degree of customer contact

2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
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Managing Services is Challenging

1. Jobs in services are often less structured than in manufacturing

2. Customer contact is generally much higher in services compared to
manufacturing
3. In many services, worker skill levels are low compared to those of
manufacturing employees
4. Services are adding many new workers in low-skill, entry-level
positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than
in manufacturing
7. Service performance can be adversely affected by many factors
outside of the manager’s control (e.g., employee and customer
attitudes)

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Features of Operations
Management.
• 4Vs of Operations Management.
• 1.Volume- how many units of a given type? Example- FMCG, Fast-Foods-
required specialized facilities, equipment's, process,
• 2.Variety- how many types of a given products? If standard-mass production,
if not batch.- equipment, staff, skills etc. changes
• 3.Variations- how many required number of products differ from day to day
or week to week- HOLIDAY RESORTS- Cope with differences for events- time
of the years- Ski Resort full capacity- winter but summer no business.
• 4.Visibility- HOW MUCH CUSTOMERS can see the transformation?- Airport
Terminal –HIGH VISIBILITY AND LOW-VISIBILITY? GUESS!!. ID-Dosa Batter
FActory.- food processing companies.
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Difference between good and
services

Performance- Confidence, experience key

Storage??? Invest in time
Marketing--- tough- assure customers of quality and timeframe

Hedonic buying- pleasure- but services- impulsive?

Can develop relationships?
4ps and 7ps.

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 Process Management
Process - one or more actions that transform inputs into outputs EIGHT priorities are to be emphasized as competitive
advantages:
1. Low-Cost Operations
2. High Performance Design
Three Categories of Business Processes: 3. Consistent Quality
Upper-management These govern the operation of the entire 4. Fast delivery time CAPACITY OF A PROCESS
processes-MANAGEMENT organization. 5. On-time Delivery
6. Development Speed
Operational processes-CORE These are core processes that make up the
7. Product Customization
value stream.
8. Volume Flexibility
Supporting processes- These support the core processes. NOT POSSIBLE FOR AN OPERATION TO PERFORM
SUPPORT SIGNIFICANTLY BETTER THAN THE COMPETITION IN
MORE THAN ONE OR TWO.

Business processes, large and small, are composed of a series of supplier– customer
relationships, where every business organization, every department, and every individual
operation is both a customer of the previous step in the process and a supplier to the next
step in the process. 28
Process Variation
Four Sources of Variation:
Variety of goods or services The greater the variety of goods and services
being offered offered, the greater the variation in production
or service requirements.
Structural variation in demand These are generally predictable. They are Trends and seasonal
important for capacity planning. Variations,
Random variation Natural variation that is present in all
processes. Generally, it cannot be influenced
by managers.
Defective inputs,
Assignable variation Variation that has identifiable sources. This incorrect work methods
type of variation can be reduced, or
eliminated, by analysis and corrective action. out-of-adjustment
equipment

Variations can be disruptive to operations and supply chain processes. They

may result in additional costs, delays and shortages, poor quality, and
inefficient work systems

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Example of a Transformation
Process
of an UPS.
5M, TECH, TIME,ORGANISATION,
AND GOVT.
PLANT, MAT EQUP,COST- LABOUR,PRODUCTION ,MATERIAL
PRICE, DELIVERY, QUALITY, PROFITABILITY,

MIS,SPECIAL REPORTS, PERT, CPM, EDP, SYSTEM ANALYSIS,

COST ANALYSIS,
QUALITY- QC, QA, INVENTORY CONTROL, MAINTENANCE
CONTRO.
DISTRUTIONS- STRIKES, STOCK OUTS, GOVT, UNION DEMANDS
CUSTOMER

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Example of service operations
process

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Scope of Operations Management

The scope of operations management ranges across

the organization

The operations function includes many interrelated activities

such as:
 Forecasting
 Capacity planning
 Facilities and layout
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more . . . 32
Responsibilities of Operations
Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Subcontracting
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling – Issuance of work orders
– Inventory – Job assignments
– Quality

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 Role of the Operations Manager

The Operations Function consists of all activities directly related to producing goods or
providing services.

A primary function of the operations manager is to guide the system by decision

making.
• System Design Decisions
• System Operation Decisions
Operations- Services through web, mobile devices, interactive
voice response systems, and kiosks.

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Decision Making

Most operations decisions involve many alternatives that can

have quite different impacts on costs or profits
Typical operations decisions include:
 What: What resources are needed, and in what amounts?
 When: When will each resource be needed? When should the work
be scheduled? When should materials and other supplies be
ordered?
 Where: Where will the work be done?
 How: How will he product or service be designed? How will the work
be done? How will resources be allocated?
 Who: Who will do the work?

