Operations & Supply Chain Management (Unit 1)

Operations & Supply
Chain Management (I)

Supply Chain Executive & Professor
Throughout my professional career I have worked in three main

areas: Operations, as a Supply Chain Manager in manufacturers
such as Artiach (Panrico) and Europastry, in Logistics Operators
and in Consulting (Accenture).
Currently I am the Supply Chain Director in Lluch Essence and I

Xavier Rius
share my professional activity teaching in several universities.
I have a degree in Physics from the University of Barcelona and I

have completed the Master in Operations at ESADE.
xavier.rius@onlinebschool.com
2
TABLE OF CONTENTS:
1- The role of the Supply Chain.
1.1- What is the Supply Chain? Information flow & Materials flow
1.2- Roles and responsibilities in the area.
1.3- KPI's. How to measure the performance of the Supply Chain
3
OBJECTIVES
4
5
OBJECTIVES:
General:
From a strategic position in the company the student should be able to:
• Diagnose the status of any company’s supply chain.

• Determine the necessary plans of action to transform the Supply Chain
into a value generation area.
• Be aware of what future challenges must be considered in order to
anticipate the decision-making process.
Specific:
• Define the role of the Supply Chain in the organization.
• Identify the main functions that the Supply Chain covers. Roles and
Responsibilities.
• Describe the interactions of the Supply Chain department with the rest
of the organization.
• Determine management indicators (KPI’s) to measure the Supply Chian
performance.
• Analyze the new management trends in operations area.
• Develop a project of the situation and a future improvement plan of a
Supply Chain.
6
1.- THE ROLE OF SUPPLY CHAIN
7
OPERATIONS MANAGEMENT (some definitions)
OM refers to the systematic design, direction and control of processes

that that transfers inputs into services and products for internal, as well as
external customers
(Krajewski, et al., 2010)
SCM is the integration of key business processes from original suppliers

to the end user, that provides products, services and information that add
value for customers and other stakeholders.
(Cooper,Lambert and Pang,1998)
8
OPERATIONS MANAGEMENT (some definitions)
CONCEPT
Structured series of activities that transforms a set of
CONCEPT inputs in the desidered extended products that add
value for customers and shareholders
INPUTS TRANSFORMATION OUTPUTS

PROCESS
•Materials
Goods
•Labours(direct &
indirect)
•Capital(factory, Services
warehouses &
equipment)
INFORMATION & CONTROL

SYSTEM
9
SUPPLY CHAIN IN THE COMPANY
10
WHICH ARE THE INVOLVED PROCESSES IN SUPPLY CHAIN MANAGEMENT?
Information Flow
Supplier Manufacturer Customer
Product Flow
Customer Relationship Management
Customer Service Management
Demanand Management
Order Fulfillment
Manufacturing Flow Management
Supplier Relationship Managenet
Product development & Commercialization

Returns
11
WHAT IS THE SUPPLY CHAIN?
12
WHICH ARE THE INVOLVED FUNCTIONS IN SUPPLY CHAIN MANAGEMENT?
Logistics
Purchasing Mkt & Sales
Production Finance
R&D
13
WHAT IS OPERATIONS STRATEGY ?
Determine the means by which operations implements corporate

strategy and contributes to building a customer-oriented company
(Krajewski, et al., 2010)
14
HOW TO LINK CORPORATE STRATEGY WITH OPERATIONS STRATEGY
Corporate
Philosophy
Business Business
Business
Strategy “B” Strategy “C”
Strategy “A”
Mkt Operations Finance R&D RRHH

Strategy Strategy Strategy Strategy Strategy
•Cost
•Quality
•Service
•Flexibility
•Innovation
15
HOW TO LINK CORPORATE STRATEGY WITH OPERATIONS STRATEGY
CORPORATE STRATEGY
Market Analisys:
•Global strategies •Market segmentation
•Core competences •Needs assessment
•Core processes
•Environmental
scanning
New Service / Product
Development No
• Design
• Analysis
Operations Strategy • Development
• Full Launch
Competitive Priorities
• Cost
• Quality
• Time Performance
• Flexibility Gap ?
Yes
Operations structure: Competitive Capabilities

Decisions • Current
• Managing process • Needed
• Managing Supply Chains • Planned
16
WHY IS IMPORTANT TO DEFINE AN OPERATIONS STRATEGY?
Operations excellence can lead to extraordinary results:
• WalMart (e.g CPFR, Cross-Docking)
• Toyota (Lean)
• Dell (mass-customization)
• McDonalds (standardization)
17
DEFINING OPERATIONS STRATEGY: COMPETITIVE PRIORITIES:
Quality Doing things right
Doing things cheaply

Cost
(productivity)
Doing things fast and

Time
on – time
Being able to change
Flexibility (volume and product
range)
Innovation Doing new things
18
COMPETITIVE PRIORITIES EXAMPLES:
COST Definition Process Considerations Example
1.Low - Cost Delivering a service or Process must be designed and Costco

operations product at the lowest operated to make them efficient
possible cost
QUALITY Definition Process Considerations Example

2.Top quality Delivering and May requiere a high level of Rolex
outstanding service or customer contact and may
product requiere superior product features
3.Consistent Producing services or Processes designed and Mc Donald’s
quality products that meet monitored to reduce errors and
design specifications on prevent defects
a consistent basis
19
TIME Definition Process Considerations Example
4.Delivery Quickly filling a Design processes to reduce lead Dell

speed customer’s order time
5.On-time Meeting delivery-time Planning processes to increase UPS

delivery promises percent of customer orders
shipped when promised
6. Development Quickly introducing a Cross-functional integration and Zara
speed new service or a product involvement of critical external
suppliers
20
FLEXIBILITY Definition Process Considerations Example
7.Customization Satisfying the unique Low volume, close customer Ritz Carlton
needs of each customer contact, and easily reconfigured
by changing service or
products designs
8.Variety Handling a wide Capable of larger volumes than Amazon
assortment of services processes supporting
or products efficiently customization
9.Volume Accelerating or Processes must be designed for UPS
flexibility decelerating the rate of excess capacity
production of service or
products quickly to
handle large fluctuation
in demand
21
OPERATIONS STRATEGY: HARDWARE & SOFTWARE DECISIONS
STRUCTURE (Hardware) INFRASTRUCTURE (Software)
1. Capacity 1. Human Resources

2. Production and logistics centers 2. Quality
3. Process Design 3. Planning and control
4. Vertical Integration 4. Organization
5. Measuring and control systems
6. New products
22
OPERATIONS STRUCTURE OR HARDWARE

POLICIES PRINCIPAL DECISIONS
Capacity Volume (production level vs demand). Increasing production (cost

and timming). Type of increase (labor, equipment,plant size). Extent
of capacity used.
Production and Location (where shall we install these facilities, What factors must
logistics centers be taken into account?) Factory size (large or small?),
Specialization (will be specialized in processes or focused on
products). Design of distribution networks.
Process design Choosing the manufacturing process, type of equipment and
systems, flexibility, possibilities of interconnecting machinery,
extent automation.Technology supply
Vertical integration “Make or Buy” decisions.Managing to assure a balance between
materials, systems,processes and services that are internaly
produced ans externally supplied
23
OPERATIONS INFRASTRUCTURE OR HARDWARE

POLICIES PRINCIPAL DECISIONS
Human Resources Selection, training, flexibility, remuneration. Performance

assessment and incentive systems.
Total Quality Quality systems: policies and procedures. Preventing defects.
Control systems and quality guarantees
Planning and The planning systems: Sales and operation plans; the Master Plan.
Control Planning levels and structures, rules of decision-making and
assigning responsabilities. MRP / DRP
Organization Organizational structure and design, information systems, Staff
Responsabilities, job descriptions and performance standards
Maesuring and Performance indicators. The pyramid of objectives
control systems
New products Designing, launching, timing and alterning new products. The
responsabiities involved in dealing with new products
24
COMPETITIVE PRIORITIES AND CAPABILITIES
Competitive priorities Competitive capabilities
The critical dimensions that The cost, quality, time, and