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 General Approach to Decision Making
• Modeling is a key tool used by all decision makers
• Model - an abstraction of reality; a simplification of something.
• Common features of models:
• They are simplifications of real-life phenomena
• They omit unimportant details of the real-life systems they mimic so that attention can be
focused on the most important aspects of the real-life system

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Operations Decisions and Systems Approach
 System - a set of interrelated parts that must work together
 The business organization is a system composed of subsystems
marketing subsystem
operations subsystem
finance subsystem
 The systems approach
 Emphasizes interrelationships among subsystems
 Main theme is that the whole is greater than the sum of its parts
 The output and objectives of the organization take precedence over those of
any one subsystem

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 System design decisions
• System Design
Critical Points That Influence Decision-Making In Operations
– Capacity Management
– • Alignment with Firms Objectives
Facility location
• Data-Driven Analysis
– Facility layout • Stakeholder Analysis
• CBA
– Product and service planning, design and quality • Risk Analysis
– • Scope of Decisions.
Acquisition and placement of equipment
• Available options
– Process design, job design and HR personnel • Make Decisions.

• These are typically strategic decisions that • Cost per touch inventory tactic- IKEA
• Harley Davidson- Motorcycles- Quality aspects
• usually require long-term commitment of resources
• determine parameters of system operation
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 System Operation Decisions
•Monthly and daily forecasts to determine the
• System Operation
demand from end users.
• These are generally tactical and operational decisions •Determining the deadline for satisfying
– Management of personnel demand and analyzing the variances between
– Inventory management and control lead time and deadline.
– SCM plan •Scheduling and planning for daily and weekly
– production.
Scheduling
•Assigning a cargo of biomass products or
– Project management sources to a certain method of transportation
– Quality assurance and vehicle.
– Maintenance •Routes and timetables for daily and weekly
deliveries, fleet management.
• Operations managers spend more time on system operation
•Keeping track of supply shortfalls and backlogs,
decision than any other decision area planning additional daily and weekly operations
• They still have a vital stake in system design to address the shortages.
•Control and replenishment of inventories every
day and every week.
•Scheduling the work and keeping shifts.
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U.S. Manufacturing vs. Service Employment

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Why Study OM?

• Every aspect of business affects or is affected by operations

• Many service jobs are closely related to operations
• Financial services
• Marketing services
• Accounting services
• Information services

• There is a significant amount of interaction and collaboration amongst the

functional areas
• It provides an excellent vehicle for understanding the world in which we live

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Models

• Types of Models:
• Physical Models
• Look like their real-life counterparts
• Schematic Models
• Look less like their real-life counterparts than physical models
• Mathematical Models
• Do not look at all like their real-life counterparts

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Benefits of Models

1. Models are generally easier to use and less expensive than dealing with the real system
2. Require users to organize and sometimes quantify information
3. Increase understanding of the problem
4. Enable managers to analyze “What if?” questions
5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a
problem
6. Enable users to bring the power of mathematics to bear on a problem.

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Quantitative Methods

• A decision making approach that frequently

seeks to obtain a mathematically optimal
solution
– Linear programming
– Queuing techniques
– Inventory models
– Project models
– Forecasting techniques
– Statistical models

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Model Limitations

• Quantitative information may be emphasized

at the expense of qualitative information
• Models may be incorrectly applied and the
results misinterpreted
– This is a real risk with the widespread availability
of sophisticated, computerized models are placed
in the hands of uninformed users.
• The use of models does not guarantee good
decisions.

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Metrics and Trade-Offs
• Performance Metrics
– All managers use metrics to manage and control operations
• Profits
• Costs
• Productivity
• Forecast accuracy

• Analysis of Trade-Offs
– A trade-off is giving up one thing in return for something else
• Carrying more inventory (an expense) in order to achieve a greater
level of customer service

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According to a study by Deloitte, in some categories, more than 50% of consumers expressed
interest in purchasing customized products or services, with the majority of them willing to pay
more for a customized product or service

Degree of Customization
• Customization is Relative to other standardized Mass customization is a marketing and manufacturing
products and services customized products: technique that combines the flexibility and
personalization of custom-made products with the
– Tend to be more labor intensive
low unit costs associated with mass production.
– Tend to be more time consuming
– Tend to require more highly-skilled people A small scale or in short production runs
– Tend to require more flexible equipment custom
– Have much lower volume of output manufacturing