a process or supply chain flexibility dimensions that a
must possess to satisfy its process or supply chain
internal or external actually possesses and is
customers,both now and in able to deliver
the future
25
MANUFACTURING PROCESS : PRODUCT – PROCESS MATRIX
Low volumen, low Multiple products, Few major High volume and
Standarization Low volume products standarization
One of a kind Higher volume Commodity
products
Project
Jumbled flow
(job shop)
Disconnected line
Flow (batch)
Connected line
Flow (assembly
line)
Continuous flow
II Assembly to order
I Make to order III Make to stock
26
PROCESSES SPECIFICATIONS:
LINE BATCH JOB SHOP PROJECT
Automation High Medium Low Low
Different
Specialized Different Specialized
Tasks for each
Workers Tasks tasks Tasks
project
Skills Low Medium High -
Capital Investment High Medium Low High
Volume High Medium Low 1
Product
Variety Low Medium High High
People and
Product
machines Line + Independe
that
Process production organized in Independen nt
focuses all
a unique t machines processes
processes
line
Easy but
Difficult and problems
Changes highly Normal to find the NONE
costed skilled
people
Product /
Layout Product Process Product
Process Mix
Process Focus Cost Cost / Time Quality Innovation
27
MANUFACTURING PROCESS : PRODUCT LIVE CYCLE AND OPERATIONS
28
1.2- Roles and responsabilities
ORGANIZATION CHART
29
1.2- Roles and responsabilities in the area
Business
Plan
Sales Planning
& Demand Forecasting
Production Planning
Master Scheduling
Materials Planning
Capacity Planning
Purchasing & Supplying
Shop Floor Control

30
S & OP INTEGRATED PLANIFICATION PROCESS
•Horizon: 12 Months •Horizon: 10-12 Weeks •Horizon: 10-12 Weeks •Horizon: 2 Weeks
•(SKU / Customer / •(SKU/ Area / Facility) •(SKU/ Prod Line / •(SKU/ Prod Line /
•Month) week) Shift)
•Demand •Production Planning •Production Planning

Forecasting
•Stadistical Forecasting
•Promotions
Sales
Master
•Launches Supply Planning
Scheduling
•Consensus meeting Production
Scheduling
Stock / In transit Production

Inventory policy Capacity
Lead Times
Batch Size
•MRP
✓ Inventory Turnover ✓ Production Accuracy

•KPI’s
✓Forecast Accuracy
✓ Service Level
✓Expiration Level
✓ Production Plan Accuracy
31
Enough Business
Resources ? Plan
Sales Planning
& Demand Forecasting
Production Planning Enough production
capacity ?
Master Scheduling
Materials Planning
Capacity Planning
Purchasing & Supplying
Shop Floor Control

32
PRODUCTION PLAN OBJECTIVE
• Provide the company with enough quantity of finished product in each period
to meet the demand, respecting financial constraints and productive capacity.
• The resources derived from the production plan in any period include labor,
materials, facilities and the necessary funds to cover all costs associated with
the production process (pay employees, purchase materials, energy costs, etc.)
33
PRODUCTION PLAN
• When preparing the production plan, it is critical to take into account the
saturation of critical resources.
• In the broadest sense of the term, a critical resource can be a bottleneck work
center, a critical raw material and even financial availability to deal with the
purchases associated with the plan.
• It is essential to consider that these critical resources can vary over time.
34
PLANIFICATION HORIZONS
Years
•Strategic
5
plans
Years
•Master Production
2
Scheduling ( MPS)
Months Months Year
1
•Material Resource
Planning ( MRP)
0,5 6
•Production
Scheduling
Multiannual Annual Monthly Biweekly Daily

35
PRODUCTION PLAN BASIS
• Demand Forecast
• Inventory levels.
• Productive processes per factory / production line: Bill of Materials, production

Lead Times.
• Production capacity per factory / production line.
36
COST KPI’S
Cost Which activities includes ?
Raw Materials Transport Transport costs of raw materials from suppliers to our warehouses
(including insurance)
Raw Materials External or internal warehouses costs (rental, depretations,

Warehousing & Handling insurance, labor, etc..)
Production Energy cost, depretations, labor
Finished Goods External or internal warehouses costs (rental, depretations,

Warehousing & Handling insurance, labor, etc..)
Finished Goods Transport costs of finished goods from our factories or warehouses
Distribution transport to our customers (including insurance)
Total Raw Materials Transport + Raw Materials Warehousing & Handling

+ Production + Finished Goods Warehousing & Handling + Finished
Goods Distribution transport
37
COST KPI’S
How we measure it ?
Total Cost
% Supply’s Chain total costs vs sales
value
Total Value sold
( € / USD, etc )
38
COST KPI’S
How we measure it ?
Total Cost € / Kg
€ / Lt
Total Volume sold
€ / Unit
( Kg / Lt / Units, etc )
39
SERVICE KPI’S
KPI How to measure ?
Service Level Total Units ( or Kilos , or Value) sold / Total Units ( or Kilos , or Value)
demanded by customers
Forecast Accuracy % of deviation in sales forecasting
Inventory Turnover Inventory value ( finished product ) vs sales value
Production Accuracy % of deviation beetween real production and production plan
40
SERVICE KPI’S
KPI How to measure ?
Picking service level Customer picking ( units , kilos )claims / Total ( units, Kilos) sold
Distribution service level % of deviation in sales forecasting
Distribution transit times Inventory value ( finished product ) vs sales value
41
SERVICE KPI’S
Used to determine:
– Production Accuracy
– Transport time
– Damages or loses of goods when they are transported
– Inventory adjustments
– Order preparation errors
42

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Operations & Supply

Chain Management (I)

Throughout my professional career I have worked in three main

Currently I am the Supply Chain Director in Lluch Essence and I

I have a degree in Physics from the University of Barcelona and I

1- The role of the Supply Chain.

• Diagnose the status of any company’s supply chain.

OM refers to the systematic design, direction and control of processes

(Krajewski, et al., 2010)

SCM is the integration of key business processes from original suppliers

(Cooper,Lambert and Pang,1998)

INPUTS TRANSFORMATION OUTPUTS

INFORMATION & CONTROL

Customer Relationship Management

Customer Service Management

Manufacturing Flow Management

Supplier Relationship Managenet

Product development & Commercialization

Purchasing Mkt & Sales

Determine the means by which operations implements corporate

(Krajewski, et al., 2010)

Mkt Operations Finance R&D RRHH

Operations structure: Competitive Capabilities

Operations excellence can lead to extraordinary results:

• WalMart (e.g CPFR, Cross-Docking)

Quality Doing things right

Doing things cheaply

Doing things fast and

Innovation Doing new things

COST Definition Process Considerations Example

1.Low - Cost Delivering a service or Process must be designed and Costco

QUALITY Definition Process Considerations Example

TIME Definition Process Considerations Example

4.Delivery Quickly filling a Design processes to reduce lead Dell

5.On-time Meeting delivery-time Planning processes to increase UPS

FLEXIBILITY Definition Process Considerations Example

STRUCTURE (Hardware) INFRASTRUCTURE (Software)

1. Capacity 1. Human Resources

OPERATIONS STRUCTURE OR HARDWARE

Capacity Volume (production level vs demand). Increasing production (cost

OPERATIONS INFRASTRUCTURE OR HARDWARE

Human Resources Selection, training, flexibility, remuneration. Performance

Competitive priorities Competitive capabilities

The critical dimensions that The cost, quality, time, and

Process Focus Cost Cost / Time Quality Innovation

Shop Floor Control

•Demand •Production Planning •Production Planning

Stock / In transit Production

✓ Inventory Turnover ✓ Production Accuracy

Shop Floor Control

Multiannual Annual Monthly Biweekly Daily

• Productive processes per factory / production line: Bill of Materials, production

• Production capacity per factory / production line.

Cost Which activities includes ?

Raw Materials External or internal warehouses costs (rental, depretations,

Production Energy cost, depretations, labor

Finished Goods External or internal warehouses costs (rental, depretations,

Total Raw Materials Transport + Raw Materials Warehousing & Handling

KPI How to measure ?

Forecast Accuracy % of deviation in sales forecasting

Inventory Turnover Inventory value ( finished product ) vs sales value

Production Accuracy % of deviation beetween real production and production plan

KPI How to measure ?

Operations & Supply Chain Management (Unit 1)

Operations & Supply Chain Management (Unit 1)