– Have higher price tags

• Degree of customization has a significant influence on
the entire organization
– Process selection
– Job design
– Affects marketing, sales, accounting, finance, and
information systems

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 Key Issues for Operations
Managers Today

• Economic conditions
• Innovating
• Quality problems
• Risk management
• Competing in a global economy

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Environmental Concerns
• Sustainability
• Using resources in ways that do not harm ecological
systems that support human existence
• Sustainability measures often go beyond traditional environmental
and economic measures to include measures that incorporate
social criteria in decision making
• All areas of business will be affected
• Product and service design
• Consumer education programs
• Disaster preparation and response
• Supply chain waste management
• Outsourcing decisions

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 Ethical Issues in Operations
• Ethical issues arise in many
aspects of operations Financial statements
management: Worker safety
Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers rights

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Narayana Health-
Workforce- 1lplus..how to bring down the cost?

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Historical Evolution of OM
• Industrial Revolution
• Scientific Management
• Human Relations Movement
• Decision Models and Management Science
• Influence of Japanese Manufacturers

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 Historical Evolution of Operations
Management
• Craft production
• Industrial revolution (1770’s)
• Scientific management (1911)
• Human relations movement (1920-60)
• Workers should be treated with dignity
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers
• JIT, TQM, …

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 Industrial Revolution
• Pre-Industrial Revolution
– Craft production - System in which highly skilled workers use simple, flexible
tools to produce small quantities of customized goods
• Some key elements of the industrial revolution
– Began in England in the 1770s
– Division of labor - Adam Smith, 1776
– Application of the “rotative” steam engine, 1780s
– Cotton Gin and Interchangeable parts - Eli Whitney, 1792
• Management theory and practice did not advance appreciably during
this period

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 Historical Evolution of Operations
Management
• Post Civil War
• Labors coming to the cities
• Increase in capitals by forming joint stock companies
• Separation of capital from employer
• Increase in production
• Improved transportation

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Scientific Management
• Movement was led by efficiency engineer, Frederick Winslow
Taylor
– Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
– Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job, achieving
cooperate between management and workers, and separating
management activities from work activities
– Emphasis was on maximizing output

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Scientific Management -
contributors
• Frank Gilbreth - father of motion studies
• Henry Gantt - developed the Gantt chart scheduling system and recognized the
value of non-monetary rewards for motivating employees
• Harrington Emerson - applied Taylor’s ideas to organization structure
• Henry Ford - employed scientific management techniques to his factories
• Moving assembly line
• Mass production

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Human Relations Movement

• The human relations movement emphasized the importance of the human

element in job design
• Lillian Gilbreth
• Elton Mayo – Hawthorne studies on worker motivation, 1930
• Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954
• Frederick Hertzberg – Two Factor Theory, 1959
• Douglas McGregor – Theory X and Theory Y, 1960s
• William Ouchi – Theory Z, 1981

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 Decision Models & Management
Science
• F.W. Harris – mathematical model for inventory management, 1915
• Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s
• Tippett – statistical sampling theory, 1935
• Operations Research (OR) Groups – OR applications in warfare
• George Dantzig – linear programming, 1947

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 Influence of Japanese
Manufacturers
• Refined and developed management practices that increased productivity
• Credited with fueling the “quality revolution
• Just-in-Time production

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 The Need for Supply Chain Management

• In the past, organizations did little to manage the supply chain beyond
their own operations and immediate suppliers which led to numerous
problems:
• Oscillating inventory levels
• Inventory stockouts
• Late deliveries
• Quality problems

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Supply Chain Issues
1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories

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Elements of Supply Chain
Management
• Customers – what products/services do customers want
• Forecasting – predicting timing and volume of customer demand
• Design – incorporating customer wants, manufacturability, and time to market
• Capacity planning – matching supply and demand
• Processing – controlling quality, scheduling work
• Inventory – meeting demand requirements while managing costs
• Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services
• Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations
• Location – determining the location of facilities
• Logistics – deciding how to best move information and materials

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References

Essential Reading
• Stevenson, William J. (2015) Operations Management, 11th Edition,
Mc Graw Hill Education
Recommended Reading
• Kumar, S. A., & Suresh, N. (2008) Operations Management, 2nd
edition. New Age International Publishers
Magazines and Journals
• Operations Research/Management Science Today
• International Journal of Operational Research, Inderscience Publishers
Websites
• https://harvardmagazine.com/tags/quantitative-methods
• https://sloanreview.mit.edu/
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Disclaimer

• All data and content provided in this presentation are

taken from the reference books, internet – websites
and links, for informational purposes only.

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